$14.4-Billion Deficit in State Budget Reported : Finances: Recession and a huge demand for services are blamed for California’s worsening fiscal condition.

Reflecting a sour economy and unparalleled demands for state services, California’s budget deficit has grown to at least $14.4 billion, a jump of nearly $2 billion since the last official estimates, legislative sources said Friday.

Gov. Pete Wilson and his budget advisers spent most of the day in meetings mapping out plans to deal with the new development, but released no details.

Administration officials would not say how soon they will be ready to unveil a new budget plan, but the escalating deficit only compounds serious political problems for the Republican governor and the Democratic-controlled Legislature.

For weeks, reports have circulated in the Capitol that the deficit would be much worse than the $12.6-billion estimate made by Wilson in April. Wilson signaled the bad news last month, proposing a plan that would save the state $12.9 billion through a combination of service reductions and tax increases, with $300 million provided as a cushion if the situation kept worsening. This week, a bipartisan, two-house budget conference drafted a plan that anticipates a $14-billion deficit.

Now comes word that the problem is bigger than that.

“My sources tell me the number is $14.4 billion,” one lawmaker on the conference committee said when asked about various deficit estimates that are leaking out of the Department of Finance.

Sen. Frank Hill of Whittier, one of two Republicans on the six-member legislative budget committee, said the soaring deficit creates pressure for even higher taxes and deeper budget cuts.

Hill said he does not think Wilson will go for substantially higher taxes than he has already put on the negotiating table. Wilson’s plan calls for a 1 1/4% increase in the sales tax and would raise state taxes overall by nearly $7 billion. The proposal would cut spending by nearly $5 billion, and make $1.4 billion in accounting changes.

“I can’t see the governor pushing the sales tax up to 1 1/2%, and I can’t see increased bank and corporation taxes or income taxes as part of the package. What may happen is that the sales tax may be stretched out to cover more products,” Hill said.

Otto Bos, Wilson’s director of communications, refused to confirm the higher deficit figure.

“All indications are that we are in a downward spiral, and just how deep it will go, I don’t know,” Bos said.

He said Wilson would amend his budget proposal, but would not say how. “Obviously, if the budget gap is even larger, we are going to have to move on it,” Bos said.

The Department of Finance’s May budget update showed that tax collections, through April, were $1.4 billion below projections. The shortfall was attributed to “the weaker economy.” The report said that since August, 1990, California has lost 56,000 jobs. It said that although the state’s unemployment rate fell to 7.4% in April, the unemployment rate is “likely to reach 8% later this year.”

The deficit is much higher than the $1.4-billion drop in revenues because the state is being forced during the next budget year to pay for deficits run up during the previous two years, finance a huge boom in public school enrollments, and pay out unexpectedly large amounts to people seeking state health and welfare services, plus rebuild a $1.4-billion budget reserve.

All those problems are compounded by the inability of the governor and Legislature to reach a budget agreement.

In January, when the projected budget gap was $7 billion, Wilson’s program would have spread the tax increases and budget cuts over 18 months. Now, with the size of the deficit more than twice as high, the governor and Legislature have to squeeze the program into 13 months, or carry a deficit into the 1992-93 fiscal year.

The problem is that the state cannot begin collecting additional tax revenues until the plan is in place--and it cannot begin saving money from spending reductions until program cuts are approved. Legislative analyst Elizabeth G. Hill has warned the Legislature that if Wilson’s sales tax increase plan is not enacted and in place by June 1, the state will lose $350 million in sales tax revenues it could collect in July.

Some sources say the bleak picture could hasten a budget agreement because it undermines the arguments of education interests who are fighting suspension of Proposition 98 guarantees for public schools and community colleges, of Democrats who are resisting cuts in welfare, and of Republican conservatives who are insisting they can balance the budget without a tax increase.

One group has already announced plans to press the Legislature to use tax increases alone to make up for the nearly $2-billion growth in the deficit.

The Coalition for a Better California, composed of 60 groups, including cities, counties, peace officers, senior citizens, mental health advocates and others, will begin a grass-roots campaign Monday to head off further budget cuts.