State Budget Outlook Darkens as Deficit Nears $30 Billion

With leading California Democrats already complaining about proposed cuts in state spending, Gov. Gray Davis is expected today to announce new estimates of the government’s anticipated shortfall that will put the deficit at about $30 billion, a far worse fiscal crisis than is already gripping the state’s leadership.

Today, the governor will announce that the state’s deficit, earlier pegged at $21 billion over the next 18 months, has ballooned into “the high 20 billions,” said Davis spokeswoman Hilary McLean. She said the new number is based on updated revenue projections that will be released today. Others estimated that the shortfall would exceed $27 billion and could even top $30 billion.

McLean said that those figures will “lay out in stark relief the challenge the entire state will face this year,” and that Davis stands behind his plan to start dealing with it.

“The governor is dead serious, and we need the Legislature to get on board,” she said. “He has said from the outset this is extremely painful.”

The predictions regarding the size of the state deficit have steadily increased in recent months. Today’s report is expected to redouble pressure on Democrats to consider still deeper cuts in state services and on Republicans to embrace some tax increases.

On Dec. 6, Davis outlined cuts and savings intended to trim $10.2 billion over the coming 18 months; the new estimates could wipe out the effect of most of those proposals in one revision, forcing the administration to once again reexamine a range of proposed tax and fee increases as well as cuts to state services as diverse as education, health, welfare, transportation and prisons.

McLean said Davis may still suggest new taxes when he releases his proposal to balance next year’s budget on Jan. 10.

Meeting at the Ronald Reagan State Building in Los Angeles, urban Democrats used an Assembly hearing on Davis’ proposed $2 billion in cuts to medical services for the poor to signal their unwillingness to support his plan. About 500,000 poor people would lose access to medical care under the Davis package of cuts. Several leading Democrats said they will not consider steep cuts in services until tax hikes are on the table.

“I can’t believe that we would ask for sacrifices from those who can’t afford it, while asking nothing of those who can,” said Assemblywoman Judy Chu (D-Monterey Park), chairwoman of the Assembly subcommittee that held Tuesday’s hearing

Though it is full of steep reductions in services, Davis’ initial package of cuts does not raise taxes. That is an omission that has pleased Republicans but has not gone over well in the governor’s party.

“What we have here is a crisis in leadership,” said Sen. Gil Cedillo (D-Los Angeles), who was among several legislators at the hearing.

Cedillo criticized Davis for claiming throughout his recent election campaign that California has the fifth-largest economy in the world, while now suggesting that the state should fund public services as if “it is an underdeveloped nation.”

The cuts were proposed by Davis earlier this month as part of his plan to reduce the state budget gap by $10.2 billion. Davis administration officials called the plan the governor’s “opening salvo” in dealing with California’s shortfall.

Assemblywoman Jackie Goldberg (D-Los Angeles) told about 500 people packed into Tuesday’s hearing room and spilling out into the hall that “there is a big movement afoot” to reject the governor’s proposed cuts in medical assistance and education.

During the hearing, Chu held up medical equipment that would no longer be covered under the governor’s proposed changes to the medical plan.

“This is a colostomy bag,” Chu said, passing to other legislators the clear plastic bag used by people who have had their colons removed to collect fecal matter. “This is a catheter.... This is a syringe used by diabetics.”

Chu and other Democrats have cited a number of potential new fees and taxes that could offset much of the budget hole, including a “sin tax” of 5 cents for each alcoholic drink sold in the state, elimination of some business tax credits and an increase in vehicle license fees.

Republicans, meanwhile, continue to warn against tax increases.

At another Assembly hearing Tuesday in Sacramento, to assess the governor’s proposed $1.6 billion in cuts from state employee compensation and government operations, Republican committee members released a statement warning that tax hikes would “further devastate the state’s economy.”

“The proposals put forward by the governor are not pleasant by any means, but they must be enacted if we are going to begin the process of restoring fiscal responsibility,” said Assemblyman Dave Cogdill (R-Modesto). “We need to reduce our spending. Tax increases will not solve the problem.”

McLean said the nonpartisan legislative analyst’s office called the Davis plan a “good start” in dealing with the fiscal problems.

But that office also suggested in a report released Monday that any plan to balance the budget should include raising taxes and fees along with cuts. The report criticized the administration for having “virtually no meaningful reductions” in the prison system.

The union that represents state prison guards is one of the biggest contributors to Davis and other lawmakers.

Senate President Pro Tem John Burton (D-San Francisco) has said that the criminal justice system will not be spared.

At Tuesday’s hearing in Sacramento, staff with the legislative analyst’s office said up to 7,000 state employees could lose their jobs under the governor’s plan. Or they could meet his goal of cutting $470 million in employee compensation by taking a roughly 8% salary cut.

Several union officials said the cuts would cripple the ability of various state departments to do their jobs.

They warned of longer lines at the Department of Motor Vehicles, private nursing homes not getting inspected, and battered women being unable to get restraining orders against abusers.

“The people of California will feel the cuts and be worse off because of them,” said Jim Hard, civil service division director of the California State Employees Assn. “It’s literally a matter of health versus sickness, and even life and death, for many Californians.”

Other union officials said they will not begin to reopen salary and benefits negotiations until legislators stop contracting engineering jobs out at a hefty cost to the state and sheltering large corporations from state taxes.

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Times staff writer Gregg Jones contributed to this report.