Tax Checks Held Up by State Budget Impasse : Government: Refunds and renter’s credits to more than 300,000 are affected by political maneuvering.

Tax refund and renter’s credit checks to more than 300,000 Californians are being held up while Gov. George Deukmejian and lawmakers battle over ways to close the state’s $3.6-billion budget gap, officials disclosed Thursday.

“We stopped sending out checks last week,” said Franchise Tax Board spokesman Jim Reber. He said renter’s credits are running $35 million more than expected, in part because of a decision last summer by the State Board of Equalization allowing families on welfare to apply for the maximum $137 credit.

Budget negotiators were at odds on several fronts Thursday, one day before the Legislature is required by law to produce a budget. Assembly Republicans stalled approval of a preliminary $56.4-billion spending plan put together by the Ways and Means Committee.

Republican lawmakers said the preliminary version of the Assembly budget, at least $2 billion higher than the budget proposed by the governor, was too big, given the seriousness of the state’s money shortage.

The budget got the majority of votes on its first roll call, 42 to 30, but it needed 54 votes, or a two-thirds majority, to pass.

The action bore similarities to maneuvering last summer when Republicans, joined by a small group of Democrats, stalled work on the budget for more than a week in a dispute over school funding.

Earlier Thursday, Deukmejian and four legislative leaders from the Assembly and Senate held another of their private negotiating sessions, but lawmakers reported no progress when they emerged from the hourlong meeting.

Senate President Pro Tem David A. Roberti (D-Los Angeles) said, “With every meeting, the situation gets bleaker.”

Before they went into the meeting, Roberti and other negotiators were presented with a thick book containing billions in proposed cuts in health, welfare, higher education and other programs by the legislative analyst’s office. “There wasn’t too much conversation. We were all looking at each other and kind of scratching our heads, trying to deal with the enormity of it,” Roberti said.

The problem the governor and lawmakers are wrestling with stems from revenue shortages to meet mandated government services and expenditures. The shortages have resulted from lower than expected personal and corporate income tax revenues, largely attributable to a soft economy and unexpected increases in the cost of running state prisons and providing health and welfare services to the indigent.

As for the stalled checks, the Franchise Tax Board is waiting for the Legislature to act on a $323-million emergency appropriations bill that will provide the additional $35 million needed to complete the refund payments. Most California renters got their checks earlier and $397 million has been paid out so far this year.

On Thursday, the $323-million appropriations bill containing the extra funds got bogged down after the Deukmejian Administration tried to block the $35-million payment for renter’s credits, saying the state could not afford it. If the governor gets his way, it could be mid-July before the state resumes sending out the checks.

“Everyone will get their checks. The worst-case scenario is that they will be delayed several weeks,” Reber said.

Administration strategists want the renter’s payments for this year funded in the new budget for the fiscal year that begins July 1. By pushing the payments into the next year, it would be easier for Deukmejian to end the current fiscal year June 30 in the black.

However, people owed rent credit checks would have to wait until the new budget is adopted, which may take until mid-July, by some estimates.

Another problem with the Administration’s plan is that the state might have to pay an extra $1.8 million in interest, depending on how long the payments are delayed.

Because renter credits go out with income tax refunds, $76 million in refunds also are being held up. Only refunds for people who applied for renter’s credits are being held. Other refund checks are being paid.

Richard Ray, an assistant director of the Department of Finance, said during the hearing of the Senate Budget and Fiscal Review Committee that he disagrees with estimates by the legislative analyst’s office that delay of the bill could cost the state an extra $1.8 million in interest payments. He said the delay will only be a matter of weeks, perhaps days if there is quick approval of the budget.

“We think the time frame is minor, really insignificant. We want to be sure the (current) 1989-90 fiscal year is sound,” Ray said.

The delay of the emergency funding bill also jeopardizes state payments to hospitals and nursing homes that provide services to poor people enrolled in the state’s $7.5 billion Medi-Cal program. The bill contains a $95-million payment for the Medi-Cal program, and without it doctors, hospitals, nursing homes and others will be in the same boat as those waiting for renter’s credits. They will just have to wait.

Without passage of the bill, hospitals and nursing homes, usually paid on a weekly basis, will receive no more payments from the state until June 30, and possibly into July if a budget still has not been approved. Payments to doctors treating Medi-Cal patients already have been halted because the program has run out of money.

Delay of the budget on the Assembly floor offered more evidence of the growing frustration among both Republicans and Democrats over the lack of movement toward a budget solution.

Democrats who drafted the budget did so on the presumption that lawmakers ultimately will approve a major tax increase.

“This budget cannot be balanced without new taxes or without time-bomb cuts that will cost us 10 times as much in the future,” said Assemblyman John Vasconcellos (D-San Jose), chairman of the Assembly Ways and Means Committee, in a summary of the budget.

But Republicans are just as adamant that the budget can be brought into balance without a tax increase. Assemblyman Richard L. Mountjoy (D-Monrovia) noted during the floor debate that tax revenues next year are expected to grow by 7%. “If I had a business that was doing 7% better than last year, I would feel in pretty good shape and I would not feel bankrupt,” he said.