LA Times – February 21, 2002
Larger Budget Shortfall Predicted
Finances: Governor's
projected deficit of $12.5 billion is $5 billion short, analysis says. He calls
report too pessimistic.
SACRAMENTO -- Lawmakers will
need to come up with an additional $5 billion to balance the state budget as
the recession and weakening stock market take a heavier toll on California
coffers than previously anticipated, Legislative Analyst Elizabeth Hill warned
Wednesday.
Hill predicted that Gov. Gray Davis' $97.9-billion spending plan for the next
fiscal year--which contains a road map for closing a $12.5-billion
shortfall--would still leave the state's bank account $5 billion out of whack.
So far, Davis and lawmakers have solved nearly $3 billion of
the now-$17.5-billion problem by adopting a variety of cuts and budget
adjustments in the current fiscal year, some of which will carry over into 2002-03.
In her annual critique of the governor's budget proposal, Hill blamed the
growing gap on a combination of overstated revenues to the tune of $3.9 billion
and understated expenses of $1.1 billion.
Hill has the advantage of analyzing December and January tax receipts, unlike
the Davis administration, which fashioned its 2002-03 spending plan late last
year.
Consequently, Hill is predicting a steeper decline in the amount of capital
gains and stock-option income reported on returns. Her office projects a 62%
dip, compared with the 47% decline anticipated by the administration.
The state has grown increasingly dependent on such revenues in recent years,
but they have dropped off sharply because of the stock market's downturn.
Hill warned that California's fiscal woes may worsen if, as she predicts, the
federal government does not fully meet Davis' request for $1.1 billion in
assistance.
The news isn't likely to get better any time soon. California faces the
prospect of ongoing operating shortfalls of $7 billion in each of the two
fiscal years starting in July 2003, Hill said.
She also took the unusual step of supplying lawmakers with more than 100
options to trim expenses, many of which are difficult to imagine winning
approval in an election year.
They range from temporarily suspending dental services for pregnant women to
releasing inmates from prison early, raising college tuition fees and
reinstating recently reduced fees at state parks.
Options that touch Southern California in particular include dashing subsidies
for local film-production permits and eliminating the Office of
California-Mexico Affairs, which deals with border-related economic issues.
"There's a lot of flexibility in terms of balancing," Hill said.
"But what you are doing is reducing services to the people of
California."
Her list of budget-cutting ideas seemed to include something for everyone to
hate.
"These are exactly the kind of recommendations we were afraid we'd see if
we needed to make cuts of this depth," said Beth Capell, a spokeswoman for
Health Access California, a coalition of more than 200 community, consumer and
labor groups. "This illustrates that when you cut $5 billion or more from
the budget, real people get hurt in real ways."
The list included more than a dozen options designed to save the state millions
of dollars by relaxing California's system for punishing criminals.
David LaBahn of the California District Attorneys Assn. predicted that crime
and prison rates will rise if lawmakers sign off on all of them.
"You can certainly close the budget gap by not incarcerating people or
releasing them early," he said. "But what does that do for public
safety?"
Kevin Gordon, executive director of the California Assn. of School Business
Officials, expressed alarm over an option that would save the state $770
million by tapping dollars earmarked for education to pay for certain
child-care costs.
Davis indicated in a radio interview Wednesday that he believes that Hill's
figures are overly pessimistic. Final budget decisions ultimately will be based
on how much money has landed in state coffers by May, he said.
Finance Director Tim Gage said he does not agree with Hill's prediction that
the state will have to spend $825 million more on education than his office
assumes, nor does he agree that the state will face ongoing annual deficits of
as much as $7 billion.
State Senate Leader John Burton, the San Francisco Democrat who has called for
the restoration of top income-tax brackets, reiterated his belief that a combination
of cuts and new revenue should be used to close the gap in light of Hill's
latest analysis.
"It's getting to almost an insurmountable situation, but we will do our
best to persevere," he said.
Republican lawmakers placed the blame on Davis, whom they accused of
"cooking the books."
"Not only is he playing politics with your money, but he's playing
politics with money you don't even have," said Senate Republican Leader
Jim Brulte of Rancho Cucamonga.
"The governor tried to shove the problem under the rug," said
Assemblyman John Campbell (R-Irvine), vice chairman of the Assembly Budget
Committee. "But I'm not sure the rug is big enough for the size of this
problem."
Hill generally appeared to approve of the governor's strategy of using a
combination of cuts, borrowing and new revenue to whittle the shortfall, but
she took aim at a variety of his proposals.
Her office found numerous examples of what it described as highly optimistic
assumptions by the Davis administration. Hill noted, for example, that the
Davis budget assumes that the federal government will chip in about $55 million
a year to fund its portion of the CalFed program, a state-federal partnership
that addresses regional water problems.
But the federal government has yet to reimburse the $55 million for the current
budget year, making it "highly uncertain" that it will do so during
the next budget year, the analysis concluded.
Also, the Davis budget assumes that Proposition 40, a bond measure on next
month's ballot, will pass and that proceeds from the bond could be used to fund
CalFed.
Lawmakers will need to consider other options if the bond measure fails or the
federal funds fail to materialize, the report said.
Hill raised concerns about the use of the state's motor vehicle account to
finance the California Highway Patrol's homeland security costs.
She said the account, which is primarily funded by car registration fees and is
supposed to finance car regulation and enforcement, "is not an appropriate
funding source" for security measures.
She predicted that if the state continues to use its money for security, the
fund will be $230 million in the red by the end of the 2003-04 budget year.
Though the budget assumes that onetime federal funding will offset the costs,
Hill said that the chances of obtaining that money remain "highly
uncertain" and that, according to the CHP, those costs will continue
beyond the next budget year, placing pressure on future budgets.
Hill recommended that the Legislature reject both a proposal to begin charging
Medi-Cal beneficiaries co-payments and another proposal by Davis to reduce
provider rates for services supplied to Medi-Cal recipients out of concern it
would reduce patient access.
Hill's complete analysis is available online, at www.lao.ca.gov.
*