Lowered Estimate of State Surplus Cools Off Talk of Tax Cut

The Commission on State Finance brought its estimates of the state budget surplus closely in line with those of Gov. George Deukmejian Wednesday, throwing a damper on talk of a possible general tax cut next year.

“We’re about as close as you can get,” said state Treasurer Jesse M. Unruh, chairman of the seven-member commission, which issues quarterly estimates of state revenues and expenditures.

The commission’s earlier forecast, in December, showed a surplus at the end of the upcoming 1985-86 fiscal year that was $340 million higher than the governor’s prediction. Unofficial estimates from some members of the commission were that the difference could be as much as $500 million or more.

With the governor projecting a $1-billion surplus for next year, the prospect of substantial revenues sitting in the treasury sparked talk by both Republican and Democratic legislators of a general tax cut next year.

At least a dozen tax-cut bills are now in the legislative hopper.

Difference Now Small

But the report released Wednesday showed that the commission’s figure is now only $71 million above Deukmejian’s estimate, a margin of difference so small that those who want to cut taxes will have difficulty finding the extra revenues to finance a tax reduction.

There is general agreement by the governor and legislative budget writers that the $1 billion in surplus revenues should be maintained as a reserve in Deukmejian’s proposed $33.6-billion 1985-86 budget. Thus, any funds for a tax cut would have to come from revenues above that amount.

Commission Secretary James E. Burton said the biggest factor in the commission’s downward revision of the surplus are drains on the state treasury that were not anticipated in December.

One of the biggest is a budget deficiency in funding for public school programs that he estimated will cost the state $180 million over the next 15 months.

He said the new expenditure estimates also reflect the $44-million cost of legislation on nursing homes signed by Deukmejian in February.

Burton said the new budget estimates also include an expected expenditure of $81 million to pay for a teachers’ retirement benefit that allows them to take credit for unused sick days.

The commission expects tax revenues, pushed by a robust economy, to grow at a healthy rate for the rest of 1985. But Unruh said “a slowdown appears on the horizon for 1986” that could depress tax revenues.

Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate budget committee and a member of the commission, said of the new revenue and expenditure projections: “I’m not convinced. I think the figures are too conservative.

Budget Surplus

The Commission on State Finance has lowered its estimate of what the state budget surplus will be at the end of the 1985-86 fiscal year, citing higher than expected government spending. The commission and Gov. George Deukmejian are now in agreement that the surplus at year’s end will be about $1.1 billion. Areas of increased spending are:

- Funding deficiency for public school programs--$180 million.

- Teachers’ sick leave retirement benefit--$81 million.

- Reimbursement to school districts for voluntary school desegregation--$60 million.

- Nursing care legislation signed by the governor--$44 million.

- Money bills expected to be approved by the Legislature--$81 million.