Finance Chief Vows to Keep California Out of Red in ’88

Gov. George Deukmejian’s chief budget adviser said Tuesday that he is committed to taking “whatever steps are necessary,” including making budget cuts, to keep the state solvent this year, despite an unexpected drop of as much as $1 billion in tax revenues.

The promise to keep the state in the black was made by state Finance Director Jesse R. Huff during a briefing on the fiscal crisis to members of the Assembly Ways and Means Committee. It was Huff’s first appearance before a legislative committee since the projected decline in revenues was revealed to the public a week ago.

Huff’s approach immediately put him at odds with Assembly Speaker Willie Brown (D-San Francisco), who earlier in the day said he did not think the state could find a cure for the projected budget shortfall during the two months that remain in the current fiscal year.

Brown told reporters at a press conference that he thinks there is no way for the state to end the current fiscal year with anything other than a deficit. He said the shortfall should be “rolled over” into the new fiscal year that will begin July 1.

The approach is similar to one taken by Deukmejian and the Legislature in 1983, when they rolled a $1-billion budget deficit from one year to the next and eventually got the state back into the black through a combination of tax and fee increases and budget cuts. At one point, state officials considered issuing IOUs to pay bills.

“At this stage of the game you’re in desperate shape. There is absolutely nothing we can pass, I don’t think, that can produce the amount of revenue that would allow you to make up (for the revenue drop),” Brown said.

In the meantime, Brown said all legislation pending in the Assembly and Senate that proposes to spend money “is in serious jeopardy. . . .”

“There obviously isn’t any money,” he said.

The possibility of a deficit--or a tax increase to erase it--would create enormous political problems for Deukmejian, who campaigned for his second term in 1986 on how well he managed the earlier fiscal crisis.

Deukmejian still boasts in speech after speech that he cured the state’s fiscal woes without a general tax increase by using strong fiscal management and making vigorous use of his veto. Deukmejian’s often-used campaign slogan in 1986 was that he turned the state from “IOU to AOK.”

Deukmejian has indicated that he plans to seek reelection to a third term in 1990. Some aides have privately indicated that they would love to campaign against Democrat Dianne Feinstein, the former mayor of San Francisco, because she left the city with a budget deficit.

This year’s problem surfaced last week when tax officials discovered that personal income tax receipts coming into the state treasury were as much as $1 billion below what state officials had been counting on to balance the state’s current $41.9-billion budget by June 30. The news was especially surprising because just six months ago, California residents were given a $1.1-billion income tax rebate because of a budget surplus.

Huff has been estimating that the shortfall could be $800 million, but Legislative Analyst Elizabeth G. Hill, the Legislature’s nonpartisan budget adviser, says it could be as high as $1.1 billion. A revenue loss of that magnitude would wipe out the nearly $1 billion budget reserve Deukmejian had been hoping to end the fiscal year with and leave the state with either a small surplus or a deficit, depending on who is right.

On the Spot

Huff, because he is responsible for making the governor’s revenue projections, has been on the spot all week. After he left the Ways and Means Committee hearing room, he told reporters that he thought his job was secure, despite speculation in the Capitol that he might be replaced.

“I’ve been asked a couple of times whether I am in trouble,” Huff said. “I don’t think I am; no one’s told me that I am. We’ll leave it at that.”

During the hearing, Huff told legislators that he will release a new set of budget projections within two weeks and that when that happens, “we will propose . . . whatever steps are necessary to insure” that the state ends the fiscal year in the black.

He would not speculate on what cuts, if any, he will propose.

Most speculation about causes of the problem has centered on the possibility that income taxes are lower because of huge losses resulting from last October’s stock market crash or because of faulty arithmetic used when the Legislature overhauled the state income tax system last year to bring state tax codes into conformity with changes in federal tax law made in 1986.

Governor Content

Deukmejian, speaking to reporters earlier in the day, said he was content, for the time being, to wait until Huff and other state officials report to him on the magnitude of the shortfall.

“There is no specific discussion about any cuts at this particular point,” Deukmejian said.

The governor said, “We are going to be looking at all of the options we might have available.”

He said those options might include tax increases for some Californians if officials find out that some taxpayers received unexpected windfalls as a result of last year’s tax legislation.

“If it needs to be corrected, then we will correct it,” he said.