With several billion dollars more in state revenues to work with, Gov. Arnold Schwarzenegger on Friday unveiled a revised $116 billion 2005-06 state budget that restores $1.3 billion in transportation funds and adds nearly $2 billion in education spending.
Schwarzenegger proposed stopping the diversion of gas sales tax dollars to the general fund, freeing up $1.3 billion for the construction and maintenance of roads, bridges and highways. The $88 billion general fund also includes expanding the state’s class-size reduction program for hundreds of low-performing schools and adding 100,000 more children to the state’s Healthy Families program. The state’s reserve funds would also be boosted by $300 million over levels proposed in January.
The revenue surge is already under way, with revenues for the fiscal year ending June 30 running about $2.2 billion ahead of original projections. Based on this experience, Schwarzenegger’s finance team is now projecting about $4.4 billion in additional revenues for the 2005-06 fiscal year.
The surge is due in large part to higher-than-expected income and corporate tax collections, including $4 billion from a tax amnesty. However, an estimated $3 billion of the amnesty payments is in dispute by corporations. The Schwarzenegger budget sets aside $900 million for refunds that might result from these disputes, many of which are expected to drag on for years.
The budget revision contains no tax increases and no additional borrowing beyond $1.7 billion from the $15 billion in deficit financing bonds approved by voters in March 2004.
The revised budget will be submitted to the Legislature for consideration early next week. The constitution requires the Legislature to pass a budget by June 15 and for the governor to sign it by June 30. However, those deadlines have been missed repeatedly during the last several years and few expect them to be met again this year. Democratic leaders in the Legislature have indicated they intend to push for some tax increases, setting the stage for a potential standoff.
