Jerry Brown's middle way is California's path to recovery

Six years ago, California was paying bills with IOUs and facing a yawning budget shortfall. Today, revenue is surging and its governor has proposed a record $115bn in spending as the Golden State's economy has come roaring back.

"I can say very simply the state is definitely on the rebound from just a few years ago when the state was mired in red ink," said Jerry Brown, who was elected to an unprecedented fourth term last year, making him California's longest-serving governor.

"The finances of California have stabilised. We're balancing our budget. And just since January, several billion dollars have come into the state treasury," Mr Brown added.

The road to recovery for the US's most populous state has been paved by an influx of tax revenue, thanks to a levy on the wealthy that Mr Brown backed in 2012 and years of swingeing spending cuts.

A deficit that ballooned to nearly $60bn under Mr Brown's predecessor, Arnold Schwarzenegger, in 2010 has given way to surplus. Standard & Poor's, Moody's and Fitch all upgraded the state's credit ratings in the past year.

Mr Brown has kept a tight rein on finances, drawing criticism from some in his own Democratic party that he is not doing enough to help those who have been left behind by recession-era cuts to social services and California's resurgent wealth.

This week's revised budget, which came in $2bn higher than Mr Brown's initial proposal in January, reflects the governor's balancing act, taking a prudent line on spending while also establishing a $380m tax credit for the state's poorest families.

"Even those Republicans who strongly disagree with him on taxes give him credit for the way he's held the line of spending. And even those Democrats who are furious that he's unwilling to spend the surplus are grateful for his support for those tax increases," said Dan Schnur, director of the Unruh Institute of Politics at the University of Southern California. "He has been able to steer a middle course and it's helped get the state's budget challenges under control."

The record spending proposal was made possible by a $6.7bn surge in revenue this year, propelled by higher taxes and economic growth that is outpacing that of the US. S&P estimates that revenues could beat forecasts by as much as $2bn by the end of June.

"We've added almost 1m jobs in the past two years and the unemployment rate has come down from a high of 12 per cent [in 2010] to 6.5 per cent," said Stephen Levy, director of the Center for Continuing Study of the California Economy.

Personal income growth - California's primary revenue driver - will exceed the rest of the country through 2017, according to Moody's. That is in large part a product of Silicon Valley, whose technology industry has accelerated jobs growth and the housing market.


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>But the latest tech boom has also underscored the volatility of California's economy and strengthened Mr Brown's resolve on long-term fiscal planning. His proposal would use $3.8bn to pay down debt and seed a new rainy day reserve fund.

"I don't want to get caught in the jaws of the persistent fiscal instability of the state government of California," Mr Brown said. "We have to learn from history and not keep repeating the mistakes."

Under Mr Brown's plan, most of the budget surplus would benefit education, as required by state law, boosting spending on schools and community colleges to $68.4bn and freezing tuition for California residents at the University of California. The proposal also allocates $2.2bn to address the state's severe drought.

The final budget must be negotiated with lawmakers and passed by June 15, and Democrats are likely to lean on Mr Brown to carve out more money for social services.

But this week, the governor stuck to his cautious outlook. "We know a recession is on the way. It's around the corner," he warned.

Mr Schnur of USC said: "The financial temptation of all politicians is to spend every dollar of tax revenue the moment it comes in. There is very little short-term political benefit in holding some of those revenues in reserve."

"What makes the situation unique is that Brown seems to be fairly determined to avoid the crunch that almost invariably comes once the tech sector levels off. He's saying we know it's going to happen, even though we don't know exactly when. So we can't spend every last penny of the surplus."

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