Put It to Proper Use

Just as Gov. George Deukmejian and legislative Democrats were about to begin their annual slugfest over the budget, $2.5 billion fell out of the sky over Sacramento. The latest state tax windfall will not automatically solve the problems inherent in the governor’s proposed $48-billion budget for the fiscal year starting July 1. But there’s nothing like $2.5 billion to generate comity in the Capitol.

The good news is that the Republican governor pledged to work with the Legislature to allocate the funds to critical state programs, including California’s deteriorating transportation system. The first step Deukmejian should take is to abandon his penny-wise, pound-foolish approach to balancing the budget with cuts in programs to help the aged, blind, disabled, the poor and the sick in California.

Then, he and the lawmakers need to work their way around two voter-passed initiatives that ordinarily would prevent them from spending the found money on the state’s most urgent needs. The unanticipated tax revenues normally could not be spent because they would push the budget over the Gann spending limits adopted by voter initiative in 1979. That restriction is even further complicated by Proposition 98 of last year. Under the proposition, 40% of the $2.5 billion would automatically go to education from kindergarten through the community colleges. The next $600 million also would go to schools, regardless of the Gann limit. Without changes in Gann, however, some might ultimately have to be returned to taxpayers rather than used to finance essential public services.

The Legislature can suspend the Gann limit on a one-time basis. But one key to a reasonable allocation of the windfall will be negotiations with Bill Honig, the state superintendent of public instruction and the leading advocate of the Proposition 98 campaign. Honig already has indicated a willingness to compromise on a long-term reform of the Gann limit.

Certainly education needs the money. But fairness dictates in this period of state budget crisis that reasonable amounts also go to prisons, health care, mental health, aid to the poor and elderly, local government, highway maintenance and other programs that Deukmejian had attempted to cut.

State officials earlier announced that tax receipts for the current budget year were running $750 million above previous estimates. On Wednesday, the governor announced that the collections were running $1.1 billion higher for this fiscal year and $1.4 billion for the budget year starting July 1. The $1.4 billion would be just about the amount needed to maintain existing state programs, providing most of it did not automatically flow into the education fund.

Officials said the tax receipts are higher because the economy has been stronger than expected. But the administration had also used a conservative revenue estimate this year because of the volatility of tax receipts in recent years, caused in part by federal and state tax reform. In 1987, a surplus of more than $1 billion went back to taxpayers in refunds. Last year, tax receipts ran more than $1 billion below expectations.

The new windfall presents California leaders with a happy opportunity to provide the state with a reasonable spending plan in the coming year, if past partisan differences can be overcome. That should be Sacramento’s first priority. Next is a long-term solution to the budgeting restrictions imposed by the Gann limit and Proposition 98. And then, the governor and Legislature should try to iron out the quirks in the state tax system that are producing this feast-or-famine cycle of tax revenues.