BIG-BUCKS BLUNDER STATE'S BUDGETERS NEED TO GET A HANDLE ON SPENDING.

Byline: KEITH RICHMAN 

THREE months ago, as the Democrat majority in the Legislature and Gov. Gray Davis finalized their spending plan, Republicans urged fiscal discipline in anticipation of the economic slowdown overtaking California. Little did we know that a deepening controversy over state energy debts and fanatical terrorists would so quickly kick the state budget's wobbly legs out from under it.

But here we are.

As a result of mismanagement and political expediency, the state budget is owed more than $6 billion for electricity purchases, and the $12.5 billion bond issue needed to pay that debt and repay a $4.3 billion short- term loan is hopelessly mired in intra-party Democrat squabbling and finger-pointing.

One thing is clear, if the short-term loan is not paid off by Thursday, its interest rate automatically increases, racking up an extra $250,000 each day in charges, and its term extends to a ruinous three years. The governor's Department of Water Resources calculates that this single, grievous missed deadline will cost California $1.2 billion - money much better spent on classroom construction, highway repairs, health coverage and bioterrorism preparations.

Try as he might, it will be impossible for Gov. Davis to duck his budget mess.

From his first year in office, Davis has increased state general fund spending by 36 percent, from $57 billion in 1998 to $78 billion this year.

During the first two years, state tax revenues kept pace with spending, due in large part to tech-boom-related income taxes from capital gains and stock options.

This year, long before the terrorist attacks of Sept. 11, the tech bust reclaimed most of that temporary bounty.

Make no mistake: Budget writers knew the red ink was coming.

The 2001-02 budget projections showed California was going to spend nearly $4 billion more than it received in taxes, covering the gap with a dwindling reserve. Protests from fiscally prudent conservatives were routinely dismissed as obstructionist, and the big spenders prevailed.

It did not take long for the budget hole to grow. Tax receipts from the first three months of the budget year show revenues already lagging the rosy projections by $1.1 billion. Budget experts were predicting a hefty $6 billion shortfall even before the national tragedy.

The horrible events of Sept. 11 had a significant impact on consumer confidence and hence California's economy and budget. Experts are now predicting deficits in the $9 billion to $14 billion range, assuming the $6 billion in energy costs will be repaid by the stalled bond.

Although it is a big number, a $10 billion reduction in expected revenue would leave $65 billion to spend in next year's budget, roughly the same amount spent just two years ago.

If California's budget had grown at 5 percent per year, about the national average for other states, we would only need $66 billion to meet our baseline budget.

Clearly, unsustainable spending increases have caused our budget woes. Had budget writers demonstrated restraint, California would have a hefty reserve and a manageable budget to fund. Regretfully, the voices of fiscal prudence were drowned out by a liberal chorus of spend, spend, spend.

In January, times are going to be tough when the Legislature reconvenes. Interest groups will make their pitches to avoid sharing the cost-cutting burden, and most will eye the important education and public safety budgets with envy and bad intent.

Regretfully, other important budget priorities such as expanding school facilities, building roads and highways and preserving open space will remain on the back burner for at least another year.

Since the big spenders also refused to make significant pay-as-you-go investments in these public works in the good years, it is time for a constitutional amendment that would dedicate a modest 5 percent of the state's general fund to long-term investments.

Tied to the economy and external events, budgets will go up and down, but the need to invest in vital public facilities and open-space preservation endures just the same. Without a commitment to proper investment and a limit on spending growth, California will continue to struggle like a family living paycheck to paycheck.

While too many families find themselves in that tough position, most of them are trying to do better. Hopefully California's budget writers will learn that critical lesson.