California Has Biggest Budget Gap - And a Looming Political Donnybrook

TITLE this movie ``Budget Blues II'' - or perhaps VI. The setting is familiar: a large state somewhere in the West with an affable climate and a dour economy.

Main plot line: How to keep a $50 billion government going when it faces rising costs and limited revenues. Though rated PG for now, this movie could change to an * rating or worse as the starring politician-protagonists move into an election year.

This, in effect, may be what California faces as it heads toward 1994 amid signs that the economy is still undermining the state budget.

The latest lugubrious news came this week from the Commission on State Finance, a fiscal watchdog group. It projected that the state budget adopted in June will be at least $3.8 billion in the red by the end of this fiscal year, and if the economy doesn't improve or steps aren't taken to correct the trends, it could get worse.

While the projected gap is less than others the state has seen in recent years, it could, if it turns out to be true, pose a problem for Gov. Pete Wilson (R), who is gearing up for reelection.

Any painful cuts the governor might have to make to balance his next budget proposal, due out in less than a month, could touch off a protracted fight with legislative Democrats, with all the political ramifications that would include. Golden State woes long-lasting

``It is going to be hard to balance the budget again - and that won't play well in the political arena,'' says Bud Lembke, editor of Political Pulse, a Sacramento, Calif., newsletter.

California's fiscal woes continue to linger even as other states have been pulling out of the mire. While pockets of penury still exist, such as in New England, many states are seeing their finances improve as the economy perks up.

The latest budget survey conducted by the National Conference of State Legislatures (NCSL) shows that, in fiscal year 1993, the average ending budget balance for the states was 2.3 percent on the plus side of the ledger. That is up from 0.7 percent at the end of fiscal 1992.

No one is celebrating though. The same survey indicates that state budget balances are expected to decline again somewhat in fiscal 1994, which ends in June, largely because outlays for prisons, Medicaid, and other programs continue to rise. Thirty states expect to end the year with lower budget balances than they had in 1993.

``By far, the worst is California,'' says Corina Eckl, an NCSL senior fiscal analyst.

The most-recent numbers from the Commission on State Finance bear out the challenges the state may still face. It attributes most of the expected shortfall over two years - this fiscal year and next - to lower-than-expected tax revenues coming in as a result of the sluggish economy.

The commission blames the rest on unexpected cost increases from such things as increased immigration, higher welfare and medical-care caseloads, and more prison inmates.

The Commission on State Finance is the only government entity in California that issues budget projections outside the state Department of Finance. The Finance Department falls under the control of Governor Wilson, while the commission is chaired by state Treasurer Kathleen Brown (D), a likely gubernatorial challenger next year. Analysts say the commission's projections have been reliable in the past.

Wilson aides portray the glum numbers as not surprising, though they won't indicate what their own figures are showing. Most observers expect the governor's outlook to be less pessimistic. His version will be outlined when he presents his proposed 1994-1995 budget on Jan. 7.

Whatever fiscal challenges the state does face, the governor can be expected to blame a good number of them on the federal government. He has been faulting Washington for not doing enough to help offset defense cutbacks, base closures, and the cost of immigration.

Wilson also argues that some Clinton administration policies, such as the tax increase on the rich, have fallen disproportionately on California, which has a heavier concentration of upper-income people.

``While the state has been taking two steps forward, federal policy decisions have had the effect of knocking us four steps backward,'' a gubernatorial aide says.

No matter where the fingers point, it could be politically awkward for the governor if there is another budget gap to bridge.

Wilson and the Democratic-controlled Legislature were able to close an $8 billion shortfall in adopting the current spending plan six months ago. It was the first budget enacted on time in seven years - something the governor has been hoping to trumpet in his reelection bid. Budget battles could help Brown

Potential Democratic nominee Brown could benefit from any budget battles the governor may face. She has already been critical of his economic management of the state. As California treasurer, however, she may not be completely detached from the process in the minds of voters.

Watching all this, too, will be another likely challenger for the Democratic nomination, state Insurance Commissioner John Garamendi.

``It portends a pretty ugly election year,'' says Sherry Bebitch Jeffe, a political analyst at the Claremont Graduate School.