Governor Seeks Windfall Funds for ‘Past Debts’

Gov. George Deukmejian Friday rejected spending an unexpected $900 million increase in revenues for new programs or tax reductions, choosing instead to earmark the money for public schools, solar energy tax credits and local governments.

In a letter to Senate and Assembly fiscal leaders, Finance Director Jesse R. Huff, speaking for Deukmejian, said it was the governor’s intention to pay for “moral and legal obligations” incurred when the state was forced to cut back on spending during the budget squeeze in 1982 and 1983.

“Our spending program proposes we continue to pay off these past debts before embarking on new spending programs,” Huff said in a letter to Sen. Alfred E. Alquist (D-San Jose) and Assemblyman John Vasconcellos (D-San Jose), chairmen of the legislative fiscal committees.

Resistance Expected

The governor’s plan for channeling the bulk of funds into local government and education likely will meet strong resistance in the Legislature, where there have been calls to spend the money on everything from child-care programs to tax cuts.

The biggest winners in Deukmejian’s budget proposal appear to be local school districts, which would receive $240 million in the 1985-86 fiscal year that begins July 1.

Deukmejian, continuing to show favor for public schools, budgeted $216 million to pay off claims local school districts made against the state to pay for busing, magnet schools and other voluntary desegregation programs. Some of the claims date back to the administration of ex-Gov. Edmund G. Brown Jr.

The letter also said that although the governor still favored a sharp cutback on solar and other energy tax credits, which cost the state an estimated $250 million annually, he was virtually giving up on the Legislature going along with him.

Consequently, Huff said the governor was budgeting $181 million to compensate for revenue loss from another year of full credits.

Other major appropriations included a total of $167 million budgeted for local government, most of that to repay obligations stemming from city and county claims against the state for a variety of state-required programs.

Additionally, Deukmejian earmarked $11 million to increase support for local mental health community care programs.

Huff earlier told an Assembly budget subcommittee that the state was collecting about $900 million more than anticipated in tax receipts. Of that, $264 million already has been budgeted for unexpected education and other expenses.

Up to $614 Million

On Friday, Huff indicated that $433 million was available for additional expenditure, but that the figure could rise to $614 million if the lawmakers agreed to reduce the solar and energy credits.

The letter was sent Friday afternoon, a full day after the lawmakers left to return home for the weekend.

The proposed budgeting changes still leave the state with a projected surplus of just over $1 billion.

Word of the surprise windfall brought a variety of proposals for spending the money from the Legislature.

The lawmakers said they wanted to budget a portion of the money to shore up state programs hit hard by earlier Deukmejian budget cuts, such as at the Employment Development Department, which administers programs for the unemployed, and at the Department of Motor Vehicles, where cutbacks in staffing and a new computerized operation are said to have resulted in long delays in the processing of paper work.

Strong support also was expressed by both Republicans and Democrats to use a portion of the money for road and highway construction.

And many legislators said they believed a major share of the revenues should be returned to taxpayers in the form of income or sales tax cuts.