California has an unprecedented $68 billion that it can use for any purpose in the next fiscal year, according to state Senate Democrats, a surplus that presents both opportunities and conflicts for Governor Gavin Newsom in his budget release next month.

The figure surpasses the staggering $38 billion lawmakers had at their disposal during the previous budget season, then considered the biggest.

The most-populous state is benefiting from soaring tax collections from its highest earners, thanks to a progressive tax system that rakes in more revenue when income rises for its wealthiest residents. That group has reaped the benefits of rising stock prices and stable employment even as many lower-income workers lost their jobs in the pandemic.

California’s finance department said last week that it has collected about 12.5% more revenue than anticipated for the fiscal year ending in June.

Senate Democrats said Thursday that they want $8 billion of the surplus to go to rebates to taxpayers based on income, as well as grants to low-income residents who don’t file taxes. Newsom, in contrast, has proposed an $11 billion package giving rebates to every car owner regardless of income.

The legislators also want to direct billions of dollars toward early child-care providers; education; climate initiatives such as mitigating drought and wildfires; boosting affordable health care and housing; and easing homelessness.

“With the new revenue available for this year’s state budget, the Senate is doubling down on our priorities,” Senate President pro Tempore Toni Atkins said in a statement. “We’re able to help even more people, bolster their ability to achieve their dreams, and ensure there will be both resources and a more equitable system in place now, and for future generations of Californians.”

Even as California enjoys flush coffers, the state is grappling with intractable issues such as soaring costs of living and the threat of climate change that have proven tough for money alone to address. Its lopsided tax structure -- the top 1% of earners pay nearly half of personal income-tax collections -- also sets it up for revenue to plummet severely in an economic downturn.

Senate Democrats said they would keep $43 billion in total reserves, which would provide a cushion in a recession.

Newsom, a first-term Democrat running for re-election this year, will present a budget in mid-May that updates his previous presentation in January, when the discretionary surplus was projected at $20.6 billion. His administration’s estimates of revenue may differ from the legislature’s.

While Democrats have a supermajority in both legislative chambers, their priorities have at times diverged from Newsom’s. Lawmakers this week declined to act on the governor’s request to delay an annual inflation-indexed fuel tax increase set for June, saying they saw “pitfalls” in the temporary move.

The legislature must pass a budget by June 15 or forgo pay.

This article was provided by Bloomberg News.