In 2027, state faces whopper of a deficit

SACRAMENTO -- California will face persistent budget deficits over the next 20 years unless officials take corrective steps that could include ending state support for the University of California and asking voters to raise property taxes to pay for public works projects, Treas-urer Bill Lockyer said Monday.

The annual debt affordability report prepared by the treasurer's office projects an average yearly gap between revenue and spending of 3.5 percent, which would translate to a $14.6 billion shortfall in the fiscal year starting July 1, 2027, Lockyer says.

"The sooner we get to fixing this problem, the easier and the smaller is the impact in the out years," he said during a conference call with reporters. "They really should focus on this and get the job done soon."

The 60-page report suggests steps lawmakers and the governor could take to balance the state budget, including:

Improving state buildings' energy efficiency, saving an estimated $363 million over 10 years

Raising an additional $670 million a year by finding a way to collect unpaid sales taxes on purchases made through the Internet and mail order catalogs

Imposing sales tax on serv-ices such as auto repairs, generating as much as $36 billion a year if applied widely enough

Asking voters to agree to pay for some public works projects with a statewide property tax

Raising income taxes for wealthy Californians, as Republican Gov. Pete Wilson did to close a $14 billion deficit in 1991

Cutting off state budget support for the University of California, requiring it to rely on student fees, donations and other sources of revenue. Lockyer said that would save $7 billion by the 2027-28 fiscal year.

Creating a state transportation financing authority, which would pay for highway construction by selling bonds that could be paid off with developer fees, tolls and fuel taxes instead of the state's general fund

Using state partnerships with private companies to build and operate public facilities that would be financed through user fees, although the report notes that such fees might not be appropriate in some instances

Lockyer said he was trying to "provoke discussion" and wasn't recommending any particular proposal except the transportation financing authority.

But he said a combination of budget cuts and tax increases was the most politically probable solution, despite a refusal by Republicans in recent years to agree to any tax increases.

"I don't know any other way to get through the problem than to do basically what (Governors) Ronald Reagan and Pete Wilson did when they were responsible for solving these problems, which is a combination of cuts and taxes," he said.

H.D. Palmer, a spokesman for Gov. Schwarzenegger's Department of Finance, called the report "thoughtful and thorough."

"While we can't validate the numbers he put into the report, we agree with the treasurer about the importance of eliminating the state's structural deficit," Palmer said. "It's going to be a critical step. It's also going to be a difficult one."

He said the administration agreed with the concept of using public-private partnerships, calling it a "fiscally responsible and equitable way to share the costs of large infrastructure projects."

But asked about the tax increase proposals in the report, Palmer said the administration was "not going to weigh in on every recommendation."

Brad Hayward, a spokesman for the University of California, said any attempt to eliminate state support for the university would raise "real concern" among UC officials.