- The Washington Times - Wednesday, February 19, 2003

SACRAMENTO, Calif., Feb. 19 (UPI) — Gov. Gray Davis's $89 billion budget proposal could be a viable means of digging California out of its huge budget hole if the state Legislature resists the urge to tinker with the narrow margins of the spending plan, state analysts said Wednesday.

The Legislative Analyst's Office, an independent arm of the Legislature, said the budget's spending cuts of nearly 6 percent — coupled with higher revenues — would be enough to cover an 18-month deficit that has been estimated somewhere between $26 billion and $35 billion.

"Achieving fiscal balance, however, would require that virtually all elements of the plan be adopted and realized," the LAO said. "Failure to reach agreements on key budget elements involving taxes, spending reductions, funding shifts, or (program) realignment would cause the fiscal situation to quickly and dramatically deteriorate."

Lawmakers of both parties have indicated that they want changes made to the plan with Davis's fellow Democrats urging more money for cash-strapped cities and counties, and Republicans vowing to fight tax hikes.

California requires a two-thirds majority in the Legislature to pass a budget, which by law must be balanced. Although Democrats control the Legislature, they will need votes from GOP members in order to get the two-thirds margin.

"The actions proposed by the governor reflect his priorities for dealing with the shortfall," the report said. "In evaluating and acting on these proposals, the Legislature will be confronted with applying its own priorities to make fundamental decisions about the scope of government services; how these services are distributed among the citizenry; and what the nature, amount, and mix of taxes in California should be."

Based on projected increased tax revenues, the LAO predicted the state could even wind up with a $1 billion surplus, if the budget proposal works perfectly, but they also expressed some serious doubts about provisions for tax increases aimed at raising $8.3 billion during the 2003-2004 fiscal year.

Davis has proposed hiking the cigarette and sales taxes and income taxes for Californians in the highest income brackets. Nearly all of the revenues would be used to fund social services that the budget proposes handing off to municipal governments.

The analysts cautioned that revenues from both sales and income taxes vary with the ups and downs of the economy. In particular, stock market volatility affects the incomes of the upscale taxpayers who have numerous investments.

In addition, the report warned that California could wind up seeing its federal funds reduced in upcoming budget negotiations in Washington.

Davis's plan for "realignment," the transfer of tax revenues and program spending to the local level, was a plan worthy of consideration because it would likely improve the efficiency of the programs, the LAO said. The key would be developing a uniform means of distributing the money among the state's 52 counties, which have widely varied populations.

The report also warned that the state should take care to make sure that the costs of the programs being realigned run roughly parallel to revenue projections, and city and county officials should have the authority they need to make changes in the programs' budgets.

"In fact, counties may have greater need for such authority because counties have less ability to increase taxes to pay for the programs," the report said.

"Enacting any program realignment would be very complex and involve difficult trade-offs regarding state and county control," the LAO said. "Given the difficulties associated with modifying a realignment plan after its enactment, the Legislature would need to develop a plan that could withstand the test of time."

(Reported by Hil Anderson in Los Angeles)

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