Analyst Calls Wilson Budget Too Optimistic

In a report sure to increase pressure for higher taxes, the Legislature’s nonpartisan analyst said Wednesday that the gap between state revenues and expenditures has widened to nearly $10 billion and that Gov. Pete Wilson’s budget estimates “significantly underestimate” the magnitude of the problem.

Wilson and analysts in the Department of Finance had built the $55.7-billion budget on the assumption of a $7-billion shortfall for the remainder of this fiscal year and for the 1991-92 fiscal year, which begins July 1.

Legislative Analyst Elizabeth G. Hill disputed Wilson’s contention that the economy will come out of the recession later this year, produce a strong recovery in 1992 and lead to increased tax revenue. Rather, she said, economic recovery will take longer and revenues will rise more slowly. The analyst also suggested that the governor underestimated the cost of welfare and other programs by about $300 million.

Adding her more pessimistic income projections to higher estimates for spending, Hill came up with a $9.9-billion shortage, the bleakest assessment yet of the state’s financial picture.

Finance Director Thomas W. Hayes, whose analysts came up with the estimates used in the governor’s budget, stuck to his figures but cautioned that “the volatility of the economy will have a significant impact on our forecast.”

Hayes said no one can accurately predict “the depth or the duration” of the recession.

Hayes suggested that one reason for the wide variance between the Administration’s budget figures and Hill’s is the assumption made in the governor’s budget that his package of spending reductions and tax increases will pass the Legislature in its entirety. Hill’s assessment does not include the impact on overall state spending of such things as elimination of cost-of-living increases that Wilson is pushing.

Included in the package is a proposal to increase motor vehicle license fees and impose a 6% tax on candy, snack foods, newspapers and periodicals, now exempt from sales taxes.

Lobbyists, lawyers and others representing a wide variety of business interests criticized the tax plan and another, broader tax proposal during a long, contentious hearing Wednesday in the Capitol.

Although numerous interests claimed they were being unfairly targeted for tax increases, lobbyists for the Girl Scouts and youth groups were the only ones to persuade the Senate Revenue and Taxation Committee to delete them from the bill. The committee voted 6 to 1 on an amendment that exempts sales by these groups from Wilson-backed legislation that would impose the 6% tax.

Catherine M. Sizemore, a lobbyist for the Girl Scouts, said the 6% sales tax would be enough to force Scouts “to reduce the service we provide.”

Another spokeswoman said that cookie sales account for as much as 60% of Girl Scout revenues.

The committee also heard testimony on a broader tax bill that would assess new sales taxes on a variety of other goods, such as film rentals, computer software and ships and aircraft sold to foreign governments. But the committee, faced with strong opposition from a wide variety of economic and political interests, withheld action on the broader bill for at least a week.

Representatives of shipbuilders, newspaper publishers, candy manufacturers, movie makers and others protested the tax proposals, for a variety of reasons. Lobbyists for shipbuilders and publishers said the proposal would hit them at a particularly bad time because of industry-wide slumps. Candy interests said it made no sense to tax their products and not other food items.

Most said they believed it was unfair for Wilson to single out certain industries for tax increases.

Wilson chose to target specific industries for tax increases rather than back general tax increase legislation that would increase the sales tax or increase income taxes for broad categories of individuals and businesses.

But, by singling out a few industries or groups, he virtually guaranteed a fight that is expected to last months.

At one point late in the hearing, Sen. Ralph C. Dills (D-Gardena) asked, “Why are we wasting all of our time piddling around with these things?” He suggested a blanket 2% increase in the sales tax, which he said would raise roughly $6 billion annually.

In another budget development earlier in the day, educational leaders told the Senate Education Committee that Wilson’s proposed budget, which will cut about $2 billion from public schools, would lead to a decline in academic quality, an end to the state’s reform program for elementary and secondary schools and, in higher education, an inability to enroll all eligible students.

State Supt. of Public Instruction Bill Honig said the proposed reduction would return per-pupil spending levels in California to the 1985 level. Honig said the $2-billion to be cut would pay for 27,000 teacher positions, give all existing teachers a $2,000-a-year pay raise and provide each public school pupil with two new textbooks.

Acting Chancellor Ellis E. McCune of California State University said Wilson’s budget would leave the 20-campus Cal State system $113 million short of what it will need to maintain existing levels of service. He said potential belt-tightening measures might include limiting enrollment.

The top third of the state’s high school graduates are eligible for admission to Cal State campuses. “But we will not be able to serve all the students who come to the university simply because we will not have the faculty to offer enough classes,” McCune said.

Legislative analyst Hill, who appeared at the hearing, said Cal State faced a 10% budget reduction and was worse off than other segments of California public education, each of which is asked to take about an 8% cut.

Times staff writer William Trombley contributed to this story.

NEXT STEP

Various tax and spending proposals included in Gov. Pete Wilson’s budget face a number of hurdles before they can take effect. First, there will be a series of hearings before committees of the Senate and Assembly, which will pass their recommendations to the full houses. Then there will be votes taken in the two chambers, followed by more committee sessions to resolve differences between the Assembly and Senate versions. Last to act will be the governor, whose signature makes the budget official--probably sometime in July.