California Budget Shortfall Grows to $12.6 Billion : Deficit: Wilson says the state’s fiscal condition has moved from a ‘crisis’ to an ‘emergency.’ But the governor offers no new solutions with his projection.


Offering the gloomiest picture yet of the state’s projected budget deficit, Gov. Pete Wilson said Friday that California’s fiscal problem has grown from a “crisis” to an “emergency” and disclosed that the state is hurtling toward a record $13-billion shortfall.

Wilson said the Persian Gulf War, the economic downturn, and two natural disasters--the December freeze and a five-year drought--have added to a “structural” deficit in the budget that he said was “papered over” last year by the Legislature and former Gov. George Deukmejian.

At a Capitol news conference, Wilson declined to offer new solutions beyond the combination of service cuts and tax increases he proposed in January, when he estimated the shortfall at about $7 billion--just more than half the current figure.

The projected $12.6-billion shortfall represents more than 10% of the combined budgets for the fiscal year that ends June 30 and the year beginning July 1.


To illustrate the new deficit, Wilson said the state could close its two university systems, empty the prisons, shut all state parks and furlough the entire state work force, and still not bridge the projected gap between revenues and expenses.

The Republican governor once again called on the Democratic-dominated Legislature to accelerate its budget deliberations and deliver to him a spending plan for the next fiscal year by May 1--45 days ahead of the June 15 deadline called for in the state Constitution.

“Our financial situation has reached emergency proportions and we are required to take immediate action,” Wilson said. “If we do not begin making the cuts, then the hole grows deeper. If we do not begin (higher tax) collections, obviously we will not take in as much and then we will have to make the rate of increases greater.”

In his briefing, Wilson read somberly from a four-page statement and then guided reporters through several multicolored cardboard charts as Finance Director Thomas Hayes discussed the details of the problem.


The charts showed that the demand for prisons, state-subsidized health care, welfare and education is growing far faster than either the state’s population or its tax revenues.

Since 1985, for example, spending for prisons has grown by nearly 200%, for Medi-Cal by 120%, for welfare by 115%, and for public schools by 70%. During the same period, California’s population has grown by about 20% and general tax revenues have increased by 60%.

“We have too much program for the amount of revenue the state generates,” Hayes said. “Something has to change.”

Wilson said this problem, which he calls the “structural deficit,” has been mounting for several years.

“The so-called resolution to last summer’s budget impasse between Gov. Deukmejian and the Legislature simply did not address the structural gap between revenues and expenditures,” Wilson said. “Last summer’s budget agreement papered over this fundamental flaw, and it is a flaw that will continue to grow worse each year as caseload growth outpaces revenue growth.”

Wilson said the state’s health and welfare expenses are climbing even higher this year as the economic recession throws more people out of work. In January, there were 707,419 cases on the rolls of Aid to Families With Dependent Children, compared to 642,000 a year ago. There were 4.09 million people eligible for Medi-Cal, up from 3.51 million in January, 1990.

In addition, emergency relief associated with the drought and the December freeze that hit agriculture hard has added $111 million to the current year’s state budget. Tax revenues, meanwhile, are flat because consumers, even those who are still employed, have held back on major purchases, first during the Persian Gulf War and now out of fear for the economy.

As a result, the $1.4-billion reserve in Deukmejian’s final budget will be wiped out, and the state will finish the fiscal year June 30 about $3.6 billion in the red, Hayes said. Next year’s revenues are expected to fall another $7.6 billion short of the $55.7 billion needed to continue state services at a level that would handle the growing demand.


The numbers, for the current year and the 1991-92 fiscal year, total $12.6 billion, including the money it will take to rebuild the “prudent” reserve required by state law. That total shortfall would be even higher than the $10 billion the legislative analyst had projected in January.

Because almost 75% of the state’s general fund budget goes to public schools and health and welfare programs, Wilson implied that it will be impossible to close the gap without cutting deeply into those areas. Even if all other state programs were eliminated and the state’s $6.4-billion payroll were wiped out, budget writers would still be about $1 billion short of what they need, he said.

“It’s clear any solution has to be across the board,” Hayes said. “Everything has to be on the table.”

Wilson answered only a handful of questions after his presentation, stating bluntly that he did not want to dilute the impact of the grim news he was delivering.

“We are not going to offer solutions today,” Wilson told reporters. “Today the story is the problem. You will be able to write that the governor said it is imperative that there be action but offered no specifics.”

Hayes said the Administration’s $12.6-billion figure does not yet represent a worst-case scenario. He said April income tax revenues could be even lower than now projected, and other revenues, such as the sales tax, might continue to drop.

In a reference to the “March Miracle” of rainstorms that is credited with alleviating the state’s fifth year of drought, Wilson said he was hoping that a “May Miracle” will be evident when he and Hayes issue revised budget numbers in two months.

But just as the recent rains have not ended the state’s drought, Wilson said an unexpected burst in revenues now would not have significant impact on the bleak budget picture.


Reaction from legislative leaders was muted, although the latest news seems sure to sharpen the partisan budget debate, in which Republicans have called for more spending cuts and Democrats have advocated increasing taxes on the wealthy.

A spokesman for Assembly Speaker Willie Brown (D-San Francisco) said Brown had always believed that Wilson’s earlier projections were overly optimistic.

“They were the inauguration numbers to begin with, and no one wanted to rain on that parade,” said Michael Reese, Brown’s press secretary. “We’ve been working with higher numbers all along.”