State Has Rare Success: Income Equals Spending

Providing a rare break from what sometimes seems to be an unending string of bad budget news, Controller Gray Davis says the state spent about what it collected during the fiscal year that concluded last June.

Although the state ended the year about $3 billion in the red, almost all of that amount had been carried over from the previous year, Davis said as he released a report on the state government’s fiscal condition.

For the 12 months ending June 30, Davis said, the state spent only $9 million more than it took in from taxes--a tiny deficit in a $40.9-billion general fund budget.

“The state essentially broke even last year for the first time in many years,” Davis said in a statement released by his office. “We are finally beginning to live within our means.”

The last time the state received more in taxes than it spent on programs was the 1988-89 fiscal year, Davis said.

The controller’s report does not mean that the state’s fiscal problems are over.

The deficit is still there and may grow larger if the economy does not turn around. Without higher taxes or lower spending, according to the Commission on State Finance, the deficit will grow to nearly $4 billion by the end of the 1994-95 fiscal year.

Another problem is that the state has shifted some of its red ink off of the official ledger--the one measured by Davis--by borrowing money in private markets and lending it to the public schools. A Superior Court judge has ruled that the state cannot force the schools to repay those loans, a decision that could add to the deficit if it withstands an expected appeal.

The controller’s report addresses the year ending in June because it takes several months after the end of the fiscal year for all of the state’s tax receipts and bills to be collected, paid and accounted for.

The state’s fiscal situation is akin to that of a family that runs up a big credit card bill before gaining control of its spending. Even though they are no longer adding to the tab, they still have trouble reducing it because, after buying essentials, they never have enough money left over to pay more than the finance charge on the debt.

“The fact that the deficit did not get any bigger is encouraging,” Davis said. “Unfortunately, the state is still wallowing in a gigantic sea of red ink caused by years of deficit spending.”

Gov. Pete Wilson will have to address these problems and others in the proposed budget he is set to unveil Friday. By law, Wilson’s proposal must be balanced.

The Republican governor is expected to propose enough money to keep pace with the growth in school enrollments and prison inmate populations, but every other state-supported program probably will face proposed reductions. Wilson said he will oppose any tax increase.

Assembly Speaker Willie Brown (D-San Francisco) told reporters Thursday he expects “the budget will be on time . . . and balanced without a tax increase.”

A year ago, Wilson faced a gap of about $8 billion between what the state was expected to receive in taxes and the amount needed to wipe out the year-end deficit, pay for expected growth in programs and rebuild a reserve.

In June, Wilson and lawmakers adopted a budget that included about $1.3 billion in program reductions. The rest of the gap was overcome--on paper--by delaying repayment of the year-end deficit, using the off-book school loans, and shifting property tax revenue from local governments to public education, relieving the state of part of its obligation to the schools.

With the fiscal year half over, the program has had mixed results.

Cities and counties, threatened with severe reductions because of the property tax shift, were helped in November when voters extended a half-cent sales tax surcharge that otherwise would have expired on Dec. 31. The money goes to local government.

As for the state, the most recent estimates show that revenues will exceed spending by about $400 million in the current fiscal year, allowing the state to take a modest bite out of its ongoing deficit. But if current economic trends continue, the budget will again fall out of balance in the fiscal year that begins July 1.