Analyst Sees Risky Assumptions in Gov.’s Budget

Gov. Arnold Schwarzenegger’s state spending plan relies on as much as $2.5 billion in revenue that may never reach state coffers, the nonpartisan legislative analyst’s office said.

Analyst Elizabeth G. Hill, whom members of both parties look to for advice on budget matters, said Monday that Schwarzenegger was depending on some risky assumptions to help close what was estimated to be a $6-billion shortfall.

Legislative Democrats wasted no time in attacking the budget plan, which was released by the governor Friday. Democrats on a Senate budget committee voted to provide schools $2 billion that educators said they were owed under an agreement with the governor last year, but which Schwarzenegger has refused to honor.

After the vote, Senate President Pro Tem Don Perata (D-Oakland) called for a ballot measure to increase taxes to pay for education.

Hill’s comments, meanwhile, came in a report that otherwise complimented the governor for a “sensible” plan to deal with the state’s chronic budget problems -- which Republicans have blamed on the inability of lawmakers to bring spending in line with revenue -- by cutting programs and reducing debt.

But Hill warned that the $115.7-billion revised budget plan for 2005-06 would rely on government employees agreeing to forgo hundreds of millions of dollars in salary owed under existing contracts, a proposal to take money from schools that may be unconstitutional and a pension bond that is legally dubious.

“The revised plan continues to face significant risks in several areas,” the report said.

Hill further warned of an accounting error that had caused the administration to “seriously overstate” -- by $600 million -- the amount of current-year income tax money coming in to the state.

Department of Finance spokesman H.D. Palmer denied that any accounting error was made, calling the matter a disagreement over how the state should calculate that revenue. Palmer said the administration might still revise its projections when it gets more up-to-date tax revenue information.

At a news conference Monday, Hill said that even if the Legislature were to adopt every budget cut in the governor’s plan -- and if none of the money his plan relies on falls through -- the state would still face major budget problems next year. California has so many debts coming due that the state would begin fiscal 2006-07 about $5 billion in the red, she said.

But if the governor, for example, was unable to negotiate the $400 million in pay cuts for state employees that his budget projected, the shortfall for fiscal 2006-07 would grow by that much, she said.

Earlier in the day, a Senate budget subcommittee that oversees state spending on education voted 2 to 1 to restore the $2 billion to schools. School groups have said that they accepted the reduction last year in return for the assurance that Schwarzenegger would restore the money to his budget this year. But facing a multibillion-dollar budget shortfall, the governor reneged.

“We have the highest [educational] standards in the nation and we’re near the bottom in funding,” Perata said. “We can’t just keep waking up and thanking God for Mississippi so we stay out of the cellar.”

Perata called for a tax increase to provide more money to schools, saying that such a measure could be brought before voters in the fall special election the governor has said he would like to hold. The measure would require two-thirds approval of the Legislature to appear on the ballot, however.

“At least then voters would have something before them they really care about,” Perata said.

Administration officials said that the governor’s plan would increase the amount spent on schools by billions of dollars, and that a new tax would only hurt the state’s economy.

But Palmer said the administration was encouraged that Perata, who last month talked about a $4-billion tax increase, appeared to be calling for half that much.

“The good news is his latest proposal would only be half as hard on California taxpayers,” Palmer said. “The bad news is it is still the wrong policy.”

Times staff writer Jordan Rau contributed to this report.