Gov.’s budget plan deepens deficit, analyst warns

The Legislature’s chief budget analyst told lawmakers Tuesday that the budget revisions Gov. Arnold Schwarzenegger released this week rely on “overly optimistic” savings projections and short-term fixes that could saddle the state with financial problems for years to come.

Nonpartisan Legislative Analyst Elizabeth G. Hill, whom lawmakers from both parties look to for advice on fiscal matters, encouraged them to come up with alternative plans that “realistically balance the state’s finances on an ongoing basis.”

Hill cautioned lawmakers that the governor’s proposal, if approved in full, would push the state deficit from $3 billion to $5 billion -- and possibly billions more -- by 2009.

“The concern that we have is that the state’s [future] fiscal situation has actually worsened,” Hill said. She pointed to a drop in forecasted tax revenue, potential legal problems with administration spending plans and a major accounting error in the governor’s budget.

Hill cautioned lawmakers to proceed carefully on the governor’s proposals to raise billions of dollars by selling the state lottery and EdFund, a quasi-public agency that backs student loans, to private companies.

Administration officials took issue with some of Hill’s key findings. They said they stand by their plan to help balance the budget by using money earmarked for public transportation, for example, despite Hill’s warning that such a move violates the state Constitution.

“We think we are absolutely right on that and she is absolutely wrong,” said Department of Finance Director Mike Genest. “There is nothing in our budget we think is unrealistic.”

Lawmakers, who have until the fiscal year ends June 30 to agree on a spending plan, selectively embraced Hill’s advice.

Some Democrats used the report to accuse the governor of hiding behind budget gimmicks to get through the year instead of engaging in a frank discussion about taxes.

“We’ve come to the end of the line for gimmicks that do nothing more than paper over an ongoing, long-term deficit,” said Senate leader Don Perata (D-Oakland). “The time has come to reevaluate all the ways the state captures revenues and funds programs.”

Republicans, meanwhile, applauded Hill’s call for fiscal restraint. “California faces a deteriorating budget situation that will require great caution on our part,” said Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks). “Her analysis should be taken very seriously as a warning sign that lawmakers and the governor must not shy away from making tough budget decisions.”

evan.halper@latimes.com