The state's top fiscal analyst generally embraced Gov. Jerry Brown's budget Monday, agreeing that the state's spending and revenues are "roughly in balance" and that the governor is right to focus on fiscal discipline for the foreseeable future.
The nonpartisan Legislative Analyst's Office suggested that California has moved into a new budgeting phase no longer marked by difficult solutions and controversial accounting maneuvers to cover massive shortfalls.
"I think we're in a very different situation than we have been in the last 10, 12 years," Legislative Analyst Mac Taylor said in his annual review of the governor's January budget. "At this time we would usually be sitting around talking about 20, 25, 30 billion dollar deficits."
Brown introduced a $97.7 billion general fund budget last week that spends more on K-12 schools and higher education in 2013-14 while holding the line on most other programs. The state would spend 5 percent more than in this fiscal year.
Despite growing tax revenues, Taylor said California must remain cautious. The state has a notoriously volatile tax structure that remains vulnerable to stock market and economic declines.
He recommended that lawmakers follow the general path laid out by Brown of restraining growth in most budget areas and paying down various forms of debt for years to come. That means reversing the tricks California has relied upon for years, such as delaying payments to schools and borrowing from state accounts that collected an excess of fees.
"This sort of approach, in our view, is really critical because we still face a lot of risk, and one of the most important ones that we identify in the report is something over which we have almost no control: What happens at the federal level," Taylor said.
Taylor said other factors threaten the state's finances. Brown's plan does not build a significant rainy-day fund, nor does it bolster the state retirement fund for teachers or save for retiree health care costs, which could burden the state for years to come.
The LAO in November estimated that California still faced a $1.9 billion deficit, which Brown said last week no longer existed. The governor used a more optimistic revenue forecast, assumed more money from eliminating redevelopment and delayed payments to special state funds.
Against a $97.7 billion budget, Taylor suggested $1.9 billion was a reasonable difference, though Brown's assumptions bear more risk. In an era of shifting tax policies, increased reliance on volatile top earners and federal indecision, any fiscal projections are bound to be outdated by May.
Despite generally supporting the governor's approach, the LAO disagreed in some areas. Taylor said the state should not lock in automatic increases to the state's university systems, for example.
He also said the governor's use of new corporate tax revenues from Proposition 39 was legally questionable. Brown proposed using money dedicated for clean energy all for schools rather than other projects an approach that saves the state $190 million a year due to complex budget formulas. Taylor said that possibly runs afoul of the state constitution and does not spend money in the same way described to voters last fall.
The governor's Department of Finance believes that all of the Proposition 39 funds should count as general budget revenue, even if some funds are earmarked for clean energy, spokesman H.D. Palmer said.