As expected, Gov. Jerry Brown proposed a fiscally restrained state budget on Tuesday with a large rainy day fund, citing the uncertainties over local revenues and possible erosion of federal funding driven by a Republican-controlled White House and Congress.

Brown and state lawmakers have pledged to defend California's liberal policies and programs in areas like immigration, healthcare and climate change that have drawn criticism from conservatives, many of whom are aiming to reduce federal funding and pare down taxes.

Brown said he wasn't going to anticipate such federal actions, but adding that the state is prepared to address any needs when the budget plan is revised in spring.

"This budget can move very quickly and that is what I call riding the tiger,” he said at a press conference in Sacramento.

The governor is proposing a $123 billion spending plan that deals with a projected $2 billion deficit and deposits an additional $1.15 billion into the state's rainy day fund, bringing the reserves to $7.9 billion by the end of 2017-18.

"You have to save your money or lose the farm," Brown said.

Cuts are being made in planned education spending and by deferring state building plans, among other reductions. The budget plan is a placeholder given the many unknowns, particularly what actions Washington may impose on the states.

Any cutbacks in federal funding could have severe implications for California. About a third or $96 billion of the current 2016-2017 budget is made up of federal dollars, mostly for health and human services such as Medi-Cal, the state's health coverage program for people with low incomes.

But state officials say the budget plan doesn't take into account any anticipated federal cutbacks and they plan instead to remain nimble, anticipating that actions could be taken up when the governor revises his budget proposal.

The Legislative Analyst's Office said key state revenues through the first half of 2016-2017 is running $1.4 billion under projections, although early January personal income withholding receipts have been "promising."

The governor and Department of Finance painted a less upbeat revenue picture, emphasizing slowing revenues and the possibility of another economic downturn.

Senate Republican Leader Jean Fuller, a lawmaker from Bakersfield, said in a statement: “Senate Republicans will continue to be laser-focused on championing solutions that promote jobs and make California more affordable. Californians expect their government to spend responsibly and we are facing a deficit of $2 billion if we don’t live within our means."

State lawmakers will get to impose their own priorities during budget negotiations. The revised budget proposal is expected from the governor after the April revenues become clear, with a final plan required from Brown by June.

Phil Ting, a Democrat from San Francisco and chair of the Assembly Budget Committee, generally praised Brown's spending plan.

"The Governor’s budget reflects caution towards a future of unknowns. As the Legislature crafts this year’s budget, we must first focus on protecting our financial stability and standing up for our values," Ting said in a statement.

But he signaled there will be some differences with legislators that could play out in coming months during budget negotiations.

"Clearly, we cannot spend revenue that we do not have but we need to continue to move forward," Ting said, adding: "Brown’s proposal to eliminate scholarships as the University of California proposes a fee increase, for example, is not a recipe for success."

TRANSPORTATION

The governor is tweaking a transportation package he's previously proposed to address a $59 billion backlog in road repairs and maintenance that lawmakers have not addressed. It calls for adjusting the gas tax to its 2013 high of 21 cents a gallon and then tying it to inflation.

Other funding proposals that Brown has revived call for a new $65 per vehicle fee, $100 million in spending efficiencies for Caltrans, and a $500 million infusion from the state's cap and trade fund to help cover road construction. The plan would raise $4.2 billion a year to pay for road repairs.

Brown’s budget continues to dedicate 25 percent of cap and trade revenues to the controversial high speed rail project. The California law that laid the foundation for the cap and trade market earmarked those funds for high speed rail on a permanent yearly basis, along with funds for public transit and affordable housing.

However, the cap and trade market is set to end in 2020. Brown’s budget calls for the legislature to vote to extend it, requiring a two-thirds majority.

DeAnn Baker, deputy executive director of legislative affairs with the California State Association of Counties, applauded the governor for including the road repair proposal in his budget plan, but said it would only pay for about a third of the repairs needed.

“We’re concerned that this investment is not enough,” said Baker. “We’re definitely trying to increase the package as we talk to members of the legislature.”

Baker hopes to see $6 billion a year dedicated to repairs. Now that Democrats have a supermajority in both houses, she is more hopeful that the package will pass, despite past inaction.

But she’s watching warily: “Regardless of which party they’re in, there’s an interest in staying in their current position.”

HEALTH CARE

The governor is proposing to sever In-Home Supportive Services from a pilot program that combines medical, behavioral health, long-term services and community-based services for people on both Medi-Cal and Medicare. That would shift the burden for funding part of In-Home Supportive Services back to counties, which would save the state $626 million in 2017-18, according to the budget.

The pilot project is in Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo and Santa Clara counties. Acknowledging that “this change is likely to result in financial hardship and cash flow problems for counties,” the proposal says Brown’s administration “is prepared to work with counties to mitigate, to the extent possible,” the impact of the change.

Dropping In-Home Supportive Services from the pilot program would also shift responsibility for negotiating In-Home Supportive Services’ workers’ wages and benefits from the state back to the seven counties.

