Budgeting for Reality

Gov. Gray Davis on Wednesday unveiled a 2001-2002 state budget of nearly $105 billion that is true to his political nature: cautious and conservative. Davis, a Democrat presenting his third budget, calls it responsive and responsible. Either way, with the state and nation experiencing a cooling economy and amid the uncertainties of the power crisis, he is taking a prudent approach to state fiscal affairs.

The Legislature will have a surplus of about $6 billion to work with, but it’s clear that the super-boom days of the California economy are over. Revenues are up by about 7% in the current fiscal year but are forecast to grow by only 3.3% in the budget year starting July 1. Not a slump, the governor insists, but a transition to “a more sustainable economy.” He called for holding on to a cash reserve of nearly $2 billion in the new budget year to cope with economic uncertainties. That should be a minimum figure.

Davis proposed spending about half the surplus on one-time projects, such as a $250-million aid package for local government, and the rest on ongoing programs including education and health care. The state should not commit itself to future spending by locking too much of the surplus into ongoing programs.

The governor’s top priorities are also in tune with the times. He plans to spend an additional $3.2 billion on public schools from kindergarten through high school and proposes a one-time $1-billion allocation to deal with the energy crisis. In fact, the fate of this budget may depend on how successful Davis and other state officials are in addressing the escalation of wholesale electric power costs caused by a flawed electric deregulation program.

Davis seems confident that the energy problem will not plunge the state into recession. But it has presented the California economy with some rude shocks in recent days, including the potential bankruptcy of the state’s two largest private utility companies and the declaration this week by computer chip giant Intel that it will not expand its California facilities or build new ones as long as the reliability of the state’s electricity system is in doubt.

The best budget news in Davis’ fiscal briefing to Capitol reporters concerned the effort underway in Washington to forge long-term power contracts for California “at a very attractive rate--at a price well within the existing [consumer] rate structure.” That would ease pressure on the utilities, including Southern California Edison, and give Davis and legislators time to develop a longer-range program for electric power stability and reliability.

A good target date for that is mid-May, when Davis will present a revised budget based on the latest income and spending estimates. With considerable work and a little luck, Davis will not have to make any radical budget changes to cope with crises persisting into May.