By Rory Carroll
SAN FRANCISCO (Reuters) - The California legislature agreed on Wednesday to a $122.5 billion spending plan for the fiscal year starting July 1 and sent it to Governor Jerry Brown, who is expected to sign it.
The budget directs $2 billion to the state's rainy day fund, a priority for Brown, a Democrat and fiscal moderate who has warned that an economic downturn could lie ahead for the nation's most populous state.
Lower-than-expected income tax revenues in April caught state officials by surprise, and Brown said the state could take in $1.9 billion less than anticipated in taxes over the coming fiscal year.
Democratic leaders in the state Senate praised the budget for making investments in the social safety net and early childhood education.
The budget included a repeal of the state's maximum family grant rule, which prevents people on welfare from receiving additional public money if they have more children.
Without the rule, households would receive an additional $122 a month for a newborn child. The change is expected to cost the state about $220 million a year.
"Our expenditure plan funds anti-poverty programs, child care and education," said Mark Leno, Democratic state senator and budget chair.
"It also includes resources to combat homelessness, support low-income working families and improve college readiness and enrollment," he said.
Republicans and some Democrats complained the spending increase of $6.9 billion from the prior fiscal year set California on a path of billion-dollar deficits down the road.
"Californians deserve a responsible and sustainable state spending plan," said Senate Republican leader Jean Fuller.
"Unfortunately, this record spending budget paves the way for future deficits and increases fees that make living in California even more expensive," she said.
Some of the spending increases were attributed to an increase in the minimum wage and increased benefits for the disabled.
In a tweet, Brown said: "Good work from the state legislature: we're building reserves and investing in CA. Thanks."
Brown has until the end of the month to sign the budget.
(Reporting by Rory Carroll; Editing by Peter Cooney)