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California and the West

Power Emergency Pushes Other State Programs Aside

Government: With the budget process beginning, frustrated lawmakers see cuts in favored projects.


SACRAMENTO — The headline on the press release got right to the point: "Is it about energy? No!"

That emphatic declaration sums up a pervasive grumpiness in the state capital today. Ever since the Legislature lumbered into motion this year, it's been all energy, all the time. Patience is wearing thin.

At least temporarily, the power crisis has out-muscled everything else on the state's 2001 policy agenda, from expanding mental health treatment to reforming foster care and ensuring that all California children attend preschool.

"It's nobody's fault. It's just reality," lamented Assemblyman Darrell Steinberg (D-Sacramento). "But it's very, very frustrating."

And as lawmakers begin to piece together a state budget this month, anxiety abounds: Will the ongoing drain of the electricity crisis, coupled with the state's murky economic outlook, leave no money to do anything else?

Anticipating such a possibility, legislative leaders are proceeding cautiously, warning their members to rein in spending expectations. A new swimming pool in your district? Maybe not. Expand health coverage to millions of California's uninsured? Next year, perhaps.

While final budget decisions remain months away, a Senate committee already has tentatively sliced $1.9 billion from Davis' proposed spending plan. Casualties include $40 million for parkland along the Los Angeles River, $100 million to protect beaches from polluted runoff and $50 million in grants to people who buy or lease electric vehicles.

The fiscal prudence comes just a few months after forecasts of a $6-billion budget surplus nourished hopes that this year would be a bountiful one, with plenty of cash for ambitious expansions in education, health care and other arenas.

Predicting continued prosperity, Gov. Gray Davis in January proposed a record $104.7-billion state budget that would, among other things, boost school spending, increase funding for roads and mass transit and raise salaries for community college teachers.

But since then the state has committed a whopping $3.7 billion to buying power on behalf of the debt-ridden electric utilities. Most of the money has come from the state's general fund, and the buying spree continues at a clip of about $45 million a day.

Davis has committed another $1 billion to programs to cut energy consumption, and legislators are mulling proposals for everything from loans to businesses that install energy-efficient equipment to rebates and tax credits for those who buy solar power systems--all multimillion-dollar items.

Spending billions just to keep the power flowing in California makes lawmakers decidedly uncomfortable. In fact, veterans say today's apprehensions are almost worse than those of the early 1990s, when the recession spawned massive budget deficits. Back then, legislators at least knew the parameters of the problem; the energy crisis, by contrast, is a cyclone of unknowns, many of which are beyond government control.

"Where's it going to end?" said Assemblywoman Dion Aroner (D-Berkeley). "When you see millions and millions of dollars going out every day, just to keep the lights on, it's scary. And what becomes of all the other pressing needs we face?"

Under legislation approved last month, the state's mushrooming bill for the short-term power purchases is supposed to be covered by the sale of $10 billion in revenue bonds to investors. State officials say the bonds, which ultimately will be retired by ratepayers, will be issued in late May.

But skeptics are asking questions, among them, whether $10 billion won't be enough--a danger state Treasurer Phil Angelides has voiced.

Estimates suggest the power bill could top $6 billion by May. The bonds also must cover service on the debt and fund long-term electricity contracts that have been negotiated separately in recent weeks--and are the linchpin of plans to free California from sky-high wholesale prices.

"I'm just not sure the $10 billion gets you enough money to cover all those different bases," said Jean Ross, director of the nonprofit California Budget Project. "If it's not enough, do they go to the ratepayers and say, 'Guess what, your rates are going up after all?' Do they try to soften that blow with more state money? This is what I lie awake at 3 a.m. obsessing about."

Other questions linger as well. What if a snag delays what will be the biggest municipal bond issue in U.S. history? And will summer--a time when energy consumption surges as Californians switch on their air-conditioners--bring more expensive surprises for the state?

There are also qualms about the state's credit rating. Standard & Poor's Corp. has put the state on credit watch for a possible downgrade, a move that could diminish the value of all its outstanding debt. And perhaps the biggest wild card is whether the uncertainties about energy will slow the California economy and cause a drop in tax revenues.

Trying to Minimize Risks, Rate Hikes

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