Davis Studies Allocation of Excess Funds

Flush with a budget surplus now estimated at $4 billion, Gov. Gray Davis is expected to start identifying ways to spend the bonanza as he prepares to unveil his revised budget proposal next Friday.

The nonpartisan legislative analyst’s office issued a report Friday predicting that there will be $4 billion more to spend than Davis projected in January when he proposed his $78-billion budget for the 1999-2000 fiscal year.

Davis’ aides declined to divulge how the governor might use the windfall. However, legislators involved in the budget process are quick to float ideas about how to spend it, suggesting tax cuts, more money for public works projects, perhaps even a boost in aid to local governments.

Democrats and Republicans alike are calling for cuts in tuition at state universities and colleges. Assembly Republicans are suggesting a cut in the gasoline sales tax for an annual saving to consumers of $400 million.

“Some of this surplus needs to flow back to taxpayers,” Assemblyman George Runner (R-Lancaster), a budget committee member, said Friday.

Senate Republicans want $500 million in tax cuts, most of it in the form of another reduction in the car tax, also known as the vehicle license fee. Under legislation approved last year, Californians are in line for a car tax cut in 2001 in addition to the 25% reduction they received this year.

“I don’t think there is any doubt there will be a tax cut,” Senate Budget Committee Chairman Steve Peace (D-El Cajon) said recently.

Assembly Budget Committee Chairwoman Denise Ducheny (D-San Diego) is advocating reduced college tuition and lower fees at state parks.

Ducheny also said Friday that the state should use some of the surplus for public works projects, including low-income housing and repairs of public facilities. Additionally, she said, the state should consider restoring services such as library hours, which were cut during the recession of the early 1990s.

“So many of the needs went lacking for so long. We need to catch up,” Ducheny said.

Although the new governor promised a modest capital gains tax cut during his campaign, Davis administration officials sought to dampen expectations about the windfall. Instead, they cite new costs, such as ensuring that the state government’s vast computer systems will function after 2000.

The governor already has said that if extra money is available, he will probably propose more spending on public schools. He also is expected to call for more spending on public works projects and raises for state workers, and he could boost health care for children whose parents’ jobs don’t provide medical benefits.

Under the complicated financing system for public schools, a significant portion of the surplus--between $400 million and $1 billion--must be spent on higher-than-expected education costs, the legislative analyst reported.

The analyst identified an additional $800 million in state costs, and said the administration was overly optimistic expectation about the amount of federal aid California would receive.

Serious budget negotiations between the administration and the Legislature will begin once Davis releases his revised budget on Friday.