Brown Seeks 7% California Spending Boost

By Michael B. Marois and James Nash - Jan 6, 2012 7:51 AM GMT+0700

California (STOCA1) Governor Jerry Brown proposed $92.6 billion in spending for the year starting in July, an increase of about 7 percent, which will count on voters approving $7 billion of higher taxes in November.

The spending plan foresees a deficit of $9.2 billion through the next 18 months. Almost half of that is in the current fiscal year, he said. He called for $4.2 billion in cuts, mostly to welfare and programs for the poor. If the tax increase isn’t passed, Brown’s plan would cut another $4.8 billion in support for public schools and community colleges.

“The state of California (STOCA1) is a very generous, compassionate political jurisdiction,” Brown said. “When we have to cut spending, that spending is going to come from programs that are doing a lot of good. It’s not nice. We don’t like it. But the economy and tax statutes of California make just so much money available.”

Brown, a 73-year-old Democrat, wants to raise income taxes on individuals making at least $250,000 a year to 10.3 percent from 9.3 percent, and would boost sales levies to 7.75 percent from 7.25 percent.

The most-populous state cut aid last year to universities, shifted responsibility for nonviolent prisoners to counties and dissolved local redevelopment agencies. Last month, Brown had to make $1 billion in additional cuts he built into the current year’s budget after revenue fell below his estimates.

Early Release

Brown had been scheduled to release his general-fund budget Jan. 10, but was forced to unveil it today after it was inadvertently posted to the Finance Department’s website.

The spending plan assumes the state will sell about $5.2 billion of municipal bonds through December, said Brown’s finance chief, Ana Matosantos.

California is Standard & Poor’s lowest-rated state, at A-, six levels below AAA. Moody’s Investment Service grades it A1, four steps below the top rating, tied with Illinois (STOIL1) for the worst credit rating among states.

California debt yields about 1.11 percentage points more than top-rated municipal debt, compared with a peak yield spread (165M10Y) in the past year of 1.47 percentage points in June, according to data compiled by Bloomberg.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; James Nash in Sacramento at jnash24@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net