Davis Predicts State Budget Shortfall Will Hit $4 Billion : Finance: In his darkest projection yet, controller says this is the first time since the Depression that income from tax sources has dropped from one year to the next.

State Controller Gray Davis, announcing a steep decline in business tax collections compared to the same period last year, warned Wednesday that the state faces a $4-billion revenue shortfall during the current budget year unless the economy improves substantially.

Davis, giving the worst projection yet about another huge budget deficit, said money from major tax sources--personal income, sales and bank and corporation taxes--was 5.3% below the amount taken in during the same month last year.

The Democratic officeholder noted that last year marked the first time since the Depression-era 1930s that collections from major tax sources declined from one year to the next.

“Last year was the worst revenue year since the Great Depression, but we are now five months into the new fiscal year and we’re doing even worse than last year,” Davis said.

Davis called on Gov. Pete Wilson to convene an “economic summit” and invite lawmakers, business leaders, labor and consumer interests to respond to the situation.

The controller’s prediction of a $4-billion shortfall was based solely on a projected drop in tax collections during the current fiscal year, which will end June 30.

Last month, Wilson Administration officials said they were expecting a $3-billion budget shortfall this year and a comparable one next year. Those projections included not only a drop in tax collections but also unexpected spending pressures on the budget, such as increased demands for public assistance and court decisions on pension and state employee pay issues. Some budget analysts say unexpected costs could add $1 billion or more to the projected deficit.

The budget deficit earlier this year was projected to be $14.3 billion, but Wilson and the Legislature had hoped that they had eliminated most of it with an unprecedented package of $7.2 billion in tax increases and more than $5 billion in spending reductions and other money-saving moves.

A spokesman for Wilson, Franz Wisner, said the governor is not considering an economic summit as proposed by Davis. But Wisner said Wilson is meeting with his own budget advisers to map out a new budget strategy, and has not ruled out calling the Legislature back to Sacramento for a special legislative session to work on the budget. The Legislature is in recess and not expected to resume business until next month.

“We put the shortfall number at $3 billion. Davis puts it at $4 billion. Others are putting it even higher. A special session is still a possibility. However, calling the Legislature back and getting them to agree to the kind of cuts we need to make for the good of the state are two different things,” Wisner said.

Davis said the continued softness in tax collections borne out by November revenue figures makes it “virtually impossible” for Wilson to achieve the 20% growth in revenues on which he based his $55.7-billion budget.

The Democratic officeholder said bank and corporation tax collections were 60.5% below the amount collected in November, 1990. Part of the decline was attributed to high refunds owed businesses for prior year collections.

Davis said that sales tax collections in November were up only 2.3% over the same month last year, despite a 1.25% sales tax hike that took effect in July.