Budget Stalemate Continues Over State Tax Rebate Plan

A Democrat-dominated Senate committee strongly rejected Gov. George Deukmejian’s $700-million income tax rebate proposal Wednesday as the stalemate that is blocking passage of the proposed $41.1-billion state budget continued.

As Democrats on the Senate Revenue and Taxation Committee were flexing their muscle, Republicans warned that they are in no mood to compromise on the rebate.

The political rhetoric seemed to be getting hotter, rather than cooler, as lawmakers went two days beyond their constitutional deadline for sending a budget to Deukmejian for the new fiscal year beginning July 1.

One committee member, Sen. Daniel E. Boatwright (D-Concord), angrily accused Republicans of using school funding as “blackmail” to force the rebate. Republican Assemblyman William P. Baker of Danville, who is carrying the governor’s rebate bill, called Democrats on the committee “monkeys.”

Minority party Republicans defeated the budget in floor votes Monday, insisting that they would not vote for the spending plan unless Democrats agree to vote for the tax rebate.

Republicans believe that their only chance to get the rebate out of the Democrat-controlled Legislature is to use the budget as leverage to pry it loose.

Deukmejian has proposed a rebate because California government now has more money than it is permitted to spend under a 1979 initiative approved overwhelmingly by voters.

But Democrats believe that there is still plenty of maneuvering room. They say that although the state can’t spend the money on its own programs, it can give financial grants to cities, counties and school districts that have not yet reached their own spending limits.

But Deukmejian contends that current law requires the rebate.

Michael Frost, the governor’s chief of staff, told a group of reporters Wednesday, “We are complying with the Constitution.”

‘Has to Be a Rebate’

Frost said Deukmejian was willing to negotiate, but not on whether the rebate should be given to taxpayers.

“We’ll look at any proposal,” Frost told a group of reporters, but “it has to be a rebate and it has to be $700 million.”

Democrats, likewise, continued to oppose the rebate, arguing that the money instead should go to education programs.

The issue reached the boiling point during a two-hour hearing by the Senate Revenue and Taxation Committee, which ended with a 5-1 vote against the rebate legislation, with Democrats casting all the “no” votes and a Republican casting the only “aye” vote.

After the vote, Baker said the issue would have to be decided by party leaders, not individual lawmakers and committee chairmen.

Asked what would happen next, Baker told reporters, “We wait until we get some movement from the leadership, apparently talk to the (organ) grinder instead of the monkeys.”

‘Willing to Negotiate’

During the hearing, Baker told the committee, “We must reach an agreement, and I’m willing to negotiate and I know the Administration is, on the method of payment, the time of payment, and the other details.”

Sen. John Garamendi (D-Walnut Grove), the committee chairman, noted that the law cited by Republicans gives the Legislature up to two years to rebate the tax surplus.

“Why do we need to do this at this time?” Garamendi asked.

“Because we don’t feel it will be done at any other time,” Baker said, noting that Garamendi and another committee member, Sen. Daniel E. Boatwright (D-Concord), had both expressed opposition to the tax rebate.

The debate then abruptly came to a head when Garamendi replied: “You asked me what I wanted. I want to kill your bill, right here, right now.”

Although the vote stands, the proposed rebate could pop up in other legislation as an amendment to a bill already in either the Senate or Assembly.

The most controversial element of Baker’s bill is the rebate. It would return $700 million in surplus funds to taxpayers through a 10% state income tax credit or rebate, depending on whether it is applied to the 1986 or 1987 tax years. The credit would have a cap of $95 for individuals or $190 for a married couple or head of household.

Another provision of the bill would change the method of calculating the state’s spending limit. The change would allow the state to spend an additional $400 million during the current budget year and another $400 million in the upcoming year.

State Spending Limit

The increase in the state’s spending limit would be accompanied by a comparable reduction in how much schools would be allowed to spend.

Republicans argued that if the Baker bill is not approved, Deukmejian might be forced to cut $800 million in spending to bring the state under allowable limits. That prompted Boatwright to declare that Democrats were being “blackmailed.”

Frost, on the other hand, argued that the second part of the package represented “a very significant” compromise on the governor’s part. He noted that if no legislation is passed, then the size of the rebate will grow to $1.1 billion ($700 million plus the $400 million that would be spent on education and other programs). “We compromised. That is a compromise,” he said.