ENVIRONMENT

The governor is proposing to spend $2.2 billion on climate programs by tapping the money the state collects through its cap and trade auctions. During the auctions, polluters bid for carbon dioxide emissions credits and the money goes into a fund that is earmarked for certain climate and clean transportation purposes.

But there’s a catch — the $2.2 billion will only be spent if the state legislature votes by a two-thirds majority.to extend the cap and trade program beyond 2020 (after 2020, it’s unclear whether the California Air Resources Board has the legal authority to continue administering cap and trade).

If the two-thirds vote happens, the governor would like to split the money between high speed rail, clean transportation and other programs like energy efficiency, expanding urban green spaces and sustainable agriculture. The legislature may have other ideas, however.

California is in its 6th year of drought, and the 2017-2018 budget reflects a shift away from emergency response and towards long-term solutions. Drought spending is 30 percent less than last year. Areas that were cut include food assistance and rental assistance to people living in areas hit hard by the drought.

Finally, the governor is proposing to bump CalFire’s wildfire fighting budget to its highest amount ever: $496 million. That’s an additional $67 million over last year. Of course, if CalFire ends up needing more money to put out fires, it can always go back to the legislature mid-session and ask for more.

HOUSING

The governor is proposing to allocate $3.2 billion in state and federal funds for grants and loans to build affordable housing, assist the homeless and help first-time homebuyers.

The governor decided not to include $400 million he had set aside in last year’s proposed budget for affordable housing. The allocation of the money had been contingent on passage of a bill to streamline regulatory hurdles for developers. But the bill died after running into opposition from unions, environmentalists and community groups.

Brown continues to press for a solution to the state’s housing crisis that would “reduce local barriers to limit delays and duplicative reviews,” he said in his budget plan summary.

Alan Greenlee, executive director of the Southern California Coalition of Non-Profit Housing said: “I think the governor does a brilliant job of laying out where the boundaries of what he is willing to consider, and to put it on the Legislature to do it.”

CRIMINAL JUSTICE

Brown’s proposed budget includes $11.3 billion for the Department of Corrections and Rehabilitation – up from $10.6 million budgeted for the current fiscal year that ends June 30. That’s a $700 million or 3.3 percent increase.

The governor proposes the increase even as the inmate population is projected to drop slightly, from 129,015 to 128,159 – or by about 800 inmates.

The biggest chunk of the increase in the budget — $320 million – covers salaries for the department’s more than 60,000 employees. Most are members of unions and their pay raises were previously negotiated, according to department spokesman Bill Sessa.

The proposed budget also includes $240 million for absorbing nearly 2,000 mental health clinicians, nurses and doctors from the Department of State Hospitals.

“We believe that by having all of the employees in one system, we can make the system more efficient and we can improve the treatment of inmates,” Sessa said.

Other increases include $33 million more for medical care to meet a federal court order, $11 million for a pilot program involving the use of more video surveillance in prisons, and $8.5 million more for rehabilitation programs. The department’s total budget for rehabilitation programs would be nearly $500 million, according to Sessa.

California’s prison population has been on the decline for several years, since a 2006 peak of 163,000 inmates, according to the Public Policy Institute of California. In 2009, the U.S. Supreme Court ordered California to reduce its prison population to relieve overcrowding.

Brown complied with the order with his 2011 prison realignment program shifting an estimated 30,000 prisoners to county jails, Proposition 47 in 2014, and Proposition 57 in 2016.

Proposition 57, which increased opportunities for parole and reduced sentences for good behavior, is expected to result in a reduction of about 2,000 inmates in the coming fiscal year with a savings of about $30 million, according to Brown’s budget.

Some prison reform activists decried the increase in the prison budget, even as the inmate population goes down.

“We should not be increasing the corrections budget; we should be decreasing it at this time,” said Diana Zuniga of Californians United for a Responsible Budget. She argued the state should be investing more in community-based organizations.

EDUCATION

The governor is proposing to increase the state’s minimum funding floor for public education by $2.1 billion, a move that will bring state per-pupil spending to about $10,900 and total spending to $73.5 billion.

But he’s also proposing to slow the move toward fully funding the state’s Local Control Funding Formula, a pool of money intended to help the state’s neediest students. And the governor wants to pause expansion of funding for new state preschool seats and for child care providers.

Brown is also calling for a phase out of the state’s Middle Class Scholarship Program. The program provides tuition assistance to students in the UC and CSU systems whose families make between $80,000 and $150,000 a year.

That move immediately drew criticism from several lawmakers, including Assembly Speaker Anthony Rendon and Assemblymember Kevin McCarthy, the Democratic chair of the Assembly’s education finance subcommittee.

But State Superintendent Tom Torlakson praised the governor’s budget for its commitment to public education funding in the face of a relatively bleak financial picture.

“In a year where California’s overall revenue is down, this is still another positive step forward for California’s 6.2 million public school students,” Torlakson said in a statement.

This story has been updated.