After Years Of Huge Deficits, California Starts To See A Fiscal Turnaround

California's fiscal health is looking better. Gov. Jerry Brown has proposed a budget that will leave the state in the black, which is a big change from previous years. But California's long-term financial outlook still looks bad.

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Here's something we haven't bee able to report for a while: State budgets are looking better. Thanks to an improving economy, spending cuts and some tax increases, more than 33 states and the District of Columbia report their financial condition is stabilizing. Even California, the poster child for the budget mess, is looking OK, at least in the short run.

Here's NPR's Richard Gonzales.

RICHARD GONZALES, BYLINE: When Jerry Brown became governor two years ago, California faced a $27 billion budget deficit. Last week, when he unveiled his new budget proposals for fiscal year 2013, he surprised many by showing not only a balanced budget, but one that projects a surplus by next year.

GOVERNOR JERRY BROWN: We've cut massively. We've cut 25 percent out of the colleges and universities. We cut health care. We cut the aged, blind and disabled, families on CalWorks. We did things that were never done before. Plus, we have the new taxes for seven years, so we're in a better place.

GONZALES: The new taxes Brown mentions came thanks to voters who approved them in November. The governor's budget proposals have attracted almost universal, if tentative, applause, from Republicans who agree with his message of fiscal restraint, to Democrats who support Brown's plan for a modest increase in money for education.

MIKE HEARLD: The big picture view, he's really done an outstanding job in bringing back some stability to the state finances and a rosier future than the one that we've had over the last decade.

GONZALES: Mike Herald is a legislative advocate for the Western Center on Law and Poverty. He says unlike in previous years, Brown's budget contains no new cuts to social service programs. That's the good news.

HEARLD: But if you define bad news as we're not doing anything to make up for all the stuff that we've cut before, then that would be the bad news definition.

GONZALES: Brown says he'll resist any pressure from his fellow Democrats, who control both legislative Houses, to restore cuts to social service benefits. Yet, even if he does hold the line, there are other potential storms on the budget horizon. One of them is the so-called wall of debt.

MICHAEL GENEST: We got that from years of desperate or just flat out bad budgeting practice. And so he's having to dig out of that.

GONZALES: Michael Genest was former governor Arnold Schwarzenegger's budget chief. He says the state has to pay about $28 billion that it withheld from schools, local governments, and health care providers in past years. Brown's budget proposes to pay back most of that money over the next four years.

But that's not the end of California's long term debt obligations, says Genest.

GENEST: But even beyond the wall of debt that we can identify, you've got three huge problems facing us in the future. And he knows very well about them.

GONZALES: The first, says Genest, is the bill for California State employee's retiree health care costs that are completely unfunded right now. That's about $62 billion and growing over the next 30 years.

The second problem is a projected shortfall of more than $60 billion in the teachers' pension system. And finally, there are rising health care costs associated with MediCal, the state' system for the poor, elderly and disabled.

GENEST: Those three pressures are very real. And if something isn't done about them very soon they will put us right back in the soup, worse than we've ever been. And in each case, doing something about them is very, very controversial and very difficult politically.

GONZALES: But fiscal discipline is key as California repays the billions it has borrowed from Wall Street in recent years. Moody's estimates that the per capita cost of repaying that debt is more than $2,500. Compare that to Texas, where the per capita cost of its debt is only $588.

Richard Gonzales, NPR News, San Francisco.

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