$2.6-Billion State Budget Surplus Is Predicted

The state legislative analyst predicted Wednesday that California will have a $2.6-billion surplus heading into the new year--triple the past estimate of $880 million.

And the state could have as much as $3 billion in unanticipated revenue by the start of the next fiscal year in July, Legislative Analyst Elizabeth Hill said in her report.

Her forecast is for continued growth for five years, pushing the main part of the state budget, the general fund, up to $84.4 billion by 2004, a 30% increase from the current level.

“The California economy is performing very strongly and the state budget is benefiting as a result,” Hill said.

She said the projected $3-billion surplus all but ensures that Californians will receive more tax cuts, in the form of additional reductions to the annual car tax that motorists pay when they register their vehicles.

The car tax already has been cut 35% as a result of legislation pushed by former Gov. Pete Wilson two years ago.

As the Republican governor envisioned it, the fee, which had been 2% of a vehicle’s value, would be reduced to less than 1% by 2003, so long as tax revenue continued to climb. Such a cut would save taxpayers $4 billion annually.

Hill’s forecast comes as Gov. Gray Davis begins to fashion a budget for the 2000-2001 fiscal year to be released in January. Davis will base his proposal on estimates by his Department of Finance, to be completed next month.

The rosy prediction for 2000 is in contrast to predictions this time last year when Davis was warning of a $2.1-billion shortfall, and in 1998, when Hill warned of annual deficits of $850 million by the turn of the century. Back then, some budget analysts worried that tax cuts pushed by Wilson could have left the state short of money.

But as it has turned out, budget experts have underestimated the magnitude of the growth in state tax revenue repeatedly during the boom years in the second half of the 1990s. California has had budget windfalls of $4.5 billion, $4.2 billion and $2.2 billion in the past three years.

Hill said that with the state economy continuing to grow, sales tax revenue will jump 8% from 1998 levels, while income tax revenue will rise 11% and taxes on banking and corporate profits will be up almost 4%.

In one reflection of the better times, the analyst noted that the number of Californians in the highest income tax bracket--couples earning $95,000 or more--jumped by 62% between 1994 and 1998.

With more money expected, lobbyists for groups ranging from schools and counties to state employees will press demands for program boosts and pay raises, while conservatives seek tax cuts--always popular in an election year.

“Anybody can say, ‘Gimme, gimme, gimme,’ ” said Los Angeles County lobbyist Daniel Wall. “Our task is to make a case that viable.”

Wall cited a recent Superior Court ruling against the state over its continuing policy of shifting about $3 billion a year in property tax revenue to schools and away from counties. Wall said Los Angeles County will be pressing to have at least some of the money returned.

“We need to stop the continuing take-away from local government,” said Assemblyman George Runner Jr.(R-Lancaster), who represents Assembly Republicans on budget matters.

Runner also called for a new round of tax cuts, saying, “We should be giving some of this money back to taxpayers. Taxpayers are overpaying.”

In her analysis, Hill said Davis and the Legislature will face several demands for more spending, particularly at public universities where enrollment growth will push costs up by 5.7%. State health care costs for poor people will rise 6.1%, and payments to disabled people will rise 6.6%, she said.

The analyst predicted that costs at public schools, which consume more than 40% of the state budget, will rise at a moderate pace, 4.8% annually. Prison costs will go up 5%, a reflection of slower than expected growth in prison population.

Hill’s analysis does not take into account potential costs from numerous lawsuits pending against the state, including Davis’ decision last week to drop the appeal of a suit challenging $300 fees imposed on motorists who registered out-of-state vehicles. The state could end up refunding more than $700 million to motorists who have paid the fee dating to 1990.

The full report is available on the legislative analyst’s Internet site at https://www.lao.ca.gov.