A Time for State Frugality

California’s annual state budget is a governor’s blueprint for the future and sets out state priorities for the budget year and beyond. But Gov. Gray Davis’ 1999-2000 budget goes only part of the way in that respect, which is common when a new governor takes office because much of the budget work has already been done by the time the election occurs. Putting Davis’ budget together “required some very quick, instinctive decisions,” said Barry Munitz, Davis’ transition advisor.

Davis’ latitude was further crimped when the hefty surplus that then-Gov. Pete Wilson had forecast for the end of the current budget year was suddenly projected as a $2.3-billion deficit. Critics cautioned Wilson and legislators last year that their zest for new spending and tax cuts could erase the $4-billion surplus that accrued during 1997 and 1998, and the critics were right. Now the state must pay the price.

To balance his first budget, Davis had to cut planned spending by $170 million. That included money for AIDS education and treatment and funds to continue the state takeover of trial court costs from the counties. These unfortunate cuts should be restored if the budget picture brightens this spring when the state counts its April income tax receipts.

Davis also is making a risky assumption that the federal government will give California an additional $430 million in aid for health care and prisons--funding that Wilson repeatedly failed to get from Washington. Davis also plans to spend the first $560 million California expects to receive from the legal settlement with the tobacco industry, although there has been no debate over how this money should be used.

Optimists claim that the big windfall from capital gains taxes of the past three years will continue, resulting in another surplus by spring. Finance Department experts are far more conservative, forecasting an increase of only 5% for 1998 and none in 1999.

Another May surplus surprise would allow Davis to restore his budget cuts, provide a larger salary increase for state workers and boost money for school reform. But there is no assurance that will happen. For now, his best policy would be to keep a tight fist on the state’s purse strings. Though education is rightly Davis’ first priority, keeping the state in the black is still his first responsibility.