Governor Urges Taxpayer Rebate : $700 Million of $2.7 Billion in Extra Funds Would Be Returned

Confirming that soaring tax revenues will generate an extra $2.7 billion for the state over the next 14 months, Gov. George Deukmejian proposed on Tuesday giving $700 million of the financial bonanza back to California taxpayers while boosting spending on education, toxics control and the battle against AIDS.

Just how the rebate would work, or how much each taxpayer might expect, was uncertain. Estimates of the average refund each taxpayer would receive ranged from $42 to $60.

“Thanks to our economic strength and some unexpected tax collections due to the new federal tax reform, the state will receive substantially more revenues than anyone expected last December,” Deukmejian announced in a taped address made available to radio and television stations around the state.

The tax rebate proposal, which drew immediate criticism in the Legislature, is the result of increasing expenditures that for the first time have driven the state past the spending limit approved overwhelmingly by voters in 1979, Deukmejian said. The rebate is necessary, the Administration contends, because the state is taking in more revenue than it can legally spend.

Limited Options

Under the spending limit, the state has a limited number of options in deciding what to do with surplus revenue. It can spend the money to retire voter-approved bonded indebtedness, give the money to local government agencies, like school districts, or return it to taxpayers.

In deciding to return it to taxpayers, Deukmejian defended the spending limit, saying his action “keeps faith with the people.”

“By passing (the spending limit), the people wisely placed a limit on the overall growth of government at all levels in California. Elected officials have a responsibility to listen to the people and try to make this initiative measure work,” Deukmejian said.

The tax rebate plan drew fire from critics, who said the $700 million would be better spent on elementary and high school education programs. These critics say the state would not be legally required to rebate the money if it were put into education, because local school boards are far below their own legal spending limits.

Deukmejian has said, however, that he considers such proposals to be efforts to thwart the will of the voters who passed the spending limit initiative.

The governor’s rebate proposal coincides with clamoring from school districts up and down the state for more financial aid. Educators said severe budget problems have led to teacher strikes or threatened strikes over low pay, caused them to stock classrooms with outdated textbooks and may lead to fewer academic offerings in the next school year.

Two months ago Deukmejian vetoed a $76.2-million emergency school funding bill, citing a lack of money to pay for it.

Deukmejian’s announcement Tuesday indicated that he intends to earmark about $200 million of the surplus revenue for public school programs.

The proposal was immediately denounced by state Supt. of Public Instruction Bill Honig, who has been fighting Deukmejian for more education funding since January.

Honig said he will plead with the Legislature to reject Deukmejian’s proposal.

‘Money From Children’

“I’m confident that Californians don’t want to take money from children to give a short-term rebate of a few dollars to people in California,” Honig declared during a Capitol news conference.

Honig, challenging Deukmejian’s commitment to public school funding and the governor’s frequent statement that education is his “top priority,” said the plan announced Tuesday does not give schools their “fair share” of revenues, as the governor had promised.

“We aren’t getting our fair share,” said Honig, who is sponsoring legislation that would increase spending on kindergarten through high school education programs by $900 million.

Honig noted that the $700 million earmarked for a tax rebate, when added to the $200 million Deukmejian indicated he would add to education spending, would total the $900 million Honig needs to fund his financial aid package for the upcoming fiscal year.

Honig has two powerful allies in the Legislature, Assembly Speaker Willie Brown (D-San Francisco) and Senate President Pro Tem David A. Roberti (D-Los Angeles).

Both Democratic leaders, in reacting to the governor’s announcement, cited estimates by legislative fiscal committee staff that the governor’s $700-million rebate proposal would amount, on the average, to about a $42 rebate for each of the state’s 16 million taxpayers.

‘Growing Public Demand’

Roberti said the amount of money the governor wants to use to pay for his rebate proposal would “provide $155 per student in additional support. The governor’s $42 puts puts aside the growing public demand for meeting the needs of education.”

Brown said, “The governor’s plan must be considered along with Mr. Honig’s plea on behalf of public education. Maybe we should give the taxpayers a choice--$42 or better, safer schools.”

Deukmejian anticipated that his proposal would be criticized when he taped the budget announcement in his Capitol office Tuesday afternoon.

“You should be aware,” he said to his unseen audience, “that while my proposal calls for over $1.5 billion in additional spending, I fully expect that it will be greeted by the budget-busters with cries for more, more, more.”

When he released his budget in January, Deukmejian predicted the state would finish the current fiscal year $421 million below the spending limit.

“The budget that I sent to the Legislature was based upon estimates of revenues and expenditures made last December. Since then, California’s powerhouse economy has performed strongly,” Deukmejian said.

Sketchy Details

Providing only sketchy details of his plan to spend the unexpected revenue windfall, Deukmejian said he proposed using it to shore up his $1-billion surplus, which has dropped to less than $500 million; finance the $700-million tax rebate and increase spending on education, toxics and AIDS programs.

He said he is earmarking $12 million to implement the toxics cleanup initiative, Proposition 65, approved by voters in last November’s general election.

Earlier, Deukmejian announced that he would need just over $1 billion to pay for a variety of unexpected costs resulting from various state programs.

Deukmejian’s office said the proposal will be explained in more detail today. The governor was not available for questioning Tuesday, and press aides deflected questions, saying the announcement would speak for itself until a more detailed explanation is released by the Department of Finance.

Deukmejian’s confirmation of the surplus was not a surprise. Earlier this month, the Commission on State Finance announced that tax revenues would bring in $1.5 billion more than expected during the current budget year. The commission projects that it will be matched by almost as large a surplus in the next fiscal year, which begins July 1.

Rebate Precedent

Deukmejian’s rebate proposal follows a precedent set by previous governors of returning surplus revenues to taxpayers.

In 1969, taxpayers received a 10% tax credit, up to a maximum of $200, when a budget surplus developed when Ronald Reagan was governor. Deukmejian, then a member the state Senate, carried the tax credit legislation.

During the Administration of Edmund G. Brown Jr., a huge surplus resulted in a one-year doubling of personal tax credits in 1978, from $25 to $50 for individuals and from $100 to $200 for married couples, at a cost to the state treasury of nearly $1 billion.