CAPITOL JOURNAL : Political Bloodshed Over Stanching Red Ink

When Gov. Pete Wilson and state legislators cut a deal over the summer to close the $14-billion budget gap, many of them thought the worst of their problems were over.

There was a lot of mutual back-patting between the Republican chief executive and the Democratic-dominated Legislature over their performance in erasing the record fiscal shortfall.

Even before the self-congratulatory glow has faded, evidence is mounting that another deficit looms. But don’t expect this one to be solved as amicably. Before it is over, the red ink spilling from the budget may symbolize the political blood that will soon be on the floor of the back rooms where this battle will be fought.

The numbers are sketchy, but it is starting to look as if the state will fall at least $3 billion short for the current fiscal year. Many in the Capitol fear it could be twice that, or more.

To outsiders, a $3-billion or even $6-billion problem might seem easily solved compared to the $14-billion gap that confronted the state in June. But that comparison may be deceptive.

For one thing, the gravity of the $14-billion gap was in some ways exaggerated. It was a two-year problem, because a large part of it reflected the cost of financing all state services for another 12 months, including allowances for inflation and growth in demand for programs. A $3-billion spending “reduction” adopted by the Legislature was not a cut from one year to the next but a slowing of the growth in spending.

Still, erasing the shortfall was no easy political task.

Democrats, who for years refused to allow welfare recipients to go without a cost-of-living increase, not only backed away from that principle but actually reduced the stipends by 4%, trimming monthly payments to a mother with two children from $694 a month to $663.

Gov. Wilson, who at one point warned that raising income taxes by $1 billion would cost the state’s economy 80,000 jobs, in the end signed legislation to raise $1.2 billion by boosting income taxes on those earning more than $100,000 a year. Altogether, taxes rose more than $7 billion, and Wilson had to write a stack of political IOUs to persuade anti-tax Republican lawmakers to vote for his package.

But the coming fight could make the last one look like a sparring match.

Wilson has already said he will not support higher taxes in the coming year. Aides also say that he is committed to closing the books on his first budget next June without a deficit. This would prevent a solution of the kind employed to erase the $14-billion gap.

If Wilson changes his stand again and accepts another tax increase, Republicans who already distrust him will be ready to revolt. His chances of winning the Republican presidential nomination in 1996 could be greatly diminished. Some might consider his chances for reelection in 1994 to be in peril. He will be viewed in many circles to be a liberal Republican, not the “compassionate conservative” he says he is.

But without a tax increase, he may find himself advocating a $3-billion reduction in this year’s general fund budget. Half of that budget of $42 billion could be spent by the time the Legislature begins work on the new deficit. The longer they wait, the less money will be left to take the $3-billion hit.

The level of cuts needed to wipe out that kind of deficit is something the Democrats will find unacceptable.

To illustrate, another 4% reduction in welfare payments, which Democrats would fight to the death, would save about $110 million over a full year. A 10% cut in education spending for the final five months of the school year, which would generate intense public opposition and require a two-thirds vote in the Legislature to suspend voter-approved Proposition 98, would save less than $1 billion.

If he faces a solid wall of Democratic opposition, Wilson, ironically, may be forced to retreat into the waiting arms of a faction that has criticized him even more than the Democrats: conservative Republicans. Their faction in the Assembly has been advocating the elimination of some state departments and functions, from the state architect to parts of the Energy Commission, to save hundreds of millions of dollars annually.

Wilson might even have to eat his words and eliminate the California Arts Council, a $16-million program that is usually the first target of those who complain about unnecessary government spending.

In the past, the governor has derided this suggestion, saying that ditching the council would provide only “peanuts” toward solving a multibillion-dollar problem.

But if Wilson faces another deficit--one he can’t claim he inherited upon taking office--he may just be happy to take all the peanuts he can get.