Surplus Is Not <i> That</i> Much

It was not many years back that California had its first $1-billion state budget. The figure was so impressive that some capital correspondents went to extremes trying to demonstrate just what a billion meant. One billion dollar bills laid end to end would stretch from here to the Moon--or was it Jupiter? They would go around the world x-number of times. Or it would mean about $50 for every man, woman and child in California at the time.

Times change, and now the state is expecting a budget surplus of about $1 billion at the end of the next fiscal year. Politicians get fidgety with that much loose money in the treasury, particularly since a big budget surplus in 1978 gave some impetus to the tax rebellion of Proposition 13. Some prominent legislators now are proposing disposal of the surplus by means of a state tax cut or rebate.

But think about how small a billion dollars can seem. When measured against the $34-billion 1985-86 state budget, it amounts to less than 3%. Most financial consultants suggest that the average family keep about 5% of its annual income in an emergency fund. Gov. George Deukmejian proposes retention of the 3% cushion for the state’s own reserve fund for unexpected needs.

A 3% reserve is prudent, even if the state Administration’s budget estimates do turn out to be somewhat conservative. The governor’s budget, for instance, projects economic growth of 3.5% for the year, compared with the Reagan Administration’s estimate of about 4% for roughly the same period. Last week the Commission on State Finance scaled back its earlier estimates of the budget surplus, bringing its projection roughly into line with the governor’s.

A sudden downturn in the economy, which some economists expect in 1986, could eat up that surplus in a hurry. The budget year stretches to June 30, 1986, and forecasting that far in advance is always a bit chancy.

Democrats fear that Deukmejian will propose a tax reduction in 1986 to bolster his reelection campaign. They want to preempt him by doing it themselves now. But there is just not enough extra money available to make the idea practical this year. The notion of a tax cut should be put quietly to rest for at least another year.