STATE'S CONDITION NOT WHAT IT SEEMS.

Byline: TOM MCCLINTOCK  Local View

ACCORDING to Gov. Arnold Schwarzenegger, California's financial condition is ``fantastic.'' Spending has been brought under control, the budget has been balanced, and our debt is being paid down.

The Oxford English Dictionary notes that the original meaning of the word ``fantastic'' is ``existing only in imagination.'' Perhaps that's what the governor means.

To the governor's credit, he has proposed some long-overdue spending reforms, most notably conforming state welfare eligibility standards to federal law. But there's very little else to praise.

The state Finance Department reports a $7.6 billion shortfall in the 2006 budget. That's $1 billion worse than Davis' worst year in 2000. And Schwarzenegger's proposed 2007 budget adds $1.9 billion more to the state's ocean of red ink.

The governor justifies his claim that the budget is balanced by concocting a new accounting concept he calls the ``net operating deficit.'' Here's how it works:

To enable his claim that he is paying down debt when it is actually increasing, Schwarzenegger made some pre-payments during the last two years -- akin to paying more than the minimum balance on your credit cards. But to hide the deficit he created on the other side of the ledger, he simply doesn't enter those payments in the state's checkbook.

Meanwhile, borrowing is now completely out of control. When Schwarzenegger took office, 3 percent of the general fund was required for debt service. Since then, that burden has doubled to 6 percent and will exceed 8 percent next year.

Put another way, our minimum credit-card payment now consumes more tax money than the budget of the entire University of California. Ironically, the state's debt service ratio never exceeded 2.2 percent throughout the 1960s, when California was at its zenith in public works construction.

The new budget purports fiscal restraint -- growing the general fund just one percent, after a staggering 30 percent during the last three years. But this is based on some shaky assumptions.

State revenues in 2006 were projected to grow just 1.2 percent, and actual revenues are now falling behind even his modest goal. The governor's 2007 budget is predicated on robust 7.1 percent growth next year. If the state's economy merely does not deteriorate any further, it will produce a $7.5 billion deficit -- placing the state on the brink of insolvency within 18 months.

But even assuming that every one of Schwarzenegger's calculations is correct, and his budget is adopted intact:

The cumulative four-year general fund deficit under this administration will be $5.2 billion, compared to $4.2 billion during the five years under Davis.

State general fund spending will have increased at an average annual rate of 7.9 percent, compared with 7.1 percent under Davis.

The state's debt-service ratio, which Davis reduced from 4 percent to 3 percent, will have more than doubled -- and by the following year nearly tripled.