After years of the good life, spending surpluses, cutting taxes and living off a state economy more powerful than most countries, California has hit hard times.
Its treasury faces a projected $1.5 billion deficit, more than any other state. Unemployment has crept above the national average. Standard & Poor's has cut the state's bond rating and, if more money is not found within two weeks, the state comptroller says he will pay state employes and tax-refund recipients with IOUs.
According to the National Conference of State Legislatures, 18 other states also face budget deficits in this recession. Californians are taking their deficit unusually hard, however, because it is so new, so large and so irritating to the state's politicians.
At the center of the budget crisis is Republican Gov. George Deukmejian, finding little of the traditional good feeling usually extended to new governors in their first month in office. His election victory and the budget deficit both grew out of the tax-cutting fervor of California voters, and that basic conflict has left him unwilling to compromise and approve the new taxes that Democrats feel are essential to get the state out of the red.
The state Assembly has passed a bill to cure $600 million of the projected deficit through several small spending reductions, ranging from cuts in school maintenance to delays in transfering money to certain state funds. Speaker Willie Brown, who dominates the Demcratic-controlled Assembly, agreed to support the bill after Deukmejian promised to consider a tax increase if his no-tax plan does not work.
But the state Senate finance committee promptly restored several cuts made by the Assembly, leaving a saving of only$363.4 million. To meet the remaining deficit, Democratic Senate Majority Leader John Garamundi proposed a temporary 1-cent increase in the sales tax.
Deukmejian continues to insist on his package of cuts and temporary loans, although he said that he would be willing to discuss a temporary sales tax increase if his program does not work and if an offsetting cut in some other tax could be found.
Democratic legislators are upset at Deukmejian's plan to carry over at least $750 million of this year's deficit to the next budget year. State Comptroller Ken Cory called "mind-boggling" the image of a conservative Republican governor insisting on maintaining a budget deficit.
Besides the ravages of the recession and federal cutbacks, California is suffering from the results of an increasingly bitter split between Republicans and Democrats in Sacramento, all brought about by a decade of tax-cut politics.
Proposition 13, the state ballot initiative that passed overwhelmingly in 1978, not only reduced the amount of money the state could collect in real estate taxes, but also convinced most Republican and some Democratic legislators that they had to resist any future tax increases.
The legislature has since become filled with what are called "Prop 13 babies," newly elected officeholders, including Deukmejian, determined to find ways other than tax increases to pay the state's bills.
The state once had a $3.88 billion surplus, but that has been spent over the last several years to bail out localities hit hard by Proposition 13 and to avoid any threatened state deficits. Mel Assagai, press secretary to state Senate President Pro Tempore David Roberti, said, "We cut taxes by about $60 billion over several years."
Pressure for more revenues is becoming particularly intense from the state's large student and teacher community since new surcharges and proposed fee increases have been announced for the huge state university systems.
Cory repeatedly has said that he will not borrow above the $400 million in bank loans secured in November unless Deukmejian and the legislature agree on a balanced budget plan. Instead, he said, he would begin paying state employes and Californians due for tax refunds with registered warrants, a form of IOU.
Deukmejian aides said that they hope, in part, for improvement in the economy to accelerate tax receipts. But should the projected deficit remain at about $1 billion, which seems likely if the legislature takes no further action, the state probably will pay millions of dollars in higher interest rates to borrow money and possibly suffer another drop in its credit rating, which fell from AA-plus to AA earlier this month.