Old State Debts Are Eroding the Christmas-in-May Spirit

With economic good times at hand, state politicians naturally want to curry favor with voters by pumping the extra money into new programs or tax cuts. But the giddy mood of Christmas-in-May has been shattered by a reminder that the state has billions of dollars of past obligations it must honor first.

The California Supreme Court ruled Wednesday--not unexpectedly--that the state must repay the $1.36 billion it borrowed from the state workers’ pension fund (CALPERS) back in the early 1990s to help weather the budget crisis created by the recession. The decision came just as the Legislature is getting down to serious negotiation of a spending plan for the fiscal year beginning July 1.

The court did not say just when the money must be returned or whether it has to be done all at once. But those decisions, when made, could have a significant impact on the ability of the Legislature and Gov. Pete Wilson to negotiate a budget compromise by the June 30 deadline.

The repayment, if made in one year, essentially would eat up all the unrestricted budget surplus announced with fanfare by Wilson early this month. But there would be no effect on more than $2 billion in unanticipated revenues that automatically are earmarked for public schools.

Even before they had to consider the pension debt, the Republican governor and Democratic leaders in the Legislature were deeply divided over spending priorities for the coming year.

The state Senate passed its $68.7-billion version of the budget on Thursday and the Assembly may approve its budget today. That would allow a two-house conference committee to begin reconciling differences between the Senate and Assembly spending plans.

The final stage, if recent practice holds true, is for legislative leaders and Wilson to work out the most controversial and divisive issues.

There was general euphoria in Sacramento early this month when Wilson announced the big budget bonus, the result of higher revenues and reduced spending brought about by a booming economy. Legislators and Wilson compiled their own wish lists of ways to spend the windfall. They predicted the new money would make it considerably easier to reach a budget consensus.

Indeed, this year’s bounty provides a big contrast from the early ‘90s, when the state faced a budget deficit of $14 billion and scrambled to get money from any source available. That’s when the pension fund was tapped. The state also usurped $3.6 billion in property tax revenues from local government. The time has come to begin repaying those who helped the state survive its worst budget crisis since the Depression.

To their credit, both Wilson and lawmakers have promised to return to local governments some of their property tax money--Wilson $100 million and the Legislature up to $350 million. That will be one of the key items of negotiation.

And now--while it’s not nearly as much fun as spending a bonus--the budgeters are morally and legally compelled to deal with the pension fund debt as well.

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Big Tickets

Key items in state budget negotiations:

* Reinstate renter tax credit: $525 million

* State employee pay raise: $400 million

* Business tax reduction: $85 million

* Welfare reform: Senate Democrats seek 4669 million

* Return property taxes to counties: $100 million-$350 million.

* Repay CALPERS fund: $1.36 billion