Davis’ New Budget May Look Familiar

When Gov. Gray Davis releases his revised spending plan today it could bear a striking resemblance to another budget: the one he signed last year.

Davis acknowledged last week that the new 2001-02 budget blueprint will be a scaled-down version of the one he floated in January--a turn of events he blamed on Republican opposition to an energy bond issue but that others said was more directly the fault of a slumping state economy. The governor and his staff have refused to detail the reductions but have hinted that spending on education, health care, law enforcement and programs for seniors could all be cut.

An even bigger unknown is whether the reductions will be made in existing programs or the more likely possibility that new spending priorities--ranging from tax breaks to establishing an elder abuse public awareness campaign--will feel the edge of the governor’s paring knife.

The $104.7-billion plan that Davis hatched in January committed the state’s then-estimated $8-billion surplus to pay for a $108-million tax cut, a $1.9-billion general reserve, a $500-million litigation reserve and $5.5 billion in new spending proposals.

But the very programs that differentiate the upcoming budget from the one Davis signed last year are now in jeopardy for a variety of reasons.

The state’s nonpartisan Legislative Analyst Elizabeth Hill announced last week that a softening economy has shrunk the budget surplus over this year and the next by $3.4 billion. She warned that if one-time and ongoing cuts are not made to Davis’ January spending plan, the state will wind up with a deficit.

California’s economic slide and growing concerns over when the state will get a handle on its runaway energy costs have also prompted lawmakers in both political parties to seek a more substantial reserve than the $1.9 billion proposed by Davis in January.

Assembly Republicans have joined Senate Budget Committee Chairman Steve Peace (D-El Cajon) in suggesting that the reserve be doubled to at least $4 billion. That alone roughly equals the surplus that Hill’s office calculates will be left in light of the faltering economy.

The soft economy puts pressure on the budget in two ways: It causes tax revenue to fall as incomes drop and sales tax receipts diminish along with consumer spending; at the same time, state government is asked to do more for those hurt by unemployment or otherwise in need of help.

“We have got to preserve the level of the reserve,” said Peace, who is worried about the state’s sagging economy. “When revenues are down, demands for services go up.”

The combination of diminished revenues and a push for a bigger reserve serves as a sober warning for the budget being crafted by Davis and his staff.

A logical place for trims, said Jean Ross of the California Budget Project, a private watchdog and advocacy group, is in new, one-time spending proposals, which amount to a couple of billion dollars. The theory behind such cuts is that the public won’t miss what it doesn’t have.

“These are not things where you have a program in place,” Ross said. “So there are no people enrolled, kids in schools or prisoners in prison.”

The governor’s January spending plan, for example, sets aside $27 million to pay for the state’s share of a one-time back-to-school sales tax holiday, during which sales taxes would be suspended on clothing, shoes and computers during a three-day weekend. Trimming that program would not cut any existing service from the budget, but political forces also are in play: The holiday was one of the flashier proposals released in January by Davis, who therefore might be reluctant to erase it from his revised plan.

Even with a shrinking surplus, Brad Williams, senior economist with Hill’s office, said that on paper there is still enough money to pay for existing programs and services, but not enough to cover all the new ones suggested by Davis in January. Davis could save $2.3 billion by nixing new one-time proposals and another $1.1 billion by scaling back his plans, for example, to bolster higher education and expand health care.

The bigger challenge, Williams said, will be closing the more than $4.5-billion gap that is expected to materialize in subsequent years under Davis’ current spending proposal. Much of the new ongoing money in the plan is earmarked for the governor’s favorite cause: education.

“He’s going to have to make a threshold decision about how he’s going to handle education spending,” Peace said.

For his part, Davis has blamed Republican lawmakers for the pending cuts, which he contends they brought on by balking at a controversial measure that would authorize the state to sell as much as $13.4 billion in bonds to pay for power purchases. Some of the money would repay the more than $6 billion in general tax money the state has spent on the purchases.

The Legislature eventually passed the measure through an alternative method that will force state Treasurer Phil Angelides to wait 90 days to market the bonds. Assembly Republicans had unsuccessfully sought to reduce the bond issue to $8 billion.

If the money owed to the general fund fails to make its way back into state coffers, California’s budget struggles will unarguably worsen.

“We’ll be looking at $3.4 billion plus. . .,” said Assembly Budget Committee Chairman Tony Cardenas, (D-Sylmar).

Assemblyman George Runner, the Lancaster Republican who serves as vice chairman of the Assembly Budget Committee, brushed aside Davis’ suggestion that his party is to blame, and joined Hill in pointing the finger at a sagging state economy.

“What he’s going to have to do is cut back on growing government with new programs,” Runner said of Davis. “That’s not necessarily cutting back, because these programs have never started.”

Assembly Speaker Bob Hertzberg (D-Sherman Oaks) said he hopes Davis’ revised spending plan will contain a combination of trims made to new proposals as well as existing ones that have proven unsuccessful.

“We have to be more thoughtful than to just say let’s roll over last year’s budget,” Hertzberg said. “California is growing at such a rapid pace that our failure to address a problem today could turn out to be the crisis of tomorrow.”