Deukmejian Sent Budget but Talks on Windfall Go On

With tempers running hot and Gov. George Deukmejian and legislative leaders still trying to come up with a way to use surplus tax revenue to balance the budget, the Senate Thursday approved and sent to the governor a proposed $49.4-billion state spending plan for the 1989-90 fiscal year.

The budget was passed by a comfortable 34-3 vote margin despite the possibility that Deukmejian may have to veto $1.5 billion from the proposed spending plan if agreement on surplus revenue is not reached by midnight Friday, the start of the new fiscal year.

After the budget vote, Deukmejian and party leaders from the Assembly and Senate held another closed-door negotiating session, but their 11th meeting in recent weeks broke up with no progress reported. The negotiators left the governor’s office by back doors and refused to talk to reporters.

Before the meeting, Deukmejian told members of California Boys’ State, a meeting of high school student leaders, that he felt he and the legislative leaders were “close to an agreement.”

Deukmejian and the four legislators participating in the talks plan to meet again today. They are searching for an agreement on proposed state constitutional amendments to Proposition 98, the school funding initiative, and the limit on government spending that was approved by voters in 1979.

The agreements are necessary for legislators to finance health, welfare, prison expansion and other programs with a share of the $2.5-billion windfall in new tax revenue the state expects to receive over the next two years.

Without the agreements, the budget passed by the Senate on Thursday and the Assembly on Wednesday will be short of funds. In that event, nearly all of the windfall money would revert to grants to local school districts or be required to go into tax credits or rebates for individual taxpayers.

Legislative budget writers crafted the $49.4-billion budget on the assumption that the new money would be available for all government programs.

In introducing the appropriations measure on the Senate floor, Sen. Alfred E. Alquist (D-San Jose), chairman of the upper house’s Budget and Fiscal Review Committee, said that if Deukmejian and legislative leaders fail to reach agreement by midnight Friday “there is little choice open to anyone except approval of more than $1.5 billion in additional cuts.”

Few Places to Cut

Alquist warned that the budget is so tight that “there are few places other than health services to make reductions.”

Senate Republican Leader Ken Maddy of Fresno, during the floor session, angrily accused state Supt. of Public Instruction Bill Honig of standing in the way of a budget agreement by coming up with last-minute demands that threaten to scuttle earlier agreements reached on legislation to change Proposition 98.

Maddy said Republicans were getting so “fed up” with the lack of an agreement that some were ready to ignore Honig’s demands and support proposed constitutional amendments opposed by school interests.

Responding, Honig reiterated his position that he and other school interests have already agreed to give up a substantial amount of the gains that they won last year with the passage of Proposition 98. The initiative guarantees that schools receive 40% of state revenue, plus nearly all surplus revenue.

Honig said that among his concessions is agreement to a 50-50 split of surplus tax revenue, a concession that he estimates will cost schools about $6 billion in potential revenue over the next 10 years.

The schools chief charged that Maddy’s hot rhetoric was designed to see “how much (more) they can squeeze out of us. We think we’ve been squeezed enough.”

Added Honig: “We’ve given up billions of dollars. We are not going to give up any more.”

As it stands, the Senate-approved budget would allow overall spending to grow by 9.8%, about $1 billion or about 2% more than Deukmejian has said the state can afford.

Aid to public schools, welfare benefits and state support for an assortment of health programs would be boosted 4.6% under the new budget. The Legislature’s version of the budget reduces Deukmejian’s proposed fee increases for students at the University of California and California State University system from 10% to 3.5%. The Legislature also added hundreds of millions of dollars in new spending on mental health, hospital and other medical services.

Deukmejian is free to use his veto to cut much of the spending contained in the budget, but many programs, such as welfare benefits, are protected by law and cannot be touched by the governor.

Without the broader budget agreement, spending would still grow substantially but not enough to forestall deep cuts in health and welfare programs.

The problem for the governor and lawmakers is that the state spending limit put into the California Constitution by voters in 1979 has not provided enough room for budget growth to keep pace with the exploding growth of inmate populations in state prisons, the need to finance prevention and treatment programs to combat AIDS and shore up financially troubled mental health, hospital and transportation programs.

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