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Davis Unveils Budget Plan Based on Cuts, Optimism


SACRAMENTO — Gov. Gray Davis proposed a $100-billion state budget Thursday that would borrow billions of dollars against the future and cut services to the state's poor in order to close a projected $12-billion shortfall without raising taxes.

The plan also depends on the economy rebounding by midyear, pushing up tax receipts. Some key assumptions, including predictions of revenue from stock options and capital gains, are billions of dollars higher than estimates from the state's legislative analyst.

The budget, which will be modified between now and May and must be approved by the Legislature, outlined a combination of cuts, accounting changes and spending deferrals to get the state through the next 18 months. Education, which Davis says is his highest priority, was largely spared in the budget-cutting exercises, as was public safety.

Instead, Davis has proposed dashing a state-funded cost-of-living increase for welfare recipients. The CalWORKS welfare-to-work program is set to take $566 million in cuts under the governor's plan.

Advocates for the poor are also worried that a Davis proposal to revamp child-care services to aid more families could put some former welfare recipients back on the public dole.

The governor portrayed his budget as a "responsible" and "balanced" document that maintains vital services.

"Preparing this budget has been a very painful exercise," said Davis, who is serving the final year of his first term and is seeking reelection. "Difficult decisions were required, and I made difficult decisions."

Still, some of the obstacles that he confronts were evident in Thursday's reactions from leaders of both parties. State Senate Republican minority leader Jim Brulte of Rancho Cucamonga accused the Democratic governor of deficit spending, while Senate President Pro Tem John Burton (D-San Francisco) called the plan "immoral" for its treatment of the poor.

Although it does not raise taxes, the governor's budget proposal for fiscal 2002-03, which begins July 1, does impose $143 million in new fees and surcharges on a host of less-than-sympathetic characters, including polluters, drunk drivers and other criminals.

The Davis budget also creates a $1 co-payment on prescription drugs under Medi-Cal, which would bring in $30.6 million. A proposal to increase a fee aimed primarily at public and teaching hospitals that serve a disproportionate number of poor patients would raise a little more than $55 million.

Burton, a liberal who is Davis' most outspoken Democratic critic in the Legislature, denounced the governor's proposal. He said the plan to eliminate the state's contribution to cost-of-living increases for the blind, elderly and disabled and CalWORKS welfare participants is an "immoral act that I'm not going to participate in. We're going to restore cost-of-living increases to those people.

"A cost-of-living increase for some people can be the difference between tuna fish and cat food for their lunches," Burton told reporters, adding, "I would challenge the governor to live on $400 a month."

Counting on $1 Billion From Washington

To close a gap estimated at $12 billion or more, Davis has proposed $5.2 billion in cuts. He also wants to put off some expenses and borrow against the future, a strategy that he acknowledges will reduce the amount of money available later. In addition, he is counting on about $1 billion from the federal government, which he has yet to secure, to help cover rising medical and security costs, among other expenses.

Proposals to defer state contributions to the California Public Employees' Retirement System and the California State Teachers' Retirement System would free up close to $880 million. But the money must be repaid with interest, and the state must also agree to other financial enhancements for fund members.

A plan to borrow against the state's tobacco settlement money would raise more than $2 billion, but would require the state to make interest payments and would reduce the amount available from the settlement in future years. The plan would allow the state to immediately receive 40% of settlement money that is scheduled to come in over 23 years.

Brulte accused Davis of engaging in "deficit financing," which is prohibited in California.

"When you borrow from the Public Employees Retirement System and pay it off over 30 years, when you borrow from the tobacco settlement fund and pay it off over 22 years, when you borrow to pay for current-year expenditures, that is deficit financing," Brulte said.

"A child who is born today, who enters the work force 20 years from now, will still be paying off Gov. Davis' 2002-03 budget," Brulte said.

Jean Ross of the California Budget Project, a group that advocates for the poor during the budget process, said Davis' plan fails to address the larger long-term problem facing the state's finances, which has been cited by Legislative Analyst Elizabeth Hill: The current level of services exceeds the amount of money the state is taking in.

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