Senate, Assembly Actions Break Up Budget Logjam

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

Solving a small but vital piece of the budget puzzle, the Assembly began the day Monday by narrowly passing and sending to the Senate a $323-million budget deficiency bill to keep the state’s Medi-Cal program afloat for six weeks.

Then in two developments occurring within minutes of each other, the Assembly and Senate set the stage for final budget negotiations by acting on their respective versions of Gov. George Deukmejian’s proposed $53.7-billion budget for the fiscal year beginning July 1.

The Senate, on a 33-4 vote, sent its $56.4-billion version of the spending plan to the Assembly. 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.

With state legislators wrestling with an unprecedented $3.6-billion revenue shortfall, the Assembly Revenue and Taxation Committee held its first hearing on what could lead to major tax increase legislation.

While the $323-million deficiency bill approved by the Assembly is a relatively minor part of the state’s budget problem, its passage represented the first movement of a major fiscal bill in months.

Although Deukmejian and members of the Legislature have known since January that they would face huge problems in putting together 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, was 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 passing 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 approval 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.

“We need this to pay our bills,” said Assemblyman John Vasconcellos (D-San Jose), chairman of the Assembly Ways and Means Committee.

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.

State Superintendent of Public Instruction Bill Honig, who said schools and other state-funded government programs are being hurt because the current tax system does not generate enough revenue to keep the state going, urged the Revenue and Taxation Committee to enact a tax increase.

Honig told lawmakers that the state’s wealthiest taxpayers were best able to afford a tax increase because, he argued, tax law changes enacted during the Reagan era fell hardest on the poor and middle class. Honig, among several suggestions, proposed raising the top rate of the personal income tax from 9.3% to 11%, which would raise $1 billion if limited to individuals with incomes of $100,000 or couples with joint incomes of $200,000 or more. Before 1987, when the Legislature adopted a set of new rates to bring state tax codes in line with changes on the federal level, the rate was 11%.

Honig’s plea drew little support from the committee.

The superintendent said he will oppose any efforts to cut state spending on schools if lawmakers choose to cut services instead of raising taxes. Honig claimed that despite gains in recent years stemming from the California Lottery, which raises money for public education, and passage of Proposition 98, the school funding measure approved by voters in 1988, spending on public schools in California is “falling further and further behind the rest of the nation.”

In other testimony, Legislative Analyst Elizabeth G. Hill said spending next year will have to be reduced $2 billion to balance the budget and provide a $1.3-billion reserve. Those figures assume the Legislature will go along with cuts in legally required increases already proposed by the governor. If not, then lawmakers will have to cut $2.7 billion.

The committee is considering a wide list of revenue-raising possibilities.

Lawmakers, in an analysis by Hill, were told they could raise $1 billion by suspending for a year the voter-approved policy of indexing tax rates each year to compensate for the effects of inflation. This is done so that wage earners who get raises tied to the rate of inflation will not be bumped into higher tax brackets. An indexing measure would hurt middle-income taxpayers the most, since high-income wage earners already pay the highest rate and would not be bumped into a higher bracket.

Also being discussed is some kind of limitation on the mortgage interest deduction. Homeowners are allowed to write off their mortgage interest without limits. Phasing out the deduction for high-income taxpayers, those who earn $150,000 to $200,000, would raise about $560 million, cutting the tax loss the state experiences from the deduction to about $2 billion.