Lawmakers Shocked, Delighted by News of Unexpected Revenues

State legislators, who for months have been engaged in a sometimes-bitter fight with Gov. George Deukmejian over his austere $39.3-billion state budget, said Thursday that they were delighted and even “shocked” to learn that the California treasury could be swelled by an unexpected $1.5 billion in revenues during the current budget year.

Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate Budget and Fiscal Review Committee, said: “We were expecting a revenue increase somewhere around $500 million. It’s a shock for it to go well over $1 billion, as now seems apparent.”

Alquist was reacting to the latest round of good budget news--an assessment Thursday by the legislative analyst’s office that the state was generating at least $1.5 billion more in tax revenues than had been predicted by Deukmejian and the Department of Finance.

It supported a forecast on Wednesday by the Commission on State Finance that state revenues would be up by $1.5 billion during the current budget year, which ends June 30. The commission said the state would finish the year with $958 million more in the treasury than it could spend under the spending lid approved by voters in 1979.

Both agencies attributed the upsurge in revenues to two factors: changes in federal tax law enacted by Congress in 1986 and a robust state economy that is expanding faster than economists had predicted. Because of favorable tax rates that existed last year, wealthy taxpayers had incentives to cash in profits and declare investment income for the 1986 tax year.

Official revenue and expenditure estimates still must be made by the Department of Finance. They are expected within two weeks.

But the back-to-back revenue forecasts by the Commission on State Finance and the legislative analyst’s office led key legislators to assume that it is just a matter of time before the Deukmejian Administration comes to the same conclusion.

If the revenue estimates hold up, as they are expected to do, the governor and the Legislature will have to decide whether to give the money back to taxpayers in the form of a rebate or spend it on programs that do not count under the limit, such as repaying voter-approved bonds or passing it along to local governments.

A final accounting for the current fiscal year is still months away, and no payments or rebates would be likely before 1988 at the earliest.

But lawmakers said they were delighted to have to face such a problem. Some lobbyists were already knocking on doors in order to be among the first in line to argue for a portion of the money.

“It’s very good news,” said Assemblyman John Vasconcellos (D-Santa Clara), chairman of the Assembly Ways and Means Committee, of the huge upsurge in revenues.

Vasconcellos said the public wins either way if the money is returned in the form of a direct rebate or it is used to shore up financially struggling school districts and other local government agencies.

Waiting outside Vasconcellos’ office Thursday, hoping to get a few minutes of the legislator’s time to argue that counties should share in the good fortune, was Larry Naake, executive director of the County Supervisors Assn. of California.

“We think this is an opportunity. We hope they’ll see the need and share some of this revenue with us,” said Naake, waiting to present Vasconcellos with a shopping list that includes state assumption of the cost of financing local courts, general financial aid to counties and financial support for medical services for indigent Californians who do not qualify for welfare.

For months, lawmakers operated under the same set of pessimistic revenue projections that Deukmejian used when he made emergency spending cuts in education and other state programs last December.

All spring, the governor has asked lawmakers, “Where is the money going to come from?” whenever they asked for more money for medical services for the poor or increased school aid.

The governor, in his proposed $39.3-billion budget for the next fiscal year that will begin July 1, recommended eliminating several special education programs because he said the state did not have enough money to meet school financial needs. Deukmejian also vetoed an emergency $76.2-million school finance bill in March, saying that the state could not afford the extra money.

Senate President Pro Tem David A. Roberti (D-Los Angeles) said he hopes that the revenue gain will help defuse some of the tension that has built up over budget issues.

“It’s obvious the money is there. We have the money to pay for those education and social services that have been cut back and also give the governor a $1-billion budget reserve. We can do both and we don’t have to raise the taxes of the people of California,” Roberti said, smiling delightedly.

The Senate leader added, “I think the Administration has to lighten up, not be so stubborn, and they’ll see we in the Legislature will be willing to meet them more than halfway.”

Roberti said revenue estimates made by the Department of Finance were so off base that he wondered why the agency even bothered.

Jesse R. Huff, director of the agency and Deukmejian’s Cabinet-level budget adviser, so far has not disputed the revenue estimates. He said Thursday that he was in the process of finishing his own revenue and expenditure estimates.

Huff defended his earlier revenue projections, saying economic forecasters throughout the nation failed to predict the effect the 1986 federal tax act would have on state tax receipts.

“It’s not just something that happened here in California. This is something that forecasters throughout the country failed to anticipate,” he said.

Previously, Huff and the legislative analyst’s office had warned that much of the windfall, which has been tracked for several months, might be the result of a temporary cash-flow phenomenon brought on by taxpayers paying their taxes early to take advantage of the old federal tax deductions.

But state revenues for April alone were $570 million above what the Finance Department had projected, most of that in personal income tax payments, causing analysts to conclude that the huge tax windfall is part of a months-long pattern.