Senate Blames Assembly for Budget Impasse

With the final pieces of a deficit-reduction package blocked in the Assembly and the state entering the new fiscal year without a budget, angry Senate leaders Monday accused lawmakers in the other chamber of knuckling under to special interests.

The Senate leaders focused their anger on the Assembly’s backing away from promises and refusing to act on final tax bills that would raise $2 billion. Gov. Pete Wilson said he needs the tax revenue to close the budget deficit and balance the $56.4-billion spending plan sent to him by the Legislature. Wilson said he will not sign the budget until the tax bills pass.

The delay in the Assembly came as business groups lined up with Democrats to push for higher income taxes on top earners as a substitute to a Senate-passed plan to tax utilities and other proposals. Wilson was said to be involved in the negotiations.

“People have to be willing to bite the bullet when it is tough,” said Senate President Pro Tem David A. Roberti (D-Los Angeles). “We did it in the Senate. We told the interest groups that support us, ‘No.’ ”

Turning his anger toward Wilson, Roberti said it appears that the governor “can’t say (no) to the corporate interests, big business.”

The developments came on the first day of the new budget year, a day that left the state without the ability to pay any bills other than mandatory payments set out in the state Constitution or those required by court order.

A spokesman for state Controller Gray Davis said many health and welfare payments that usually would be held up will go out on schedule. That is because injunctions remain in effect from lawsuits filed during last year’s budget crisis.

The spokesman warned that the state will not be able to send counties a $34-million payment for welfare services that is due Friday.

Late Sunday night, Wilson signed into law more than $5 billion in tax increases sent to him by the Legislature.

Among them was legislation that will raise the statewide sales tax by 1 1/4-cents on each $1, and others that will hike taxes on alcohol and boost motor vehicle license fees by an average of about $60 per vehicle. Wilson also signed a bill cutting basic welfare grants by 4.4% and freezing increases for five years.

With those bills out of the way, Wilson and Assembly lawmakers were said to be continuing negotiations on the business-backed plan to replace the utility tax proposal with higher income taxes on the state’s top earners.

Under discussion Monday was a tax that would boost the current 9.3% top rate to 10% for individuals earning $100,000 or couples taking in $200,000 a year. That rate would jump to 11% for individuals earning $200,000 and couples reporting incomes of $400,000 or more.

The Republican governor, who until recently had firmly rejected various “tax the rich” efforts proposed by Democrats, was said to be negotiating with an open mind, if not outright enthusiasm.

Assembly Speaker Willie Brown (D-San Francisco) reported that Wilson is “lobbying” to pass some kind of income tax bill. The catch is that the governor is said to want some tough, pro-business concessions in return.

Wilson met privately with about a dozen Assembly Republicans, some of whom broke ranks last week with Assembly GOP Leader Ross Johnson of La Habra and voted with Democrats to pass the governor’s spending plan. One participant said the governor pitched an employer-supported restriction on the payment of claims filed because of work-related stress. Wilson met separately with Johnson and engaged in what Johnson called a harmonious discussion.

One of the governor’s conditions, reportedly, is defeat of a Senate-passed plan to impose income tax withholding requirements on doctors, lawyers, accountants and other independent contractors, and passage of legislation that would make it more difficult for injured workers to collect payments for stress-related injuries under the workers’ compensation system.

Wilson, along with Democratic and Republican negotiators in the Assembly, is now said to view the proposed tax on top earners as preferable to the Senate-approved 2% tax on utility bills.

Wilson and Brown earlier agreed to the utilities tax during negotiations with Senate leaders. Their dropping of the tax comes at a time when powerful business lobbying groups are fighting the levy.

All of that appeared to be too much for Roberti and Senate GOP Leader Ken Maddy of Fresno, both of whom were party to the earlier agreement and pushed the tax bills through their chamber despite intense lobbying and some highly vocal opposition among other senators.

Maddy, normally unflappable, bristled at the arm twisting going on in the Assembly not to pass the package of tax increases that the Senate approved and to add new taxes that some interest groups oppose.

“Two-thirds of this house did not bend to anybody,” Maddy told reporters, referring to the 27-vote, or two-thirds, majority needed to pass tax bills. “We sent the package over as bad as it was. We didn’t bend to a soul. What I am seeing happen over there is they are bending to everybody.”

Roberti said “big business has to pay its fair share” and noted that Wilson has already signed a bill imposing new sales taxes on candy, snack foods, newspapers, magazines, bottled water and jet and ship fuel.

