New Revenue to Help Fill Projected Gap

An infusion of cash from robust business growth and improving stock market returns is flowing into California’s coffers, leading the nonpartisan legislative analyst to predict Tuesday that the state’s budget gap will shrink substantially.

A projected $2.4 billion in new revenue will help lawmakers close an estimated $8.6-billion budget shortfall in the 2005-06 fiscal year, which begins July 1. But analyst Elizabeth G. Hill, whom lawmakers of both parties look to for advice on budget issues, warned against using that money to avert spending cuts or tax hikes.

She said the money should be used to eliminate some of the budget’s billions of dollars in proposed borrowing. Should lawmakers fail to heed that advice, Hill said, the loans will leave California with a fiscal hangover next year.

The state, she said, would face deficits of as much as $10 billion starting in mid-2006 and continuing at least into 2009 as a result of borrowing and other one-time budget measures.

“The Legislature has an important budget opportunity,” she said. “The price of inaction is very dramatic.”

Hill’s advice brought little solace to Democrats resisting billions of dollars that Gov. Arnold Schwarzenegger has proposed in cuts to social services, healthcare programs and education. She said that to keep the state in the black, lawmakers would need to cut the state’s next budget by at least the $4 billion to $5 billion that Schwarzenegger has proposed. The alternative, she said, is to raise taxes -- something Schwarzenegger and legislative Republicans have vowed to block.

“She says clearly that we need $5 billion in cuts or revenue of some sort to bridge this gap,” said Assembly Budget Committee Chairman John Laird (D-Santa Cruz). “Now the question is, where do we go with that.”

The Legislature and the governor are at odds over a budget they are constitutionally required to balance by the end of June. The fight is fueled by threats from Schwarzenegger to go directly to voters with ballot measures that would force state spending down by billions of dollars.

The Democrats who control the Legislature have not yet offered a budget plan of their own. The only one on the table is Schwarzenegger’s.

On Tuesday, Hill said the linchpin of his plan -- an automatic spending control that could force across-the-board cuts in government programs -- was a bad idea.

“We are concerned that the budget proposals put forward would make the problem worse rather than better,” she said.

Under the governor’s proposals, most services and programs would be automatically cut if lawmakers did not agree on a budget by the end of July. She called the automatic cuts “a very blunt instrument” that would take away the Legislature’s ability to decide where tax dollars should be spent.

Administration spokesman Vince Sollitto said such criticism “misses the whole point of that device.”

“It is meant to ensure that a budget does get enacted in a timely manner,” he said, noting that lawmakers rarely meet their constitutional deadline for passing a budget. “The Legislature can set all of its spending priorities in the budget. It just has to do it. Otherwise, the spending priorities passed in the previous year will be used until they do.”