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New California budget plan would save less amid sagging tax receipts

SACRAMENTO, Calif. (Reuters) – California will likely take in $2 billion less than anticipated in taxes over the coming fiscal year, Democratic Governor Jerry Brown said on Friday, issuing a stern warning to lawmakers not to push for new spending in budget negotiations.

Brown did not suggest cutting spending on state programs next year, opting instead to reduce the state’s contribution to its rainy day fund. But he warned that deficits loom if spending continues apace and voters reject the extension of temporary tax that is widely credited for closing a multibillion-dollar budget hole.

“In order to manage this budget, it’s like riding a tiger,” Brown said in announcing his annual May revision of his budget proposal for the fiscal year beginning July 1. “Deficit spending is on the horizon.”

The 77-year-old governor, who also led the state from 1975 to 1983, has been notoriously tight-fisted since returning to office in 2011, reining in spending proposals by the state’s liberal Democratic majority lawmakers to build a rainy day fund and hold down expenses after facing down a $27 billion budget deficit.

Earlier this week, state officials said that tax revenue for the first four months of 2016 were $869 million below projections, due in large part to unexpectedly low income tax revenue in April.

On Friday, Brown said the drop in expected revenue for the next fiscal year would be $1.9 billion.

The expected revenue drop was an unpleasant surprise that Brown was largely able to offset in his budget proposal by taking advantage of a provision in state law that ties contributions to the rainy day fund to tax revenue, allowing a smaller contribution in lean years.

He is proposing a total spending plan of $173 billion, of which $122 billion would come from the state’s general fund. That is slightly higher than his initial budget proposal of $170.7 billion in January, due to expected additional costs to pay for an increase in the minimum wage, a slight raise in benefits for disabled Californians and other spending.

The increase is accounted for in large part by funds from a new tax on managed healthcare organizations. The budget proposal would increase public spending on education, healthcare and infrastructure over the current year.

But Brown, a fiscal moderate who has battled his party’s progressive wing on spending, warned lawmakers that he would not agree to additional spending as budget negotiations progress over the next month.

This could disappoint Democratic lawmakers, who had hoped for additional funds to pay for childcare for the poor and other programs. (Editing by Bernard Orr and Matthew Lewis)

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