Fiscal Year May End in $2-Billion Deficit : Budget: Panel re-evaluates state’s spending plan, predicting that its economy will be stagnant through 1994.

A bipartisan commission that tracks the state’s fiscal health issued the first progress report on this year’s budget Thursday and concluded that the spending plan is almost certain to produce a deficit at the fiscal year’s end.

The Commission on State Finance, which monitors the economy and the budget, said the $40.8-billion general fund budget enacted Sept. 2 after a record, 63-day stalemate will end the fiscal year in June with a deficit of $2 billion, which could lead to a two-year funding gap of more than $4 billion.

“There are still tough times ahead,” said Kevin Scott, the commission’s executive director. “There’s pretty consistent consensus that things don’t look good.”

Scott said he believes that the state’s economy will remain stagnant through 1994. The commission’s last report, in May, forecast that the economy would be recovering by now.

“In light of California’s persistent weakness, we have re-evaluated the basic premise underlying our previous forecasts--that California was principally suffering the effects of a deep cyclical downturn and economic growth would return in the foreseeable future,” the new commission report said.

The report added: “It is becoming increasingly clear that many of the problems ailing California are not going to disappear anytime soon.”

The state has lost 800,000 jobs since mid-1990, the report said, and the total could top 1 million by early 1993. In comparison, the 1982 downturn, which was considered the worst since the end of World War II, resulted in the loss of 280,000 jobs in California.

Scott acknowledged that some signs point to a brighter fiscal future. State tax revenues, for instance, are up about 8% from a year ago through the first three months of the fiscal year, which is about even with the projections on which the budget was based.

Controller Gray Davis, who tracks revenue for the state and is a member of the finance commission, said he believes that the 8% growth will continue throughout the year. Davis said the state’s revenues have increased for 10 consecutive months and show no evidence of turning back. But Scott’s projection would produce a 0.7% revenue decline over the same period.

If the economy does rebound sooner, Scott said, the projected $4-billion gap would disappear, and a $1.5-billion surplus might exist by the end of the next fiscal year in June, 1994.

But he also said it is possible that the stagnant economy will turn down again, producing a deeper recession. In that case, he said, the shortfall could reach $7.4 billion by the end of the 1993-1994 fiscal year.

The commission’s primary forecast falls between these two extremes, projecting continued job loss into 1993, then a slight upturn in the next year. This scenario would produce revenues for the current fiscal year totaling $41.6 billion, or $1.8 billion less than the Wilson Administration’s May projections. In 1993-94, revenues would fall $3.5 billion below forecast.

The commission’s forecast, if accurate, could put Gov. Pete Wilson on another collision course with the public schools. Wilson formed an alliance with Republican lawmakers to block action on this year’s budget until Democrats agreed to give education no more per student than the schools got in the last fiscal year.

But to secure the deal, Wilson agreed to provide that level of funding--$4,185 per student--next year as well, even if the state’s constitutional guarantee for school funding would allow him to give the schools less.

Scott noted that the revenue drop, along with the scheduled automatic repeal of a half-cent sales tax next year, would reduce the level of funding that voter-approved Proposition 98 guarantees for California’s public schools. The minimum guarantee would fall from $16.5 billion this year to $16.2 billion, producing a 4.4% decline in the per-student funding for elementary and secondary pupils.

If Wilson sticks to his pledge and keeps per-student funding even, he would have to provide about $1 billion more than the Proposition 98 minimum, Scott said. That expenditure would widen the projected two-year shortfall to $5 billion.

The Administration had no comment on the issue.