DEMOCRATS ASSAIL CAR-TAX CUT; ANALYST FORESEES $419 MILLION SHORTFALL.

Byline: Paul Hefner Daily News Sacramento Bureau

Democrats tried to poke holes in Gov. Pete Wilson's plan to cut the state's car tax on Thursday, citing new estimates that the proposal would lead to a budget deficit.

Trimming the vehicle license fee by 75 percent would leave California with a $419 million shortfall in the 1999 fiscal year, and the budget gap would balloon over the next several years, said Legislative Analyst Elizabeth Hill.

``If you look at our projections, you're in the hole and there is no reserve,'' Hill told a tax conference committee of the Legislature.

Her projections differ sharply from those made by Wilson's economic advisers, who insisted that the state could afford the $3.6 billion price tag of cutting the license fee motorists pay with their car registrations.

Hill squared off with administration officials at the first of four hearings held by a six-member conference committee formed to consider the dozens of tax-cut proposals pending in the Legislature.

With forecasts showing the state taking in $4.4 billion more in revenues than expected, pressure for a tax reduction has mounted, but Democrats have rejected Wilson's proposal and called for more of the state's surplus spent for schools and other programs.

At a news conference in Alhambra, Wilson flatly rejected Hill's estimates.

``I think she has not made the case for deficits. She is all alone on that,'' he said. ``We think she is unduly pessimistic, and without reason.''

Republicans at the hearing in Sacramento also strongly defended Wilson's proposal, rejecting claims that it put the state's finances at risk. Rather, they blamed Democrats for leaving too little money in the budget to afford sending something back to taxpayers.

``Any money that you may think is there is gone,'' said state Sen. Ken Maddy, R-Fresno. ``If the majority party has spent all the money, what's the point of talking about a tax cut?''

Craig Brown, Wilson's finance director, told the panel that the administration forecasts showed the state staying in the black even if economic growth slows considerably.

The differences in the forecasts spring less from economic projections than from estimates of state spending in the coming years. Hill's estimate assumes state workers will be paid more and Medi-Cal and welfare programs will cost more than Wilson forecast.

In addition, she assumed the federal government will reimburse the state less for imprisonment of illegal aliens than Wilson's budget projects.

Assemblyman Wally Knox, D-Los Angeles, said he was concerned that an unexpected recession would make any projected deficits much larger.

But Brown downplayed those worries. He said that a recession would probably be preceded by an overheated economy that would mean a short-term boon for state revenues.

Still, Democrats looked for cracks in the tax-cut proposal. Assemblyman Robert Hertzberg, D-Van Nuys, noted that in the coming years, the cut would force the state to spend more than its annual revenues.

``You're taking in less than you're spending,'' Hertzberg said. ``You're deficit-spending.''

Brown said Wilson's plan intentionally builds the state's reserve this year, to be drawn down as the cut takes effect. But Wilson's financial advisers did concede one point to Democrats: A cut in the car tax would be less effective at stimulating the state's economy than other measures.

While Wilson's proposal would create about 40,000 new jobs statewide, tax credits to manufacturers and other job-producing enterprises would do more to stimulate growth, said Ted Gibson, Wilson's chief economist.