Davis’ Red Ink Findings Add Up to Budget Battle

California Controller Gray Davis, disputing Gov. George Deukmejian’s contention that state government is operating in the black, said Monday that the state rang up a $401.6-million deficit during the last fiscal year and warned there could be more red ink this year.

Davis, a possible Democratic candidate for governor in 1990, criticized the Republican chief executive for “playing it too close to the edge” and letting the state lapse into a deficit.

“The state is not broke, but it is overdrawn,” Davis said in releasing his preliminary annual budget report for the fiscal year that ended June 30. “The governor has failed to balance the state’s checkbook.”

Cites Different Figure

Davis added that because of the deficit, the budget reserve that Deukmejian insists stands at $600 million “has shrunk to zero.”

In response, the governor accused Davis of “grandstanding” and being “irresponsible.”

Deukmejian, in a statement released by his office while he was in Alabama attending a Republican governors conference, said that Davis “needs a course in elementary budgeting.” The governor continued to insist that the state is operating in the black, saying that Davis counted in his deficit figures money that has not yet been spent and may not be for many months.

“(Davis’) irresponsible statement is more political grandstanding at the expense of California’s fiscal reputation,” Deukmejian said.

‘Spent Us Into the Red’

Davis, who in the past has clashed frequently with the governor, replied that “the governor is apparently embarrassed by the report and he should be. . . . The controller’s report is the final word on the condition of state finances and it says the governor has spent us into the red. There is no way he can talk his way out of that.”

Deukmejian argued that the state ended the last fiscal year $38 million in the black, rather than with the deficit Davis cited. Deukmejian’s current $44-billion budget shows a balance of $600 million in the special “rainy day” reserve that is set aside to pay for unexpected emergencies.

Deukmejian’s estimates of the reserve are backed up by the Commission on State Finance, which pegs the reserve at $568 million. “We don’t agree with the controller,” said Gail Greer Lyle, executive secretary of the commission. Lyle said while there is a chance for a deficit, she thinks it will not be nearly as large as Davis is predicting it will be.

Boiled down, what Davis is saying is that tax collections and other revenues came in $401.6 million below the legal amount the state is obligated to pay out under last year’s budget. The assessment was made in the preliminary report released annually on the budget. A final report will not be issued until January or February, but historically there is usually very little change between preliminary and final versions of the report.

The governor is crying foul because Davis is counting in his deficit figure about $270 million in appropriations that were approved by the Legislature--but were never spent.

One such appropriation is $39 million that sits in a special tax rebate account. The money was left after $1.1 billion was rebated to taxpayers last year.

Davis argues that the $39 million, part of the rebate that was left unclaimed, is a legal obligation that the state still owes.

State Finance Director Jesse R. Huff said that Deukmejian and legislative leaders agreed several months ago that they believe taxpayers received all that they had coming and the money should now be returned to the state general fund.

Another $79 million represents money the governor and Legislature agreed to lend from the general fund to finance prison and University of California construction projects already approved under various bond issues.

The money is lent from the general fund and repaid when bonds are issued. But claims on the money have not yet been made, so Huff and Deukmejian argue that it is irresponsible for Davis to assert that this money will come out of the reserve.

Davis, however, insists that he is legally obligated to pay all of that money.

The controller also notes that $132 million of the money he counts in the deficit represents hard dollars that have already been spent to pay last year’s bills. The money had to be taken from current revenues, meaning that there will be less money to go around to finance this year’s budget.

Reducing the governor’s reserve by $132 million, the amount of hard dollars that have actually been spent, would drop it to $468 million. But if the entire $401.6 million in obligations come due, the reserve will be reduced to $200 million. Since the state is obligated to give schools $215 million under Proposition 98, the school funding initiative approved by voters earlier this month, another deficit could result, Davis argued.