State Finance Panel Predicts $600 Million Less From Windfall

Adding more uncertainty to the Legislature’s budget negotiations, the Commission on State Finance predicted Tuesday that a windfall in state revenues will be $600 million less than the $2.5 billion forecast by the Deukmejian Administration.

The commission, taking a more conservative view of California’s economic future than Deukmejian’s Department of Finance, made the prediction in a quarterly report tracking state revenues and expenditures. It estimated that tax receipts this budget year and next will be $1.9 billion more than previously anticipated rather than the $2.5 billion suggested by the Administration last month.

“While we’re both generally upbeat about the economy, we don’t share the same degree of optimism,” said Gail Greer Lyle, the commission’s executive secretary.

She said that although commission forecasters expect 1989 to be an “exceptionally strong” year, they also believe the state’ economy, following a trend already seen nationally, will begin to slow down.

State Finance Director Jesse R. Huff, who is a member of the commission as well as Gov. George Deukmejian’s chief fiscal adviser, said the primary differences in the two forecasts center around job growth. The commission predicted a leveling off, and his agency forecast continued growth.

“They are practically predicting there aren’t going to be any more new jobs created for the rest of the year,” he said. “That taxes my logic. I may be wrong, but it taxes my logic.”

The commission’s predictions follow a report by Legislative Analyst Elizabeth G. Hill that urged the Legislature in passing a budget later this month to adopt “a less optimistic revenue forecast” than the one being used by the Deukmejian Administration.

In a letter to Sen. Bill Leonard (R-Big Bear), Hill said the Department of Finance, in arriving at the $2.5-billion estimate, was predicting that personal income during 1989 would rise by 10.6%. She said that was “noteworthy” because it would be the largest increase since 1981 and contrasts to an average growth rate of only 8.6% during the 1980s.

Despite the lower forecasts from Hill and the commission, Senate and Assembly budget negotiators are expected to follow tradition and use the Department of Finance estimates when they meet to draft a final spending plan for the state.

Until the announcement by Huff that an unexpected surge in tax revenues had prompted predictions of a $2.5-billion windfall, lawmakers were faced with the prospect of having to make deep cuts in health and welfare programs in order to balance the budget. The windfall is expected to forestall those cuts.

The budget-making process was brought to a standstill Monday night by Assembly Republicans who delayed passage of a spending plan in a dispute over distribution of state financial aid to school districts. Basically, the Republicans want to increase funding allotments for suburban and rural school districts at the expense of big city districts, such as Los Angeles.

On Tuesday, the Republicans remained adamant that they will not let the $49.5-billion budget proposal leave the Assembly floor until they obtained agreements from the Democrats on a mechanism for equalizing school funding.

“I think everybody concedes what we’re asking is only fair,” Assemblyman Pat Nolan (R-Glendale) said. “Our caucus feels until we get more than rhetoric about fairness and get an actual plan that equalizes spending there is no reason to vote for the budget.”

Republicans claim that school districts in Los Angeles and other large cities, where most lawmakers are Democrats, are getting more state money per pupil than mushrooming suburban districts that face similar problems. They complained that money for settling the Los Angeles strike is already contained in the budget in a $427-million unspecified allocation for schools.

Assemblywoman Maxine Waters (D-Los Angles), who helped settle the strike, denied the charge. Other Democrats said they had shown a willingness all along to change the methods of distributing school funds but were not going to do it under duress.