Budget Battles Are Far From Being Over : Finances: Implementing the spending plan and Wilson’s ‘structural reforms’ will be a tough sell.

Passage of the $56.4-billion budget on Thursday solved only one of a plateful of difficult spending and taxing problems facing Gov. Pete Wilson and the Legislature.

With the arrival of summer and what usually is a slow season at the Capitol, lawmakers instead face what may be their toughest decisions on a large package of budget-related legislation designed to eliminate a projected $14.3-billion deficit.

After working the last two weekends, Wilson and lawmakers decided to catch their breath and wait until Monday before they resume consideration of budget bills.

Wilson spent Friday in closed-door meetings with his top advisers, plotting strategy for the confrontations expected next week over the list of bills that must be approved before he will consider work on the budget complete.

“Most of the debate so far has focused on getting the budget in place, on realignment and education,” said Bill Livingstone, Wilson’s press secretary.

Livingstone said Wilson will insist on legislation that results in long-term spending reductions but may be willing to alter or even abandon proposals he has put on the table if “creative new solutions” can be found to replace them.

“If you can fix it in a better way, we’ll listen,” Livingstone said.

Wilson added even more pressure to the ongoing deliberations when he vowed to veto the spending plan if the Legislature does not send him the bills needed to complete his budget package by the July 1 start of the 1991-92 fiscal year.

Now, after narrowly winning support for his spending plan, the governor must get his Republican allies to swallow $7.7 billion in tax increases. Although the tax proposals have broad support among Democrats who dominate the Legislature, passage requires a two-thirds majority, which Democrats cannot muster on their own.

The list includes $4 billion in higher sales taxes, $769 million in higher motor vehicle fees, adjustments in income tax laws designed to raise $1.4 billion, a $210-million increase in alcohol taxes, a $675-million tax on telephone and other telecommunications services, and a two-year suspension of a law allowing businesses to carry net operating losses forward from one year to the next, which would save the state $560 million.

The tax increases are needed so the state can meet its financial obligations next year, supporters say.

The budget bill alone, said Assembly Speaker Willie Brown (D-San Francisco), “could only carry us for eight or nine months. To cure that, we need to create new sources of revenue.”

Brown believes passage of the budget was a “major step” for the Legislature because the lawmakers who supported it may feel obliged to raise the taxes needed to support it. “We are going to pass everything we need to pass by July 1,” Brown said.

Wilson and lawmakers still must agree on a historic rollback in welfare benefits needed to complete nearly $5 billion in spending cuts.

There is tentative agreement by key lawmakers to reduce payments to recipients of the Aid to Families with Dependent Children program by 4.4%. But Wilson wants permanent repeal of the law that provides AFDC recipients with annual increases linked to the rate of inflation, while Assembly Democrats are balking at anything longer than a five-year freeze.

Another big issue up in the air involves efforts by Wilson and some legislative leaders to take $1.4 billion from the $62.4-billion California Public Employees’ Retirement System’s pension fund and use it to shore up state and local government budgets.

One element of Wilson’s plan, a proposal to revamp the retirement system’s board of directors and take control of a majority of appointments, has turned into a public relations nightmare for the Republican governor. His office got thousands of angry telephone calls from state employees. So many complaints poured in that the governor had to arrange for extra telephone operators to handle the calls.

Although some Democrats believe Wilson’s plan to stack the pension board with his own appointees is doomed, most agree the proposal is very much alive. Pension fund officials appear agreeable to some kind of transfer of money, but they are insisting on concessions of equal value from the governor and Legislature.

On another front, state employees are anxiously awaiting the outcome of talks with the Wilson Administration on whether a 9% cut in the budget will be translated into wage cuts, layoffs or benefit reductions.

The governor, as part of the overall budget plan, is asking state employees to take a 5% pay cut, up to two unpaid days off a month (equal to another 10% cut) and accept a freeze on health benefits that could cost employees from $40 to $120 a month, depending on the size of the family.

It is far from certain how the budget cuts will shake out. Wilson Administration officials say that even if state employees take the pay cut and other benefit reductions, they may have to eliminate as many as 10,000 jobs.

An unusually large number of state employees are said to be preparing to retire in July, when a new, more generous pension formula takes effect. Those retirements could drive down payroll costs enough to ease some of the pain of Wilson’s proposal.

In addition to the 9% across-the-board cut in state programs, Wilson put forward a long list of what he called “structural reforms” in the way the government operates. Most of the items would reduce state costs permanently, either by cutting benefits or increasing efficiency.

Wilson considers his proposal to cut AFDC benefits and reduce state employee pay as part of his “reforms.”

Wilson also asked for broad new powers to contract with private business to do jobs now performed by public employees. He has settled for the extension of a law allowing the state to contract for certain functions related to highway construction.

The governor also wanted to extend the tax credit for research and development and reduce benefits for injured workers under the workers’ compensation system. He prevailed on the tax credit and is negotiating with legislators and business and labor groups over workers’ compensation.

