$473-Million Cut in Deukmejian’s Budget Proposed

The Legislature’s chief budget expert Wednesday recommended cutting Gov. George Deukmejian’s proposed $33.6-billion budget by $473 million, zeroing in on planned spending increases at the University of California and the governor’s plans to contract with private agencies for state services.

Legislative Analyst William G. Hamm, in a detailed study of the governor’s budget for the Democrat-controlled Legislature, also recommended raising student fees at both UC and the California State University system.

Hamm’s 1,692-page analysis of the 1985-86 budget will become the point of attack on Deukmejian’s spending plan during upcoming legislative budget hearings, although in the last two years Senate and Assembly fiscal committees have ignored many of Hamm’s recommendations.

Rather than cutting back on the governor’s first two budgets as Hamm had recommended, the committees added $2 billion in additional spending that was vetoed by Deukmejian.

One of Hamm’s recommendations this year is to cut $29.1 million from the University of California’s proposed $5.9-billion budget for next year.

Cost Controls

The biggest reduction would be the $15-million state subsidy to UC teaching hospitals at Davis, Irvine and San Diego. Hamm said the university has not adequately addressed the issue of cost controls at the money-losing hospitals.

Putting the cost-conscious Deukmejian in the unusual position of appearing overly generous, Hamm also suggested reducing state outlays by imposing a $9.5-million increase in UC student fees and reducing the governor’s proposed increase in UC faculty salaries.

Although Deukmejian’s office said it was still studying Hamm’s proposals, Jesse R. Huff, the governor’s top budget adviser, said, “The policy of holding the line on student fees was a conscious policy decision made by the governor, and we will resist those proposals.”

Deukmejian is asking that UC fees be kept at the current level of $1,245 a year for undergraduates and $1,305 for graduate students. Hamm would raise undergraduate fees by $91 and graduate fees by $31.

Hamm also proposed increasing student fees in the Cal State system by $57 for full-time undergraduate and graduate students, from $573 to $630 a year.

At the same time, Hamm said he would increase financial aid for needy students by $2.1 million.

“One of the problems with trying to subsidize poor students by holding down fees is that you can’t help but subsidize the rich students,” he told reporters during a press briefing.

Hamm said Deukmejian’s request for an across-the-board increase of 8.8% for UC faculty salaries was higher than increases at comparable universities and recommended the increase be cut to 7.3%, which he said would save the state $5 million.

Hamm suggested cutting Deukmejian’s proposed 10.5% salary increase for CSU faculty to 10.2%.

The budget adviser also was critical of what the governor claims are cost savings related to contracting with the private sector for services now provided by state employees.

Contracting out is a key part of Deukmejian’s plan to cut 2,869 state jobs next year. Hamm’s proposal would restore 492 jobs while still cutting Deukmejian’s overall budget request by $473 million.

“In many cases we recommend that the positions go back into the budget, not because we are big spenders . . . but because the proposed position reductions will not reduce the cost of state government but force instead departments and agencies to contract for services at higher costs,” he said.

For example, Hamm cited a $360,000 contract by the Energy Commission for a private survey of energy data that he said could be done by four graduate students for $103,000.

Focus of Budget

Hamm said Deukmejian appeared to put the budget together by focusing on ways to reduce the number of state employees, rather than by determining the most cost-effective way to handle a particular job.

“For every contracting proposal that comes out a winner on a cost-effective basis, there are at least five that come out losers,” he said.

Huff, Deukmejian’s finance director, conceded that some of the contracting plans have a higher short-term cost for the state but said the Administration expected long-term savings.

Hamm said he believes that the governor was being conservative in his forecast of tax revenues. Critics say they believe that Deukmejian may be deliberately underestimating revenues to build up the state surplus for a possible tax cut next year.

The budget analyst said he does not agree. “I think they are too modest, but I don’t think they are too modest on account of an effort to low-ball the figures,” he said, explaining that many economists are being even more pessimistic about the performance of the economy than the Deukmejian Administration.

He predicted that state revenues over the next 18 months will be $450 million higher than estimates by the Administration.

Proposed Budget Changes

The Legislature’s budget analyst has recommended the following changes in Gov. George Deukmejian’s 1985-86 budget proposal:

- Cut $473 million in total state spending.

- Raise annual fees at the University of California by $91 and at California State University by $57.

- Increase student aid by $2.1 million.

- Give university faculty smaller raises.

- Put 492 deleted state jobs back in the budget.

- Delete $68.5 million for solar energy conservation tax credits.

- Eliminate $21 million to equalize aid between low-income and affluent school districts.

- Reduce Aid to Families With Dependent Children program by $55.8 million.