SAN FRANCISCO — California Gov. Jerry Brown has signed a budget that closes an estimated $15.7 billion deficit for the fiscal year that begins Sunday.

The governor approved the budget Wednesday night after making more than $129 million of line-item vetoes. Lawmakers earlier that day passed 21 “trailer” bills that filled in the details of the spending plan passed by the Legislature on Jan. 15.

The adopted $91.3 billion general-fund spending plan closes the shortfall by making more than $8 billion in cuts, adding $6 billion of revenue — though that depends on voters approving some tax hikes — and leaving a $948 million reserve.

“This budget reflects tough choices that will help get California back on track,” Brown said in a statement. “I commend the Legislature for making difficult decisions.”

After lawmakers approved the main budget bill, Democratic leaders, who hold the majority in the Legislature, hammered out deals with fellow Democrat Brown behind closed doors before sending him the trailer bills. The two sides eventually found a compromise on the most controversial issue, Brown’s proposed cuts to welfare.

Republicans criticized the budget as full of “gimmicks” packed in by the majority during a process that lacked transparency.

“It’s disappointing that the majority party squandered its opportunity to provide a balanced, honest and transparent budget,” Senate Republican leader Bob Huff, R-Diamond Bar, said in a statement.

The approval of the budget marks the second time in as many years that the state has passed an on-time budget after five previous years of misses.

The budget inked by the governor on Wednesday night relies on voter approval of a tax initiative in November to raise an estimated $5.5 billion of revenue.

The measure would temporarily increase the state’s sales tax by a quarter-cent and raise taxes on income starting at $250,000.

If that fails, the axe will fall on education through “trigger cuts.”

The adopted budget largely mirrors the governor’s May revise spending proposal. Credit analysts mostly saw the May proposal as a step in the right direction, so they are likely to have a similar reaction the adopted plan.

“From a credit perspective, the budget is generally consistent with our positive outlook. It was enacted in a timely manner and depends upon what appear to be largely realistic deficit-closing measures,” said Gabriel Petek, Standard & Poor’s lead analyst on California in San Francisco. “These two characteristics should help enable the state to finance its intra-year cash-flow deficits.”

The Brown administration hailed Standard & Poor’s revision in February of its outlook on California’s A-minus rating to positive from stable as an example of the state’s improved budget.

Moody’s Investors Service rates California A1 and Fitch Ratings has it at A-minus, both with stable outlooks.

Petek said cash flow would be especially important this year because so much hinges on the November tax initiative. Whether the initiative passes, generating new revenue, or fails and triggers cuts, the impact will fall in the second half of the state’s July-through-June fiscal year.

As a result, the S&P analyst said he expects a bigger cash-flow deficit this year that will require more borrowing.

State Treasurer Bill Lockyer has already tentatively set a $10 billion revenue anticipation note sale for August.

JPMorgan and Wells Fargo Securities have been named senior managers for the deal.

The note sale helps the state balance out cash flow, as even in a normal year tax receipts come in disproportionately toward the second half of the fiscal year.

Lockyer’s office most recent sold notes in February, privately placing $1 billion in of revenue anticipation notes to shore up cash flow after California Controller John Chiang warned that the state needed additional cash-flow measures to make it through the fisal year.

In the past, late state budgets have been an obstacle for the treasurer’s office in its efforts to put together Ran sales.

Last year the budget was on time but Congress was the obstacle.

Lockyer ultimately took out a $5.4 billion bridge loan in July from a group of eight banks in an effort to avoid potential market chaos caused by Congress’ wrangling over the debt ceiling.

The bridge loan let California postpone its regular Ran sale until September, when it sold $5.4 billion of notes in the public market.

Petek said governor’s almost $1 billion reserve, which Democratic lawmakers had tried to cut in half to preserve social services spending, will help buffer concerns about whether California will really receive revenue projected from the end of redevelopment and higher income tax collections from the Facebook Inc. initial public offering.

The elimination of redevelopment agencies is expected to provide the state with around $3 billion of revenue for the budget.

One of the trailer bills attached to the budget also attempts to clean up earlier legislation that dissolved redevelopment agencies.

That bill “clears up number of provisions in the original dissolution bill that had been a source of a lot of confusion and contention, and provides better mechanisms going forward,” said H.D. Palmer , spokesman for Brown’s Department of Finance.

The bill will allow the government entity that took over for a shuttered RDA to retain some of its tax revenue for low- and moderate-income housing.

Originally, redevelopment agencies set aside 20% of the tax increment revenue collected for that purpose.

The new provision also creates a process for deciding where to shift surplus cash from RDAs to the local governments, or “successor agencies,” that take over their obligations.

It is also supposed to make sure that surplus annual revenues are distributed to schools.

A controversial legislative proposal to take $250 million of “pass-through payments” of tax increment away from counties has been cut out of the spending plan. Counties had threatened to sue over the issue.

Other controversial funding issues — high-speed rail funding and an $11 billion water bond due for the November ballot — will be taken up outside of the budget process.

The adoption of a budget before the new fiscal year begins appears to be due to Proposition 25, approved by voters two years ago.

The measure dropped the threshold needed to pass a spending plan to a majority in each house from a two-thirds super majority.

The proposition also suspends California lawmakers’ pay if they pass a late budget.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.