Surprise! California has a budget surplus

A budget surplus hasn't been seen in California for years, and finessing the state constitution's balanced budget mandate has required increasingly complex fiscal contortions. But riding a wave of new tax revenue, California's new budget will increase by nearly $5 billion while still offering a small surplus — a sign that the poster child for fiscal mismanagement is emerging into brighter days.

Gov. Jerry Brown on Thursday proposed a $97.6 billion general fund budget for the 2013-14 fiscal year that wipes out years of deficits and even includes a modest surplus.

The additional revenue hiked the spending plan by 5 percent over the current year and helps the governor pour more money into public schools and universities.

The state's budget shortfall stood at $25 billion when Brown took office two years ago.

"California today is poised to achieve something that has eluded us for more than a decade — a budget that lives within its means, now and for many years to come," Brown said during a news conference at the Capitol.

A rebounding economy coupled with new revenue from the higher sales and income taxes voters approved last November have put the nation's most populous state on a healthier financial trajectory as it begins to turn the corner on an era of deep budget shortfalls and spending cuts to core programs.

California's persistent budget woes came to represent the plight of states struggling through the recession as tax revenue declined steeply, leaving governors and state legislatures around the country little choice but to consider deep cuts or unpopular tax increases.

Brown took both approaches. He pushed an austerity message that forced cuts throughout state government during his first two years in office while persuading California voters to approve increases to the state sales tax and higher income taxes on the wealthy.

Despite the new revenue flowing in, Brown has warned his Democratic colleagues who control both houses of the Legislature that they must not overplay their hand and spend too freely. The governor wants to build a reserve fund for future downturns to help smooth the type of boom-and-bust budget cycles that have become chronic in California.

"And I'm determined to avoid the fiscal mess that the last few governors had to deal with," Brown said. "The way you avoid it is by holding the line, by exercising a common sense approach to how we spend our money."

His budget includes a rainy day fund of $1 billion and even drew cautious praise from Republicans, the minority party in the Legislature. GOP lawmakers had opposed Brown's tax initiative and had refused to work with him a year earlier to raise taxes in exchange for pension overhauls.

Republican Assemblyman Jeff Gorell of Camarillo called Brown's proposal a "realistic budget framework." He said Republicans would try to ensure that the state's four-year higher education systems do not raise tuition for at least seven years — the length of time the higher income taxes on the wealthy will remain in effect.

The University of California and California State University each received $250 million more in the governor's budget proposal.

Brown said Thursday that he will urge higher education leaders to avoid charging students more after years of runaway tuition hikes.

He wants the additional money from the tax hikes focused on public schools. His plan includes $2.7 billion more for K-12 education and community colleges, bringing state and local spending to $56.2 billion.

Among Brown's priorities is creating a new education funding formula. It would be aimed at giving school districts more control over spending and directing state money to the neediest children and poorest districts.

His proposal is expected to run into opposition from lawmakers representing more affluent regions of the state, but Brown said the state should spend proportionally more on students who have "disproportionate challenges."

"Growing up in Compton or Richmond is not like it is to grow up in Los Gatos or Beverly Hills or Piedmont," he said of his redistribution plan. "It is controversial, but it is right and it's fair."

Spending cuts are still expected in some areas, such as the courts. Health care programs and social services will receive modest increases, largely as a result of the state's willingness to expand Medicaid under the federal health care reform law.

California's general fund spending hit a high of $103 billion before the recession and dropped to a low of $87 billion during the 2011-12 fiscal year, requiring lawmakers to make deep cuts.

Brown's budget proposal now goes to the Legislature and will be revised in May after the state gets a clearer picture of its tax revenue in the next fiscal year, which starts July 1. Lawmakers have until June 15 to send their own budget plan to the governor.

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Associated Press writers Don Thompson and Tom Verdin contributed to this report.