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California Budget Heads Toward Vote With Compromises

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June 12 (Bloomberg) -- California lawmakers from the Senate and the Assembly began voting on compromise legislation that will form the framework of a spending plan for the most populous U.S. state that’s due in three days.

The so-called conference committee’s job is to mold different versions of proposals into a single budget plan that both chambers of the legislature can accept. State law cuts off the pay of every legislator unless they reach agreement by June 15.

Governor Jerry Brown, a 76-year-old Democrat running for an unprecedented fourth term, proposed a record $107.8 billion budget for the general fund, which pays for most core operations of state government. Democrats who control the legislature have been pushing for more spending on social programs, saying Brown’s revenue estimates are too low.

“It is not only our hope, but it is our expectation, that revenue will be higher,” Senator Mark Leno, a San Francisco Democrat, said during the conference committee meeting last night.

The conference committee agreed to add $250 million to expand early childhood education that hadn’t been included in Brown’s proposal.

California has benefited from a surge in revenue, much of it from capital-gains taxes and $7 billion in temporary income-and sales-tax increases. The state has gone from a $25 billion deficit three years ago to a record surplus.

Brown has argued that the extra money is fleeting and should be used to pay down debt and to cushion the state from future economic downturns.

Debt ‘Wall’

His budget includes plans to pay down half of what he calls a “wall of debt” accrued to balance previous budgets, stash away funds for a rainy day and begin to cover a $74 billion gap in teachers pensions.

Brown has promised to mend finances that became so dysfunctional that California sank to the bottom of state credit ratings and had to issue IOUs to cover expenses.

Last month, Brown and legislative leaders struck a compromise to seek voter approval of a constitutional amendment requiring the state to set aside 1.5 percent of general-fund revenue each year, as well as excess capital gains taxes that exceed 8 percent of the general fund. Half the money must be spent paying down state debt such as unfunded pension costs.

California’s general-obligation bonds have an A1 rating from Moody’s Investors Service, fifth-highest. Standard & Poor’s grades it one step lower, at A, while giving the state a positive outlook -- often a precursor to an upgrade. Only Illinois has a lower rating from both Moody’s and S&P.

To contact the reporter on this story: Michael B. Marois in Sacramento at

To contact the editors responsible for this story: Stephen Merelman at Pete Young, Michael Shepard

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