Proposed Budget Needs $1.6-Billion Trim, Wilson Says

Gov. Pete Wilson said Tuesday he will have to cut at least $1.6 billion from the state budget he proposed in January because Congress and the president have failed to agree on the sweeping welfare reform that he was counting on.

The governor’s statement portends a far more difficult budget battle in the Legislature this year than officials had expected just four months ago when they were celebrating the $1-billion budget surplus being generated by a surging economy.

Now, lawmakers are digging in for a familiar round of highly political showdowns over a range of unpopular cuts. One early casualty, insiders say, may be Wilson’s hope for a 15% state income tax cut, a plan passed just Monday by the Assembly.

“We are going to have to cut probably $1.6 billion out of the state budget,” Wilson said in an interview with The Times on Tuesday. “All of these pipe dreams that I keep hearing about about people spending a nonexistent surplus--they’d better awaken to reality. The reality is very much the contrary. Not only should they have no visions of sugarplums dancing in their heads, but I think it is going to be a long and unpleasant summer.”

Finance officials say the current budget is still running a surplus because the state has already received about $1 billion more in revenue than lawmakers expected when they adopted the budget in August. But Wilson had that surplus in mind in January when he outlined a $61-billion budget for the 1996-97 fiscal year.

At the time, the governor also whetted political appetites for spending a surplus by saying he would use some of the extra money to avoid a university fee increase planned this fall. Earlier this month, the spending fever spread to Los Angeles County, where local officials insisted that the surplus be used to open a new 4,100-bed county jail that has not been occupied due to lack of funds.

But Senate Democratic Leader Bill Lockyer (D-Hayward) warned that the budget is in need of significant repair and that the state does not have the money to finance a wish list.

“Many observers thought that the [governor’s] January budget demonstrated that the Department of Finance enjoys a rich fantasy life,” Lockyer said Tuesday. “So in that respect, this is not a surprise. But it does make the task of balancing the budget more difficult.”

Wilson said his budget picture could be even more grim than the problems indicated by the lost welfare savings. In all, at least $3 billion in Wilson’s budget proposal is contingent on federal or state decisions that are either questionable or increasingly unlikely.

Wilson said, for example, he is increasingly pessimistic about getting another $500 million he was expecting Washington to deliver for illegal immigrant health care.

And in the Legislature, Wilson’s budget has already triggered criticism because the governor is asking for a sixth consecutive year of welfare cuts as well as a controversial plan to block the resumption of a renters tax credit that was suspended five years ago to help the state out of a recession.

Both Lockyer and Wilson declined to list any specific targets they would cut out of the governor’s January proposal, saying it is still too early for a detailed look. As Lockyer put it: “So far, we are in the rhetorical phase.”

They also noted that the budget picture could also change somewhat this month since 45% of the state’s revenue comes from income taxes, which spike upward with the April tax filing deadline.

Wilson, however, has about a month to make his choices for balancing the budget because he is required to submit a final update to the Legislature by mid-May.

The governor said he still plans to push for his tax cut because he believes it is needed for the state to remain economically competitive. But he also said it is too early to tell what impact the shortfall might have on the idea.

“Whatever [impact] there may be is nothing to be discussed in public,” he said. “[But] by failing to go forward with a tax cut, there’s no question that California’s job climate will be injured by that.”

The governor’s tax cut plan would phase in a 15% reduction over three years at a cost to the state of about $540 million in the 1996-97 budget.

Wilson aimed most of his anger over the budget problems at President Clinton, charging that the Democratic leader had broken his promise to reform the nation’s 60-year-old welfare system.

Assembly Democratic Leader Richard Katz countered that Wilson’s complaint was a familiar criticism for the Republican governor. “Historically, the governor has always blamed Washington,” he said. “According to Pete, the only thing Washington has ever done right was give him matching funds for his failed presidential campaign.”

Wilson said he was a big booster of the GOP welfare reform plan in Congress that would have turned most authority for caring for the poor over to state officials.

But Clinton vetoed the GOP plan in January, one day after Wilson introduced his 1996-97 budget proposal. While saying he still supports welfare reform, the president complained that the Republican version did not do enough to protect children.

In February, the National Governors Assn. tried to revive the effort by adopting a bipartisan proposal for welfare reform. But after that was rejected by the White House, the issue has stalled in a political stalemate.

Without federal clearance, California has been unable to implement some of the welfare changes the Legislature already approved last year.

The state, for example, had expected to save about $172 million by July 1997 from a 4.9% cut in welfare payments that the Legislature passed last year. Wilson had proposed that cut be extended another year and that an additional 4.5% cut be made.

The other savings Wilson’s budget expected came from additional grant cuts or new rules to limit access to state assistance programs.