Study Projects Lean Year for State Finances

Already financially hamstrung state government could be $795 million short of what it will need to run a bare-bones spending program in the new budget year, a study by the Commission on State Finance projected Wednesday.

The report supports growing evidence that 1990 will be a lean year. It was released just a week before Gov. George Deukmejian is expected to unveil a proposed $50-billion-plus budget for the new year that Administration officials have been hinting will call for deep cuts in health and welfare programs.

Gail Greer Lyle, the commission’s executive secretary, said she and her staff expect the state’s tax revenues to grow at a relatively healthy 7.7% during the 1990-91 budget year. But, she said, expenditures are expected to grow by an even higher 8.2%.

The commission’s report said that actual tax revenues will be $351 million short of what will be required to meet state spending needs. The shortfall grows to $795 million if Deukmejian decides to rebuild the state budget reserve to $1.3 billion, something the Republican governor has insisted on in recent years.

That means that, at best, the governor and Legislature would have to cut $351 million from various state programs to bring revenues into line with expenditures and, at worst, cut out a full $795 million.

The cuts would come on top of already deep reductions in recent years on spending on physician and hospital services for the poor, mental health and social service programs.

Lyle said effects of the Oct. 17 Bay Area earthquake will have a “very minimal impact” on the California economy but a pronounced one on state finances. She said Deukmejian will have to find an extra $250 million to finance earthquake repairs even with the temporary quarter-cent sales tax increase passed by the Legislature in November to finance the state’s earthquake aid package.

The Administration offered no response to the commission’s report.

In other findings, the nonpartisan commission gave supporters of a constitutional amendment to lift the voter-approved spending limit more ammunition by estimating that over the next 10 years tax revenues will be $22.6 billion higher than the governor and Legislature will legally be able to spend on state operations.

The bulk of the $22.6-billion surplus would go to public schools and community colleges under provisions of Proposition 98, the commission said. What remains of the money would be rebated to taxpayers.

But don’t hold your breath waiting for a check. The big surpluses would not begin to develop until the last half of the decade. And if the proposed constitutional amendment backed by Deukmejian and the Legislature passes in June, there will be no surpluses at all, according to the report.

While Deukmejian’s budget will contain the most authoritative overview of California’s finances, revenue and expenditure projections by the Republican-dominated commission in recent years have been in close agreement with the governor’s.

The commission has seven members, six of whom are elected officeholders. Only two members of the commission--state Treasurer Thomas W. Hayes and Assemblyman William P. Baker (R-Danville)--attended Wednesday’s meeting. Key aides served as proxies for the absent members--Controller Gray Davis, Sens. Alfred E. Alquist (D-San Jose) and Ken Maddy (R-Fresno), Assemblyman John Vasconcellos (D-San Jose) and state Finance Director Jesse R. Huff.