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Calif. Near Financial Disaster Democrats have retreated recently from some tax proposals but are insisting on a half-cent sales tax increase. Several dozen Democratic legislators even barnstormed Republican districts around the state last week to plead for support but got mostly hostile receptions. Davis, who left the state this weekend to attend his mother's 80th birthday celebration in New York, is still expressing optimism that a budget deal can be reached soon, if not by tonight's constitutional deadline. "I am doing everything I can to encourage, cajole, persuade, guilt-trip and all the things you do to try to make this happen," he told reporters last week. California's $38 billion deficit is larger than the entire annual budget of any other state except New York. It represents about one-third of the state's annual spending. As in many other states, the shortfall is largely the result of the national economic downturn -- which has been especially severe in Silicon Valley, an engine of California's $1.3 trillion economy. Soaring health care costs for the poor and new expenses for homeland security are other contributing factors. Republicans here also contend that Davis, who was narrowly elected to a second term in November, has spent recklessly while in office and relied on accounting gimmicks to balance the budget last year. California, which had a $9 billion budget surplus three years ago, is constantly caught in boom-or-bust economic cycles. In the early 1990s, Republican Gov. Pete Wilson had to raise taxes and cut spending to erase a $14 billion deficit. Escaping this crisis will be far more difficult and painful. To close the $38 billion deficit, state leaders have approved $7 billion in cuts affecting virtually every government program. They have borrowed $11 billion to keep California solvent through the summer. Earlier this month, risking the wrath of voters, they tripled the annual state tax on vehicles, a $136 increase for most motorists. But that still is not enough to balance the budget. Now, with time to find a solution running out, state Controller Steve Westly is warning that as early as Tuesday more than a billion dollars in payments due to state agencies, medical providers and private companies that contract with California must be stopped. "This is going to be real hurt for the state of California," he told reporters a few days ago, "and the problem gets worse every day we go without a budget." Some public institutions already are reeling. The Los Angeles Community College District, which enrolls 130,000 students, has been forced to eliminate classes and lay off some of its faculty, and is on the verge of raising tuition by more than 50 percent because of the budget crisis. Thousands of students have dropped out because of cutbacks this year, college officials say, and more are likely to leave if additional classes are canceled. Mark Drummond, the chancellor of the district, said that its network of colleges has enough money to operate until August, but would not be able to pay its vendors or its faculty if the state is still engulfed in deficits by then. "We could have to turn off the lights and tell everybody to go home," Drummond said. Nursing homes are suffering the same plight. Some already have stopped receiving all the payments they had been expecting from the state and are cutting back services to their residents and turning away new patients. If more cuts are approved, or if the budget gridlock doesn't end soon, dozens of homes could go bankrupt and close.
Betsy Hite, spokeswoman for the California Association of Health
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