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Deficits predicted for state Davis acknowledged that his $96 billion plan would balance for only one year but not that it could lead to years of built-in deficits. The Democratic governor's plan, whose chief feature is using a half a percentage point sales tax increase to retire $10.7 billion in debt over five years, would leave future lawmakers saddled with paying off so much red ink the state's books won't balance, the report said. With greater demands on existing state revenue, pressure increases on lawmakers and the governor to enact more tax hikes or deeper spending cuts. "We're very concerned about the structural imbalance going forward," said Elizabeth Hill, the state's legislative analyst. "All the easy answers have been taken. There are only tough choices ahead." Although Hill said she did not know how much of future budgets would be consumed by paying off the debt, she said the governor's proposed solution erases $17 billion of an estimated $38.2 billion cash shortage through loans that must eventually be repaid. Some loans are paid off over five years. Some over two years. Some indefinitely. Increasing the state's reliance on debt has another cost. California already pays the highest fees in the nation of any state because of its poor bond rating. Higher debt repayments are the main reason each year, starting in July 1, 2004, the state will take in at least $7 billion less in revenue than its existing spending commitments, Hill said. Just as Davis has done, Hill urged lawmakers to find ways to permanently reduce spending to avert the potentially cumulative deficits. Among her ideas are examining the $30 billion in exclusions, deductions and credits on state taxes to see if some can be eliminated and transferring responsibility for some state programs to counties. Davis' latest budget proposal, which differs sharply from the one he proposed in January, is aimed at moving Democrat and GOP lawmakers closer to a timely budget solution by giving each something they want. Republicans want to pay off $10 billion of the state's debt over time -- but dedicate existing money to do so. Democrats, opposed to sharp cuts in social programs and health access for the poor, insist any budget solution include new taxes. In trying to appease both sides, Davis so far has managed to anger both. "We proposed a budget that balances without a tax increase," said Assembly GOP leader Dave Cox of Fair Oaks. "All the governor has proposed is a level spending plan with taxes." Assembly Speaker Herb Wesson has already expressed the same worries as Hill -- why erase this year's cash shortfall by guaranteeing creation of another? While the state has balanced budgets by paying off debt over two years as recently as the early 1990s, Hill said she knew of no time since the Great Depression that the state rolled debt over a five year period. Besides long-term borrowing, Davis also reverses a budget savings from the early 1990s when California faced a similar cash-flow nightmare. Back then, lawmakers and then Gov. Pete Wilson switched the way expenses for state programs were accounted for from cash to accrual. Overall, the move saved money and placed the state in accord with generally accepted accounting principles. But the state lost money from making the change to Medi-Cal, California's health care program for the poor.
Davis proposes to save
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