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California governor signs $156.3 billion budget with rainy day fund

By Sharon Bernstein

SACRAMENTO Calif. (Reuters) - California Governor Jerry Brown signed a $156.3 billion budget plan on Friday that includes funding for a controversial high-speed rail project and a so-called rainy day fund in line with the governor's vision of fiscal restraint, his office said.

The compromise budget deal followed months of political wrangling among Democrats, who wanted to restore more spending on social programs cut during the recession than Brown wanted.

“This on-time budget provides for today and saves for the future,” Brown said at a signing ceremony in San Diego. “We’re paying off the state’s credit card, saving for the next rainy day and fixing the broken teachers’ retirement system.”

Democrats control both houses of the legislature and all elected offices in California, but divisions have emerged between Brown, who has steered the state on a moderate fiscal course, and progressive party members who say the state should do more to replenish its tattered social safety net.

Last week, he praised the legislature for "a solid and sustainable budget" barely bigger than the $156.2 billion he had proposed in May.

California faces the upcoming fiscal year, which begins July 1, in good financial shape, thanks to new taxes approved by voters and the resurgent economy. When Brown took over in 2011 from two-term Republican Arnold Schwarzenegger, the state faced an 18-month budget gap of $25 billion.

Under the budget plan approved by lawmakers June 15, Brown's high-speed rail project, a $68 billion effort opposed by Republicans, will receive $250 million in funding from the state's cap-and-trade program. The state collects a fee after polluters buy and sell their rights to emit carbon into the air.

The budget includes $76.6 billion for K-12 education, plus $264 million for free preschool programs for 4-year-olds from low-income families.

It makes a $1.6 payment into the state's rainy day fund, the first since 2007, and allocates another $1.6 billion to accelerated debt payments.

The state will make an extra contribution of $59 million to its underfunded teachers retirement system, while also expecting teachers to contribute $42 million and school districts $175 million.

Brown used his line-item veto to cut $2 million in spending on staff to help state officials oversee laws requiring health insurance companies to cover mental health services at the same rates as regular medical care.

Another veto, worth about $36 million, rectified a mistake in the budget bill and did not change appropriations.

(Additional reporting by Jennifer Chaussee; Editing by Cynthia Johnston, Eric Beech and Jim Loney)

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