Agencies Told to Prepare for 15% Cut

Faced with the continuing weakness of the California economy, uncertainty over the repayment of the state’s energy debts and financial fallout from the Sept. 11 attacks, Gov. Gray Davis ordered state agencies Thursday to prepare for a 15% cut in spending.

The drastic action paves the way for reductions in some programs, officials say, adding that quick moves nevertheless are necessary to avert an even bigger calamity next year. Budget experts warned that even those cuts are not likely to solve the state’s budget woes, which are deepening as California’s economy continues to flounder.

“It’s a wise move,” Sen. Steve Peace, the El Cajon Democrat who chairs the Senate Budget Committee, said of the Davis decision. “There’s going to have to be additional action taken beyond this . . . there’s no question about it.”

Most agencies, according to Peace, should be able to handle cuts without layoffs by enacting hiring freezes and reducing other expenses.

Other ramifications could be felt, however: State corrections officials say they might have to shut down part or all of one of California’s 33 prisons, as well as cut back drug programs or other services. Educational leaders worry that efforts to reduce class sizes for children could be suspended. And analysts have identified dental benefits, youth tobacco prevention programs and training of child welfare workers as areas that could be cut if the state needs to save money.

Only public safety agencies are specifically exempt from Davis’ order.

The governor’s Department of Finance directed state agencies in August to submit budget plans for the 2002-03 fiscal year that reflected up to a 10% reduction in spending.

The Davis order to increase those cuts to 15% comes as state revenues are running more than $1.1 billion below estimates through the first quarter of the new fiscal year. The shortfall largely fails to reflect the hit to the California economy due to the Sept. 11 attacks.

Davis cites losses suffered by the state’s high-tech sector and revenue from capital gains in the stock market in his memo to state officials, but he also goes out of his way to mention the attacks.

“The terrible tragedy of September 11th has injected even more uncertainty into our economy and we must prepare for greater revenue reductions as a result,” Davis wrote in the memo.

Republicans cite another culprit for the state’s financial woes: too much spending.

“The budget was going to be in a severe deficit even if Sept. 11 had never happened because of overspending in the last three years and because of a slumping economy before the attacks,” said Assemblyman John Campbell, the Irvine Republican who is set to serve as his party’s leader on budget matters in the lower house.

State agencies are to submit the reduced spending plans by Oct. 22 to the Department of Finance. Davis is scheduled to meet with his Cabinet members the following day to discuss budget cuts and other proposals.

With this weekend’s deadline for signing bills fast approaching, Davis has been vetoing many proposals that cost money. The governor also is considering calling a special session so that lawmakers can debate a possible economic stimulus package.

Some agencies that rely on the state for funding are preparing for the worst. The UC regents, for example, are scheduled to be briefed on the state’s budget woes next week, and fee hikes are on the table as a possible way of addressing them.

“It hasn’t been ruled out, but it is not something we’re eager to do,” said Brad Hayward, a spokesman for the University of California. “Nobody wants to see student fees increased.”

Educators Fear End to Funding Guarantee

Proposition 98, the voter-approved constitutional amendment that protects funding for kindergarten through community college education programs, includes a provision allowing lawmakers to suspend the minimum guaranteed with a vote of two-thirds of each house in the Legislature. The provision has become a cause for concern among school officials in light of the Davis memo.

“It underscores how grim things are looking,” said Kevin Gordon, executive director of the California Assn. of School Business Officials. “But we are very hopeful and have every reason to believe the governor is going to remain committed to public schools.”

Added David A. Sanchez of the California Teachers Assn.: “Any time the state is headed toward bad economic times there really isn’t too much to keep anybody, particularly the governor, from going after Prop. 98. Our saving grace is that [Davis] has always been supportive of public education.”

Sanchez said his association’s main concern when it comes to budget cuts is that funding could be reduced for class-size reduction or for helping schools with the greatest needs.

Davis’ order specifically exempts public safety expenditures from the budget cuts. But officials said that does not mean the Department of Corrections, with an annual budget of $4.8 billion, will be entirely spared.

Indeed, those who run the state’s penal system said they had been asked to prepare cuts in some programs. With the 15% trims, they said they might be forced to mothball portions of a prison--or even an entire facility.

“We will not jeopardize public safety--that is our first and foremost mission,” said Stephen Green, assistant secretary for the Youth and Adult Correctional Agency. “But we probably will have to cut back on things like education and vocational training in the prisons, and perhaps some drug rehabilitation programs.”

All or Part of One Prison Could Be Closed

With about 160,000 inmates, the department runs 33 prisons and 41 conservation camps. But Green noted that the incarcerated population is declining, and that one cost-saving measure would be to close all or part of one facility.

“I wouldn’t be surprised at all,” he said.

About 70% of the Department of Justice’s $500-million budget is allocated to public safety purposes, said Nathan Barankin, spokesman for Atty. Gen. Bill Lockyer.

“We will do our part to help the governor meet budget demands, although it will be really difficult for this department to make cuts that will reduce services to the people of California and our client agencies,” said Barankin.

“But I’ll tell you this: The attorney general is not looking to meet these budget reduction goals by cutting staff or personnel positions,” he said.

As state officials prepare to tighten their belts, their counterparts who handle state finances are predicting that revenues over the next few months could come in billions of dollars below projections. Under one scenario, if the state spends its $2.6-billion reserve, it still could face a $4-billion shortfall. And that amount could continue to grow if revenues fail to pick up.

State officials also have not figured out a way to repay roughly $6 billion that the state spent on energy purchases with money borrowed from the general fund. State Treasurer Phil Angelides has warned the state’s deficit could grow to $9.3 billion by summer if bonds are not sold to repay the general fund.

Davis, who is up for reelection, is moving on multiple fronts to try to head off a financial meltdown in an election year.

But the governor’s opponents have begun to question Davis’ handling of the state economy.

Bill Simon Jr., for example, predicted a deficit of $13 billion to $22 billion by summer during an appearance Tuesday at the Richard M. Nixon presidential library in Yorba Linda. Simon’s comments came soon after former Los Angeles Mayor Richard Riordan sounded a similar alarm.

Anti-tax groups are calling on the governor and lawmakers to cut spending to deal with revenue shortfalls, rather than borrowing or raising taxes and fees.

But Jean Ross, executive director of the California Budget Project, urged Davis to take the opposite approach Thursday. She noted that then-Gov. Pete Wilson raised taxes and fees and cut spending when faced with a $14-billion deficit in 1991.

“One of the things the recent crisis brought to mind is what constitutes essential public safety is broader than traditionally defined,” Ross said. “How do you protect public health labs, for example, and how do you protect counseling services?”

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Times staff writers Jenifer Warren and Carl Ingram contributed to this report.