Surplus Estimates Fuel Debate Over Tax Relief in State

State Treasurer Jesse M. Unruh and the Legislature’s budget expert fueled debate over a possible tax cut by testifying Wednesday that Gov. George Deukmejian may have underestimated the state’s income next year by nearly $500 million.

Unruh, appearing before the Senate Budget and Fiscal Review Committee, said, “The state’s finances are on sound footing” and declared that the state will end the current fiscal year on June 30 with a $1.2-billion surplus, about $250 million more than the Deukmejian Administration has been saying.

The Democratic treasurer said that carrying the surplus into the next fiscal year will leave the reserve about $500 million higher than Deukmejian is estimating in his proposed $33.6-billion budget.

Legislative Analyst William G. Hamm, the Legislature’s nonpartisan budget adviser, agreed with Unruh that Deukmejian’s predictions of revenues are on the low side.

“We believe it would be appropriate for the Legislature to increase these estimates by $465 million,” he said.

Deukmejian has said he does not think that state revenues are healthy enough to consider a cut this year, although he has added that he will consider any tax relief proposals sent to him by the Legislature.

Democrats believe that Deukmejian is building up a surplus in order to make a tax cut proposal next year, when he is up for reelection, and much of the focus of the committee hearing centered on the Administration’s revenue estimates.

The differences are caused primarily by the way budget officials view the level of economic activity in California over the next 18 months, with Hamm declaring that the Administration’s forecasts are too conservative.

State Finance Director Jesse R. Huff, Deukmejian’s budget writer, testified that he believes that the Administration’s view of economic performance is in line with private economic forecasts.

But Hamm, who followed Huff, said that differences are so great between the Administration’s forecasts and some others that if the generally well-regarded forecast issued by the UCLA Graduate School of Business is correct, “revenues will be more than $1 billion higher than what the budget shows.”

Hamm, at one point accusing the Administration of “deceptive budgeting,” said that much of the increase in revenues would be offset by what he said was Deukmejian’s failure to provide enough money in the budget to maintain state programs at current levels. He said that underestimation of revenues would result in “a wash” because expenditures also were underestimated.