Analyst Predicts $6-Billion Deficit for Wilson Budget : State: Overestimation of revenues, ‘risky’ reliance on federal aid are faulted. Administration defends figures.

Painting a bleak financial picture for state government, the nonpartisan legislative analyst said Wednesday that California faces a $6.1-billion budget deficit next year.

And the outlook does not improve the following year, when analyst Elizabeth G. Hill is predicting an additional $4.1 billion in red ink under current spending and tax policies.

In a critical review of Gov. Pete Wilson’s budget proposal, Hill said the state will end the current spending year with a $2.5-billion deficit and can expect another $2.4-billion shortfall next year. In addition, Hill said the Administration is being overly optimistic about the state’s recovery from recession and said revenues could fall $1.2 billion short of Wilson’s forecasts. This would bring the total deficit to $6.1 billion.

Wilson’s budget offers a variety of proposals to deal with most, but not all, of that budget gap. However, Hill and her staff say that the state cannot count on the success of those efforts.

For example, Wilson’s reliance on the federal government to help rescue the state with $3.1 billion in added revenue is “a highly risky strategy that could result in a multibillion-dollar budget hole,” she said. Those funds were not included in the federal budget package that President Clinton sent to Congress last month.

The governor’s budget also assumes that the U.S. Supreme Court will rule in the state’s favor in a court challenge to the state’s method of taxing multinational corporations. A victory in that case would bring the state an additional $600 million in revenue, which Wilson has counted on in his budget proposal.

The governor has proposed a variety of reductions in state programs, including sharp cuts in welfare grants and elimination of a variety of benefits in the Medi-Cal program. But even if the Legislature were to enact the changes and if the governor gets the added federal support he is seeking, his budget would still come up short because it overestimates tax revenues, according to Hill.

The Wilson Administration defended the governor’s $55.4-billion spending plan for the 1994-95 budget year that begins July 1. That budget proposal calls on the federal government to pay a larger share of the state’s health and welfare programs and to pick up the entire cost of education and other required services for illegal immigrants.

“It would be irresponsible for the state to issue some sort of forgiveness to the federal government that we do not expect (it) to pay for the costs of federally mandated programs, especially in a time when we are in financial difficulty,” said H.D. Palmer, a spokesman for the state Department of Finance.

Palmer said that his boss, state finance director Russell S. Gould, was meeting with White House officials Wednesday, along with representatives of other states, to make the case for increased federal spending in states with large numbers of undocumented immigrants.

Palmer said the Administration’s revenue forecasts, which predict that unemployment will bottom out this year, were conservative and in line with most economists.

The legislative analyst’s office review of the governor’s budget proposal is an annual event--a key step in the building of a spending plan that in theory must be adopted before the new fiscal year begins.

But in an election year, with the Republican governor bracing for a tough campaign, the two-inch-thick document provides ammunition for his Democratic challengers.

Year after year, Wilson has been “overly optimistic about the revenues and not being realistic about his budget proposals,” said Michael Reese, spokesman for Treasurer Kathleen Brown’s campaign committee.

Brown agrees with Wilson that the state “is not getting its fair share” from the federal government, Reese said. “She thinks California should fight tooth and nail to get every penny it deserves. But there is a fundamental responsibility to be realistic in crafting a budget.”

Brown has not yet described her own state spending plan. But Reese said that in past years she has endorsed what he called “belts and suspenders”--automatic expenditure cuts if revenues fall short of expectations.

Another Democratic candidate, Insurance Commissioner John Garamendi, has also been critical of the governor’s budgeting. “There was a flaw in the first set of numbers that Wilson submitted,” said Darry Sragow, Garamendi’s campaign manager. “It’s time to cut up the state’s credit cards and learn the obvious lesson from the ‘80s: We have to pay as we go along,” Sragow said.

Garamendi, like Brown, still has no specific plan to reduce the looming deficit. That will come later in the campaign, Sragow said.

Analyst Hill believes that to fund schools at current levels, the state may be forced to loan money to school districts--recovering the money when the economy takes a turn for the better. But her report noted that a similar scheme to pay for public school funding was struck down recently in the state courts.

To provide more money for public education, Hill’s report calls for changes in law to give voters in local districts the ability to raise property taxes for schools. To do that would likely require a change in Proposition 13, the popular initiative that sharply limited property taxes. Efforts to make major changes in that landmark measure have failed.

Hill did not offer a set of recommendations to erase the potential deficit.