State Deficit May Reach $4 Billion, Group Says : Budget: Finance commission headed by gubernatorial rival warns of impending shortfall unless Wilson and Legislature take action.

A state fiscal watchdog that Gov. Pete Wilson has tried to silence reported Tuesday that the two-year spending plan Wilson and the Legislature drafted last summer has failed to accomplish its central goal: a balanced budget.

The Commission on State Finance said state government will be nearly $4 billion in the red by the end of the next fiscal year unless the governor and legislators take action to reverse the trend.

The projected deficit--although smaller than shortfalls in each of Wilson’s first three years in office--could force the Republican chief executive to advocate painful spending cuts in health, education and welfare programs to balance his next proposed budget, which he must send to the Legislature by Jan. 10.

The bad news for Wilson comes just as he is gearing up to run for reelection. His boast that he enacted the state’s first on-time budget in seven years could be undercut if that spending plan turns out to have run up yet another deficit.

The Commission on State Finance is the only government entity that publishes spending and revenue projections independent of the Department of Finance, which is controlled by the governor. Earlier this year, Wilson took steps to eliminate the panel by slicing its budget 75% and vetoing legislation that would have extended its life beyond the middle of 1994.

But state Treasurer Kathleen Brown, who chairs the commission and is planning to run for governor next year, kept the commission alive with a skeleton staff. Tuesday’s report was its first since being targeted by Wilson for elimination.

The commission said the state will end the 1994-95 fiscal year with a $3.8-billion deficit unless spending is cut or taxes are raised. Unless there is a tax increase, Wilson and the Legislature will have to cut nearly 10% from general fund spending projected to total about $42 billion in the year beginning July 1.

About two-thirds of the looming deficit is attributed to tax revenues coming in lower than expected because of the slumping economy. The commission said receipts will fall about $2.4 billion short this fiscal year and next.

“The economic recovery anticipated for late 1993 is not materializing in California, nor is it likely to until late 1994,” the commission said.

The rest of the shortfall will be caused by spending exceeding targeted levels.

The state will have to spend more on services to immigrants because the federal government has not come through with as much aid as was hoped for, the commission said. The state will have to provide more aid to local schools to make up for a dip in property tax collections. Prison populations and medical care for the poor also are costing more than expected.

Although the commission’s report is the first to estimate state revenues for the coming year, its prediction of a large deficit reflects unofficial speculation that has been circulating in the Capitol for weeks.

“There really isn’t anything new or surprising in the report,” Finance Department spokesman H.D. Palmer said.

Still, Palmer refused to confirm the projection of a $3.8-billion deficit, citing the traditional secrecy that surrounds the governor’s annual preparation of his budget proposal.

“When the governor submits his budget we will have our latest economic forecast and our latest budget forecast,” Palmer said.