Budget Ideas Add Up but Don’t Amount to Very Much

Budget proposals outlined by John K. Van de Kamp and Dianne Feinstein during their debate Sunday would certainly revitalize the ailing state Treasury, but in their presentations the Democratic gubernatorial candidates ignored some very likely political and legal barriers.

The proposal by Van de Kamp, the state’s attorney general, to boost top state income tax rates from 9.3% to 11% would raise $2.4 billion annually. That would go a long way toward alleviating a revenue shortage that could be as high as $3 billion in the coming year.

But when the same proposal was introduced in the state Senate last year it met so much opposition that it died in committee. Its author, Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate Budget and Fiscal Review Committee, said Monday he decided against reviving it this year because he did not feel like “tilting at windmills.”

As for the proposal by Feinstein, the former mayor of San Francisco, to consider a freeze on payments to welfare recipients and the needy, Republican Gov. George Deukmejian has been trying to do that for years, without success.

Whether to tax more or spend less, Republicans and Democrats in the Legislature invariably fight each other to a standstill.

Republican tax-increase opponents have been able to fend off proposals by majority-party Democrats because a voter-approved constitutional amendment requires approval of tax measures by two-thirds of the members of the Senate and Assembly.

At the same time, Democrats easily have been able to block Republican efforts to get around laws on the books requiring annual cost-of-living increases--tied to state or national inflation indexes--that automatically escalate the cost of a wide variety of education, health and other human services programs.

Deukmejian and his Republican allies believe that the state tax system is fundamentally sound. Tax collections are expected to grow by 8% during the next budget year. The problem, Deukmejian argues, is that automatic increases tied to inflation, coupled with court orders and federal program requirements, have programmed the budget to grow by 11%.

The price tag of legally mandated cost-of-living increases for the new state budget year that begins July 1 is $1.6 billion, according to a study released by Deukmejian. That sum includes adjustments in monthly food and rent payments to welfare recipients and aged, blind and disabled Social Security recipients (4.6%), state payments to school districts (4.95%), higher education (5.2%) and state employee pay raises (3.9% to 4.9%).

Democrats believe that the budget problem stems not from automatic increases tied to inflation, but from rising student enrollments, a huge growth in the number of state prison inmates, and numerous other problems related to California’s population growth.

During the debate, Feinstein sided with Deukmejian on the question of freezing cost-of-living increases, while Van de Kamp took the more traditional Democratic approach, calling payments to the poor and elderly “sacred cows.”

Van de Kamp’s income tax proposal, which would apply to individuals and couples earning more than $100,000 a year, stems tax reductions given wealthy Californians several years ago.

The top income tax bracket was reduced from 11% to 9.3% in 1987 in legislation passed in the wake of the federal Tax Reform Act of 1986. The theory was that the tax cut would be offset by other changes in tax law--such as a scaling down of write-offs allowed for interest on consumer loans--that would increase the tax liability of wealthy taxpayers. But legislative tax committee consultants contend that the trade-offs never materialized.

Both candidates expressed qualified support for two other tax increases during and after their debate. They said they would be willing to consider an extension of the temporary quarter-cent sales enacted after last year’s earthquake, which would generate about $700 million a year, and a nickel-a-drink tax on alcoholic beverages, which would raise an estimated $730 million annually.

But even if Republican opposition can be overcome, those pushing a tax increase as part of a budget solution would have to get over a giant legal hurdle--the state spending limit. As it stands, the state now is within about $100 million of the limit. Under Proposition 98, the landmark school funding measure approved by voters in 1988, schools get first call on revenues over the limit, so the bulk of money generated by a tax increase would go to schools. Voters could change that in the June 5 primary if they approve Proposition 111, the transportation funding and gasoline tax increase measure that would also raise the spending limit.