SAN FRANCISCO, Jan 10 (Reuters) - California's economy is on the mend, but Governor Jerry Brown is expected to take a cautious approach to spending when he unveils his state budget plan on Thursday.
Brown, a Democrat with a national reputation as a liberal, plays up his pennypinching in California, and he has repeatedly stressed the need for spending restraint, even amid signs the state economy is picking up.
California job growth tops the national average, unemployment has fallen below double-digit levels for the first time in nearly four years, and voters in November approved a tax increase that closed most of the lingering budget gap.
The Legislative Analyst's Office, the state's independent budget watchdog, says budget surpluses are possible with the help of steady economic growth, rising stock prices and state leaders holding down spending, but analysts are more cautious.
"While there is positive news, we think there are a lot of cautionary points as well that the legislature will want to keep in mind," said Jason Sisney, a deputy legislative analyst at the Legislative Analyst's Office.
In November the office projected a state budget gap of $1.9 billion through June 2014. Brown faced a $9 billion gap a year ago and $25 billion two years ago.
The Department of Finance will make its own financial projections, the key to calculating any budget hole or surplus, as part of the budget plan announced on Thursday.
The Sacramento Bee reported on Thursday that Brown will propose giving more than $2 billion extra to K-12 districts next school year, quoting sources familiar with the proposal.
Signs of improvement in the state's economy have raised hopes among some liberals that cuts to healthcare and welfare programs of the last few years can be rolled back, but Brown is expected to resist such calls. Democrats won a supermajority in the legislature in the November vote, giving them the power to raise taxes without Republican support.
"A large part of the caucus will want to keep its foot on the brake," said Steve Maviglio, a Democratic consultant and aide to former Democratic Assembly speakers. "I think the leadership and the governor are on the same page."
Brown also will issue a State of the State address on January 24, and he could use either or both speeches to set out his priorities for the year. The November tax increase was targeted squarely at avoiding education cuts.
Politicians and analysts say he may outline priorities including education and environmental regulation reform, improving water supply reliability and how to complete the high-speed rail line that is planned to link Los Angeles, San Francisco and Sacramento.
The governor is due to unveil the plan at 10 a.m. PT (1 pm ET).