California Governor Jerry Brown, buoyed by surging revenue from higher taxes and a recovering economy, boosted his proposed budget for the most populous U.S. state to $107.8 billion for the fiscal year that begins in July.
The plan would also begin erasing the $73.7 billion unfunded liability of the California State Teachers’ Retirement System, the second-biggest U.S. pension, by increasing annual contributions by teachers and school districts.
“This is good news for California,” Brown said. “This budget allows us to pay down our debt.”
The proposal, an increase of about $1 billion from a preliminary plan in January, comes as the 76-year-old Democrat is campaigning for an unprecedented fourth term. In his 2010 campaign, Brown promised to mend state finances that had become so dysfunctional that California sank to the bottom of state credit ratings and had to issue IOUs to cover expenses.
Brown has benefited from a $2.4 billion surge in revenue, must of it from capital-gains taxes, that has helped the state go from a $25 billion deficit three years ago to a record surplus.
He persuaded voters to temporally raise sales and income taxes in 2012, restrained lawmakers from spending the extra money and struck a political deal to set up a rainy-day fund to cushion against economic downturns and help boost the state’s credit.
Still, California has the fourth-highest state unemployment rate, according to the Bureau of Labor Statistics, and will lose another 2,000 jobs in suburban Los Angeles as Toyota Motor Corp. moves its U.S. headquarters to Texas. The state owes $340 billion in long term debt such as unfunded pension for teachers heal care costs for government workers.
The penalty investors in California bonds demand has declined 45 percent in the last year, according to data compiled by Bloomberg. California investors get 31 basis points, or 0.31 percentage point, more than top-rated debt for 10-year securities. That’s down from 56 basis points on June 25.
Voters in California next month will head to the polls in a so-called open primary in which the top two vote-getters, regardless of party, advance to the general election in November. Brown, already the longest-serving governor in California history, leads his nearest Republican rival by 40 points in polls.
The governor is required by law to update his proposal with the latest tax collection figures before it’s considered by lawmakers next month.
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