Roth and Cervantes pushed hard to ensure these communities weren't left behind, Brown said.
Roth and Cervantes pushed hard to ensure these communities weren't left behind, Brown said.

LOS ANGELES — California Gov. Jerry Brown is proposing a $106.8 billion general fund spending plan for fiscal 2015 that addresses what to do with the state's first surplus in years.

Among his proposals is an early retirement of California's economic recovery bonds.

"For this year there's very good news," Brown, a Democrat, said at the beginning of a Thursday news conference in Sacramento, but "by no means are we out of the wilderness."

Brown said that despite recent improvements in the state's budget situation, a number of risks to its fiscal stability remain, including debt from budgetary borrowing and hundreds of billions of dollars in longer term liabilities.

"In the face of such liabilities, our current budget surplus is rather modest," Brown said in the budget summary. "That is why wisdom and prudence should be the order of the day."

He proposes to use the surplus to add $1.6 billion to the state's rainy day fund, and to help pay down the state's debts and liabilities.

The plan would decrease the state's budgetary debt, used to support the general fund with loans and transfers from other funds, by more than $11 billion this year, and fully eliminate it by 2017-18. The "Wall of Debt," as Brown terms it, has been reduced to less than $25 billion today from $34.7 billion in 2011.

This includes paying off the remaining $6 billion in school payments that were delayed during the height of the recession, and an early payoff of the state's remaining economic recovery bonds.

The economic recovery bonds were authorized in 2004 to cover earlier budget deficits. The state dedicates $1.6 billion in annual sales tax revenues to service this debt, of which $4.6 billion was outstanding Dec. 1 according to the State Treasurer's Office.

Brown's budget would make additional payments to pay off all the ERBs in fiscal 2015. If the plan is approved, bonds that can be called would be called at par, and the remaining bonds would be defeased, according to H.D. Palmer, spokesman for the state's Department of Finance.

The 1/4 cent sales tax that backs the bonds would return to the local entities that received it prior to the bonds being authorized, Palmer said.

Brown said the surplus — estimated by the Legislative Analyst's Office to be $3.2 billion for the next fiscal year and $5.6 billion the following year — is a welcome reprieve from recent budget crises, but acknowledges it will be short-lived.

The governor's budget proposal for fiscal 2015, which begins July 1, is an 8.5% increase from last year's budget. The plan increases spending on K-12 education to $61.6 billion from $55.3 billion this year.

Brown expressed skepticism about asking for new state general obligation bonds for K-12 schools.

Around $35 billion in statewide general obligation bonds for schools have been approved since 1998, but there is currently no bond authority remaining in the core school facilities new construction and modernization programs.

Brown proposes to continue a dialogue on the future of school facilities funding, highlighting problems in the current program that need to be addressed. The program is overly complex, allocates funding on a first-come, first-served basis, and does not provide adequate local control for districts designing school plans, according to Brown's budget summary.

Brown also indicated a willingness to work on reviving local development financing, following the dissolution of redevelopment agencies. Until now, Brown had not specifically addressed the issue, and vetoed legislation with similar goals. His plan proposes expanding the tax increment financing tool utilized by infrastructure financing districts for a broader array of uses than currently authorized under law.

The budget plan could also give a boost to the state's $68 billion high-speed rail project, which has been tied up by recent court rulings over the state's use of bond proceeds to fund the project. The proposed budget includes $250 million in cap and trade expenditures for the project.

Assembly Speaker John Pérez, D-Los Angeles, said there is much in the governor's proposal that supports the goals of Assembly Democrats, which include maintaining stability and expanding opportunity.

"This proposal makes smart investments in strengthening our economic recovery, especially with respect to our shared commitment to infrastructure," Pérez said in a statement. "The Assembly will work with the governor and the Senate to finalize another on-time balanced budget. Having agreement on such a major component as the rainy day fund makes that job easier."

Many Republican members of the state legislature responded warmly to the governor's budget proposal. Sen. Mimi Walters, R-Irvine, said she was pleased with the governor's stated commitment to fiscal restraint and, specifically, his plan to pay down the "Wall of Debt."

The challenge will be to make sure the Legislature does not continue its "compulsive spending habits," she added.

Assembly Republican leader Connie Conway, R-Tulare, said Brown has been successful in convincing his fellow Democrats to resist the urge to spend away any fiscal progress that has been made.

"Now is the time to tackle the wall of debt, avoid the budget mistakes of the past and invest in our future so that our economy grows," Conway said. "The governor sounds receptive to those ideas and Assembly Republicans stand ready to work in good faith to achieve those goals."

Assemblymember Kristin Olsen, R-Modesto, said Brown's proposal is a good start, but wants more allocated to reserves, calling the $1.6 billion rainy day fund deposit "simply inadequate."

"This is a sound, sober, fiscally wise plan," Treasurer Bill Lockyer said in a statement. "It resists the temptation to not worry about the next, inevitable economic downturn, and offers a more sensible, flexible way to build a strong reserve.  It erases from the books the debt created by one of the biggest fiscal mistakes in the state's history — the deficit financing bonds authorized in 2004.  And it's up-front with Californians about the true extent of pension and other long-term liabilities the state faces."

The governor was set to release his proposed budget during a news conference on Friday, but moved it up to Thursday after the official budget summary leaked early on Wednesday night.


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