The Reserve That Isn’t

Gov. George Deukmejian touts himself as a fiscal conservative, and he has a $1-billion reserve in the state’s coffers to prove it. This will be the third year in a row that the governor has secured such a reserve, after riding out the fiscal crisis that he inherited from his predecessor. Budget reserves make good sense, but the governor’s practice suggests that his interest in them is more political than fiscal. Indeed, his reserves have come at the expense of adequately funded budgets.

The reserve is necessary, the governor says, to take care of unforeseen “economic emergencies.” There is nothing magic about a billion dollars; it is a wholly arbitrary figure. Maintaining some reserve is prudent, though, as minor fluctuations in the state’s economy can mean much less revenue for the government. That is the lesson from the 1982-83 recession, when the state government lost $4 billion in expected revenue. This year California could lose a billion dollars in federal funds to the Gramm-Rudman ax. The reserve has come in handy for a number of emergencies, like the spring floods that ravaged Northern California at a cost of $115 million.

California’s rainy-day fund is not excessively large. Twenty-four states maintain budget reserves; some are, in relative terms, larger than California’s. The governor’s budget surplus this year will be 3% of the total state budget; most fiscal experts recommend a reserve of about 5%.

Increasingly, though, the governor has used the reserve for purposes other than economic emergencies. In June, the end of the 1985-86 fiscal year, more than $350 billion was spent to bail out programs that weren’t given enough money in the first place. Throughout the year, $250 million more was spent on programs ranging from aid to rural counties to equalization of school funds. All told, the reserve at year’s end was only $374 million--hardly a reserve at all.

Deficiency spending is nothing new, but Deukmejian has practiced it to a greater extent than his predecessors. In fiscal 1984-85, deficiency spending amounted to $417 million--the biggest total ever. For two years in a row the governor has underestimated by nearly $60 million the needs of Medi-Cal. As a percentage of state spending, Deukmejian’s deficiencies have been larger than those of Gov. Edmund G. Brown Jr.

And he is at it again. The nonpartisan legislative analyst estimates that this year’s budget is under-funded by more than $360 million. If that holds true, next spring the governor will again have to dip into the reserve to pay off bills.

Some of the program shortfalls, to be sure, are due to inaccurate forecasting. But the governor has repeatedly ignored the warnings of the legislative analyst and the Legislature itself that his budgets were underfunded. Indeed, with his veto he has resisted the Legislature’s attempts at the start of the budget process to make his budgets more fiscally sound. To get this year’s billion, he slashed from the budget more than $700 million, mostly social-welfare spending.

It appears that the governor has found it politically expedient to submit lean spending plans and fat reserves at budget time, when everyone is watching, and come back later to pay the rest. The governor can adequately fund his budget or keep a real billion-dollar reserve. He cannot do both.