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Davis' Fix Is Like Wilson's Dilemma

Budget: The former governor is critical of his successor, but there are parallels and differences in the crises and the two men's strategies.

January 26, 2002|DAN MORAIN | TIMES STAFF WRITER

SACRAMENTO — Upon taking office in January 1991, Gov. Pete Wilson faced the same problem Gov. Gray Davis confronts now: a deep budget shortfall and no easy way out.

Then, as now, costs of welfare, prisons, public schools and other state-funded programs simply outpaced tax receipts. Three days after being sworn in, Wilson summed up the situation with an observation echoed today:

"Fundamentally," he said, "the state suffers from a structural budget problem."

Initially, the Republican governor thought the shortfall he faced was $7 billion. By the time he signed his first budget into law in mid-July 1991, the deficit had ballooned to twice that. To fill the gap, he agreed to spending cuts and accounting tricks that saved $7 billion, and tax increases intended to raise $7 billion more.

Eleven years later, Wilson hasn't flinched from what he says are bedrock budget principles. There are three ways to handle a shortfall, he says: Cut spending, raise taxes, or use a combination of the two.

Reviewing Davis' proposal to close a shortfall now projected at $12 billion, Wilson says his Democratic successor has chosen a fourth alternative--deficit spending--that Wilson contends may be illegal under state law. At the very least, Wilson says, Davis' budget is a prescription for tax increases in coming years.

"I think it is unconstitutional," Wilson said in an interview. "Even if it were legally permissible, it is terrible economic policy. Talk about undermining not just your credit with the rating agencies. . . . Anybody with a brain that looks at this situation sees the almost certainty of future tax increases."

Susan Kennedy, a top Davis aide, responded by calling Wilson "the king of budget gimmicks." She defended Davis' proposal to fill the $12-billion gap by cutting $5.2 billion, seeking $1.1 billion from the federal government and raising more than $5.6 billion through loans, transfers and other accounting mechanisms.

"Every governor faced with a deficit of any magnitude has used every financial tool at their disposal," Kennedy said. "In many ways, Gov. Wilson cut the path. He was a trailblazer. You can't accuse [Davis] of pushing the problem off to any colossal degree."

The budget decisions Wilson made in his first years in office ended up shaping much of his tenure. He angered conservatives in his own party by raising taxes, and alienated influential interest groups, particularly education lobbyists and state workers, with his decisions to cut state programs and limit pay raises.

Three years out of office, Wilson, 68, is a fellow at the Hoover Institution at Stanford University and an appointee of President Bush to defense policy and intelligence oversight boards.

Even now, some Republicans try to distance themselves from Wilson, worried that his vocal opposition to illegal immigration--particularly state costs associated with it--alienated Latino voters.

But he remains the last Republican to win major statewide office in California. And as the state faces a new deficit, some Capitol veterans praise Wilson's handling of state finances during the recession. At a hearing this week, Senate Budget Committee Chairman Steve Peace (D-El Cajon) said Wilson had shown "courageous leadership."

"He managed to get us through," Peace said. "We did not cut funding for core programs."

There are parallels between Wilson's and Davis' budget crises and their strategies; there are also differences. One is scale.

In the early 1990s, the general fund budget, which relies primarily on taxes Californians pay on personal income, retail sales and corporate profits, was about $40 billion. With the sputtering economy wreaking havoc on state finances during Wilson's entire first term, the general fund, which pays for most state programs, shrank.

Today the general fund is nearly twice the size of Wilson's. The spending plan that Davis offered earlier this month calls for a slight increase in the general fund from the current year--to $78.8 billion in the fiscal year that begins July 1, up from $78.4 billion.

Another difference involves timing. Wilson faced a deficit during his first year in office, and smaller though still multibillion-dollar deficits in following years. By 1994 when Wilson was running for reelection, the economy, although still slow, was recovering.

Davis is dealing with a slowing economy and a budget deficit at the same time that he and most legislators must face voters. He cannot afford a budget impasse that drags on through the summer, when he otherwise would be on the campaign trail.

"[Davis] may be facing a tough election fight," Wilson said. "It doesn't change the dynamics of the situation. If his choice is to decide whether he is going to do what's best for himself or what's best for the state, he should chose what's best for the state."

Davis' Aide Dismisses

Wilson's Criticism

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