Analyst Calls Budget Credible

California will end the next fiscal year without a reserve and will continue to face the prospect of annual shortfalls of $7 billion or more under Gov. Gray Davis’ budget proposal, according to a nonpartisan state analyst.

Legislative Analyst Elizabeth Hill, who advises lawmakers on budget and policy matters, described Davis’ revised 2002-03 budget as a credible plan to dig the state out of a $23.6-billion shortfall.

Davis outlined the $98.9-billion plan this week, relying on deep spending cuts, tax hikes, borrowing and other measures to get the state out of the red. The plan also includes a $516-million reserve.

But Hill warned Thursday that the Davis administration overstated revenue in the last fiscal year by $600 million because of an accounting change it failed to make. Consequently, she said, that shortage will carry forward and California is on track to end the upcoming budget year without a rainy-day account.

Davis spokeswoman Hilary McLean said the administration stands by the governor’s revised budget and maintained revenue would be sufficient to cover the reserve.

Even after Davis and lawmakers erase the current $23.6-billion shortfall, Hill predicted that a budget gap of at least $7 billion will confront California in the 2003-04 fiscal year and perhaps beyond.

She said one reason that spending will continue to outpace revenue in California is the governor’s proposal to delay paying local governments for carrying out a variety of state laws. The change will free up money to solve the state’s current fiscal woes but is expected to put pressure on the general fund in future years.

The imbalance between expenses and revenues, Hill warned, could be much larger than the $7-billion figure, which she initially floated in February.

Hill also took issue with the governor’s expectation of about $1 billion more in funding from the federal government to help close the $23.6-billion shortfall. So far, little of the money Davis is counting on has come through.