State Surplus Higher Than Anticipated

Lawmakers will have the best opportunity in two decades to solve the state’s most pressing problems, as state coffers will bulge with $4.2 billion more than expected next year, Legislative Analyst Elizabeth Hill said Thursday.

But in her annual critique of the governor’s budget proposal, Hill described much of Gov. Gray Davis’ $88-billion spending plan for the next fiscal year as “modest,” saying many of Davis’ specific ideas are “works in progress” that lack sufficient detail.

“I would say the range of works in progress is across all program areas, which is somewhat unique in my experience,” Hill said in her characteristically understated manner.

Among the proposals she found lacking were the governor’s ideas about fighting Medi-Cal fraud, a department to oversee health insurance plans and his “aging with dignity” program to help elderly and infirm people avoid living in nursing homes.

“All budgets start with policy goals and we work out the details,” said Davis’ finance director, Tim Gage, in response to Hill’s criticism.

The release of Hill’s 2-inch-thick report precedes legislative hearings on the proposed budget for the 2000-01 fiscal year, which begins July 1. The nonpartisan legislative analyst’s findings often become the focus of debate between lawmakers and the governor.

In the report, Hill suggested that the Legislature consider reviewing sales taxes and various phone charges. Perhaps her most ambitious suggestion was that lawmakers tackle the property tax system.

Californians pay $20 billion annually in property taxes, but the collection system is based on formulas dating to the 1970s, gives local government no ability to raise or lower the taxes and encourages poorly planned commercial development.

The analyst offered several suggestions, including cutting the sales tax by $5 billion annually, and shifting and increasing property taxes. Although some of the ideas would require statewide votes to alter provisions of the 1978 landmark Proposition 13, her report noted that “the longer the current system remains unchanged, the worse the problems become.”

“The present fiscal circumstances offer the Legislature and the governor the best opportunity in two decades to strategically invest in the future and address major priorities,” Hill said.

Like the governor, Hill called for increased spending on public schools. But she proposes going further, boosting that spending by shifting $134 million to public elementary and secondary schools and community colleges from the University of California and California State University systems.

Hill said the schools need the money more than the universities, and have a harder time attracting teachers. Additionally, she noted, the schools have accountability standards, while the university systems do not.

Hill also urged that local schools get more control over their money than Davis wants them to have, and proposed that the Legislature give schools block grants to recruit and train teachers. Davis, by contrast, offers specific incentives, including giving teachers home loans and bonuses.

Davis’ school spending plan would boost state aid for schools to $28.2 billion next fall, from this year’s $26.4 billion. That would still keep California’s per-pupil spending at $370 to $550 per pupil below the national average, Hill noted.

Earlier in the week, Senate Budget Committee Chairman Steve Peace (D-El Cajon), predicting that there will be $6 billion more to spend next year, called for spending an extra $700 million to $1 billion on public schools to push California to the national average in two to three years.

Hill’s report raises her earlier estimate of the amount of tax revenue that will flow to Sacramento next year by more than $1 billion, and estimates that there will be $4.2 billion more than Davis believed when he proposed his $88-billion spending plan last month.

Altogether, California stands to receive almost $10 billion more in this fiscal year and the next year than budget experts assumed when Davis signed the current budget into law last June.

Hill attributed the rising tax revenue in part to wealthier Californians cashing in on stock market gains to buy new homes and cars in 1999. New car registrations went up almost 10%, and home sales exceeded 675,000--a record.

The legislative analyst’s assessment of the economy is the most optimistic outlook yet for this year among the state’s major economic forecasters. Hill predicts a 3% gain in jobs, helping cut the unemployment rate for the year 2000 to 4.7%, from 5.2% last year.

It also forecast a 6.7% increase in personal income and a 6.1% rise in taxable sales. Although those figures would be down slightly from 1999--the best year yet in the state’s recovery from the recession of the early 1990s--they remain strong and above previous predictions.

As the legislative analyst often does, Hill raised warnings about spending proposals offered by the governor. Hill called for deleting $100 million that Davis proposed to help local police buy new equipment, saying there is no evidence of demand for it.

She flagged high construction costs at the University of California, finding that UC consistently spends 32% to 46% more to build labs than other universities in the nation.

She reserved perhaps her sharpest criticism for Davis’ transportation plan, saying the governor’s desire to speed freeway construction would require Caltrans to hire as many as 8,000 more employees in the next two years, at a cost of as much as $800 million.

“Given Caltrans’ track record in hiring and training staff, we doubt that the department would be able to hire and train enough staff in time to deliver these additional projects,” Hill said.

Hill also concluded that Davis’ proposal to give $500 tax credits to families who care for elderly parents probably would not be “an effective and efficient tool.” Davis offered the credit as a way of helping elderly people avoid going to nursing homes. She said the proposal has “inherent potential for abuse.” Davis’ proposal includes no requirement that taxpayers prove they have incurred costs.

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Times staff writer Stuart Silverstein in Los Angeles contributed to this story.