State Officials Dispute Adviser’s Warning on Government Spending

State government is spending money so fast that it is likely to exceed the constitutional spending limit by $700 million by the end of the fiscal year on June 30, the Legislature’s chief budget adviser warned Wednesday.

State Finance Director Jess Huff, however, branded the warning as “absolutely absurd,” contending that the state is about $55 million under the voter-approved limit, and would remain so until well into the next fiscal year.

The report by nonpartisan Legislative Analyst Elizabeth Hill, which was requested by Senate President Pro Tem David A. Roberti (D-Los Angeles), took exception to calculations made by Huff and other financial advisers to Gov. George Deukmejian.

Limit Approved by Voters

If Hill is correct, the state sometime in the next two years would be required to make drastic spending cuts and return the savings to taxpayers in rebates or reduced taxes. However, Hill said the problem could be easily eliminated if lawmakers quickly pass legislation that would revise the way the spending limit is calculated.

The dispute reflects the complexity and potential problems posed by the spending limit, which was overwhelmingly approved by voters in 1979 but is only now beginning to take hold.

The ballot initiative, designed by tax crusader Paul Gann and enacted as Proposition 4, allows all levels of government to increase spending under a complex formula that takes into account population growth and either the national inflation rate or the increase in per-capita income--whichever is lower. The equivalent of any money spent above that level must be returned to taxpayers within two years.

The low inflation rate and recent economic growth in California pushed state revenues closer to the limit much faster than anyone expected.

Despite the possibility of severe cuts in state services, Deukmejian remains a strong supporter of the spending limit law and earlier this year hinted that a tax rebate could well come sometime soon. However, some of his key supporters who helped draft the initiative are leading a campaign to rewrite it so that highway construction funds would not be included in the spending limit.

Democratic legislative leaders see the limits as a potent tool that Deukmejian could use to justify vetoes of spending bills. Quietly, the Democrats have been searching for ways to protect financing of such pet programs as schools and transportation.

Earlier this week, Assembly Speaker Willie Brown (D-San Francisco) said he considered the spending limit to be the Legislature’s “most immediate, pressing issue.”

The Deukmejian Administration has consistently maintained that the current state budget is well within the spending limits. But Hill said Department of Finance officials discovered a $708-million error last May in the way they had calculated how much money would be subject to the limit.

To make up for what appeared to be an excessive level of spending, they simply revised their calculations, excluding several major expenditures from the limits, she said. Excluded were interest from short-term borrowing, payments to the State Teachers Retirement Program and reimbursement to local school districts for the costs of desegregation programs.

In her review, Hill said she found that in at least two of those cases, exempting the expenditures from the limits was invalid.

Stands by Calculations

Assistant Finance Director Lois Wallace said the Administration stands by its calculations and she questioned why the issue is being raised long after the calculations were made and included in the state budget approved by the Legislature and signed by Deukmejian.

“You have to remember, the Legislature in June agreed to our limit and did not have any problems at that time with our methodology,” Wallace said.

She also noted that the law allows the governor to determine the spending limits and any challenge would have to come through the courts.

John Vickerman, chief deputy legislative analyst, agreed that the Administration is likely to have the last say unless a lawsuit is filed.

“There is no policeman in the Gann measure,” he said. “We are in a test period now of finding out how the (spending limit) works.”