Plunge in Tax Receipts Worsens State's Crisis : Budget: $2 billion shortfall reported for April. Wilson, Legislature must formulate plan to pay bills.


April tax receipts fell nearly $2 billion short of projections, the Wilson Administration reported Friday, confirming that the state's finances are bleaker than at any time since the Great Depression.

With revenues for the year's biggest tax month coming in at more than 25% below target, officials outside the Administration say the state must either borrow money or issue IOUs to meet its payroll and pay bills through June 30, the end of the fiscal year.

To balance the budget for the year that begins July 1, Gov. Pete Wilson and the Legislature will have to raise taxes or cut an additional $4 billion from the $60.2-billion budget Wilson proposed in January. That plan included deep cuts in health and social services and a 5% pay cut for state employees.

The latest figures were released as part of the Finance Department's monthly update of the state's fiscal condition, which blamed the problem on the continued sluggishness of the economy. Wilson did not issue a statement.

Two state officials--Treasurer Kathleen Brown and Controller Gray Davis--said the latest numbers are alarming.

The two Democrats, in separate interviews, said the state by the end of the fiscal year is going to be $400 million to $600 million short of what it needs to pay its bills.

"We've not faced a cash crisis like this since the Depression," Brown said. "This should change the nature of the discussion from business as usual to a state of emergency of such a magnitude that the political leaders of this state have got to grapple with it in an energetic and forthright fashion."

She added: "If the Crips and the Bloods can call a truce, so can Pete Wilson and the legislative leaders."

Davis said the state is facing a cash emergency but added that the short-term problem could be easily managed if Wilson agrees to authorize steps needed to allow the state to borrow money from banks to cover its bills through the end of the fiscal year.

If Wilson does not agree to that course of action by Monday, Davis said, he will begin the steps needed to issue registered warrants, or IOUs, to vendors. The warrants--a sign of severe financial distress--could be needed as early as the end of this month, Davis said.

"I can't understand why the governor will not give me permission to act in the state's best interests," Davis said. "Chaos is in no one's interest. Issuing registered warrants is effectively saying that California surrenders, that we are incapable of dealing with this financial challenge in a serious, professional manner."

The cash crisis that Davis and Brown are describing differs from the annual year-end deficits that have become commonplace in California in recent years. The year-end deficits mean that the state's general fund has spent more than it has taken in for a 12-month period. In the past, the state has covered those deficits by borrowing from reserves in funds set aside for special purposes, rolling the red ink into the next fiscal year.

In contrast, the current cash crunch is the result of this year's deficit growing so large that it cannot be covered by internal borrowing. The state, at least temporarily, will be broke.

Most of the problem is the result of the Wilson Administration's overly optimistic revenue projections. Although expenditures have exceeded expectations, tax receipts have fallen far short of what Wilson depended on to balance the budget he signed last July.

Back then, his staff estimated that state taxes would generate about $46.3 billion during the fiscal year. About $6.8 billion of that was supposed to arrive in April.

By January, with the recession dampening economic activity, Wilson reduced his revenue estimate to $41.2 billion for the year. April, he said, would produce $5.8 billion.

But on Friday, the Administration acknowledged that even its lowered expectations were too high. The receipts in April were $4.9 billion.

To illustrate the depth of the problem, Wilson last summer forecast that this April's revenues would climb by 37% over April, 1991. However, they declined.

If revenue continues at that pace for the final two months of the fiscal year, it will total about $39.4 billion.

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