Agency Budget Cuts Ordered by Deukmejian

Gov. George Deukmejian ordered a 2% cut in administrative costs of nearly all state operations Monday in what he said is the “first step” of his effort to get a handle on the state’s $900-million budget shortage.

“This is not a crisis, but it does require immediate action on our part to ensure that the state of California continues to live within its means,” Deukmejian said in a letter to state cabinet officers and department directors.

The only exceptions to the executive order are state agencies that provide 24-hour staffing, including the Department of Corrections, the California Youth Authority and state hospitals that provide round-the-clock medical care.

‘Golden Handshake’

Along with the budget cuts, the governor ordered the re-establishment of the “golden handshake” program that he hopes will lead to a number of early retirements by state employees.

The Republican chief executive, referring to the action as “a mid-year correction,” said his goal is to save $100 million over the last six months of the current fiscal year, which ends June 30.

The actions are designed to stem a budget problem created by higher-than-expected spending on Medi-Cal, prisons and other programs and disappointingly low tax receipts resulting from overly optimistic revenue forecasts by Deukmejian Administration officials.

State officials have estimated that their earlier revenue projections could be off as much as $500 million, while spending could be $400 million higher than previously expected.

With no action on the part of the governor, the shortfall would virtually eliminate the state’s $1-billion reserve. Deukmejian said Monday that he would “use some of the reserve” to make up losses but hopes that budget cuts would leave some of it intact. Administration officials said earlier that they hoped to end 1986 with a surplus of $400 million to $600 million.

Deukmejian’s letter was the first formal response to the budget problem since Administration officials revealed the shortfall last week.

It comes seven weeks after the conclusion of a reelection campaign in which Deukmejian spoke repeatedly about the surplus and his success as a fiscal manager in creating the reserve.

Deukmejian stopped short of ordering a hiring freeze, a budget-cutting tool he has used in the past.

The 2% cut will apply only to the relatively limited $7.6 billion designated for administrative operations in this year’s $37-billion state budget.

By going after administrative expenses, Deukmejian was able to avoid cuts, for the time being, in state spending on health, education and welfare services.

‘Shared Commitment’

Deukmejian’s order applies directly to state agency heads, but he also asked other elected officials to voluntarily trim their spending by 2% “as an indication of our shared commitment to the people to do what is necessary to assure the fiscal stability of state government operations.”

State School Supt. Bill Honig said he will comply, although the cuts will hurt.

“The governor has asked every department for a 2% cut, which would represent a 4% cut if it were spread out over a whole year, instead of the last six months of the current year. That is a substantial cut,” Honig said.

“We will play ball if it is an emergency situation. It will obviously hurt our program to put into place reforms that we were just getting off the ground, such as updating principals and teachers on curriculum changes,” Honig said.

Although the state will spend $17 billion on public schools this year, the part of the budget affected by the cutback is only $36 million of that total, meaning a cut of about $720,000, Honig said.

Chief Deputy Atty. Gen. Nelson Kempsky, speaking for Atty. Gen. John Van de Kamp, said, “We will do our best to comply with the governor. Right now, we are reviewing our options.”

Kempsky said a 2% cut in the attorney general’s $143-million budget would mean a cut of $2.9 million. “That is the rough equivalent of not filling 60 positions we now have vacant,” he said.

‘Use a Scalpel’

One Administration official, Dr. Kenneth W. Kizer, director of the Department of Health Services, noted that each agency head would be allowed considerable discretion in deciding just what cuts to make. “This allows us to use a scalpel rather than an ax,” Kizer said through a department spokesman. Kizer later added that he would rather have the choice of making the cuts himself than have a hiring freeze.

Larry Bauman, spokesman for the California State Employees’ Assn., the state’s largest employee bargaining unit, said the union is pleased that the governor is making the cutback without layoffs, while at the same time offering the golden handshake early retirement option. Bauman cautioned that the program could lead to understaffing in some departments, which might affect the delivery of services to the public.

Under the early retirement program, state employees will receive an additional two years of service credit if they decide to retire while the governor’s executive order is in effect, meaning that an employee with 28 years on the job would be credited with 30 years.

Department of Finance officials, in estimates released last week, said tax revenues were off by $200 million in November and could be down by as much as $500 million by June. Although the state’s economy is growing and relatively healthy, the growth is not as great as the state officials thought.

The biggest budget overrun is in the $5-billion Medi-Cal program, which officials say is running about 10% a month over budget. The total deficit by June could be $280 million.

Deukmejian told state officials that he intends to take steps soon to reduce the Medi-Cal deficiency, but did not say what those actions would be.