Negotiators Optimistic on Rebate of State Taxes

Legislative negotiators will start the final week of the current session Tuesday cautiously optimistic about reaching a compromise on how to return $1.1 billion in surplus revenue to income taxpayers and renters.

As legislators scattered last Friday from the Capitol for the long holiday weekend, tax negotiators reported that, tentatively, $800 million of the surplus would be earmarked for income tax rebates, while the remaining $300 million would be set aside for additional relief to low-income renters.

In addition, GOP and Democratic legislative sources said, the election-year rebate legislation would be linked to separate bills that would provide $89 million in state aid to urban school districts and up to $110 million in assistance to hard-pressed county governments.

Gov. George Deukmejian has insisted that the entire $1.1-billion surplus be returned to taxpayers. Under the broad outlines of the proposal, though the total is divided, the governor would still emerge with the biggest chunk of the rebate for the taxpayers he has championed.

Not Committed

Negotiators stressed, however, that Deukmejian has not committed himself to supporting the plan.

For Democrats, who wanted low-income Californians to participate in the rebate, the proposed additional tax credit for renters would give them a win. Likewise, extra aid to big-city schools would give Democrats a victory. Both sides said they wanted more money for counties but have been unable to reach agreement.

The school aid money, which would go to low-income, heavily minority districts such as the Los Angeles City Unified School District, in effect would restore so-called urban impact funds struck from the state budget by Deukmejian. For the Los Angeles school district, the veto meant the loss of about $38 million.

‘Everybody Wants It’

Senate Republican Leader Ken Maddy of Fresno said he believed that agreement on a rebate as part of a far-ranging package of legislation was “close” and likely would occur because “everybody wants it.”

Sen. Henry Mello (D-Watsonville), tax rebate negotiator for majority Senate Democrats, likewise said progress had been made since last week, when Deukmejian suggested that both parties in both houses appoint representatives to meet face-to-face with his negotiators.

At the weekend, it remained unclear in what form an income tax rebate would take--a check in the mail or a credit on returns filed next April 15. Likewise, the size of the rebate was uncertain. Deukmejian had called for a maximum of $150 per single filer and $300 for couples.

Subject to Federal Tax

Assembly Republicans have made it clear that they favor a rebate check, which would be considered income under the new federal tax laws and be subject to income taxes by the Internal Revenue Service.

On the other hand, a credit would not be counted by the federal government as income.

Mello said that a Democratic proposal to grant relief to local governments and school districts by temporarily suspending the sales tax on their purchases was rejected by other negotiators as too cumbersome to administer.

Assembly Speaker Willie Brown (D-San Francisco), who early on proposed a reduction of the sales tax during the Christmas shopping season, withdrew the plan even before the negotiators began formal meetings. He said preliminary indications clearly pointed out that it would draw no support.

The surplus of wealth must be returned to taxpayers under a 1979 voter-approved law that set limits on the expenditures of state and local governments and school districts.