California lawmakers approved a record $156.4 billion budget for the most populous U.S. state after they struck a last-minute deal with Governor Jerry Brown over spending levels.
The plan passed by the Democratic-controlled senate and assembly boosts state outlays 5.8 percent in the fiscal year beginning July 1. The general fund, which pays for most state services, will rise 9.6 percent to $108 billion.
California has benefited from a surge in revenue, much of it from capital-gains taxes and $7 billion in temporary income- and sales-tax increases. The state has gone from a $25 billion deficit three years ago to a record surplus. The budget is about $1.2 billion more than Brown initially planned, after legislators wrestled added spending from him for health and welfare programs.
“This is a much brighter day than what we’ve seen in years past,” Senator Mark Leno, a San Francisco Democrat, said during floor debate late today.
Brown, 76, argued that the extra money is fleeting and should be used to cushion future economic declines. The budget counts on voters in November to amend the constitution and require that 1.5 percent of general-fund revenue be set aside each year in a rainy-day fund, as well as capital-gains taxes that exceed 8 percent of the general fund.
Credit-rating companies have criticized California for its failure to set aside money when the economy is booming and for relying too much on volatile capital gains to pay for general- fund spending.
California’s general-obligation bonds have an A1 rating from Moody’s Investors Service, the fifth-highest rank. Standard & Poor’s grades them one step lower, at A, with a positive outlook -- a potential precursor to an upgrade. California hasn’t had an S&P rating above A since 2009. Only Illinois has a lower rating from both Moody’s and S&P.
The budget includes elements of Brown’s plan to prop up the $74 billion unfunded liability of the California State Teachers’ Retirement System, the second biggest pension in the nation. Schools, collecting money from the tax increase Brown won, will see their responsibility for teacher pensions double within seven years, while teachers and the state will also pay more.
The spending plan also includes $250 million earned from the auction of greenhouse gas emission credits to finance operations of the state’s proposed high-speed rail line connecting San Francisco and Los Angeles. The project will get 25 percent of the auction revenue in future years, less than the 33 percent Brown had proposed.
The money is needed to support the project while lawsuits prevent the state from selling bonds to begin construction of the $68 billion project.
June 15 is the constitutional deadline to pass a spending plan. For each day they are late, lawmakers don’t get paid. The governor must sign a budget into law by July 1.
© Copyright 2016 Bloomberg News. All rights reserved.