State budget won’t erase deficit, analyst believes

Gov. Arnold Schwarzenegger’s assertion that his budget plan would wipe out California’s chronic multibillion-dollar deficit was met with skepticism on Friday from the state’s nonpartisan budget analyst, who said the proposal would probably fall short of that goal.

Legislative Analyst Elizabeth G. Hill, to whom lawmakers look for advice on fiscal matters, released a report that applauds the governor for proposing to restrain spending but says his declaration that the budget blueprint would bring California into the black after half a decade of shortfalls is premature.

“We believe that the fiscal benefits of many of the budget’s key proposals are overstated and that the actual decline in operating shortfalls would be significantly less,” Hill said in her report.

The assessment comes two days after Schwarzenegger unveiled what he tagged a “zero deficit” spending plan. Hill’s analysis triggered a rare rebuke from administration officials, usually loath to criticize the analyst, who is known among Capitol insiders as “the oracle” and the “budget nun.”

“We believe that this budget is built on realistic and solid fundamentals,” said Department of Finance Director Mike Genest, who argued that the administration’s rosier projections are based on updated state tax return data that have not yet been seen by the analyst. “What we have here is a case of comparing old apples to new oranges.”

Hill said the figures most crucial to forecasting next year’s revenue would not be available to her office or the administration until the end of this month. But she said the latest data she has seen “do not appear at this time to support the administration’s higher revenue estimates.”

She also said that at least $2 billion of the governor’s proposals for spending cuts, fund shifts, borrowing and new fees may be unrealistic.

The proposal includes plans to bring in new revenue by expanding Indian gambling, selling bonds to help cover the cost of state worker pensions and siphoning $1.1 billion from public transit agencies to other needs.

The Legislature has so far rejected the proposed expansion of Indian gambling, which the Schwarzenegger administration projects would boost state coffers by $506 million. Hill said that even if lawmakers were to approve the gambling proposals, the state’s share of the take from new slot machines would not reach even half that amount.

The $525-million bond sale the administration wants to cover pension costs, meanwhile, already had been declared unconstitutional in state court. The administration has been fighting to overturn that decision for years, and Hill said there were no indications the appeal would succeed.

Genest countered: “If we put together a budget on the belief that we were going to lose every lawsuit that’s been filed against us, then the state budget process would come to a screeching halt.”

But even if the bonds were sold, the gambling revenue came in as projected and all of the governor’s other budget proposals were put into place, Hill said, the state would still be in the red. She said Schwarzenegger’s plan would leave the state on track to spend $2.5 billion more than it brings in by fiscal 2008-09.

Still, in a radio address broadcast today, the governor planned to declare, “We have reduced our net operating deficit ... all the way down to zero. You heard me right, all the way down to zero,” according to a transcript released to the media.

Hill, meanwhile, encouraged the Legislature to “develop a more realistic budget” before the July 1 deadline for putting a state spending plan in place.

Assembly Speaker Fabian Nunez (D-Los Angeles) called Hill’s advice a “reality check” and said lawmakers “have our work cut out for us to craft a responsible and compassionate budget.”

Republicans agreed, using Hill’s report to restate their opposition to major expansions of government services, including the governor’s ambitious healthcare plan. That plan calls for raising billions of dollars in new taxes and fees to help provide insurance to all Californians.

“Lawmakers should take to heart her warnings about funding new ongoing programs this year,” said Roger Niello (R-Fair Oaks), vice chairman of the Assembly Budget Committee, “and resist the temptation to create costly new budget commitments.”

evan.halper@latimes.com