Special, and Shaky, Effects

California's politicians cope with the $1.5 billion deficit

Californians might have had some trouble last week judging which of two rehearsals for catastrophe represented the more realistic bit of make-believe. The show staged by the Los Angeles fire department to simulate a downtown earthquake boasted the more vivid special effects: smoke from exploding cars billowing over a storefront set; moans from people "dying" in the street. The production put on by the politicians in Sacramento was more muted, but it concerned a calamity, state bankruptcy, that was more certifiably imminent--even as soon as next week.

Unless Republican Governor George Deukmejian and the Democratic-controlled legislature can agree on some emergency plan, next Wednesday the state's general fund will run out of money to pay its bills. If this happens, Deukmejian warned on TV last week, the state would have to issue "registered warrants, or IOUs." They would look like regular state checks but carry a printed warning on the back that there are no existing funds at the moment to redeem them.

At worst, the IOUs would go to 86,000 state employees in lieu of salary, to companies that do business with the state and to an estimated 8 million citizens who are owed refunds on state income taxes. From time to time the state would advertise that it now had collected enough tax money to pay, say, IOUs numbered from 12-345678 to 12-49376, plus 5% annual interest.

Few Californians believe it will come to that. Indeed, late last week closed-door negotiations between Deukmejian and Democrats in the state senate who have been blocking his budget plans produced a tentative budget-balancing agreement that would allow the state to borrow emergency cash from banks. Even so, the state controller's office feared that it might already be too late to keep California from delaying some payments or issuing some temporary registered warrants. The betting in Sacramento, however, is that at most a few big contractors will be asked to take IOUs, while state salaries and tax refunds will be paid in cash.

Even if the short-term cash-crunch problem is solved, Deukmejian critics insist that the Governor's overall plan for escaping the crisis also contains a strong element of make-believe. The state faces a deficit of $1.5 billion in the fiscal year that ends June 30, partly because state tax collections have been held down by the recession, partly because spending has been kept high by the need to bail out local governments whose ability to levy property taxes was sharply curtailed by the passage of Proposition 13 in 1978. While Democrats have said that they would go along with a tax boost if the Governor recommended one, Deukmejian has been holding to a campaign pledge not to raise state taxes.

Instead, the Governor proposes to make the deficit disappear partly by cutting spending but also by "rolling over" $800 million into the 1983-84 budget. The general fund would borrow that amount from special funds that do have cash on hand, such as the ones that finance highways and schools, and replenish those accounts with the higher tax collections that Deukmejian expects economic recovery to bring next budget year. Senate Democrats have been blocking this plan out of fear that Deukmejian will actually get the money by slashing social spending, but they may have to accept some variation to keep from issuing IOUs.

Meanwhile, both sides are trying to make political capital out of the brush with insolvency. Deukmejian last week told Californians to blame Democrats in the senate if the state has to pay its bills with IOUs. On the Democrats' side, State Senator Alfred Alquist has introduced a bill requiring that any IOUs issued be illustrated with a photograph of Deukmejian. This file is automatically generated by a robot program, so viewer discretion is required.