Upturn Helps State Avoid Spending Cuts

Thanks to a modestly improved fiscal outlook, state officials are expected to announce today that automatic standby spending cuts will not be needed to keep the California government’s cash balances in the black.

The state still faces a struggle to get its budget back in balance, and newly reelected Gov. Pete Wilson will outline his plan for doing that in January.

But the immediate cash shortage that lawmakers--and the state’s bankers--feared would develop when they were writing the budget in July has not materialized.

“We dodged a bullet this year,” said state Controller Gray Davis. “But plans should be made immediately for the fiscal problems awaiting us a year from now.”

Like a family with too much credit card debt, the state has two related fiscal puzzles to solve.

One is the long-range problem of bringing expenses back into line with income. Although some progress has been made on that front in recent years, Wilson still faces a gap of more than $2 billion as he prepares a proposed budget to present to the Legislature on Jan. 10.

The other problem is in the state’s cash flow--or the ability to pay its bills each month. The state addressed that problem by borrowing nearly $7 billion to keep its programs running through April, 1996.

The state’s credit was so poor this year that a consortium of banks had to be enlisted, and paid handsomely, to co-sign on the borrowing. The private banks agreed to repay the state’s creditors if the government could not. But to lower their risk, they demanded adoption of legislation that would make automatic budget corrections if the state’s fiscal picture deteriorated.

That so-called trigger was set to be pulled today if the state’s projected cash reserves had dropped more than $430 million four months into the fiscal year. In that case, the governor and the Legislature were to have until Feb. 15 to correct the imbalance. If they deadlocked, the fix was automatic: across-the-board reductions in all programs not protected by the state Constitution.

But rather than worsening, the state’s books have improved. Davis said the projected cash balance in the state’s general fund is $581 million greater than he had anticipated in July.

Much of the good news is a result of the slowly improving economy. Tax receipts are up, while the number of poor people applying for welfare and subsidized health care is down. School enrollments also have dipped below projections.

To solve the long-term problem, Davis, who was elected lieutenant governor Nov. 8, will propose a detailed auditing of every state program and a “fiscal summit” at which legislators would meet with economists and experts from other states that have had similar budget difficulties.