Governor, Key Lawmakers in Budget Accord

Gov. Pete Wilson and key legislative leaders reached basic agreement Thursday on a package of welfare cuts, tax increases and pension program revisions aimed at balancing the state’s $56.4-billion budget.

The agreement came shortly after the Senate passed a $1.4-billion income tax bill that would reduce renters’ tax credits, require independent contractors to pay withholding taxes and cap interest deductions on home mortgages at $70,000 a year.

The Democratic and Republican leaders in the Senate, the Democratic Assembly Speaker and the governor immediately set out to persuade rank-and-file lawmakers to cast the votes needed for final passage of more than a dozen bills that will be part of the package. Assembly Republican leader Ross Johnson of La Habra said he would oppose most of the legislation, but Wilson said he is hopeful of securing enough GOP votes on his own.

If the governor and legislative leaders can deliver, the record $14.3-billion budget gap that has monopolized the Capitol’s agenda since January could be erased by Sunday night. Monday is the first day of the 1991-1992 fiscal year.

“What we’ve done is the best possible deal we can do,” Senate Republican leader Ken Maddy of Fresno said.

Assembly Speaker Willie Brown (D-San Francisco) emerged from a meeting with Assembly Democrats in an optimistic mood. “Everything’s done,” Brown said. “Everything is ready to be voted on.”

Thursday’s meeting was the first time the speaker and the governor had agreed on a deficit reduction package. Wilson had reached agreement only with the Senate leaders.

Wilson, however, was cautious, telling reporters: “We are making progress (but) we haven’t resolved all the issues yet.”

The deal includes a welfare bill that reduces grants by 4.4% and suspends automatic cost-of-living increases for five years. The measure also would increase annually the amount of money welfare recipients may earn from employment before being removed from the welfare rolls.

Also part of the package is a tax on all utility bills--from 2% to 2.75%--to replace $675 million Wilson wanted to raise with a 6% tax on telephone, cable television and other telecommunications services.

The income tax bill passed by the Senate and a 1.25-cent increase in the sales tax, which would raise about $4.1 billion annually, also are included in the package. Additionally, the sales tax would be extended to these presently exempt items: newspapers and magazines, candy and snacks, bottled water, ship and jet fuel and leased equipment.

The leaders also put the finishing touches on a pension system overhaul that would give state and local budget writers access to as much as $1.6 billion in pension fund reserves without affecting retiree benefits. The pension checks of those now retired would be brought up to 75% of their original purchasing power. In addition, the deal will include a mechanism that seeks to build the same 75% purchasing power protection into the pension plan for future retirees, but does not guarantee it.

Senate leader David A. Roberti (D-Los Angeles) faced stiff opposition from some of his own Democrats when he outlined the pension proposal to them in a closed meeting. At one point, Roberti became so emotional in his persuasion that his shouts penetrated the heavy wood doors of the meeting room and filled the hallway outside.

Later, Roberti conceded to reporters that Senate Democrats, who draw support from public employee unions at election time, were sharply split over the pension plan.

Wilson held his second closed-door meeting with Senate Democrats in as many weeks to lobby for the plan to revamp the retirement system. Later he told reporters, “the bottom line is, as I told them, and this is no threat, it’s a simple statement of fact, if we cannot achieve this kind of reform, then the budget that is presently on my desk is so underfunded . . . that I would have to veto the budget.”

The Senate action and the agreement by Wilson and legislative leaders ended days of relative inactivity by the Legislature on budget issues. There were other budget developments on a variety of fronts:

* The Senate, in addition to passing the income tax bill, approved legislation freeing extra money for schools and laying the groundwork for a constitutional change that would allow budget bills to pass on a simple majority vote. Wilson immediately signed the school funding bill.

* An offer by Wilson to forfeit 5% of his $120,000 salary was derided as a “cheap political trick” by a negotiator for the state employees union. Nonetheless, four other statewide elected officials, all of them Democrats, pledged to follow Wilson’s lead.

* In a letter to Wilson, and Democratic leaders of the Assembly and Senate, the chief of CalPERS raised constitutional questions about the plan to use $1.6 billion in so-called “excess” earnings from the $62.4-billion CalPERS pension fund to help balance the budget.

* The Senate Education Committee passed a bill establishing a limited “choice” plan for public schools that would allow parents to transfer their children from one school district to another if certain conditions are met. Wilson has insisted that the school choice bill be part of the overall budget agreement, but it is strongly resisted by the California Teachers Assn. and United Teachers-Los Angeles.

