California’s finances improving faster than expected

SACRAMENTO — California’s finances are improving faster than expected and schools could receive billions in extra funds next year, according to the Legislature’s budget advisors.

“The state’s budgetary condition is stronger than at any point in the past decade,” a report released Wednesday says.

Higher-than-expected revenue, driven by the economic recovery and stock market gains, could pump more than $4 billion in unanticipated funds into schools and community colleges starting next summer, the report says.

In addition, the analysts say, the state is on track for multibillion-dollar surpluses over the next several years, a potential cushion against the expiration of Gov. Jerry Brown’s temporary tax hikes in 2018.

The latest figures probably will rekindle the debate over spending in the Legislature; the report acknowledges “there is pent-up demand” for restoring social services cut during the recession. But the strong forecast does not mean California’s financial problems are over.

Recent estimates show that accounts dedicated to teacher pensions and retiree healthcare for public employees are underfunded by $135 billion. And the analysts cautioned that their projections depend on continued stock market gains, stability in a hyper-partisan Congress and the absence of a new recession or large spending increases.

But the routine deficits that plagued California every year, forcing lawmakers to scramble for cuts and short-term fixes, are “no more,” according to the report.

When the current fiscal year ends next June, the state could have a surplus of $2.2 billion, more than twice the size of earlier projections.

“We now find that California’s state budget situation is even more promising than we projected one year ago,” the report says.

The surplus could reach $9.6 billion in 2018, legislative analysts say, possibly helping to prevent “a cliff effect” when some higher tax rates expire.

Senate leader Darrell Steinberg (D-Sacramento) issued a statement saying the extra money would enable the state to “expand worthy programs for people and our economy” in addition to paying off debt and other obligations.

His counterpart in the Assembly, Speaker John A. Pérez (D-Los Angeles), said he would continue pushing for a rainy-day fund, something the state has lacked.

“Our job now is to maintain the fiscal prudence that put us in this favorable position,” while also helping more California families, Pérez said in a statement.

Chris Hoene of the California Budget Project, which advocates for low-income families, said that building a nest egg is important. But he emphasized the need to help residents re-enter the workforce by restoring funds to programs such as state-paid child care.

“There’s a lot of California that’s still hurting out there,” he said. “It’s still raining for some folks.”

Although Brown, a Democrat, agreed to some spending increases during budget negotiations last summer, he has been wary of most calls for higher spending. His finance director, Michael Cohen, said in a statement Wednesday that “discipline remains the right course of action.”

Republicans also said they wanted to keep a lid on spending.

“California could easily slip back into budget deficits” if the surpluses were drained to fund new programs, Senate Republican leader Robert Huff of Diamond Bar said in a statement.

chris.megerian@latimes.com