SAN FRANCISCO – California’s budget watchdog said it expects $3.2 billion more in state revenues than projected in Gov. Jerry Brown’s revised budget, a surplus that it said could be used to tackle the state’s debts.

“We do not agree with the administration’s view of the state’s revenue situation,” the Legislative Analyst’s Office said in report Friday. “Given the improved fiscal forecast, we believe this is an ideal time for the Legislature to begin addressing its huge budgetary and retirement liabilities.”

In the so-called May Revision budget, released every spring after the governor’s initial January spending proposal, Brown’s administration forecast that weaker tax collection will erase much of the $4.5 billion of unexpected tax revenues collected since January.

The administration said that federal cuts as part of the so called “sequestration” are likely to hit state coffers in upcoming months.

“Roughly 80% of the difference between our revenue forecasts lies in our respective projections for capital gains – which is the most volatile revenue source and is subject to dramatic swings because, as the Analyst’s report states, 'stock trends are impossible to predict,’” said H.D. Palmer, a spokesman for the Department of Finance.

Palmer said the proposed budget takes a more conservative approach to capital gains revenues to lessen risk.

The governor’s new general fund spending plan of $96.4 billion for fiscal 2014 is a 1.3% drop from his $97.7 billion proposal in January. State general fund expenditures would still be 3.6% higher than last year’s $93 billion budget, driven partly by the passage of a new taxes to support education.

Ratings agencies have given mostly positive reviews to Brown’s spending proposal due to an ongoing theme of fiscal restraint.

Standard & Poor’s upgraded California to A from A-minus in January, and Fitch Ratings upped its outlook on the state to positive with an A-minus rating in March. Moody’s Investors Service rates the state’s general obligation bonds A1.

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