LEGISLATORS MUST DEAL WITH FISCAL CRISIS STATE ASSEMBLY COMMITTEE PLANS NO FURTHER VOTES ON CUTS UNTIL MAY.

Byline: Keith Richman 

IT was no surprise that a wary Wall Street rating agency dropped California's credit rating a week ago to its lowest level. Our budget crisis grows each day, and the Democrat-controlled Legislature refuses to make even the easiest cuts needed to slow the flow of red ink.

The need for significant, timely and prudent action is now. Gov. Gray Davis took an important step in December when he called the Legislature into special session and proposed $10 billion in immediate budget cuts. He knew that belt-tightening could not wait until next year and is needed to reduce the huge deficit we will face when the next budget year starts on July 1.

Tragically, the Democrat leadership turned a deaf ear to calls for serious, bipartisan deliberation through the holidays. They waited until the governor released his own spending reductions and tax increases Jan. 10. Republicans were ready to vote for most of the governor's cuts, but the liberal leaders refused to schedule those votes.

When the majority party finally began public hearings on the budget in late January, it dismissed most of the governor's cuts and proposed its own tripling of the car tax instead. Because Republicans are opposed to raising taxes as a first resort, we tried to restore the governor's cuts, but our efforts were defeated on straight party-line votes.

To make matters worse, the Assembly Democrats used a legislative trick to tie their $4-billion-a-year car-tax increase to the few cuts that remained. When the governor threatened to veto the car-tax increase, in part because he knows that a process that ignores Republican ideals will fail, it was back to square one, with nothing to show for the wasted two months.

With that leadership failure fresh in everyone's mind, a statement a week ago by the Assembly Budget Committee Chairwoman Jenny Oropeza confirmed the depth of our fiscal quagmire. Completely ignoring the critical importance of making current year budget cuts now, Oropeza told reporters she does not anticipate scheduling any more budget votes until the governor releases his revised budget ... in May!

Standing by and watching the size of our deficit balloon is no way to build the financial community's confidence that we are confronting our budget problems. In past years, California borrowed relatively small amounts of money needed to smooth out its revenue stream. This year we have pumped record amounts of state debt into the bond markets to make up for financial sins.

During the past six months, California borrowed billions through energy bonds and tobacco securitization bonds to fill its budget holes. Because of our dire straits, taxpayers will pay nearly 7 percent interest for the tobacco bonds, an extraordinarily high rate for tax-free money in today's market.

The timing of our credit trouble could not be worse. By all estimates, California will run out of cash in May, requiring more borrowing to simply pay the bills. While urgent action on the budget would reduce the amount of this essential borrowing, it would also provide the confidence that rating agencies and Wall Street need to give us the money at any interest rate. In recent days, two major banks have told state officials they will not give us more money until we take concrete steps to get our fiscal house in order.

So what are those steps?

First, we must make the governor's midyear budget cuts now. Stop the political games and place his reductions before the Legislature for an up-or-down vote. These are the easiest reductions and they should be done immediately.

Next, we need to make an in-depth review of each budget item. While there are plenty of opportunities to eliminate waste, streamline bureaucracy and stop fraud, the size of our budget deficit also requires a setting of priorities. Some of what might have been worthy spending in better years cannot be funded this year. In the same spirit, tax exemptions and credits intended for specific incentives must be reviewed to ensure they are effective and remain a priority.

With this information in hand and with an accurate revenue picture, we could then have an intelligent discussion of the options available to resolve the remaining budget shortfall with a better understanding of program impacts and each party's priorities. Both Republicans and Democrats must recognize that everything cannot be a top priority that must be protected.

Finally, the Legislature must complete its work on time. There are no decisions that could be made after the June 15 deadline that are not better made before the deadline. Getting our work done on time would provide a boost in confidence for Californians who will feel the impact of these tough decisions. Demonstrating real cooperation and diligence would also provide evidence to the Wall Street bankers that we are taking our financial stability seriously.

The Legislature must begin its serious work to resolve our budget crisis now. Every day counts, and we have no higher priority.