SACRAMENTO — California faces a budget deficit of more than $20 billion for the second straight year, Legislative Analyst Elizabeth Hill said Thursday.
State revenues are slumping, personal income growth is sluggish and some of the money Gov. Gray Davis included in this year’s spending plan is not materializing, said Hill, the Legislature’s nonpartisan economic adviser.
Lawmakers will be forced over the next 19 months to fill in a $21.1 billion deficit — one quarter of the state’s total general fund budget — and could face $12 billion to $16 billion shortfalls for at least six more years, she said.
“There is no easy way out of this predicament,” Hill said.
While Davis, who has made education the core of his first-term program, has spared most K-12 school programs from heavy cuts, they may be unavoidable now, Hill said. The expected drop in revenues automatically decreases the legally required minimum amount of spending on schools by about $1.9 billion.
The new revelations echo those in several other states and increase the chances that Californians will be saddled with increased taxes and dramatic cuts to health, welfare and schools.
Davis’ financial team is “considering all the options” and knows “we can’t do that without reducing or eliminating programs,” said Anita Gore, a spokeswoman for the governor’s Department of Finance.
Davis will present his budget plan in January, although he may propose midyear cuts earlier, Gore said. She did not rule out tax increases but said Davis will first focus on cutting programs.
Last year, Davis called an emergency session of the Legislature to enact more than $2 billion in midyear cuts. He then signed a $98.9 billion 2002-03 budget on Sept. 5 — a record 67 days late — that cut, borrowed and raised revenues to fill a $23.6 billion gap.
But many, including Hill, predicted continuing deficits and said the governor and Legislature have exhausted easier, one-time fiscal fixes such as tapping into future funds from a nationwide tobacco settlement.
Now, weak revenues, a plunge in exports and the decline of the stock market have translated to a $6.1 billion deficit in the current year that will grow — if not addressed — to $21.1 billion in the new fiscal year that begins July 1, according to a 39-page report issued by Hill’s office.
“We’ve really seen a weak economic performance for the first 10 months of 2002,” Hill said.
Plus, Davis’ current-year budget is out of balance partly because federal funds and savings built into the current spending plan never developed. For instance, a proposal to offer early retirement incentives to state workers derailed after most state departments declined to participate.
Lawmakers must put “everything on the table” to repair the problem, Hill said, which means tax hikes, heavy cuts to programs and college tuition increases.
“California policy makers are going to face an enormous challenge,” Hill said, adding that Davis should ask lawmakers to make midyear budget cuts.
Republican lawmakers seized on Hill’s report Thursday to blast Davis’ and the Democratic-controlled Legislature’s handling of the budget.
“If wasn’t clear enough last year, it should certainly be crystal clear this year — Democrats have failed Californians,” said John Campbell of Irvine, the Republicans’ chief budget negotiator in the Assembly.
Republicans have vowed to hold back their votes — which are needed for the required two-thirds passage of a budget, tax increases and other fiscal matters — if the new plan includes tax hikes. Davis last May proposed cigarette and vehicle registration tax increases but the plans were scrapped in a compromise to end a nearly two-month budget standoff.
This year, Republicans finally agreed to a budget in late August and provided the four votes needed in the Assembly and one in the Senate. But this year, reaching the two-thirds threshold will be more difficult for Davis after the GOP gained two new seats in the Assembly and possibly one more in the Senate. Davis spokesman Steve Maviglio, meanwhile, countered the GOP criticism by citing studies that show states nationwide facing billions of dollars in deficits, including many with Republican leaders.
Davis will submit his 2003-04 budget to the Legislature on Jan. 10.
His finance department is also preparing its 2003-04 budget proposal. Davis has already asked state departments to prepare plans for 20 percent cuts.