In a Dither Over Budget Surplus

State tax revenues are piling up so fast in Sacramento that budget writers’ heads are spinning. During four months alone--December through March--tax receipts ran $2.3 billion above estimates. Fiscal experts from the Davis administration and the Legislature may have a budget surplus of nearly $10 billion when they begin serious negotiations next month on a spending plan for the fiscal year starting July 1.

All this bounty is good news for the state, but it involves risk as well. Gov. Gray Davis, Democratic legislative leaders and Republicans all want to spend more on public education, transportation and other programs. But it is difficult to estimate how much of the surplus will recur year after year and how much is short-term windfall.

A boost in education or social programs--or a tax cut--would commit the state in subsequent years. A onetime investment, like a highway interchange or a state university building, would not. In the long run, however, the investment with the greatest potential return remains education.

The fiscally conservative Davis has been reluctant to approve any significant increases in ongoing programs sought by fellow Democrats, who control the Legislature. But pressure is mounting as the surplus grows. Many programs still bear scars of the recession-driven budget crises of the early 1990s.

The latest report of state legislative analyst Elizabeth G. Hill said that strong increases in the income tax withholding reflect job growth in the computer and software industries as well as income generated by stock options.

The budget surplus, if not spent for state programs or tax cuts, will eventually reach an untenable level in the minds of taxpayers. In a Capitol Alert e-mail column, political analyst Jeff Raimundo recalls that the use of the term “obscene surplus” by the late state Treasurer Jesse Unruh gave a boost to the Proposition 13 property tax revolt of 1978. There is no corresponding public outcry now over taxes, which have been cut several times in recent years. Even so, the Republican focus remains on tax cuts.

Considering the volatility of stocks and high-tech businesses, who can say how long the plenty will flow? But there is no sign of significant economic downturn yet and certainly nothing like the recession that began in late 1990. Davis and legislators can’t really lose if they strengthen the future California economy by providing it the educated and trained work force it needs to thrive.