State Will End Year in Black, Governor Says

Gov. George Deukmejian, seeking to counter worries that the state faces a possible budget deficit, insisted Saturday that California will end the current fiscal year in the black.

Deukmejian, during his weekly radio address, conceded that tax collections during the first few months of the budget year are so low that the state will have to impose automatic spending cuts next year. But he argued that the $1.3-billion reserve in the $54.8-billion state budget “is more than sufficient to handle this lower level of revenues.”

“Based on the information we now have, California will not face a deficit or shortfall this fiscal year.” the governor said. “We will end the year with a balanced budget and a reserve.” Deukmejian ends his second term as governor in January and will not be in office when the fiscal year ends June 30.

The Republican governor’s remarks were a response to warnings by other state officials that California is heading into a deficit.

On Friday, state Finance Director Jesse R. Huff told a legislative committee that three measures on the Nov. 6 ballot--Proposition 128, the so-called “Big Green” initiative; Proposition 129, a law enforcement measure, and Proposition 134, the “nickel-a-drink” alcohol tax increase proposal--will cost the state $460 million during the current year if they pass. Legislative Analyst Elizabeth G. Hill told the same committee that the carry-over balance from the 1989-90 budget year may be substantially less than the $700 million assumed by the governor.

On Saturday, Democratic Controller Gray Davis said it is too early to say definitely whether a deficit is developing. In July, Davis issued a preliminary cash accounting of the 1989-90 fiscal year that showed the state had to borrow $645 million from special accounts to make ends meet. Deukmejian used a different method of accounting to conclude that the state finished $700 million in the black.

“The governor is seeing the tail end of his Administration through rose-colored glasses,” Davis said.

The controller said that when the governor’s race between Democrat Dianne Feinstein and Republican Pete Wilson is decided Nov. 6, the winner should call a “budget summit” within 30 days.

“The impending budget crisis will make last summer’s budget problem seem like child’s play,” predicted Davis, referring to a protracted stalemate between Deukmejian and the Legislature that developed from a $3.6-billion revenue shortfall. Passage of the budget was delayed a record 31 days into the fiscal year.

Out of last summer’s budget fight came legislation creating a so-called “trigger” that kicks in with automatic spending cuts when tax collections are deemed to be more than one-half of 1% short of budget requirements. Huff put state agencies and the Legislature on notice last week that the trigger will kick in because tax receipts are not growing fast enough to keep up with demands for spending.

Deukmejian, during his radio speech, acknowledged that state revenues during the first three months of the budget year were $138 million below assumptions. If that trend continues, he said, state revenues could be $690 million short over a 12-month period.

In another development, state Treasurer Thomas W. Hayes called on Deukmejian and the Legislature to use “fiscal discipline” to keep the budget in line in the face of lower tax revenues. Hayes urged voters to pick and choose among the $5.7-billion worth of bond proposals on the November ballot, saying the state could afford no more than $3 billion worth of new bonds.

Payments on bonds approved in earlier elections, he noted, are going to increase state principal and interest payments by $500 million next year, to a record $1.3 billion.