Only five days after Gov. Pete Wilson signed the state's spending plan for fiscal 1995, a federal court announced a ruling that, if upheld, could create a budget shortfall of between $150 million and $175 million.

A 2-to-1 ruling by a panel of the U.S. Ninth Circuit Court of Appeals last Wednesday said the state's cuts in welfare grants in fiscal 1993 were illegally approved by the federal government.

The court ruling affects a 1.3% grant reduction in fiscal 1993. It also applies to the 2.7% grant cut implemented in fiscal 1994, and the 2.3% reduction scheduled to take effect this fiscal year. California's fiscal year starts July 1.

If the grant reductions are restored, they could cost the state between $150 million and $175 million in the current fiscal year, according to a background summary released Friday by Assembly Speaker Willie L. Brown Jr.'s office.

"This would raise the probability that state expenditures could exceed revenues" for fiscal 1995, the summary said. As a result, it is likely that across-the-board cuts in most state programs may be necessary. Such automatic spending cuts are permitted under a trailer bill to this year's main budget act. However, the state's political leadership would have the first-crack at resolving the cash shortfall, the speaker's office said.

Wilson last week did not say how he would respond to the ruling but observers said it is likely he would request that the case be heard by all 11 judges on the San Francisco-based court. Such a request would delay any potential impact on the state budget by the federal appeals panel.

-- Brad Altman, Los Angeles

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.