Wilson’s agreement with the Senate also included a proposal to make it easier for students to transfer between school districts and a plan to let a majority of voters in any county raise the sales tax by up to a half-cent to pay for jails, drug abuse prevention and schools. Another piece of the package would allow a majority vote for school construction bonds, repealing the two-thirds requirement under current law.

The fate of these education proposals in the Assembly is unclear.

Balancing the State Budget

Here are some of the major bills being acted on in the Legislature to help balance the $56.4 - billion state budget, and the votes cast so far.

Sales Tax Increase: A 1 1/4-cent sales tax increase would raise about $3.6 billion next year. Passed the Senate by a 28-10 vote.

Sales Tax Extension: Extends the sales tax to include newspapers, candy, snacks, bottled water, leased equipment and jet and ship fuel to raise $462 million. Passed the Senate by a 28-10 vote.

Telecommunications Tax: Imposes a 6% tax on telephones and cable television service to raise $630 million.

Vehicle License Fees: Increases annual vehicle license fees for all automobiles to raise $769 million. Rejected by a 50-24 Assembly vote. Needed a two-thirds majority, or 54 votes, to pass.

Alcoholic Beverage Tax: $210 million in new taxes on beer, wine and hard liquor similar to a hike rejected by the voters at the polls last fall. Passed the Senate by a 33-4 vote.

School Financing: Makes available about $18.4 billion to schools for the 1991-92 fiscal year, more than the voter-approved Proposition 98 guarantee. Passed the Assembly by a 63-5 vote. Passed the Senate by a 36-0 vote. Sent to governor.

Court Funding: Provides a net gain of $295 million to the state by imposing higher court fees and legislative reforms. Passed the Assembly by a 57-8 vote. Passed the Senate by a 32-1 vote. Sent to governor.

Welfare: About $150 million would be saved by cutting Aid to Families With Dependent Children benefits by 4.4%, which would amount to about a $31-a-month reduction for a woman with two children. Automatic cost-of-living increases to welfare recipients would be repealed but could begin rising again in about three years. State benefits for the aged poor and disabled would be suspended for five years. Passed the Senate by a 27-8 vote.

Renters Credit: Saves $137 million by making only single renters with adjusted gross incomes of $20,000 or less and couples with incomes of $40,000 or less eligible for tax credits.

Program Transfers: Shifts $2.3 billion in health and welfare programs to the counties, to be financed by a sales tax hike, plus an increase in motor vehicle license fees. Passed the Senate by 39-0 and 35-2 votes, respectively. Passed Assembly by 55-21 and 54-21 votes, respectively.

New or Increased Taxes

Here are the $7.6 billion in new or increased taxes contained in the proposed state budget agreed to by Gov. Pete Wilson and the Democratic and Republican leaders of the Senate. PERSONAL INCOME TAX * Require businesses to withhold income taxes from independ ent contractors they hire, including doctors, lawyers and other professionals.: $530 million * Limit itemized deductions for individuals with incomes higher than $100,000 and couples making more than $200,000.: $272 million * Reduce business meal deduction from 80% to 50%.: $222 million * Eliminate the renters tax credit for individuals earning more than $20,000 a year and couples earning more than $40,000.: $137 million * Require employers to withhold income taxes on supplemental wages.: $80 million * Phase out the personal exemption credits for taxpayers with income of more than $100,000 and joint filers with income higher than $200,000.: $43 million * Require estimated tax payments on income from estates.: $42 million * Cap mortgage interest deduction at $70,000 for all filers.: $39 million * Make changes to conform state taxes to federal tax code.: $17 million TOTAL personal income tax: $1.382 billion

SALES TAX * Increase 1/2 cent to pay for state programs.: $1.44 billion * Increase 1/2 cent to pay for local programs.: $1.44 billion * Temporarily increase 1/4 cent for state programs.: $720 million * Extend to candy and snacks.: $200 million * Extend to ship and jet fuel.: $110 million * Extend to newspapers and magazines.: $83 million * Extend to leased equipment.: $38 million * Extend to bottled water.: $31 million TOTAL sales tax: $4.062 billion

TELECOMMUNICATIONS TAX * 6% tax on telephone and cable television bills.: $630 million TOTAL telecommunications tax: $630 million

BUSINESS TAX * Suspend for two years the right of firms to carry over losses between tax years. The carry-over provision would be reinstated in 1994. If the reinstatement cost the state more than $300 million, corporate taxes would be increased to make up the difference.: $560 million TOTAL business taxes: $560 million

VEHICLE LICENSE FEE * Adopt new depreciation schedule. The fee on a 2-year-old car that cost $20,000 when new would rise from $340 to $360.: $769 million TOTAL vehicle license fee: $769 million

ALCOHOL TAXES * Increase taxes on beer, wine and liquor. The tax increase would add about 9 cents to a six-pack of beer and 3/4 of a cent to a five-ounce glass of wine.: $210 million TOTAL alcohol taxes: $210 million

TOTAL INCREASED TAXES: $7.613 billion