The productive session by the Senate, coming after days of inactivity, merely set the stage for action by both houses this weekend. The Senate and Assembly must complete work on more than 30 bills by Monday, the first day of the 1991-92 fiscal year.

The income tax bill approved by the Senate and sent to the Assembly for final action is a key part of Wilson’s package of $7.7 billion in tax increases that the governor said is necessary to help close the deficit.

The measure was approved 27 to 12 with Democrats supporting it in a party-line vote.

Wilson and Maddy basically agree on the tax legislation. But GOP senators voted against it because of a provision that would remove the tax-exempt status of private organizations that include in their bylaws a prohibition from membership based on age, race, sex, religion, color and national origin, but not sexual orientation. Staff members said this provision was aimed chiefly at golf courses and country clubs that have discriminatory membership restrictions.

Maddy said the discriminatory membership provision was outside the “context of the overall budget” and argued that it should be dealt with in a separate bill.

Roberti said that by passing the bill it is hoped “we can strike a blow for full funding of the budget and tax equity.” He lamented reduction of renters’ tax credits, one of his pet programs, saying the treatment of renters was “unfortunate but necessary.”

“Overall, it is a good bill with some warts,” Roberti said.

The legislation would continue to allow renters to take income tax credits of $60 a year for individuals and $120 for couples, but would limit them to married people earning $40,000 or less or individuals earning $20,000.

The proposed constitutional amendment that would allow budget bills to pass on a majority vote would end the current two-thirds voting requirement. Majority-party Democrats long have complained that the two-thirds requirement is the chief reason for the drawn-out budget fights of recent years. The measure, likely to face tougher opposition in the Assembly, passed 27 to 11. Republicans cast all the “no” votes.

Roberti, during the floor debate on the bill, told the Senate that the two-thirds vote rule on the budget allows “duplicitous” legislators to hide from having to clearly explain their budget votes to constituents. He called a simple majority rule a “basic American concept” that had been eroded by so-called super-majority votes.

But GOP Caucus Chairman Bill Leonard of Big Bear told the Senate that the two-thirds vote rule on budgets, “has worked to keep the state in a reasonable sense of proportionality” between spending and taxing of constituents. He predicted voters would reject the measure if it appears on the ballot.

The school funding bill, perhaps the least controversial of the three measures passed by the Senate Thursday, nevertheless faced stiff opposition in recent weeks from counties. That’s because it would repeal legislation approved last year that allows counties to bill school districts for administrative costs associated with collecting property taxes.

Estimates are that it will save educators $100 million annually. The measure passed on a bipartisan 33-to-1 vote.

As part of his plan to erase the budget shortfall, Wilson has proposed a 5% pay cut for state workers, reduced health and pension benefits and the elimination of as many as 22,000 positions.

Wilson has said he will return $6,000 of his $120,000 annual salary to the state and will require his Cabinet and aides to take pay cuts. A decision of a salary-setting commission boosted Wilson’s pay 40% over the $85,000 paid to former Gov. George Deukmejian.

“The governor is serious about spreading the pain,” said Franz Wisner, Wilson’s assistant press secretary. “When he says he’s serious, he means himself, his staff, and everyone in government.”

The move prompted some anger and bemusement from state employees and legislators who said the governor’s action amounted to a publicity stunt.

“I’m disgusted,” said Jim Hard, who negotiates for 28,000 white-collar employees represented by the California State Employees Assn. “It’s a very cheap political trick. We’d be more than willing to reduce our salaries by 5% too if we just got a 41% raise.”

None of the Legislative leaders offered to match Wilson’s gesture. Rank-and-file lawmakers were also skeptical.

“That’s great for the governor. It is grandstanding,” said Sen. Ralph Dills (D-Gardena).

Nonetheless, four other statewide officials said they would be willing to give up 5% of their salaries if their employees lose that amount in contract negotiations.

Lt. Gov. Leo McCarthy, Controller Gray Davis, state Schools Supt. Bill Honig, Treasurer Kathleen Brown, and Secretary of State March Fong Eu all said they would take a cut in pay. Eu’s son, Matt Fong, a member of the Board of Equalization, said he had not decided whether to take a salary reduction.

When told his mother had agreed to give up part of her salary, Fong quipped, “Yeah, but her house is paid for.”

Times staff writers Daniel M. Weintraub, Paul Jacobs, Virginia Ellis William Trombley, Jerry Gillam and George Skelton contributed to this article.