Governor’s Budget Asks $47.8 Billion : Not Adequate, He Says, Citing Restrictions

Gov. George Deukmejian sent the Legislature a $47.8-billion budget proposal for the next fiscal year Tuesday, acknowledging that it does not “adequately” meet state needs although it represents a 5.9% spending increase.

Deukmejian’s assessment reflected his unhappiness with increasing budget restrictions, including the effects of Proposition 98, the school funding initiative voters passed last November. That measure sets minimum spending levels for education.

The Republican governor made the most of another budget initiative, however, recommending that $925 million in new tobacco tax revenues, to be generated during the next 18 months by Proposition 99, be divided among a multitude of state programs.

Family Planning Out

Although the budget contains hefty hikes in state support of public schools and prisons, it slashes other programs and eliminates the state office of family planning, a $36-million-a-year project that provides birth control and abortion counseling. The budget also contains no money to meet legal requirements that it provide cost-of-living increases for welfare recipients and for aged, blind and disabled people receiving aid. These increases can be withheld only with the consent of the Legislature.

Deukmejian complained that the cuts are necessary because not enough money is left to go around after schools get the funds coming to them under Proposition 98.

“Despite the fact that our economy is booming and the budget is the largest ever, the spending plan I am proposing today does not adequately meet all the needs of our people--not because the spending is too low, but because the restrictions placed on us in the budget process are too many,” Deukmejian said during a breakfast speech to members of Sacramento’s Comstock Club on Tuesday.

Deukmejian announced earlier that he will ask the Legislature to consider revising restrictive budget policies, such as numerous “entitlements,” or guaranteed annual program increases tied to the rate of inflation.

To meet the provisions of Proposition 98, which requires that kindergarten through high school and community college programs receive roughly 40% of the state’s $38-billion general fund, the budget provides schools with $15.1 billion during next fiscal year, an 8% increase.

Of that sum, $400 million would come from Proposition 98. An additional $116-million Proposition 98 bonus, according to the Deukmejian Administration, will be provided for public schools during the current fiscal year.

The budget also contains a $1.1-billion reserve--a rainy-day fund that Deukmejian insists is necessary as a matter of “common sense.”

The state is expected to end the current fiscal year June 30 with $3 million in the reserve fund that stood at $1.1 billion two years ago. As a result, rebuilding the reserve will take $1.1 billion of the $2.8 billion in new sales, income and other tax receipts the state expects to receive in the 1989-90 fiscal year, which begins July 1.

$66.2-Billion Total

Counting federal funds that will be available to the state, spending under Deukmejian’s plan actually would total $66.2 billion.

The Legislature will conduct months of hearings on the budget before it returns the spending plan to Deukmejian in June. The Legislature is required by the California Constitution to complete its work on the budget by June 15, but it has met that deadline only five times in the last 20 years.

Some of the budget recommendations, such as elimination of cost-of-living increases for welfare recipients, are expected to be extremely difficult for the Democratic-controlled Legislature to accept.

Senate President Pro Tem David A. Roberti (D-Los Angeles) said he would not automatically reject Deukmejian’s proposals, but he indicated that the governor faces a fight in the Legislature.

Roberti called the governor’s budget “an opening gambit, not a final offer.”

The Senate leader noted that Deukmejian opposed Proposition 98, the school funding measure. “(Deukmejian) really wants to make the point that you can’t have increased educational services and maintain health services at the same time. We disagree,” Roberti said.

‘Expectations . . . Dashed’

“The high expectations offered by the governor in his State of the State address (Monday) were dashed on the rocks of budget reality. I had hoped for more,” said John Vasconcellos (D-Santa Clara), chairman of the Assembly Ways and Means Committee. He is to conduct hearings on the budget.

“This budget is a disaster. Penny wise and pound foolish, it represents a cannibalization of California’s least fortunate. . . . I will not allow this budget to be implemented in this fashion,” he said.

State Finance Director Jesse R. Huff, Deukmejian’s chief fiscal adviser, called the proposed budget the “most difficult” one he has drafted.

Propositions 98 and 99, with their legal restrictions and requirements, complicated an already tight budget that was strained to the breaking point last year by the inflexibility of the voter-approved limit on state government spending and an unexpected $1-billion drop in corporate and personal income tax receipts.

The drop in tax revenues resulted from miscalculations of the effect of legislation enacted in 1987 conforming state tax codes to federal statutes.

