Brown Says California Defies Critics as Taxes Aid Rebound

California, the biggest U.S. state by population, has defied naysayers and is on the mend after a decade of fiscal crisis, thanks to voter approval of higher taxes whose revenue should be guarded with discipline, Governor Jerry Brown said.

Brown, a 74-year-old Democrat making his 11th State of the State speech yesterday, urged lawmakers to hold down spending as the new revenue flows in, while pressing to overhaul education aid, ease environmental regulations, build a high-speed rail line and add a $14 billion water-tunnel system.

Brown, who was governor from 1975 to 1983, won office again in 2010 on a pledge to repair the crippled finances that plagued the world’s ninth-largest economy. California racked up $213 billion in projected shortfalls over the previous 12 years.

“California has once again confounded our critics,” he told a joint session of the legislature. “We have wrought in just two years a solid and enduring budget. And, by God, we will persevere and keep it that way for years to come.”

Brown persuaded voters in November to approve the highest statewide sales tax in the U.S., at 7.5 percent, and to boost levies on income starting at $250,000 -- reaching 13.3 percent on those making $1 million or more, the most of any state. That measure, known as Proposition 30, will raise $6 billion annually for seven years.

The tax boost, combined with spending cuts, means the state will end the next fiscal year with an $851 million surplus, the first in a decade, according to the governor’s budget.

Restraint Urged

Some Democrats say they want to use the additional money to restore funding that was cut in the last five years because of shortfalls. Brown urged restraint, saying lawmakers need to focus on repaying a $35 billion “wall of debt” that accumulated in the last decade as money from various state funds was diverted to cover deficits.

“Fiscal discipline is not the enemy of our good intentions, but the basis for realizing them,” Brown said. “We have promises to keep. And the most important is the one we made to the voters if Proposition 30 passed: that we would guard jealously the money temporarily made available.”

“This means living within our means and not spending what we don’t have,” he said.

Brown said he wants to change how California doles out money for education and eliminate many spending mandates, such as one that requires schools to reduce class sizes. He has proposed changing formulas used to calculate how much each school gets, so that low-income districts receive more, and to improve the education of poor children learning English.

‘Overly Complex’

“We have a funding system that is overly complex, bureaucratically driven and deeply inequitable,” Brown said. “That is the state of affairs today.”

The governor said a $68 billion high-speed passenger system “is the future” of the state, though federal funding remains in question and polls have shown waning public support.

He said the state must also spend $14 billion to build a pair of tunnels 40 miles (64 kilometers) long to divert Northern California water to Southern California. That plan promises to reopen a long-simmering dispute between northern Californians and those in the more populous south, much of which is semi- desert.

Voters rejected a similar proposal to share water from the Sacramento-San Joaquin River Delta in 1982.

Regulatory Changes

Brown called for changes in the California Environmental Quality Act, which requires extensive environmental-impact reports intended to identify how a project might affect air and water quality or harm plant and animal habitats. Business groups and Republicans say the law is often abused by activists to try to derail development plans they oppose.

“While it has been encouraging to see the governor and the majority party talk about how over-regulation is hurting jobs, now is the time for us to finally begin moving in the right direction,” said the Assembly Republican leader, Connie Conway of Tulare. “I’m hopeful that we can work across party lines this year to pass reforms.”

Republicans are in a weaker position than in previous years, since Democrats control both chambers of the Legislature with two-thirds majorities. It’s the first time either party held a veto-proof “super majority” since 1933.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net

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