DAVIS' BUDGET JUST HOOPLA

Gray Davis rolled out his first state budget last week, he took great
pains to stress its fiscally conservative patina.

Citing an economic slowdown that has depressed revenues from earlier
projections, Davis said he was able to bring in-come and outgo into
balance and provide "modest" amounts of new money for his priorities
"by the exercise of prudent fiscal discipline."

But governors always claim their budgets are tightly drawn. And
despite the hoopla, the new budget was an insignificant event. A
couple of decades ago, the budget that the governor presented each
January was taken seriously. Since then, however, the budget process
has changed markedly, moving in several somewhat contradictory directions.

For one thing, the budget has grown massively. The first budget in
which Davis participated, presented by a newly inaugurated Jerry Brown
in 1975, was scarcely $11 billion. Davis, Brown's chief of staff in
1975, is now offering a $77.5 billion plan, seven times as large
(unadjusted for inflation or population growth).

State spending skyrocketed after voters enacted Proposition 13 in
1978, slashing property taxes. The state took on major responsibility
for financing schools and local governments in the aftermath of
Proposition 13.

Brown's first budget ear-marked $2 billion in aid to schools, for
example, just 21 percent of general fund spending, while Davis' budget
would spend nearly $26 billion on elementary and secondary schools,
42.4 percent of the general fund.

That massive increase reflects not only post-Proposition 13 fiscal
dynamics but a 1988 ballot measure that dedicates a fixed portion of
state revenues to schools.

The 1988 measure, Proposition 98, represents another big change in
state budgeting, what former Gov. Pete Wilson described as "autopilot
spending."

All but a few percentage points of the budget is dictated by law or
inescapable reality, such as welfare caseloads or prison inmate
populations. And the "discretionary" money shrinks more when revenues
flatten, as Davis' budget implicitly acknowledges.

In 1975, Department of Corrections budget was $180 million for about
25,000 prison inmates. Today, the number of inmates has soared to
150,000- plus and the prisons budget is 20 times as large. While
prison operations are technically discretionary, in fact, of course,
they are not.

So while the state budget has grown immensely, much less of it can be
changed by governors and legislators. Brown could budget money for an
8.5 percent salary increase for state workers in 1975, for instance.
Davis can find funds for raises only a third as large.

Davis wants the Legislature to give him authority to unilaterally
change spending after the budget is enacted, but law-makers of either
party are unlikely to loosen their grasp of purse strings.

Finally, Davis' January budget, like those of Wilson and other recent
governors, is only a fingers-crossed guess, not a real plan. The
budget, for example, assumes some $400 million in new federal funds
that will appear only if President Clinton and Congress suddenly
decide that California should be showered with largesse - an unlikely
event.

The real governor's budget is not the one unveiled last week but the
revised version that will emerge in May, after April tax collections
and other economic data are known. That's when phantom federal funds
and other shaky January assumptions confront reality. And the May
revision will spark another big change in the process from 20 years
ago: the closed-door "Big 5" negotiations with legislative leaders
that will produce the final budget in the summer.