Governor releases pared down state budget

The Associated Press
Tuesday May 15, 2001

SACRAMENTO — Blaming a plunging stock market and slipping economy, Gov. Gray Davis said Monday he will abandon almost $3.2 billion in new programs, tax cuts and spending increases he proposed in January. 

“We knew this day would come,” Davis said, unveiling a revised version of the $102.9 billion budget that is to take effect July 1. “Right now there’s just not enough money to meet every legitimate need.” 

The economy, rather than the yearlong energy crisis, is forcing the cutbacks, Davis said, although the budget plan includes new spending on energy-related items, such as $5.5 million for power plant inspections. 

Davis said his revised budget protects his two top priorities — education and public safety — but cuts back the state’s reserves and slashes funding for transportation projects, city governments and the clean beaches program. 

It scraps many of the governor’s tax cut proposals, including a three-day “holiday” from paying sales taxes designed to help parents buy school clothes and supplies. Also, the budget calls for all non-public safety state agencies to cut 2.5 percent of their budgets. 

The early months of 2001 indicate slowing in several areas of California’s economy, including personal income growth, employment and sales taxes, according to the budget. 

Planners also expect the high-tech sector – a major source of income over the past two years – to take more hits in upcoming months. 

The state’s income from taxes on stock options and capital gains — which pumped billions in unexpected dollars to the state treasury last May — sunk to 1999 levels, Davis said. 

“A declining NASDAQ, more than anything else, is responsible for the drop in revenues this year,” Davis said. 

The 83-page “May revise” comes after months of fears that the economy and energy crisis would force Davis to shave his spending plans for the first time since he took office. 

The budget assumes the state will be repaid by mid-August for at least $6.7 billion in energy buys on behalf of the beleaguered investor-owned utilities. Davis signed a bill last week authorizing the sale of revenue bonds to repay the general fund for the power buys. 

But he criticized Republicans for putting “ideological purity” over the state’s needs to issue bonds to pay back spending for electricity. Republicans opposed the bill, causing it to pass without the two-thirds majority needed for it to go into effect immediately. 

Davis said he will ask Republicans to “see the error of their ways” and approve an urgency measure to allow the state to issue the bonds immediately. Lawmakers launched a second emergency session Monday afternoon to address energy legislation. 

Still, the budget includes several energy-related changes. They include: 

•$540.8 million to assist school districts with energy-related costs and $183 million for the state’s universities and community colleges to pay rising natural gas bills. 

•$5.4 million more for a task force investigating allegations of price-fixing in the statewide power crisis, and $380,000 for the Department of Water Resources for energy-related legal bills. 

•$5.5 million for the development and enforcement of power plant standards and inspections. 

•$41 million more for this year and next for state agencies to pay utility bills. 

Now, a joint legislative committee will approve its own version of the budget that will be subject to approval by the full Legislature and the governor. 

Assemblyman Tony Cardenas, an Arleta Democrat who chairs the joint budget committee, said to expect the Legislature to tinker with Davis’ budget. 

Republicans criticized the budget, saying it drains too much from the state’s emergency reserves. The revised budget would leave the state with about $1 billion in reserves in July 2002, while the budget for the current fiscal year includes $5.9 billion. 

“The governor took the grossly irresponsible step of looting our state’s prudent reserve to fund government growth,” said Assembly Republican Leader Dave Cox in a written statement Monday. 

Davis defended his budget choices. 

“Reserves are for rainy days. It’s starting to rain,” Davis said. 

Other key changes in the revised proposal include: 

•A reduction in the state’s Clean Beaches Initiative funding by $90 million to $10 million. 

•$54 million in cuts to the Department of Corrections spending, which Davis said will be absorbed by a decrease in the state’s prison population due to a new drug treatment initiative 

•Cuts to the state’s transportation budget totaling $1.2 billion by postponing for two years a program that would divert all state gasoline tax revenues to transportation projects. 

•Reductions of $255 million discretionary funding for local governments and $50 million for technology grants for local law enforcement.