Budget Forecast Not Optimistic on New State Programs

SACRAMENTO —  The state government will take in enough tax revenues next year to support its current level of services but not enough to finance new programs or expand old ones, the Commission on State Finance reported Thursday.

Mixing some bad with good news, the head of the commission said taxpayers should not expect another income tax rebate next year but did discount predictions by some analysts that there will be a recession.

Linda Proaps, executive secretary of the commission, said she expects “sluggish but positive growth” in the California economy next year and predicted that tax revenues will increase by 6.4%.

That would provide enough money to finance current programs, but there would be “very little left for new or expanded programs,” Proaps said.

A greater than usual amount of interest surrounded release of the commission’s quarterly report.

The reason is the large degree of uncertainty developing in the wake of October’s stock market crash.

Some economists are predicting that the crash could push the nation into a recession next year. With the state needing more than $40 billion in tax receipts to maintain its current services, any recession-related drop-off in revenues could mean a reduced level of funding for public schools, shrinkage in health and welfare programs, or delay for prison and highway construction projects.

Gov. George Deukmejian, using Department of Finance revenue and expenditure estimates, will make his own forecast when he introduces his proposed state budget for the 1988-89 fiscal year in January.

Generally, the Administration’s estimates closely parallel the commission’s. The commission was created by the Legislature after unexpectedly huge tax surpluses provoked a taxpayers’ rebellion and passage of tax-cutting Proposition 13 in 1978.

The commission, in its report, said the stock market crash means “economic growth in 1988 will be weaker than it would have been otherwise and the risk of a recession is higher.”

But the commission said, “We do not believe that a recession is the most likely outcome over the next 18 months.” The commission commented that value of the stock market “has been seriously overrated” in the past as an indicator of economic downturns. It said effects of the crash are “not as bad as feared” but added that “evidence is still sketchy.”

The state is in the process of distributing income tax rebates of $1.1 billion to taxpayers, the result of a surplus that developed in the 1986-87 budget when tax receipts shot above the voter-approved spending limit.

Proaps said she did not expect another rebate next year “or in the foreseeable future.”

In another budget development, the legislative analyst’s office, which monitors month-to-month revenue collections, said tax collections in November were $239 million above Department of Finance projections for the month.

However, the analyst’s office attributed the gain to a temporary cash-flow phenomenon.

As for the stock market crash, the analyst’s report said, “Not enough time has passed for any firm evidence” to be developed about its impact on the economy.