The Democratic lawmaker said he was surprised by the power that independent contractors have shown in trying to kill a provision in one of the tax bills that would require them to submit to income tax withholding. State officials say the legislation is needed as a check on independent business people and professionals who avoid paying taxes.

“All we’ve done is say they have to pay withholding, so that they can’t debate a tax. It’s not even a new tax on them . . . a lot of other groups have been hit with a real tax,” Roberti said.

Roberti said: “Newspapers got hit. There was no trade-off. Candy got hit and there was no trade-off.”

While critical of the Assembly, Roberti and Maddy both indicated a willingness to consider an income tax proposal.

The governor’s press secretary, Bill Livingstone, refused to be specific about Wilson’s bargaining position.

“There is a lot of discussion on how to close the remaining $2-billion gap. You have a handful of taxes that are being discussed. It is a very fluid process,” he said.

Livingstone said all concessions to business as part of the tax package were being considered in the context of other tax increases that businesses will be asked to pay.

“The discussions now are how best to close that last $2 billion so that it is fair and so that it minimizes the impact on jobs. Part of that involves counterbalance. If you are going to raise taxes, maybe you do something in some other way that balances that,” he said.

Meanwhile, the Assembly Ways and Means Committee late Monday sent to the floor three bills that may become part of the budget package.

One would increase vehicle registration fees from $22 to $27 and increase basic driver’s license fees from $10 to $12. Another bill would increase maximum community college fees from $50 a semester to $60.

The third bill combines a 2% utility tax with two provisions supported by business groups. One would allow companies to carry forward operating losses to offset income in future years. The other would extend for five years a tax credit for research and development.

The New Sales Tax

Here is a breakdown of the 1.25-cent sales tax increase facing Californians as of July 15: * 0.50 OF A CENT: To be levied permanently, with the revenue going to counties to meet costs of mental and public health programs and social programs now paid by the state.

* 0.25 OF A CENT: To be levied permanently, with the revenue going into the state treasury.

* 0.50 OF A CENT: To be levied temporarily, until 1992 or 1993, to alleviate state budget shortages. Thereafter, legislation is pending that would allow counties the option of continuing this portion to finance school, anti-crime and anti-drug programs, provided voters approve. Also pending is a provision to permit Los Angeles and San Francisco counties to seek voter approval to begin levying half of this amount, or 0.25 of a cent, immediately.

* SALES TAXES ALSO WILL BE EXTENDED: Among items to be taxed are all candy, many snack foods, bottled water, newspapers and magazines, and fuel for ships and jet aircraft.

Here is how the sales tax will look by county:

County Current Rate Add’l Tax* New Rate Los Angeles 7% 1.25% 8.25% Orange 6.5% 1.25% 7.75% Riverside 6.5% 1.25% 7.75% San Bernardino 6.5% 1.25% 7.75% San Diego 7% 1.25% 8.25% Ventura 6% 1.25% 7.25%

* Will take effect July 15

New Tax Revenue

Here are the main sources of $7.5 billion in new revenue that Gov. Pete Wilson and the Legislature have approved or are considering to balance the $56.4 - billion state budget. * Sales Tax Increase: A 1.25-cent sales tax increase to raise about $3.6 billion next year. Passed by the Legislature and signed by the governor. * Sales Tax Extension: Extends the sales tax to include newspapers, candy, most snacks, bottled water, leased equipment and jet and ship fuel to raise $612 million. Passed by the Legislature and signed by the governor. * Utility Tax: Raises $630 million by imposing a 2% tax on telephone, TV cable and water bills. Tax to vary with usage of natural gas and electricity. Passed by Senate. Pending in Assembly.

* Vehicle License Fees: Increases annual vehicle license fees for all automobiles to raise $769 million. Passed by the Legislature and signed by the governor.

* Alcoholic Beverage Tax: Adds $200 million in new taxes on beer, wine and hard liquor similar to a hike rejected by voters at the polls last fall. Passed by the Legislature and signed by the governor. * Renters Credit: Saves $137 million by limiting renters tax credit to single renters with adjusted gross incomes of $20,000 or less and couples with incomes of $40,000 or less. Passed by Senate. Pending in Assembly .

* Personal Income Tax: Raises $1.02 billion by reducing a variety of deductions and exemptions for individuals earning more than $100,000 and couples earning more than $200,000, requiring withholding of taxes from independent contractors and on supplemental wages, capping mortgage interest deductions at $70,000 yearly, and conforming to federal tax codes. Passed by Senate. Pending in Assembly.

* Business Tax: Adds $560 million by suspending for two years the right of firms to carry over losses between tax years. Passed by Senate. Pending in Assembly.