Deukmejian tried last May to remedy the problem by proposing new tax levies that would have raised an additional $800 million annually. The governor dropped the plan when he found little support for it in the Legislature, and since then he has said he will not support a tax increase to raise revenues.

No Tax Increases

Huff, during a nearly 2 1/2-hour briefing for reporters in the Capitol, said, “The governor has not changed his position on tax increases. We are not going to be proposing any tax increases.”

One of the most controversial parts of the proposed budget is the one dealing with the governor’s plan to spend tobacco tax revenues stemming from Proposition 99. It was immediately criticized by the coalition of groups that sponsored the initiative measure.

The initiative raised the tax on cigarettes 25 cents a pack and required comparable increases in taxes on cigars and other tobacco products. It is estimated that the increases will raise $300 million during the remaining six months of this fiscal year and $625 million during the next budget year.

Provisions of the initiative require that the money is to be used for the treatment and research of tobacco-related diseases, for the support of school and community education programs about smoking and for fire prevention and environmental conservation programs.

Deukmejian and his budget writers liberally interpreted the initiative and proposed distributing the nearly $1 billion in a variety of programs.

Care for Indigents

The largest single expenditure is a proposal to earmark $258.9 million to finance a new California Health Care for Indigents Program. It would finance medical services to poor people who otherwise cannot afford medical care.

The budget also proposes to cut $258.7 million from the state-supported medically indigent services program.

Sponsors of the initiative complained that the substitution of programs is a thinly disguised effort by Deukmejian to finance a state program with tobacco tax revenues. Huff denied this, although he conceded that the same recipients receiving care under the medically indigent program to be eliminated could receive aid under the new program to be created with tobacco tax money.

Deukmejian put teeth behind his proposals to cut various health and welfare programs by threatening a series of vetoes of programs popular with Democrats.

Among them are a possible $200-million reduction in aid to county mental health programs, a $25-million cut in child welfare services, $16 million in reductions in alcohol and drug treatment programs and numerous other possible vetoes in nutrition, senior citizen, prenatal and other programs.

Other Cuts Sought

In order to avoid those vetoes, Deukmejian said, he wants legislation passed allowing him to cut $337 million from the health and welfare programs protected by law.

The governor, during his breakfast speech, placed blame for the budget problem on Proposition 98.

“I don’t wish to have to make any of these reductions. But if the Legislature does not support such actions, I fear that the alternative will be much worse,” Deukmejian said.

State Supt. of Public Instruction Bill Honig, one of the sponsors of Proposition 98, said, “This is not a huge, inordinate raid on the treasury by the schools.” Honig also said it is unfair for Deukmejian to blame the schools for health and welfare program cuts. “If we start pitting health people and county people against schools, we all lose,” he said.

Under Deukmejian’s budget, the Department of Corrections would get a 12.8% increase, the largest percentage boost of any major department. The spending proposal would boost the corrections budget by $211 million to $1.9 billion.

Huff said the increase is necessary to keep up with the exploding inmate population in state prisons. There are 75,000 inmates in state prisons. By June 30, 1990, there are expected to be 86,000.

The state’s highway funding program remains a big problem for Deukmejian.

Highway Deficit

Funded by revenues from the gasoline tax and other highway user fees, the program is operating with a huge deficit because revenues have not kept pace with inflation and demands for highway improvements.

The governor had been counting on voter approval of a $1-billion transportation bond measure he backed in the June, 1988, primary election. When voters rejected the measure, it left the highway funding program with a $666-million shortfall for the new fiscal year.

The budget contains $3.9 billion for transportation projects, about 1% more than it receives now. The Administration had to delay $360 million in proposed highway construction and improvement projects for a year and juggle various accounts to come up with the money to finance next year’s projects.

“As we see it, we will have enough to sustain our program through 1990,” Huff said.

The budget also contains money for hiring 150 new California Highway Patrol officers.

Personal Income Tax: $16,363: 34.2%

Sales Tax: $13,448: 28.2%

Bank and Corporation Taxes: $5,585: 11.7%

Bond Revenue and Others: $4,978: 10.4%

Highway Users Tax: $2,526: 5.3%

Motor Vehicle License Fees: $2,165: 4.5%

Insurance Tax: $1,279: 2.7%

Cigarette Tax: $863: 1.8%

Estate, inheritance and Gift Taxes: $421: .9%

Liquor Tax: $126: .3%