Pete Wilson Versus the Deficit

CALIFORNIA has long been a leader in economic development, population growth, and social innovation. But growth of another, ominous kind has clouded California's horizons in the last couple of years - that of the state deficit. At $12.6 billion, this pool of red ink is larger than the general funds of all but four other states. Gov. Pete Wilson has chosen to take the deficit on, rather than paper it over through such means as borrowing from the state employees' retirement fund - a highly questionable tactic used in the past. The state's fiscal woes have two primary sources: declining revenue because of the recession and ``structural'' factors that cause spending to trend constantly upward.

The latter include automatic salary increases for public employees, a burgeoning school-age population, a law (voted in by the public) that reserves at least 40 percent of state revenues for education, and a huge prison population brought on, largely, by state mandatory sentencing laws, which lead to more incarceration. The costs of running the state have been rising by about 13 percent a year, while revenue has been growing at 8 percent - a figure that's been shrinking as the economy contracts.

Mr. Wilson's great departure from his predecessor, fellow Republican George Deukmejian, is a willingness to consider a tax hike. That, ironically, puts him on relatively good terms with Democrats in the legislature, but at odds with many GOP members - particularly one small group in the state Assembly who rode into office on the tax revolt of the late '70s.

The governor's stance, however, is the only reasonable one. He's applying the budget axe liberally and trying to arrive at difficult compromises on such issues as suspension of Proposition 98, which dictates the 40 percent share for schools. He has battles ahead with both Republicans and Democrats. Like other governors, he faces painful decisions about where to cut. His Democratic allies want to see the state income tax on wealthy citizens increased. Wilson worries that any increase in broad-based taxes will dampen economic recovery.

Public-opinion analyst Mervyn Field says the push for new taxes is coming just as Californians, hit by the recession, are again turning against taxes. In recent years, bond issues and other revenue measures have been greeted favorably, especially if targeted at needs like schools and roads.

A reversal of that inclination means an even bigger leadership job for the governor. But Wilson has made a good start. After years of partisan bickering in Sacramento, Californians are ready for greater cooperation. A governor bent on teamwork with the legislature - both houses of which have to pass any new budget by an absolute two-thirds majority - could bring the public along despite tax grumbling.

Wilson's performance in California will be closely watched. The Golden State isn't the only one weighing tax hikes. At least 29 other states are in similar - if smaller - cost-revenue squeezes.

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