LOS ANGELES -- An improvement in California's cash position means it was not necessary for state Controller Gray Davis to pull a socalled trigger mechanism that could have forced automatic spending cuts in the general fund.

But the next controller migh! have to pull the trigger in fiscal 1996 if$2.8 billion in federal funds for illegal immigrants is not received next year, Davis spokesman Edd Fong said Tuesday.

Davis, who was elected lieutenant governor Nov. 8, will be succeeded in the controller's post by Kathleen Connell.

"The bottom line is that we are projecting the state's general fund will be $581 million better off on June 30, 1995 -- the end of the current fiscal year -- than was originally predicted back in July" when the state budget was prepared, Fong said.

The fiscal 1995 budget act required Davis to pull the trigger Tuesday if the state's projected cash reserves for June 30 were $430 million or more new projections made last July.

The trigger mechanism was demanded by a bank consortium that provided credit enhancement for the state's issuance in July of $4 billion of revenue anticipation warrants, which mature in April 1996. The RAW issuance was part of an unprecedented two-year, $7 billion cash management plan.

Fong said the state's fiscal outlook has recently improved. The controller's office projects there will be a $581 million improvement in what the general fund will have on hand in unused borrowable resources on June 30 compared to the original projection last July, Fong said.

He said the improvement can be attributed to a $574 million projected increase in tax revenues and a $340 million reduction in expenditures, as well as an accounting adjustment that limited in a $397 million gain.

The gains more than offset an erroneous stab budget assumption that the federal government in the current fiscal year would provide $763 million for the costs of services to undocumented immigrants, Davis said in a letter to Gov. Pete Wilson. To date, the state has received just $33.5 million for those costs, producing a general fund shortfall of $730 million.

"Revenues are showing significant growth so far this fiscal year," Davis said in a statement. "Tax revenues are up and expenditures are down, but these gains have been substantially diminished because the state did not receive requested immigration funds. As a result, California continues to walk a financial tightrope."

Had Tuesday's cash shortfall projection exceeded last summer's by $430 million or more, Wilson would have been required to propose legisletion by Jan. 10 to either raise revenues or reduce expenditures.

Under that scenario, if no legislation were enacted by Feb. 15, the state director of finance would have been required to offset the cash shorffall by reducing general fund appropriations. Public education and a handful of constitutionally protected programs would have been exempted from the cuts.

The state is not out of the woods yet, however, because the trigger might be pulled in fiscal 1996. The new controller, Cornell, is required to provide an advisory report on the state's fiscal condition next June, before the fiscal 1996 budget is enacted. She must decide on Oct. 15 whether the trigger should be pulled for fiscal 1996.

In a related development, Davis this week unveiled a plan to improve the state's fiscal health. A press release said the state should hold a "fiscal summit" on Feb. 15 "to provide options for keeping California' s budget in balance ."

The release said Davis wants government performance reviews to be implemented to produce greater government efficiency" and generate budget savings of $800 million.

Davis also urged the formation of a budget control commission to prevent inflated budget assumptions.

The release said the state constitution should be amended to allow legislators to approve the state budget by a majority vote, instead of the current two-thirds vote, and to require lawmakers to forfeit salaries and per diems if a budget is delayed.

Davis also recommended that state officials lobby members of Congress to obtain maximum federal immigration funding.

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