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Gov. Jerry Brown releases $107.8 billion budget; presses for paying down teachers' pension

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SACRAMENTO, Calif. - California's tax windfall lifted Gov. Jerry Brown's spending plan to a record level Tuesday, but the Democratic governor cautioned that the surplus is needed for higher-than-expected health care costs and an underfunded teachers' pension system.

The governor is projecting $107.8 billion in spending from the general fund, the state's main account for paying day-to-day operations, bringing total state spending to $156.2 billion for the fiscal year starting July 1. That's $1 billion more than the general fund plan Brown proposed in January.

The figure represents a 24 per cent increase over the $87 billion general fund budget approved during the 2011-12 fiscal year, the low point of the recession when California cut billions of dollars from state programs and furloughed state workers.

"I can tell you this is good news for California," Brown told reporters Tuesday.

Taxe revenue in the current fiscal year is running more than $2 billion ahead of expectations, but the governor's office said expenditures increased at a similar rate.

California can expect about $1.2 billion in additional costs this year for Medi-Cal, the state's health insurance program for the poor, which saw 1.4 million more enrollees than the state projected in January. Brown's office said the additional cost will climb to $2.4 billion in the next fiscal year as even more people enrol due to an expansion under the Affordable Care Act.

The Brown administration had projected 10.5 million people would enrol in Medi-Cal in the 2014-15 fiscal year but now projects 11.5 million will be covered.

Republicans applauded the governor for striking a cautionary tone. But Assembly Minority Leader Connie Conway, R-Tulare, said she's concerned by the increase in health care expenses.

"It's a chunk of money that we were told we weren't going to have to spend," Conway said.

The spending plan also includes a 30-year proposal to start paying down California's massive teacher pension liabilities that would split the costs between the state, school districts and teachers, with about $450 million going in in 2014-15. The state Legislative Analyst's Office has estimated the liability is nearly $74 billion.

Brown's plan now goes to the Legislature, where many Democrats want to restore social services and take steps to combat poverty. Brown favours an approach that prioritizes savings and paying down the state's debts and unfunded liabilities.

"There are many good ideas, in health care, in schooling, environment, prison reform, court expansion, but we only have so much money," he said.

The governor characterized his latest budget plan as one of "restraint and prudence." Lawmakers have until June 15 to make changes and pass a balanced budget for the fiscal year that begins July 1.

He announced an agreement with legislative leaders last week to replace a rainy day fund measure on the November ballot with a different, bipartisan plan that would set aside revenue of up to 10 per cent of California's general fund and dedicate some of the reserve to paying down the state's massive debts and unfunded liabilities.

California's debts remain massive, even as Brown proposes to spend more to pay them down.

Legislative Analyst Mac Taylor said last week that California has $340 billion in debts and unfunded liabilities, or more than $8,500 for each of its 38 million residents. Much of the long-term liability comes from the shortfall in the teachers' retirement system and health benefits promised to 277,000 retired state employees.

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