Governor’s Budget Misses Opportunity, Analyst Says

Gov. Arnold Schwarzenegger’s revised $102.8-billion budget plan fails to take advantage of California’s improving economy to cut the state’s chronic deficit, according to a report issued Monday by the nonpartisan Legislative Analyst’s Office.

Instead, the revised budget announced last week creates a persistent budget gap of more than $6 billion into future years, the report says.

“The bottom line: Our concern is we can’t grow our way out,” said analyst Elizabeth G. Hill. “They’ve missed an opportunity in good economic times.”

With $15 billon in deficit bonds approved by voters in March, Hill said, the state can make its way through fiscal 2005-06 under the governor’s plan, but then would be left to deal with an unpleasant fiscal hangover. “We are concerned about the amount of borrowing,” she said.

She also warned that the deals the governor has cut in recent weeks with local governments, school groups and others would make the budget gap harder to fix.

The analyst, appointed by the Legislature, plays a key role in budget negotiations between the governor and lawmakers. Legislators often look to her for unbiased advice on what works, what’s a gimmick and what proposals may create more problems for the state down the road.

Since the state’s budget fell into a freefall a few years ago, however, legislators have steadfastly avoided following her advice to close the chronic deficit through some combination of new taxes and tough cuts -- opting instead to borrow more.

Hill’s comments backed up what many of the governor’s critics have been saying since he released his proposal Thursday.

The governor brushed off such criticism Sunday as he walked down the red carpet to a stunt awards show at Paramount Pictures in Los Angeles.

“I’m worried about this year,” he said. “People are talking about the out years. This year! This year is where the action is. This year. Then, after we have solved the problem this year, then we go to the next year and we solve the problems next year.”

Department of Finance spokesman H.D. Palmer says that even by Hill’s accounting, the governor is making progress in closing what was a budget gap of as much as $28 billion when he took office.

“The concept of a gap three, four or five years down the road assumes that the governor and Legislature do nothing to change things by that time -- that we take our hands off the steering wheel and go on a policy vacation,” Palmer said. “That is not going to happen with this governor.”

Palmer said the administration was working on several long-term solutions for closing the budget gap. They include scaling back and boosting efficiencies in the Medi-Cal healthcare program for the poor, seeking to eliminate waste in state government and working with the federal government on more assistance.

On Monday, for example, the governor announced that California might be able to avoid as much as $455 million in federal penalties by reaching agreements to reform management of child welfare services, automate the state’s child support system, and streamline administration of food stamp delivery.

“We’re overachievers,” Palmer said.

But Democrats say the state is running out of time to confront its fiscal problems.

“It’s sobering,” Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento) said of Hill’s report. “What this report is implicitly saying is we have this year and next year to deal with this. I think we ought to heed her advice.”

The deficit could also grow larger, according to Hill, as a result of overly optimistic projections in the budget. They include the state’s saving more than $875 million by getting state workers to give back raises owed to them, or borrowing nearly $1 billion to cover pension payments to government workers -- something tried last year, but struck down in court.

Hill urged lawmakers to carefully scrutinize budget deals the governor has cut that will produce savings this year in return for promises that they will be protected in the future.

She cautioned that an agreement with public universities that would guarantee modest funding increases in the future in return for steep budget cuts this year could have unintended consequences. Among them: forcing lawmakers to give UC and CSU systems the same increases despite their differing needs.

Although Democrats said Hill’s findings highlighted the dangers of the governor’s refusal to even discuss raising any taxes, legislative Republicans said the message was the opposite: that out-of-control spending must stop.

“We agree with the analyst’s assessment that the Legislature must resist the temptation to create new government programs,” said Assembly Republican Leader Kevin McCarthy (Bakersfield).

Hill, as usual, stayed above the fray, saying: “Everything should be on the table.”

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Times staff writer Peter Nicholas contributed to this report from Los Angeles.