Davis Orders Hiring Freeze, New Budget Cuts

Gov. Gray Davis ordered a state hiring freeze Tuesday and directed his Cabinet to immediately cut spending by at least $150 million as he seeks to demonstrate that he is addressing California’s deteriorating economy.

Davis called the Cabinet meeting to discuss his previous demand that state agencies prepare for a 15% spending reduction in the 2002-03 fiscal year. That demand remains on the table; the additional $150 million in cuts are to occur during the current fiscal year ending June 30.

The governor’s actions come with state revenues running more than $1 billion below projections since May, placing California on pace for a $9.5-billion deficit, according to legislative analysts. Administration officials declined to estimate how much the new steps announced by Davis could save the state.

Davis has sought to place much of the blame for the state’s financial woes on the effects of the Sept. 11 terrorist attacks, although recent employment data show the state economic slump was deepening before the attacks.

“The events of Sept. 11 have greatly aggravated the economic conditions of all 50 states,” Davis said. “So while we were preparing for an economic slowdown, we now find ourselves with a much more challenging situation requiring very difficult choices.”

Davis said the terrorist attacks have shaken the confidence of California consumers, who had essentially been holding up the economy for much of the past year.

Consequently, services and personnel necessary to ensure the public’s safety are exempted from Davis’ two executive orders.

The short-term spending cuts illustrate the gravity of the situation facing California. Republicans were quick to note, however, that the $150 million is a tiny fraction of the estimated $103.3-billion budget Davis signed into law in July.

“It is laughable when you’re looking at a best-case scenario at a $6-billion deficit and a worse-case average of a $10- to $12-billion deficit,” said state Sen. Dick Ackerman, the Irvine Republican who tackles budget issues for his party in the Senate. “I don’t call this a very serious response.”

The governor’s handling of California’s finances has increasingly become a political issue with a reelection campaign looming next year. GOP gubernatorial candidate Bill Simon described the Davis Cabinet meeting as “photo-op politics” and described the preparations for 15% spending cuts next year as “inadequate.”

State officials have declined to estimate how much money could be saved from the latter cuts. Department heads submitted their revised 2002-03 spending plans Monday.

The governor hopes to achieve at least $150 million in savings in the current fiscal year, which began July 1, by limiting state contracts and holding off on nonessential travel and purchases.

The hiring freeze is the fourth in the last two decades, said Marty Morgenstern, director of the state Department of Personnel Administration. The state employs about 200,000 workers and typically experiences a 5% to 6% turnover rate at any given time.

A 1% savings in payroll, Morgenstern said, amounts to about $110 million.

“We’re relatively sure it will save several percentages of pay,” he said of the current freeze.

Administration officials have declined to estimate the size of the state’s anticipated deficit.

“It’s going to be significant,” Finance Director Tim Gage said.

But Brad Williams, chief economist with the state’s legislative analyst’s office, said this month the shortfall could hit $9.5 billion if revenue continues at current rates.

Assemblyman Tony Cardenas, the Sylmar Democrat who chairs the Assembly Budget Committee, said that based on the briefings he has received from state officials, he believes the deficit could exceed $8 billion. He has called for a hearing next month in Los Angeles to brief local officials and residents on the state’s fiscal picture and to seek their comments.

Cardenas said he is ready to fight to preserve spending on public safety and education.

“It’s going to be tough because everyone is going to want to protect what they care about best,” Cardenas said.

The latter scenario could spell additional trouble for Davis, who could find himself in upcoming budget battles pitted against members of his own party. Fellow Democrats may be reluctant to diminish health care service to the poor, which could save billions of dollars, for example.

Rather than roll back health benefits, Democrats may be inclined to question whether tax cuts handed down by the state in recent years should instead be reexamined. One example is the estimated $3.5 billion the state reimburses local cities and counties for a reduction in the vehicle license fees paid by motorists.

So-called internal borrowing, in which the state borrows money from different agencies and departments to balance its books, is another option being discussed.

“We’re looking at every million or hundreds of millions of dollars to get to the billions we need,” Cardenas said.