California budget surplus creates unlikely dilemma

LOS ANGELES — After years of grueling battles over state budget deficits and spending cuts, California has a new challenge on its hands: too much money. An unexpected surplus is fueling an argument over how the state should respond to its turn of good fortune.

The amount is a matter of debate, but by any measure significant: between $1.2 billion, projected by Governor Jerry Brown, and $4.4 billion, the estimate of the Legislature's independent financial analyst. The surplus comes barely three years after the state was facing a deficit of close to $60 billion.

At first glance, the situation should be welcome news in a state overwhelmingly controlled by Democrats, who have spent much of their time slashing programs they support. After last November's elections, the party has two-thirds majorities in the Assembly and the Senate, relegating Republicans almost completely to the sidelines.


Instead, the surplus has set off a debate about the durability of new revenues and whether the money should be used to reverse some of the spending cuts or set aside to guard against the inevitable next economic downturn.

At least seven other states — among them Connecticut, Utah, and Wisconsin — have reported budget surpluses in recent weeks, setting the stage for legislative battles that, if not as wrenching as the ones over cuts, promise to be no less pitched.

Lawmakers are debating whether the new money should be used to restore programs cut during the recession, finance tax cut, or put into a rainy-day fund for future needs.

The debate reflects uncertainty about whether the revenue is a one-time event, a result of state taxes on wealthy residents selling off investments at the end of last year to avoid increased costs as the Bush-era federal tax cuts expired.

But it also illustrates philosophical differences about the role of government, about spending vs. taxes, and about the need, as Brown argued, to learn lessons from a decade in which many states saw the bottom fall out from their revenue collections.


Nowhere does that battle promise to play out with more force and intricacy than in California, the state that underwent perhaps the most severe retrenchments in the country.

Brown, a Democrat with a fiscally conservative streak, said he would oppose significant increases in new spending and that the money should go into a rainy-day fund. His administration put out the lower $1.2 billion estimate.

The independent analysis for the Legislature called the governor's projections overly pessimistic, buoying Democrats and social service advocates eager to reverse budget cuts.