Wilson’s Woe: Budget With Too Many Broken Dreams : In view of federal events, he should drop his tax-cut plan

The budget picture in Sacramento is no longer so rosy. Due to events in Washington, primarily inaction on welfare reform legislation, Gov. Pete Wilson now anticipates a $1.6-billion shortfall in state revenues.

If Congress also fails to reimburse California for providing health care to illegal immigrants, the gap is likely to grow further, by $500 million. And the news could get even worse. About $900 million more in revenues may be lost to a variety of causes in Washington and Sacramento.

One thing seems clear despite the muddle. Wilson should look at the numbers and abandon his proposed 15% personal and corporate tax reductions, which he wants to phase in over 3 1/2 years beginning as early as next January. The tax cuts would slash state revenues by $10 billion over that time. Yes, a rebounding California is in much better fiscal shape now than in the recent, recession-plagued past, but with the budget out of whack, this, alas, is no time to commit to a tax cut.

Until state officials know what the surplus might be, if indeed there is one, it is reckless to institute cuts. The Assembly nevertheless went ahead this week and approved Wilson’s tax cuts, a promise the state cannot afford to keep. There has already been some tax relief. At the end of 1995, a tax increase on wealthy individuals, imposed to raise state revenues during the recession, expired.

The prospect of additional money from Washington always was uncertain. Even so, in January Wilson proposed a budget jerry-built on a foundation of projected federal actions over which he had no control. It was a “best case” scenario. Now the surplus that the Wilson administration had anticipated when its proposed $61-billion budget was unveiled in January may be consumed by other uses. The governor had planned to use some of the extra money to stave off yet another university fee increase, planned for this fall. The surplus also attracted the attention of desperate county officials, including several supervisors from Los Angeles County who are seeking millions, for example, to open the Twin Towers, the new but unused county jail. Wilson now is warning of a sizable shortfall. What a difference three months make.

Though Wilson can’t count on Congress to approve welfare reform in time to save his fiscal wish list, he should accept every dime that Washington is offering, including $42 million in Goals 2000 federal education money, intended to raise academic standards, prepare children for reading, improve math and science and keep students in school. Unlike most other governors, who are eager to get everything they can from Washington, Wilson is hesitant; he fears that the feds might dictate to local schools. So California’s share sits unclaimed in Washington, even though that fear is unfounded.

The new math threatens to turn Sacramento’s heavily partisan budget battle even uglier than expected as Republicans and Democrats fight over a smaller pie. The fiscal decisions surely will be brutal, but as most Californians have learned: You shouldn’t spend what you don’t have.

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Tax-Cut Cost

How the governor’s proposed tax cut would reduce state revenue:

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(in millions) 1996-97 $572 1997-98 2,005 1998-99 3,516 1999-00 4,702 Total 10,795

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Source: Department of Finance