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State's fiscal crisis likely to hurt cities Lawmakers also fear schools, counties, and public safety could be targets of cuts

Oakland Tribune

by Steve Geissinger

September 15, 2002

SACRAMENTO -- California faces budget deficits so big lawmakers may soon be called into emergency session in hopes of heading off painful cuts.

Those cuts could hit areas somewhat shielded in this year's late, stopgap spending plan -- schools, counties, cities and public safety.

Senate Republican leader Jim Brulte of Rancho Cucamonga and other legislators expect Democratic Gov. Gray Davis, if re-elected Nov. 5, to call lawmakers into special session to tackle the state's continuing fiscal nightmare.

Others, including some of the Democratic lawmakers who dominate the Legislature, aren't so sure.

"He hasn't ruled it out and he hasn't ruled it in," said Davis spokeswoman Hilary McLean.

But even if legislators don't address looming annual deficits until sometime after the new 2003-04 Legislature begins work in January, lawmakers are anticipating a budget battle so ugly it will make this year's clash -- the longest stalemate on record -- look pretty by comparison.

"If you thought this last one was difficult, I may be termed

"If you thought this last one was difficult, I may be termed out (in 2006) by the time we pass next year's budget," said GOP Assemblyman John Campbell of Irvine, the vice chairman of the budget committee in the lower house.

After a marathon deadlock over cuts vs. taxes to close a $24 billion deficit, lawmakers handed Davis a stopgap 2002-03 budget, which he signed last week -- more than two months into the fiscal year that began July 1. The signing of the $99 billion spending plan was the most tardy in California history.

Republicans are heavily outnumbered in both houses of the Legislature and have scant hope of reversing the situation in the November general election. Yet they hold the handful of votes Democrats need to attain the two-thirds majority required to pass budget legislation. And Republicans say they will fight even harder for spending cuts as a solution to an expected 2003-04 deficit of $10 billion or more.

But Democrats are toying with an array of tax increases, including hikes in the state sales tax, vehicle license fees, and income tax for the richest Californians. Under scrutiny, as well, are boosting "sin" taxes on tobacco and alcohol. There also has been talk of a new tax on satellite television.

"The easiest techniques (for closing a budget gap) were used this year," said Jean Ross of the independent, nonpartisan California Budget Project.

But without dramatic and unlikely changes in the budget process or a sudden and sustained recovery by the state's weak economy, similar shortfalls are expected for several years.

The 2002-03 budget proposed by Davis and ultimately adopted by lawmakers employed a combination of one-time borrowing, funding shifts and spending deferrals to close much of the revenue gap.

About $8 billion in funding decreases fell heavily on the health and welfare sector.

In lieu of Democrat-backed proposals to raise the sales tax on tobacco and boost car registration fees, lawmakers reached an 11th-hour deal to leave the last $1 billion or so in cuts to be made by the governor.

The next governor -- Davis or his GOP challenger, Bill Simon -- is expected to reach that goal in part by trimming $750 million from the state bureaucracy in unspecified, 5 percent across-the-board cuts in the budgets of state agencies and departments.

The governor is supposed to make up the rest by slashing $285 million in spending through "golden handshakes" designed to entice state workers into early retirement. The effort is part of a plan to reduce the state's 250,000-member work force by more than 7,000 positions, most already vacant.

The final version of the budget included only $2.4 billion in additional taxes, borne primarily by businesses.

Half of the new revenue comes from a suspension of business tax credits for part of losses incurred in previous years. When the credit resumes, businesses will be able to write off all their losses, giving them a tax cut in the long run.

With the size of cuts and tax hikes held down through the use of one-time borrowing and fund-transfer strategies, "it will be very difficult" for lawmakers to reach an agreement next year, Ross said.

"Next year all the decisions will be tough decisions -- choices between cuts and tax increases," she said.

Unless Democrats win backing from Republicans for tax hikes, spending reductions will have to be even deeper.

Lobbyists are gearing up for an even bigger battle, aimed at protecting a rainbow of interests. Advocates of those who were largely spared major cuts -- such as local governments -- are concerned.

"The bottom line is that we are definitely worried going into next year's budget," said Pat Leary of the California State Association of Counties. "Even the not so easy decisions got made this year."

Counties, which lobbied jointly with cities and other local entities this year as never before, plan to continue what they believe was an effective alliance.

"But next year it's going to be much more difficult," Leary said.

Even public safety could be in jeopardy, local officials fear.

"It's always the last place anybody wants to cut, from the state level to the local level," she said. "But if the cuts are deep enough, you have no choice, other than to make some cuts there."

Likewise, school officials said they are equally concerned about potential spending cuts, despite voter-approved funding guarantees for public education.

If the current Legislature returns later this year to further address California's funding crunch, it may be to vote on a Democratic proposal to raise vehicle license fees.

The measure, which would allow the governor to raise the fees on his own, could be approved on a simple-majority vote, without GOP support, as a clarification of previous law.

Davis already has asked state departments to find another 20 percent to cut in their budgets, including elimination of entire programs if necessary.

In the latest independent, statewide Field Poll, those who believe politicians did something between a fair and a very poor job outnumbered by more than 2-1 the number of voters who said the budget players did a good job.

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