Legislature told to rein in spending

The Legislature’s nonpartisan budget analyst criticized lawmakers Wednesday for continuing to spend more money than they take in, leaving California with a deficit of $5.5 billion to contend with for the 2007-2008 fiscal year.

“At this advanced stage of the economic expansion, one would expect states would be running operating surpluses,” said Legislative Analyst Elizabeth G. Hill, whom lawmakers look to for guidance on fiscal matters. “In fact, that is what is happening in many states throughout the country. Instead, California is running deficits. Basically we are living on borrowed time.”

Hill urged lawmakers to either raise taxes and fees to cover the cost of existing government programs or begin cutting those programs. “The Legislature should take significant steps now,” she said.

She cautioned that lawmakers should not expect the kind of revenue surges the state experienced last year, because the declining housing market will affect the entire economy.

While the state has a reserve of $3.1 billion -- roughly 2 1/2% of the budget -- Hill said that is a paltry sum compared to other Western states that have used the uptick in the economy to create reserves of 10%. She cautioned lawmakers not to dip into it this year, saying the state instead needs to build a rainy-day fund to fall back on if there’s another steep drop in revenues like California experienced earlier this decade.

The report comes as Gov. Arnold Schwarzenegger, who has vowed not to raise taxes, prepares to unveil an ambitious healthcare plan in January that would provide insurance to millions of low-income Californians -- which could have a multibillion-dollar price tag.

GOP lawmakers have expressed trepidation about those plans.

“Lawmakers and the governor must resist the temptation to create costly new government programs that California simply cannot afford,” said the new Assembly Republican leader, Mike Villines of Clovis.

Department of Finance spokesman H.D. Palmer said the administration knows resources are limited.

evan.halper@latimes.com