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Governor Benefits From Surprise Budget Windfall

Politics: Wilson allocates $2.7 billion for popular uses such as education. The result is a gentler image.


SACRAMENTO — Maybe it was a slight miscalculation or an overly cautious prediction.

Whichever. Gov. Pete Wilson is now benefiting from the fact that his financial advisors--and most economists--underestimated the strength California's economy has shown this spring.

In one week, he has showered at least $2.7 billion in unexpected cash on a host of politically popular recipients--like children.

He has also seized a valuable opportunity to help remake the image of a governor known more for his tough and sometimes divisive side in recent years than for the concern reflected in his latest spending plans.

"Are we reaping the benefits? You bet your life," said Sean Walsh, Wilson's spokesman. "He's not doing it to look softer and nicer, but that's a byproduct and that's good."

Lately, however, Wilson has dropped his angry tone. His speeches these days rarely mention the highly controversial efforts to end affirmative action and block benefits for illegal immigrants.

Instead, the governor is talking about the need to nurture babies in poverty and youngsters in school.

"Let's . . . create a true education renaissance that will carry California's children into the new millennium," Wilson said Tuesday at an elementary school in North Hollywood. "These students, these teachers, deserve nothing less."

Politically, the $2.7 billion that Wilson has been able to spend is a substantial sum. But economically, state budget experts say, the new flow of funds involved an estimate of the state's revenue stream that was only off a bit more than 2%.

The rapidly improving economy has simultaneously reduced state expenditures and raised revenues.

About $700 million of the extra money is from savings that the state realized when welfare rolls dropped this year by about triple the rate officials had predicted.

The other $2 billion reflects an increase in revenue over the two-year period that will end in June 1998. Over those two fiscal years, the state expects to receive a total of nearly $100 billion in revenue, so even a relatively small percentage change has yielded big dividends.

Nearly half of the $2 billion excess has already been collected since January. The bulk of that money--more than $500 million--was not apparent until last month when most personal income tax returns were filed.

The final $1 billion in the expected windfall comes from a recalculation of the revenue state officials now expect to receive in the fiscal year that begins this July. Officials now say they expect this year's increased flow of taxes will continue through the next year.

Looking back, state finance experts say they are surprised at the strong performance of California's economy. But they say it could not have been predicted in December when the budget assumptions were made.

At that time, Finance Director Craig Brown said state officials assumed that federal regulators would take action to slow the economy if the growth rate exceeded about 2.5%.

Other forecasters--including UCLA and Data Resources Inc., a Massachusetts firm watched by California officials--made similar predictions for growth in early 1997 to be just over 2%.

Instead, the national economy in the first quarter grew at an annualized rate of about 5%, said Brad Williams, spokesman for the state legislative analyst's office.

"We thought we were already being optimistic about the economy--not pessimistic," Brown said Tuesday. "It turns out we could have been exuberant."

Today, Wilson will officially unveil his plan to spend the state's unexpected cash. And as he indicated already this week, about $2 billion of the surplus will be directed to schools and other services for children.

Wilson will add $230 million to a highly popular plan for reducing class sizes in kindergarten through third grade, from an average of 29 students to a maximum of 20. His level of funding--about $800 per student--satisfies the highest requests of Democrats and school administrators.

On Tuesday, Wilson added about $100 million more to his school spending plan. Just over half of that would pay for a standardized test for all California students in grades 2 through 11. The rest of the money would expand his four-year effort to computerize all of the state's high school classrooms.

On Monday, the governor also raised eyebrows by offering to spend more than four times the amount proposed by Democrats for subsidized child care. Wilson said his $277-million investment is enough to care for every child whose family will be affected by welfare reform in the next year.

Finally, the governor said he would offer $225 million more to the state's financially strapped cities and counties. Wilson said the offer was simply a way to share the state's good fortune with local governments.

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