Gains Made in Workers Comp Talks : Legislation: Wilson and Democrats narrow differences but remain split on one key issue. That and tax hike impasse are holding up state budget.

Gov. Pete Wilson and Democrats in the Assembly considerably narrowed their differences Thursday over proposed changes in the workers compensation system demanded by Wilson in exchange for his signature on the state’s $56-billion budget, sources said.

The Republican governor and the Democrats in the lower house also have reached a provisional agreement on a package of more than $2 billion in income tax increases that the governor says are needed to balance the budget.

Their remaining disagreement centers on the extent to which the state should limit the right of workers to claim disability benefits for stress caused by a layoff, firing or other lawful personnel action such as a demotion or a transfer ordered by an employer.

Wilson wants to ban all such claims. Democrats have agreed only to prohibit claims arising from a layoff or firing. The dispute is hindering further action on the budget, which is already 12 days late and threatening to delay paychecks for several thousand state workers due to be paid Monday.

The Assembly met Thursday and once again bogged down in a parliamentary sideshow as Republicans refused to go along with rule waivers needed before the house could consider two workers compensation measures. The next session is scheduled for 6 p.m. today.

The real action, however, is happening not on the Assembly floor but in private meetings in the offices of the governor and a few key Democratic lawmakers. There, negotiators are trying to piece together a delicate deal on workers compensation that will satisfy Wilson and business interests without causing too much offense to organized labor and lawyers for injured workers.

The governor has said he will not sign the budget without an additional $2.3 billion in taxes that are pending in the Assembly. They include a provision to raise the top personal income tax rate on individuals making $100,000 a year and couples earning $200,000.

But Assembly Republicans, with Wilson’s support, are insisting on changes in the workers compensation system in exchange for their votes on the tax bill. They argue that businesses need relief from rapidly rising workers compensation premiums, especially if they are going to be asked to pay higher taxes.

After setting a broad agenda on workers compensation, Wilson now has pared his demands back considerably. Democrats also have moved from their original opposition to any change in the system.

Here is Wilson’s latest proposal, according to several Democratic and Republican legislative sources:

- Require workers seeking disability payments for stress to prove that at least one-third of their stress was caused by conditions in the workplace. Current law sets that threshold at 10%. Until recently, Wilson was demanding a 50% threshold.

- Prohibit payment of workers compensation benefits for stress arising out of any lawful, non-discriminatory, good-faith personnel action, including discipline, transfers, evaluations, demotion, layoff or firing.

- Split any savings produced by these limits between employers and workers. Half would go to employers in reduced insurance premiums. Half would go for increased payments to workers with legitimate injuries who qualify for temporary and permanent disability benefits.

Wilson reportedly also has agreed to a Democratic proposal to repeal a law that sets minimum premiums for workers compensation insurance. The law limits competition by requiring all insurers to adhere to minimum rates set by the insurance commissioner.

The Assembly Democrats have reached agreement with Wilson on each of these points except for the question of stress caused by a personnel action. They have agreed to ban such claims for stress resulting from a layoff or firing but do not want to limit claims for stress caused by other actions taken by an employer.

The Democrats also have agreed to substitute Wilson’s tax proposal for one they have been pushing if he consents to their position on personnel actions. The major difference between the tax measures is that the governor’s plan would automatically repeal the tax increase on the wealthy in five years while the Democrats want to make it permanent.

Wilson said Thursday that Democratic support for his tax proposal was a favorable sign. But he said negotiations were still ongoing and declined to confirm details of his position as it was outlined by legislative sources.

“There’s no deal until we’ve got the whole thing worked out,” Wilson told reporters as he returned to his office after viewing the eclipse with a group of Girl Scouts on the steps of the Capitol.

Even if Wilson and Assembly Democrats do settle their differences, the workers compensation and tax bills still must go to the state Senate, where both are expected to receive a skeptical reception. Democrats in the upper house want a permanent tax increase on the affluent--not the temporary one favored by Wilson--and are in no hurry to limit benefits for injured employees under workers compensation.

Times staff writers Carl Ingram, Paul Jacobs and Richard Paddock also contributed to this article.