Governor OKs Borrowing of $750 Million : Budget: He says money will get state through current fiscal year. Controller had asked for as much as $4 billion.

Confronting the state’s worst cash crisis since the Depression, Gov. Pete Wilson on Tuesday authorized the controller to borrow up to $750 million from banks so the state can meet its payroll and pay its bills through the end of the fiscal year on June 30.

But Wilson, trying to keep the pressure on the Legislature, warned that he will not allow continued borrowing after the start of the new fiscal year. Instead, he said, the state will begin issuing registered warrants, or IOUs, in early July unless the Legislature passes a budget and he signs it by then.

Administration officials also disclosed that the proposed $18.4-billion budget for public schools and community colleges could be reduced by as much as $1.5 billion next year without suspending Proposition 98, the voter-approved constitutional guarantee for education funding.

But even if the Legislature makes that cut and adopts all the budget reductions Wilson has proposed, the equivalent of an additional 13% across-the-board cut in all programs not protected by the state Constitution would be needed to balance the budget for the 12 months beginning July 1, according to the Department of Finance.

“This is a very serious situation,” Deputy Finance Director Steven Olsen told an Assembly-Senate conference committee that convened Tuesday to begin hammering out a budget agreement.

Wilson and legislative leaders are scheduled to begin meeting today in hopes of shaping a consensus that can win the approval of two-thirds of the members in each house of the Legislature.

The problem is huge. The $55-billion budget for the current fiscal year is headed for a deficit of as much as $4 billion. In the next fiscal year, the state will be another $5 billion or $6 billion short of what it would need to continue all services at their current levels and manage the anticipated growth in school enrollments, prison populations and health and welfare caseloads.

The immediate hurdle, and the one Wilson acted on Tuesday, is the state’s inability to make it through the end of the year without running out of money.

In recent years, the state has managed cash shortages in its general fund by in-house borrowing, tapping into reserves in special funds set aside for specific purposes. But this year, the state has reached the limit of that borrowing and now forecasts that it will be completely out of money by June 30.

Controller Gray Davis had asked Wilson to authorize borrowing of as much as $4 billion from banks to tide the state over. Wilson rejected that request but agreed to allow Davis to borrow $750 million. The higher amount, Wilson said, would have carried the state well into the next fiscal year, relieving pressure on the Legislature to pass a budget by the June 15 deadline.

“This action will ensure not only that the state’s schools and investors will be paid fully and on time as required by the state Constitution, but also that all other anticipated obligations for this fiscal year will be met,” Wilson wrote in a letter to Davis.

In response, Davis issued a statement complaining that the authority granted by Wilson amounted to a “small bandage” on a “potentially mortal wound.” The Democratic officeholder did not say whether he had decided to borrow the smaller amount approved by Wilson or begin issuing IOUs even before the end of the fiscal year.

As soon as they get the cash situation under control, lawmakers and the governor will turn their attention to a budget for the fiscal year beginning July 1.

The first step probably will be to decide what to do about the education budget. Although school funding is protected by Proposition 98, the constitutional provision adopted by voters in 1988 and revised in 1990 allows the education budget to fluctuate with the ups and downs in state tax receipts.

In the current fiscal year schools are getting about $1 billion more from the state than the minimum required by Proposition 98, according to the Wilson Administration. That excess could be classified as a loan, which the schools would be required to repay out of their appropriation in the 1992-93 fiscal year.

In addition, because the continued sluggishness of the economy has depressed tax receipts, the Proposition 98 minimum guarantee for the next fiscal year has dropped about $650 million below what it was when Wilson proposed his budget in January.

Taken together, these two factors could reduce Wilson’s proposed budget for kindergarten through community colleges from $18.4 billion to $16.9 billion.

Although neither the governor nor members of the Legislature have said so publicly, many lawmakers say privately that the schools budget will be cut by at least $1 billion, if not more.

But even if the Legislature cuts schools to the minimum allowed by Proposition 98, which would be politically difficult and could virtually bankrupt several districts, the savings would make only a dent in the budget shortfall. The Department of Finance reported Tuesday that the full schools cut--which Wilson has not endorsed--combined with all the reductions Wilson has proposed so far in health, welfare, state workers’ salaries and other areas, would still leave the state $2.8 billion short of a balanced budget for next year.

That amount is equivalent to a 13% cut in the parts of the budget not protected by the Constitution. If the Legislature rejects the school cut and the governor’s reductions, the across-the-board cut needed would be nearly 31%.

Wilson’s representative to the conference committee was careful to point out that the governor was not advocating either the full education cut or the across-the-board reduction in other programs.

Olsen said the scenario he described was “not a proposal” and not a “set of options” but simply a tool for the Legislature to use to see what might be necessary.

Olsen added that Wilson will not propose a solution when, as required by law, he revises his budget proposal later this month to reflect the changing estimates of revenues and expenditures. Instead, Olsen said, the governor believes that the “most productive use of his time” will be in meetings with the legislative leadership.

Democratic Assemblyman John Vasconcellos of Santa Clara, chairman of the Assembly Ways and Means Committee, blasted Wilson for failing to go public with his own proposals after weeks of criticizing plans suggested by Democrats in the Legislature.

“The abdication of responsibility is bizarre,” Vasconcellos said.