Slump Throws Wilson’s Budget Out of Balance : Finance: A $2.6-billion deficit is projected. The governor says deeper spending cuts may be needed.

Even if California’s economy begins to improve by the middle of the year, Gov. Pete Wilson’s proposed budget would produce a deficit of $2.6 billion, not the modest surplus the Republican chief executive projected only three weeks ago, the Commission on State Finance announced Tuesday.

Wilson, speaking to reporters separately, confirmed that his proposed budget already is out of balance and suggested that more service reductions will be necessary.

“I think that we are probably going to have to have deeper cuts,” Wilson said after a speech to the California Taxpayers Assn.

The finance commission, a bipartisan panel chaired by state Treasurer Kathleen Brown, said the deficit could climb to $6 billion if the economy does not turn around until early 1993.

The commission’s staff based its projection on declining employment levels and the latest tax returns, which the state received within the past two weeks. They provide the first complete measure of economic activity in 1991.

Kevin Scott, the commission’s executive director, said year-end figures show that non-farm employment in California dropped by 600,000 between the fall of 1990 and the end of 1991. In a good year, the state would have added about 300,000 jobs.

“The continued slide in employment means that even if the recovery does occur in mid-1992, the state will be digging out of a deeper recession than previously thought,” Scott said in his report. “This will further depress revenues both this year and next.”

More evidence of the continued economic slump arrived on Jan. 15, the date by which taxpayers making estimated payments had to file their final quarterly return for 1991. Those payments fell about 12% below last year’s already weak levels, Scott said.

The January payments usually foreshadow what will happen when complete tax returns are filed in April.

From these ominous trends and other economic indicators, Scott concluded that the revenue forecasts in Wilson’s budget for the remainder of the fiscal year and the 12 months beginning July 1 were overstated by at least $2.3 billion.

On the spending side, Scott said he thinks the state will spend $404 million more than the governor estimated for the period between now and the end of the next fiscal year. That would more than consume the $105-million reserve in Wilson’s proposed budget.

Together, these numbers project a $2.6-billion deficit.

The deficit would climb with each month that an economic recovery is delayed. If the upturn does not begin until January, 1993, the deficit would be $6 billion, the commission estimated.

This projected deficit is distinct from earlier reports that the state faced a shortfall of $5 billion to $7 billion if current spending and tax trends continued. The $60.2-billion budget that Wilson proposed on Jan. 9 was supposed to eliminate that gap.

Now the finance commission says that even if the Legislature does everything Wilson asks, his budget still will be billions of dollars out of balance.

Wilson and his aides would not confirm Scott’s figures, but they agreed that the numbers have deteriorated since the Finance Department put together the proposed budget in December.

Deputy Finance Director Steven A. Olsen told the commission that the proposed spending plan was based on economic figures available at the end of November. Department officials said non-farm employment in the state fell by 100,000 even as they were crafting the budget in December.

“We have hoped that it (the shortfall) would not deepen, but never, ever did we give any guarantee that it would not,” the governor said. “It appears to be deepening.”

Wilson has said he will not support new taxes to balance the budget this year. The governor’s popularly plummeted after he backed more than $7.5 billion in taxes to help balance the budget last summer. A California Poll released Monday showed that just 28% of those surveyed rated his performance as good or excellent. Thirty-five percent said he was doing a poor job. Thirty-two percent rated his performance as fair.

Trying to turn the latest fiscal disclosure to his own advantage, Wilson called again Tuesday for the Legislature to accelerate its budget deliberations. So far, lawmakers have shown no sign that they intend to pass a budget and accompanying legislation before the June 15 deadline in the Constitution.

“We’re going to have to make spending cuts,” Wilson said. “They won’t get easier. They will in fact get much more difficult because they will be deeper if we delay.”

Wilson has proposed cutting welfare benefits by up to 25% and eliminating dental care and many medical services that the state now provides for the poor.

He has placed his welfare cut proposal in an initiative he hopes to qualify for the November ballot. The measure also would dock legislators’ pay if they failed to enact a budget on time and would give the governor vast new powers over state spending if no budget was in place for the July 1 start of the fiscal year.

Democrats oppose most of his welfare proposal and have suggested alternative cuts or tax increases.