Analyst to Gray Davis: Good Luck With Your Budget!

The Legislative Analyst's Office warned in its anxiously awaited review of the so-called May Revision budget that Davis was working without a net in his proposal, and any attempts by lawmakers to tinker with margins of the plan would likely cause it to collapse in its entirety.

"To the extent that the Legislature rejects any of the solutions proposed in the plan, it is critical that they be replaced with savings of at least a comparable magnitude and duration so that the plan's potential benefits are not eroded," said the LAO, which is considered to be among the most thorough reviewers of budget plans in the state.

Davis had unveiled a new spending plan last week that included a half-cent sales tax and $8 billion in increases in other fees and taxes as means of addressing a deficit projected as high as $38 billion. The increased levies would be used to back a bond issuance that would cover the deficit.

The nearly $100 billion plan was seen as an attempt to avoid the deep cuts in education and social services that Davis' fellow Democrats oppose while still avoiding even larger income tax hikes that would be rejected by the minority Republicans whose votes will be needed to pass the entire budget.

Davis' hopes to unite both parties long enough to get the budget passed by the end of June - thus satisfying Wall Street - may be misplaced as the LAO found the details of the spending plan to be fairly troublesome.

"On the positive side, the revised plan would enable the state to achieve a balanced budget in 2003-04, provided its assumptions are realized and its estimates prove accurate," the LAO said. "However, it also would leave California with a still-formidable imbalance between ongoing revenues and expenditures, which would re-emerge in 2004-2005 and persist thereafter, absent corrective actions."

The LAO expressed concern with the volatility of the governor's revenue projections, which the report called "reasonable," but still pointed out that they were weakened by uncertainty over expectations of personal income tax and insurance tax revenues, and the chances of spending increasing due to higher demand for state services.

In addition, California's economy faces uncertainties in the form of shaky consumer confidence, unemployment and market conditions in overseas export markets.

Some GOP lawmakers last week quickly attacked the Davis proposal as being too reluctant to cut spending, and Monday's LAO report seemed to side with that sentiment, stating that the use of borrowing "avoids the pain" of both spending cuts and tax increases.

Davis, who is proposing $18 billion in spending cuts, has been busy challenging the Republicans to put aside political dogma and get behind his proposal before the state finds itself running out of money this summer. On Monday, his office referred to a San Francisco Chronicle article that contended that Republicans were as reluctant as the Democrats to make painful spending cuts.

"What's worse?" the statement said. "The Republican leadership's vow to not compromise on taxes or their compromised principles when it comes to putting their vote where their mouth is on reducing spending?"

Davis' declarations don't appear to have changed any minds in the Legislature - Republicans and Democrats alike were publicly sticking to their guns Monday as the budget faced the legislative approval process.

The LAO, which has always factored Sacramento politics into its analyses of the budget, said the May Revision plan would work if left alone, and although it refrained from calling it a "house of cards," the agency refused to give it a heartfelt endorsement.

"Although some progress has been made, the Legislature and the governor clearly have a long way to go to fully address the budget shortfall," the report said. "Given the ... fundamental ongoing disagreements that have persisted over the appropriate mix and composition of spending reductions and tax increases needed to resolve the shortfall, it is unlikely that any revised 2003-2004 budget plan could at this point realistically address the full magnitude of the budget shortfall in only one year." Copyright 2003 by United Press International. All rights reserved.