State Tax Revenues Will Come Up Short : Government: Finance department blames recession and soaring health and welfare costs. Official says another round of budget cuts is needed to avoid a deficit.

The Wilson Administration acknowledged Tuesday that state tax revenues will be drained before the end of the current fiscal year, making yet another round of budget cuts necessary to avoid a deficit.

Steven A. Olsen, deputy director of the Department of Finance, told Senate budget writers that a recession-related nose dive in tax revenues and the soaring costs of health and welfare services are the biggest contributors to the problem.

Olsen declined to put a dollar figure on the expected deficit, although he generally painted an even bleaker picture of the state’s financial situation than officials of the Commission on State Finance did two weeks ago when they projected a year-end deficit of $2 billion.

Olsen, one of Gov. Pete Wilson’s top budget advisers, told members of the Senate Budget and Fiscal Review Committee that by year’s end the state’s $1.2-billion budget reserve will be drained and further spending cuts will be needed “to bring spending in line with available revenue.”

Sen. Alfred E. Alquist (D-San Jose), the committee chair, said Wilson is faced with “some awfully painful choices.” He urged the governor--who so far has said he will not consider a new round of tax increases--to consider a personal income tax increase or some other revenue-generating measure.

Franz Wisner, a spokesman for Wilson, said that “the chance for an additional tax increase is almost nil.”

Olsen, testifying before the budget committee, conceded that many of the Administration’s basic budget assumptions were off target.

He said the Administration had expected that by this month the state would already be starting to pull out of the recession. But “the economy is showing no signs of improving,” he said.

Alquist called on the Republican governor to call the Legislature back to Sacramento from its winter recess for a special session to deal with the budget problem “before it gets a lot worse.”

Wisner said Wilson has no immediate plans to call the Legislature back to work on the budget.

In July, in a deal to close what then was projected as a $14.3-billion deficit, Wilson signed more than $7 billion in yearly tax increases, including a 1.25-cent sales tax increase. On top of that, there were more than $3 billion in budget cuts and service reductions. The rest of the package involved accounting transfers, suspended contributions to the retirement system, and transferring the cost of some human service programs to counties.

While other state officials have been painting an increasingly bleak picture of the budget situation in recent weeks, Wilson Administration budget advisers have generally shied away from specifics.

Olsen said that as the recession lengthens, many other budget assumptions are not holding up. Welfare rolls in July were up 12%, he said, compared to the 8% increase anticipated in the budget. Olsen said the number of people applying for medical care under the Medi-Cal program also rose, with costs running above budget estimates by “several hundred million dollars.”

The Administration also had assumed it would recover $300 million from the federal government as reimbursements for various programs, Olsen said, but that money so far has not materialized.

Economists from the Bank of America and UCLA told committee members that they do not expect California to begin to pull out of the recession until at least the early part of 1992 and perhaps as late as 1993.

David Hensley, director of the business forecasting project at UCLA’s Graduate School of Management, said California was trailing the rest of the nation in economic activity.