$800-Million Windfall May Ease State Budget Process

SACRAMENTO —  For the second year in a row, state analysts reported Thursday that government coffers are brimming with more than $800 million in unexpected surplus just as legislators are preparing for budget negotiations.

The independent legislative analyst’s office also predicted Thursday that the state’s economy will continue to exceed expectations through the next fiscal year, allowing legislators to spend a total of at least $2 billion more than they had expected in January.

The windfall will largely benefit schools. The report said the school funding formula in Proposition 98 will require that more than 80% of the new revenue be given to schools, partly because of increased enrollment.

“California’s economy in the first half of 1997 is experiencing strong economic growth with low inflation and signs are that healthy gains will continue in the coming months,” the report said. “The current employment data suggest that California’s economy is accelerating--rather than moderating--as assumed in the earlier January budget forecast.”

The report from Legislative Analyst Elizabeth Hill sets the stage for a series of announcements in which Gov. Pete Wilson is expected to reveal his plans for spending the new revenues.

Last year, Wilson used the same opportunity to call for a politically popular and ambitious program to reduce overcrowded classrooms.

This year, most of the money is again directed to education. But Wilson is also likely to increase spending for his welfare reform plan--adding more to child care programs and efforts to create jobs.

Democratic leaders in the Legislature also said Thursday that they hope to spend at least $849 million more on welfare reform than the governor had budgeted in January.

State finance officials are scheduled to announce their official estimates of the state’s budget surplus and economic projections Wednesday. The annual May revision, as it is known, establishes the estimates that will be used to prepare the 1997-98 fiscal year budget that begins July 1.

A spokesman for the legislative analyst said the governor’s staff may calculate different budget estimates.

Still, Thursday’s report was the first public indication that the state’s traditionally problematic budget process might be smoothed again this year with an eleventh-hour windfall.

Even internally, the magnitude of the budget surplus was unknown until April’s personal income tax revenues were calculated.

They came in about $520 million over the state’s estimate. That bumped the total in unexpected revenue since January to about $825 million, the report said.

The report also had good news about savings in the current budget.

Because it now expects the state’s welfare caseload to drop at least 6% this year--about triple the previous estimate--the analyst’s office said the state should save up to $725 million in Aid to Families With Dependent Children payments and Medi-Cal spending.