Committees
Growing Budget Gap Seen
By Law Student Committee Against Fee Increases
Feb 19, 2004, 12:14

Growing budget gap seen
http://www.sacbee.com/content/politics/v-print/story/8291689p-9222107c.html
Governor's plan is a 'good start' but fixes are needed, analyst says.
By Alexa H. Bluth -- Bee Capitol Bureau - (Published February 19, 2004)

Even if enacted precisely as prescribed, Gov. Arnold Schwarzenegger's budget proposal would leave the state with a $7 billion budget hole in the 2005-06 fiscal year and "large operating shortfalls" for the next half-decade, Legislative Analyst Elizabeth Hill said Wednesday.

Although the governor's 2004-05 budget offers a "good start," it lacks sufficient permanent fixes, she said.

"The governor's budget, I think to its credit, provides a lot of ongoing solutions," said Hill, the Legislature's nonpartisan budget adviser. "But there are also a number of one-time solutions."

The $99 billion plan also is "modestly out of balance" for the current and coming budget years, even if the Republican governor's $15 billion bond proposal is approved by voters on March 2, Hill said.

The governor's budget assumes the state would end the coming fiscal year with a slight surplus if his proposals are all enacted. Hill said her office projects lower revenues and higher expenses that would leave the state slightly in the red come year's end.

Finally, she said the plan relies on some risky solutions that would saddle the state with an even wider gulf between spending and revenue if they failed to materialize.

Hill offered the cautionary appraisal in her annual comprehensive analysis of the budget. She advises the Legislature, which will consider Schwarzenegger's proposals and is supposed to approve its own plan by June 15.

Finance Department spokesman H.D. Palmer downplayed Hill's criticism, saying, "There's not much daylight between the two of us on the major issues."

Palmer said the analyst's predicted gap in future years will shrink as Schwarzenegger's fiscal team enacts permanent government reforms to increase efficiency and cut costs in a variety of state agencies.

"We have yet to put a dollar amount on a number of the reform proposals that we are beginning to put together, and we did so deliberately," Palmer said. "This is already under way."

Still, Hill said some of the solutions that do contain dollar figures in Schwarzenegger's budget are shaky at best.

They include $930 million in bonds to help pay the state's pension obligations; it's similar to a strategy that lawmakers built into the current budget and that was struck down by a judge last fall.

Hill said the same "legal cloud" would apply to the new proposal. The Schwarzenegger administration argues that the bonds would be different from the ones rejected by the courts because the state this time identifies a source of repayment - a 1 percent increase in worker contributions to pensions, and a less-generous retirement package for new state workers.

Hill also questioned the certainty of savings from proposed cuts in Medi-Cal provider rates, currently facing a legal challenge, and $500 million that the governor expects to collect as a result of tribal gambling negotiations.

In addition, she expressed reservations about $400 million in undefined savings that the governor counts on extracting from the Department of Corrections.

"There are no details of what the administration's proposal is. That's why we have included it as a threat" to the budget, Hill said. "You'd need to make some pretty significant changes to generate that kind of money up front."

Overall, Hill said California is faced with a $17 billion budget shortfall spread over the current and coming fiscal years.

The solutions in Schwarzenegger's budget would not cover the entire $17 billion, falling about $780 million short of balancing revenues and spending for fiscal 2004-05, according to Hill. She said the plan also lacks long-term solutions to prevent multibillion-dollar gaps in future years.

She agreed with finance officials' assessment that failure to pass the bond package next month would leave the state searching for an additional $5 billion.

As she has for the past several years, Hill called on legislators to make permanent changes - either by cutting spending or raising taxes - to help balance the state's budget.

Hill suggested about $3 billion in cuts such as capping services provided by regional centers for the disabled and offering home detention for elderly, nonviolent prisoners.

She also recommended a variety of fee increases, such as a user fee to help the state regulate pesticide use.

Hill said she generally agrees with Schwarzenegger's calls for higher college tuition but said the state should revamp its process for raising fees. She said the governor's proposed 40 percent fee hike for graduate students is too high.

She also sharply criticized lawmakers for failing to protect the state's transportation funding for several years.

Recent budgets have grabbed dollars from the state's voter-approved transportation account to help fill holes in the general fund. As a result, Hill said, the state is putting only a fraction of the money into highway projects that was promised under Proposition 42. The measure, approved by voters in 2002, requires gasoline sales taxes to be used for transportation.

"The instability of this type of funding scheme has meant that projects that were initially anticipated have been started and stopped, wasting money for the state of California," Hill said. "We are very concerned that if you don't have a healthy transportation system, it's hard to keep the economy moving forward."

She suggested the Legislature and governor ask voters to repeal the proposition and enact a 6-cent increase in sales taxes for gasoline to stabilize funding for road projects.


About the Writer
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The Bee's Alexa H. Bluth can be reached at (916) 326-5542 or abluth@sacbee.com.
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