Emergency OK Sought for Paying State’s Bills : Budget: Controller says action is needed because legal spending authority is about to run out.

With the clock running out on a solution to the looming $14.3-billion budget deficit, state Controller Gray Davis said Wednesday that he will ask the Legislature to give him emergency spending authority to pay the state’s bills if there is no final agreement by next Monday.

Without a completed budget package, Davis said, the state’s legal authority to spend money will automatically run out Monday, the start of the 1991-92 fiscal year.

Davis said state payments to nursing homes, elderly shut-ins, doctors, hospitals and others are in jeopardy if the budget negotiations drag out for another five days.

Davis’ warning came after another day in which the Senate and Assembly failed to take action on any of the dozens of tax and budget bills before them.

Gov. Pete Wilson and legislative leaders met privately twice during the day in hopes of resolving their differences. During a morning session, the negotiators tackled one of the major stumbling blocks to ending the fiscal crisis: resistance by public employee unions to Wilson-backed plans for revamping the governing board of the state Public Employees’ Retirement System and using $1.6 billion in pension fund earnings to help cure the deficit.

In the afternoon, Wilson and the four lawmakers representing the Assembly and Senate discussed welfare and other still unresolved issues.

One source said there appeared to be general agreement on a 4.4% reduction in welfare grants, but the officeholders were still attempting to reach agreement on how far to carry a Wilson-proposed freeze on future increases in grants.

After the meeting, the lawmakers said they would continue the talks today.

On the retirement issue, Wilson has given up on his plan to eliminate the current 13-member board and replace it with a nine-member panel that he would control, according to legislative sources. The governor’s plan resulted in an explosion of opposition from influential public employee unions.

Sources close to the negotiations said Wilson and legislative leaders are now moving away from the idea of attacking the board itself and are considering, among other things, a proposal to create a powerful new authority that would operate independently from the current board and be empowered to set pension-fund contribution rates.

Sources said the independent rate-setting authority might satisfy Wilson’s demand for a basic “reform” that he said is needed to wrest control of the $62.4-billion pension fund from the influence of public employee groups.

Administration and legislative officials have long complained that the current board continually sets the taxpayer-paid employer contribution rates high above the actual rate of return of investments, creating a surplus. This sum is then passed to retirees in the form of dividend checks to meet cost-of-living increases.

In another development, Wilson met privately with nine Republicans who cast the deciding votes last week that gave final legislative approval to the $56.4-billion state spending plan.

The meeting was unusual in that governors usually deal only with legislative leaders. But in this case, Wilson was politically massaging his new allies in the Assembly in hopes they would also vote for other pieces of the deficit-reduction package.

The meeting apparently did not sit well with Assembly Republican Leader Ross Johnson of La Habra, who said the nine Republicans were “about nine miles out on a limb.”

Johnson said the nine may be taken in by the governor who is promising “structural reform” of the budget but so far has not delivered on it.

“There are no reforms,” Johnson said. “All these things that had been discussed and agreed to weeks ago, to say they are unraveling would be an exaggeration because apparently they were never knit together in the first instance.”

Among a number of so-called reforms, Wilson offered his plan to revamp the pension system, cut deeply into welfare benefits, and transfer $2.2 billion in mental health, medical service and social programs to counties.

Wilson has failed in his efforts to pass his pension plan. He won support from the Senate for welfare benefit cuts, but the proposal was defeated by Assembly Democrats, who are trying to get Wilson to accept a watered-down version of his original plan. The Senate and Assembly have agreed in concept to the state-to-county shift in human service programs, but Republicans in the Assembly have blocked the tax package needed to finance the plan.

Even though the budget has been passed by both houses and sent to the governor for his signature, Wilson has threatened to veto it unless the Legislature agrees to the $7.7-billion tax increase package needed to finance it along with the so-called “reforms” he has proposed to reduce program costs that helped create the deficit.

Davis said “the whole process is up in the air. Without a budget the state cannot meet its financial obligations.”

Davis said the state has only enough cash to get it through “the second or third week in July.” Some payments, such as contributions to pension funds, are required by the California Constitution and would go out on time, Davis said.

Times staff writers Jerry Gillam, Daniel M. Weintraub and Paul Jacobs contributed to this report.