Because the state was swimming in money from tax receipts because the economy was doing so well. It's easy for legislators to give out stuff when there's a surplus.
Or because they did not increase spending by this amount, 2003 might have been artificially low for accounting reasons:
Expenditures are estimated to drop from $78.1 billion in 2002-03 to $70.8 billion in 2003-04, a 10 percent decline. Most of this decline can be explained by four factors: the VLF rate increase (which reduces state subventions to backfill local governments), new federal funds, borrowing to cover the state's 2003-04 pension obligations, and the Medi-Cal accounting shift from an accrual to cash basis. Absent these factors, underlying spending would be roughly equal between the two years. The 2003-04 spending level is considerably less than what would be required to maintain baseline spending for the year.
http://www.lao.ca.gov/2003/major_features_03-04/major_featur...
This is the most shocking line from the article. How did they let costs balloon so badly?