Governor, Legislators Meet on Budget Cuts, New Taxes

After months of virtual standstill on what to do about California’s budget crisis, Gov. George Deukmejian and the Legislature moved swiftly on several fronts Monday to find a combination of $3.6 billion in spending cuts and higher taxes needed to avoid a deficit of unprecedented magnitude.

Deukmejian gave the strongest hint yet that he might support tax-raising legislation if it is combined with such deep program cuts as a freeze in welfare benefits that he has advocated. Legislative leaders emerged from a closed meeting with the Republican governor and reported that he is open to discussing revamping the state’s tax system amid suggestions that the system cannot support the state’s needs.

Legislators said Deukmejian also now is willing to reconsider a corporate and personal income tax proposal he made in 1988, then withdrew when it was criticized as a tax increase. Additionally, they said he is willing to discuss such things as imposing a sales tax on candy, which is now exempt.

Michael R. Frost, Deukmejian’s chief of staff, confirmed after the meeting that the governor expressed a willingness to reexamine the state’s tax system.

The legislators cautioned, however, that no conclusions with Deukmejian were reached. Senate Republican Leader Ken Maddy of Fresno said after the meeting: “We are looking at everything . . . we haven’t agreed to anything.”

In the Legislature, the Assembly and Senate each set the stage for final budget negotiations by acting on their respective versions of Deukmejian’s proposed $53.7-billion budget for the fiscal year that will begin July 1.

In rapid succession:

The Senate, on a 33-4 vote, sent its $56.4-billion spending plan to the Assembly. In a surprise reversal from earlier years, foes of abortion lost a battle to write into the budget a prohibition against the use of taxpayer funds to finance abortions for women on Medi-Cal, except in certain cases.

The Legislature in the past has routinely forbidden Medi-Cal women from receiving publicly financed abortions--a procedure that the courts have just as routinely overturned as unconstitutional.

Solving a small but vital piece of the budget puzzle, the Assembly narrowly passed and sent to the Senate a $323-million budget deficiency bill that will keep the state’s Medi-Cal program afloat for another six weeks.

The Assembly Ways and Means Committee voted 14 to 2 to send a $56.2-billion budget for a full vote by the lower house. Once the Assembly approves its version of the budget and sends it to the Senate, the stage will be set for creating a six-member, two-house conference committee that will produce a compromise spending plan.

Finally, as state legislators wrestled with the record $3.6-billion revenue shortfall, the Assembly Revenue and Taxation Committee held its first hearing on what could lead to major tax increase legislation.

Legislative action Monday represented the first movement of fiscal bills in months.

Although Deukmejian and members of the Legislature have known since January that they would face huge problems in fashioning a budget, they postponed major decisions until after last Tuesday’s primary election. Among other things, lawmakers wanted to wait for the vote on Proposition 111, the successful transportation funding measure that will double the state’s 9-cents-a-gallon gasoline tax over the next five years to finance highway and transit projects.

The $323-million budget deficiency bill, normally passed routinely, got stalled weeks ago because of controversy over two of its provisions: $16.3 million designated for Medi-Cal will be used to provide abortions for poor women; $12.8 million will be used to pay for malathion spraying and other costs of Mediterranean fruit fly eradication efforts in Los Angeles, Orange, San Bernardino and Santa Clara counties.

The bill passed on a 54-17 vote, receiving the bare two-thirds majority necessary for Assembly approval, after Senate and Republican leaders helped defeat proposed amendments designed to delete money for abortions and Medfly control.

This year, delay in passage of the deficiency bill took on added importance because other budget pressures left the Medi-Cal program without enough money to get through June, the last month of the current budget year. Payments to doctors, hospitals, nursing homes and others who provide medical services to the poor were delayed pending passage of the legislation.

Just before Monday’s vote, Assembly leaders pleaded with their colleagues to ignore political pressure from their districts and support the bill.

Assembly Speaker Willie Brown (D-San Francisco) urged the lawmakers to exhibit “profiles in courage” and vote for the bill.

The bill is expected to be approved by the Senate.

Times staff writer Carl Ingram contributed to this story.