By Sharon Bernstein

SACRAMENTO, Calif. (Reuters) - California Governor Jerry Brown on Thursday revised his proposed budget for the upcoming fiscal year, raising total spending by 2.2 percent and increasing funding for schools and transportation, even as he warned that the state's economy likely cannot sustain the growth of recent years.

With the state's fiscal position improved somewhat since Brown first presented the budget in January, the governor reinstated about $1 billion of funding, including for child care and in-home services. About $400 million in cuts from the January proposal remain.

Overall, the total budget increased to $183.4 billion, up 2.2 percent from January.

Brown proposed more funding for schools, county health programs and transportation infrastructure. The revised budget for the 2018 fiscal year, which starts July 1, provides a $6 billion loan to the California Public Employees' Retirement System, the nation's largest public pension fund, in an effort to reduce its unfunded liability.

The budget also includes increased funding to boost staffing at the state's Justice Department to address policies from the Trump administration that affect public safety, health care, the environment, consumer affairs and constitutional issues.

Still, Brown said the budget was considerably more constrained than in any year since 2012, when California struggled through years of deficits. California faces a $3.3 billion revenue shortfall, down from a $5.8 billion shortfall in January.

He again warned on Thursday that the state, which generates revenue largely through volatile capital gains taxes, is overdue for a correction after years of economic expansion.

“Over the past four years, we have increased spending by billions of dollars for education, health care, child care and other anti-poverty programs. In the coming year, I don’t think even more spending will be possible,” he said. “We have ongoing pressures from Washington and an economic recovery that won’t last forever.”

On Wednesday, the state's controller, Betty Yee, said revenues through April for the fiscal year that began July 2016 were $1.83 billion below initial estimates. Income tax in April lagged projections by about $708 million.

"This is another signal that we may be inching toward an economic downturn, and we must tailor our spending accordingly,” Yee said.

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(Reporting by Sharon Bernstein; Additional reporting by Robin Respaut in San Francisco)