State's unruly budget pattern

In 1992 and 1993, Gov. Pete Wilson and lawmakers tried to take nearly $2 billion from public schools to balance the state budget. That didn't work. The state lost a court challenge and had to repay the money, with interest.

In 1991, a budget move involving retired public employees didn't work, either. The courts made the state pay $1.2 billion, plus $300 million in interest.

California has a long-standing habit of making controversial accounting maneuvers to help balance the budget, only to be hammered in court later and stuck with interest payments and attorneys' fees.

Budget watchdogs say Democratic and Republican elected officials alike have been guilty of trying money-saving gimmicks whenever the state finds itself short of cash. Often the moves are risky and to the taxpayers' detriment.

Policy experts agree it's no way to write a budget.

"The answer is clearly no," said Fred Silva, fiscal adviser to the New California Network, a nonpartisan fiscal policy group, and a former legislative budget director. "Public budgeting ought to be organized so you reduce the number of threats, so there's some certainty. This simply adds uncertainty."

The '90s are gone, but the lawsuits keep piling on. In August, the state was forced to dip into its reserves to repay money owed to retired schoolteachers.

The case stemmed from the budget for 2003, when Gov. Gray Davis and legislators agreed to skip a $500 million payment to the state teachers' retirement fund. The court has ordered the state to pay the money back plus as much as $200 million in interest.

Future Legislatures could be saddled with a hefty bill from the budget Gov. Arnold Schwarzenegger just signed.

Last month, public transit advocates accused the state of illegally transferring $1.1 billion from bus and transit systems to help pay debt and shore up the general fund. The case could be in litigation for months, if not years.

"I bet you dollars and doughnuts they don't settle this in the current budget," Silva said.

Schwarzenegger's finance director, Mike Genest, said the first priority of any administration is to balance the budget in a fair and legal manner. He said he's confident the administration will prevail in the mass transit case, although he admits "sometimes we get that wrong."

Indeed, the administration altered the transit proposal mid-year after the Legislature's budget analyst, Elizabeth Hill, suggested it was legally suspect. But the state was still sued.

Budget experts acknowledge that balancing the annual spending plan is complicated by a multitude of constraints, from constitutional mandates to pay education and debt first, to meeting legal statutes passed by voters and lawmakers. When economic downturns make the job tougher, there is more pressure to come up with solutions that spread the burden fairly.

In addition to tampering with state teachers' funds in 2003, the state tried to sell bonds on money owed to retired state workers. Genest, who was the chief budget consultant to Republican senators then, said the idea to sell up to $2 billion in pension obligation bonds was viewed as a way of refinancing debt. The Legislature and Davis did not believe the move required voter approval. Nor did Schwarzenegger.

The courts, however, disagreed.

"They didn't buy it, but that's what we argued," Genest said.

Hill said the state faces litigation every year. In her 30 years in Sacramento, Hill said she can't recall one year in which nobody sued the state over the budget.

Still, observers on both sides of the political spectrum say there have been too many instances when elected officials gambled and lost instead of biting the bullet and raising taxes or cutting the budget.

"It's a reflection of the difficulty lawmakers have balancing the budget, largely because of the two-thirds vote for raising revenues. So instead, the state has submitted questionable assumptions to buy time," said Jean Ross, director of the California Budget Project, a nonpartisan public policy research group that advocates for working Californians.

About the writer:

• The Bee's Judy Lin can be reached at (916) 321-1115 or jlin@sacbee.com.