Senate Plan for Budget Is Revived : Finances: Proposal once called ‘dead on arrival’ has become basis for talks between Deukmejian and legislators. Impasse reaches a record 24th day.

A spending plan that was pronounced “dead on arrival” two weeks ago was revived in renewed talks Tuesday between Gov. George Deukmejian and legislative leaders as the best hope to end the long partisan standoff over the state budget.

Senate leader David A. Roberti (D-Los Angeles) said after a meeting with Deukmejian and other lawmakers that a much-maligned $55-billion-plus budget approved by the Senate on July 10 has now become “the basis for negotiations.”

The development came as the state entered a record 24th day without a budget. In the absence of a budget, the state is paying bills only under court order. The courts have already required the state to send out payments for welfare recipients and health care providers. But other checks are being held up. Some state employees have gone for a week without pay.

On top of the immediate problem of finding a way to pay state employees and others who are owed money, Controller Gray Davis has warned that the state faces a severe cash crunch at the end of the month that could empty the state treasury. Even in good years, the state normally borrows money to start the fiscal year in July, while it awaits revenues that will be collected in coming months. But this year, money is even tighter and the state anticipates difficulty borrowing money.

The problem has attracted the attention of Wall Street financial firms, which have been privately telling state officials that California’s perfect AAA credit rating could be in jeopardy if the budget impasse continues much longer. If the credit rating is lowered, the state will have to pay higher interest rates on the billions of dollars it borrows every year.

Roberti, obviously pleased with the turn taken by the negotiations with the governor, said afterward: “We are not comatose anymore.”

His comment referred to a statement by Assembly Speaker Willie Brown (D-San Francisco) who had called the Senate spending plan “comatose on conception” after a colleague said the budget was dead on arrival when it reached the Assembly.

Deukmejian was also among the earlier critics of the Senate-approved budget because it called for $1.7 billion in budget cuts, well below the $3.6 billion in spending rollbacks that the governor had been saying were necessary to keep the state operating smoothly. In addition to the cuts, the Senate plan required a package of $1.3 billion in tax and fee increases--which Deukmejian also publicly opposed--and a reserve that the governor said was “clearly inadequate.”

As recently as Friday, Deukmejian showed little sign of softening, declaring that he wanted the Legislature to pass his budget plan “in its entirety.” However, after another weekend went by with no progress on the budget, Deukmejian returned to the Capitol on Monday saying he wanted to reopen talks and was ready “to resolve this impasse.”

The lawmakers will meet with Deukmejian again today to continue negotiations.

Tuesday’s developments represented a marked change in the atmosphere surrounding the budget talks, although none of the parties were willing to say real progress had been achieved.

All the Speaker would say about the governor’s position was that Deukmejian “agreed to look at the Senate plan with a more critical eye.”

Senate Republican Leader Ken Maddy of Fresno said “no one backed off any position.” But he also expressed optimism and said it was possible a solution could be found within 48 hours.

“We got negotiations rolling again,” Roberti said. “That is important. We are still in a stalemate, but we are moving.”

Deukmejian spokesman Robert J. Gore also was cautious. “Due to the sensitivity of the negotiations, we don’t want to make any comments,” Gore said after the meeting.

Participants said all parties to the budget negotiations were beginning to feel outside pressures. Maddy noted that “we have payrolls to meet (and) a crisis with the bond houses in New York if we don’t do something.”

The negotiators, after making little progress, had ended their joint talks two weeks ago. That was the same day Senate Republicans and Democrats approved the budget and sent it to the Assembly.

Since then Assembly members have been at loggerheads, as one spending plan after another was shot down amid bitter partisan feuding.

Just before Tuesday’s meeting with the governor, the Assembly overwhelmingly rejected Deukmejian’s $3.6-billion plan for cuts, the largest of which called for suspending constitutional spending protections to public schools in order to cut $800 million in state payments to school districts.

The 63-2 defeat for the plan was viewed by Democrats as a test of support for Proposition 98, the 1988 initiative which guarantees that schools receive at least 40% of general purpose tax revenues. That guarantee has been a major budget irritant to Deukmejian, who says it is creating pressure for tax increases.

During the debate, Republican and Democratic lawmakers angrily assailed each other, even though both sides knew they ultimately would join in voting against the governor’s plan.

“Just as Republicans have said no to taxes, I say no to destruction of public school money as guaranteed by Proposition 98,” Brown said during the debate.

Assemblyman Trice Harvey (R-Bakersfield) attacked majority party legislators as “Rolls-Royce Democrats,” and Assemblywoman Theresa P. Hughes (D-Los Angeles) accused Republicans of trying to “hold our children hostage” by pressing for cuts in school funding.

Assemblyman William P. Baker (R-Danville) said the only difference between the Assembly and a Boy Scout camp was that the Scouts “have adult leaders.”

During the debate on the Assembly floor, Maddy, the Senate Republican leader, made a rare visit to speak with Brown. He said he advised Brown “to save the rhetoric for downstairs,” referring to the meeting with Deukmejian.

Maddy said he was concerned that the angry exchanges would cause lawmakers to further harden their positions. “I don’t think this helps,” he said.

Brown later indicated he felt the same way. Carefully choosing his words during a news conference after the meeting in Deukmejian’s office, Brown warned reporters against writing that the stalemate had ended. “Don’t saddle us with that,” he said. “There are enough things we have to undo that we said previously.”

FEELING THE PINCH: Myriad people and programs are going without their state checks. A3

FISCAL IMPACT: Failure to pass budget may be helping an initiative to place limits on terms of office. A3