Gov. Jerry Brown and the Legislature's Democratic leaders patted themselves on the back Thursday for enacting a 2013-14 state budget that's balanced and has a reserve.
"You can sleep well tonight now that we have a signed budget," Brown said after signing the budget that will take effect next week.
The budget totals $96.3 billion in general fund spending and more than $200 billion when special funds, bond spending and federal funds are included.
Brown may hope that a relatively tight attitude on spending, an improving economy and a temporary tax increase have tamed a notoriously volatile fiscal situation.
However, he also acknowledges that the longer term is unclear, warning, "substantial risks, uncertainties, and liabilities remain."
One test of political will may arise in just a few months if revenue surges beyond what is assumed in the budget. Meanwhile, the temporary nature of the new taxes, coupled with major obligations that the budget ignores, could spark deficits in the years ahead.
The new budget assumes revenue that Brown laid out in his May budget revision. Legislative leaders had wanted the budget to reflect an additional $3 billion that their budget analyst, Mac Taylor, had forecast, but Brown insisted on the lower number.
Because Brown had his way, the final budget cut back on additional health and welfare spending that his fellow Democrats wanted to include, but in the fortnight since the Legislature passed the budget, May's revenue has been counted. State income is already running about $1 billion above the assumption, indicating that Taylor's higher number may be closer to reality.
The Legislature's Democrats have said they want to reopen the health and welfare items should extra money materialize, but Brown has been clearly reluctant, and if the surge happens, there may be a clash over whether to spend it or divert it into reserves and debt repayment.
The state still owes nearly $27 billion that it borrowed from various sources to cover operating deficits in recent years, and Brown, calling it a "wall of debt," wants it to be repaid before he leaves the governorship.
But he has reduced the pace of debt repayment, and the budget borrows even more money, $500 million from the cap-and-trade fees imposed on business for greenhouse gas emissions.
Meanwhile, as Taylor has noted, the budget ignores the $4.5 billion a year that the California State Teachers' Retirement System says it needs to stave off insolvency, and does nothing about the unfunded liability for state retirees' health care, more than $60 billion and rising.
Finally, the new taxes that allowed the new budget to be balanced are temporary and will expire before Brown finishes a second term, if he has one. And how the state finances its commitments then is anyone's guess.