State Analyst Urges Deeper Cuts in Davis Spending Plan

California could face a gaping $4-billion deficit unless lawmakers make deeper, ongoing cuts to the spending plan that Gov. Gray Davis released this week, according to the state’s independent legislative analyst.

Elizabeth Hill warned that although the governor’s revised $102.9-billion budget may keep California out of the red in the upcoming 2001-02 fiscal year, she anticipates that spending could overtake revenues to the tune of $4 billion the following year.

Davis has proposed dealing with the deterioration in the state’s financial picture by slashing $1.4 billion from reserves, eliminating $1.3 billion in one-time spending proposals and using $1.3 billion that had been earmarked for transportation to balance the upcoming budget.

But Hill predicted Wednesday that the state could face a substantial shortfall under the plan because many of Davis’ suggested cuts are one-time in nature.

Making additional cuts to existing programs, Hill said, could accomplish two goals: It would leave the state with more cash to build a bigger reserve in the upcoming budget year and place California in a more comfortable financial position the following year by reducing expenses.

“It will be much more difficult to correct a $4-billion problem. . .if they don’t start today,” Hill said.

Hill, for example, expects required education funding to rise by $2.4 billion in the 2002-03 budget year, which under the current Davis plan leaves no room for error, expansion of programs or the creation of new ones.

Finance Department spokesman Sandy Harrison described Hill’s projection as “very high.” He said it was difficult for his agency to foresee circumstances that would lead to a deficit of that size, but he did not dispute that one may materialize.

“We do agree that we don’t have a large margin for error,” Harrison said. “There is a possibility for a shortfall in the following year if the economy continues to struggle.”

Hill joined a growing chorus of voices around the Capitol by calling for a higher reserve than the $1 billion sought by Davis. She stopped short, however, of suggesting an amount.

Hill also took issue with the governor’s proposal to take $2.5 billion that had been earmarked for transportation projects and use the money to help balance the upcoming budget and the following one. The bulk of those funds would come from tax revenues generated from the sale of gasoline.

Davis wants to keep the money in the general fund rather than spend it on transportation programs. He contends that the shift can occur without delaying dozens of projects included in his multibillion-dollar plan to relieve urban traffic congestion. But the funding change, Hill said, could result in delays in subsequent years to transportation projects and maintenance improvements not included in Davis’ traffic congestion relief plan. She said the shift would leave the Legislature with no money for new transit projects for two years.

The proposal is opposed by Republicans, who contend that Davis is reneging on a promise he made last year that gasoline sales tax revenues would be spent on transportation. The Legislature even approved a measure last year by then-Assemblyman Tom Torlakson (D-Antioch) that called for gas tax revenues to be dedicated to transportation for five years.

Torlakson, who now serves in the state Senate from Antioch, is one of several lawmakers who are pushing ballot measures so that voters can make the funding stream permanent. At stake is about $1.5 billion a year.

“Motorists are mad that they are paying such high gas prices,” Torlakson said. “It would be at least some measure of consolation for them to know that the taxes they are paying on gasoline are being used to improve their driving conditions.”

Torlakson said he would not support anticipated legislation allowing Davis to use the gas tax money on other programs.

Hill’s analysis of Davis’ budget blueprint also shed new light on the administration’s plans for education spending.

When he unveiled his new budget blueprint Monday, Davis estimated that per-pupil spending would dip by just $6 from the plan he introduced in January to $7,168. At the same time, he announced a new, one-time sum of $540 million for school districts to cover rising energy costs.

But according to Hill’s office the $7,168 figure contains the $540 million, which was necessary to meet past minimum funding requirements under Proposition 98, the 1988 initiative that requires at least 40% of the state’s budget to be reserved for schools.

If the money is subtracted, per-pupil spending drops by about $100 under Davis’ new plan, which is still hundreds of dollars above the current year’s level.