LOS ANGELES — California's budget and revenue outlook is so sunny that the state doesn't plan to issue revenue anticipation notes this year.
"This year we are not looking at going out for external borrowing for cash flow purposes," State Treasurer John Chiang said in an interview this week. "We don't have a need for a revenue anticipation note."
The state has typically issued anywhere from a $1 billion to $10 billion note since the 1990s.
"This is only the second time in the last several decades that the state has not needed to issue a RAN," Chiang said. "It shows how dramatic of a turn California has taken since 2009 or 2010."
The state needed to borrow $10 billion in RANs as recently as 2012; 2000 was the last year it didn't issue RANs, according to data on the treasurer's website.
The news of a stout balance sheet comes the week California lawmakers reached a budget agreement in which they largely bowed to Gov. Jerry Brown's wishes for spending restraint, while delaying funding discussions for transportation projects and healthcare by moving them into special sessions.
The final agreement was announced Tuesday just a day after the Democratic Party-controlled legislature approved $117.5 billion in general fund spending. The compromise budget proposal Brown agreed to involves a $115.4 billion general fund budget, only $61 million more than the Democratic governor's original proposal.
Assembly Speaker Toni Atkins called the budget compromise a three-party agreement, referring to Senate and Assembly leaders and the governor.
The good news is that it took less than 24 hours to agree to something "that is good for all Californians," Atkins said.
Brown's remarks at a Tuesday press conference signal a slight shift away from belt tightening toward identifying revenue sources and possibly raising taxes and issuing debt to restore the state's crumbling infrastructure.
The budget agreement includes plans for two special sessions - one to further Brown's proposals to fund transportation projects and another to fund healthcare. The special sessions on transportation and healthcare could include tax increases in the unlikely event that Brown can garner enough Republican support to reach the necessary supermajorities.
The revised budget agreement between Senate and Assembly majority leaders was expected to go for a vote before the entire legislature Friday. The compromise also includes an expansion to Medi-Cal, the state's version of Medicare, that would provide coverage to undocumented children starting in May 2016. Funding for the program in the 2015-16 budget was $40 million, but the cost is expected to grow to $132 million in future years.
The budget agreement also includes $265 million to fund 7,000 additional preschool and 6,800 child care slots, $669 million less than legislative Democrats sought.
"The Governor was wise to heed the call of legislative Republicans to base the state budget on realistic revenue projections and reject the Democrat spending spree," Assembly Republican Leader Kristin Olsen, of Modesto, said in a prepared statement.
"There is still much work to be done to get the majority party to stand with Californians on their top budget priority - water," Olsen said. "We must work together to move storage, desalination and recycling projects that will increase water supply out of bureaucracy and into construction."
Brown criticized the federal government for its inability to come up with a long-range plan to replace gas taxes as the funding source for the country's network of highways.
"We need to do something since Congress has its collective head in the sand," Brown said. "I hope those who don't believe in raising taxes realize that if you want a first-class country, you have to pay for it."
Chiang also was critical of federal lawmakers' inability to tackle the issue of transportation funding.
"Congress can't continue to punt," Chiang said. "This is an issue of international competitiveness. The fact we are not investing appropriately in moving people, and goods, really slows down the growth of the economy and impacts people's lives."
He said California lawmakers should bring open minds to the coming special session on transportation. "I would encourage them to not only identify high priority projects, but also different funding mechanisms," Chiang said. "Certainly everything will be put on the table. The difficult discussions are going to be coming, but it is long overdue."
The transportation proposal could include tax increases without plans to go to voters.
Brown joked that he didn't make any such promise to ask voters' permission for tax increases when he ran for re-election last year, as he did in his 2010 campaign.
"When I ran for office the first time, the state had a $27 billion deficit," Brown said. "When I ran the first time, I said I would not raise taxes unless the people wanted it. The second time I ran, I didn't say that - and you didn't ask," Brown said.
Republicans had criticized the legislature's Democratic majorities for passing a budget Monday that involved substantially more money than what the governor proposed in his May revision.
When asked how the governor got the legislative leadership to back down on spending, Brown responded: "I didn't get them to blink. This is a collaborative process that has its ups and downs. At the end of the day, my job is to keep the budget on an even keel."
Brown said he didn't threaten to use his veto powers to get legislators to come to an agreement.
"I don't engage in threats," Brown said. "I engage in frank conversations."
Brown made several public statements before the legislature's vote advocating for continued spending restraint. Republicans supported Brown's stance while many Democrats advocated for restoring programs that have been underfunded since the economic crash of 2008.
"The budget compromise reflects strong fiscal management," Chiang said. "We are continuing to fulfill the wishes of voters by adding another $1.9 billion to the rainy day fund, so we now have $3 billion."
That means when the economy is not as robust the state will be able to continue to pay down debt and make investments in human capital to sustain economic growth, Chiang said.
Standard & Poor's placed California on CreditWatch positive on May 21 just after Brown released the May revision to his budget proposal.
In that report, Standard & Poor's analyst Gabriel Petek said the rating agency could upgrade the state's A-plus rating if the final spending plan mirrors Brown's proposal.
"I am very hopeful that, if that is the standard we are being measured against, then we are there," Chiang said. "The budget compromise was only $61 million more than the governor's May revise."
S&P's CreditWatch was anticipated to be resolved 90 days out from its May 21 report, but it could come sooner, according to Petek.
"We put the state's rating on credit watch and linked it to the budget negotiations," Petek said in an interview Wednesday.
S&P doesn't just evaluate the current budget, however, but also looks at the Department of Finance's multi-year fiscal forecast that comes out after the enactment of the budget, Petek said.
"That incorporates any ongoing aspects of their new spending plan," Petek said. "There are ongoing commitments that they added to state spending - that would be in DOF's multi-year forecast."
The agreement between the state's legislative leaders does appear to "coalesce around the spending and revenue assumptions that were in the May revision," Petek said.
"That is favorable in our view from a credit perspective," he said. "We can't get ahead of ourselves though, because we do ratings on a committee process."
Fitch boosted the state's general obligation bond rating to A-plus from A in February assigning a stable outlook.
S&P revised California's financial management assessment to "good" from "standard" when it affirmed California at A-plus in February.
Moody's Investors Service, which boosted the state's rating in June 2014, affirmed its Aa3 rating and stable outlook in February.
Brown's primary focus as governor has been to restore the state to fiscal health by shrinking what he calls the state's "wall of debt."
One of the tenets of that policy has been to limit the amount of bond debt issued by the state and to pay down existing debt.
"I think we have done a fantastic job," Chiang said.
"Two years ago, the state had a $37 billion deficit and had maxed out external and internal borrowing," he said. "The fact we have paid down debt over the last fiscal year, puts us in a better position to address infrastructure needs and the difficult times ahead."