Tax windfall leads to record state budget of $131.1 billion |

Tax windfall leads to record state budget of $131.1 billion

SACRAMENTO ” Gov. Arnold Schwarzenegger released this afternoon a $131.1 billion state budget that benefits from a massive tax windfall this year, allowing him to spend more on public education and sock away money for reserves.

The overall spending plan for the 2006-07 fiscal year is $13.8 billion higher than last year, reflecting the state’s rebounding economy and providing an expected boost to Schwarzenegger’s re-election campaign.

Billions in unanticipated tax revenue have enabled him to boost spending on programs popular with his critics, such as schools and children’s health care, while appeasing conservatives who have been critical of the state’s deficit spending.

Spending on education, the largest slice of the state budget, will increase to more than $55 billion.

“Today, I am a very happy governor. I’ve always said education is my passion,” Schwarzenegger said during an afternoon news conference at the secretary of state’s office. “Education is now fully funded. That is a cause of celebration.”

His plan increases general fund spending to $101 billion, from $90 billion in the current fiscal year. The balance of the spending goes to special funds and bond payments.

Schwarzenegger said state revenues had increased “beyond all projections.”

He also vowed not to raise taxes and touted his spending plan as fiscally responsible. He said his proposed increases in education and health care spending reflect Californians’ priorities.

“The budget is much more than just dollars and cents. … The budget is all about values. It’s an expression of who we are and what we really care about,” he said.

The governor also proposes putting $2 billion into the state’s reserve fund and an additional $142.2 million into public safety programs. That money will more than double spending for law enforcement efforts targeting methamphetamine dealers, direct $50 million to reduce recidivism among mentally ill offenders and add about $21 million to programs aimed at reducing crime among at-risk youth.

Schwarzenegger also wants to roll back a January proposal to block increases in welfare payments for the elderly and disabled, a plan Democrats had vowed to fight.

The Legislature faces a June 15 deadline that it has failed to meet since 2000 to approve the budget, which takes effect July 1.

The spending plan has benefited from unexpected tax revenue that has flowed into California’s coffers in recent months. The windfall primarily is a result of increased revenue from stock gains, home sales, business profits and taxes on rising gas prices.

In January, the governor announced a revenue increase of $9.2 billion in tax receipts from the current fiscal year and projected new revenue in the coming budget year. Since then, administration officials have said they expected that revenue to rise by an additional $5 billion. Schwarzenegger said today the state treasury had taken in $7.5 billion in unanticipated revenue.

Earlier in the week, Schwarzenegger announced a plan to spend the bulk of the windfall on education, in conjunction with a deal that also would settle a lawsuit and long-running feud with the state’s teachers union.

Under that plan, Schwarzenegger proposed directing an additional $2.8 billion more to education than he initially proposed in January. The governor’s spending plan will lift overall education spending in California from $50 billion in the current year to $55.1 billion in the budget year beginning July 1.

In addition, his settlement with the teachers union calls for repaying another $2.9 billion to schools over seven years that educators claimed he has owed since the two sides struck a budget-balancing deal in 2003. The governor’s finance director said the deal would be partially funded by “re-funding a tobacco securitization” deal from 2003 and would not add significantly to the state’s ongoing deficit.

Schwarzenegger said that if his budget proposal is approved by the Legislature, education funding will have increase from $46 billion to more $55 billion since he took office.

For fiscal conservatives, Schwarzenegger also proposed making accelerated payments on bonds approved by voters to balance the state’s 2004-05 budget. The bonds would be paid off a year early, in 2009.

Retiring the deficit-reduction bonds early will give Schwarzenegger a stronger argument with voters to approve a $37.3 billion public works spending package that will be on the November ballot. The state will be able to absorb the debt more easily.

On its face, Schwarzenegger’s savings plan would boost state reserves to their highest level in nearly 30 years and put a down payment on creating an $8 billion rainy-day reserve fund that voters approved in 2004.

In reality, those reserves likely would be only temporary because much of the money may be needed to cover pending lawsuits, federal program cuts, higher prison costs and as yet undetermined raises for state employees whose contracts expire this year. All those costs were not fully accounted for in the governor’s preliminary budget in January.

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