Budget Will Force Layoffs, Wilson Warns

Just hours after signing a new $55.7-billion state budget and $2.3 billion in additional tax increases to pay for it, Gov. Pete Wilson pressed forward Wednesday with plans that could lead to the layoffs of thousands of state employees.

Saying layoffs are inevitable, Wilson urged the Legislature to give him a free hand in making the moves to save $800 million in personnel costs called for in the budget. But he said the severity of the layoffs can be tempered if the Legislature gives him the power to impose such things as mandatory days off without pay.

Wilson called the spending plan “a very, very difficult budget designed to bridge an unprecedented budget gap.”

“We are going to have to reduce the state work force, and with that there will be some reductions in state services,” Wilson told reporters at a Capitol news conference.

Wilson signed the budget just before midnight Tuesday, along with the bill to raise income taxes by $2.3 billion on the state’s top earners and legislation designed to reduce the costs to employers of the workers’ compensation system.

The bills, coming 16 days after the start of the fiscal year, were the final pieces in a package of legislation put together by Wilson and the Legislature to close a record $14.3-billion projected deficit.

Almost immediately upon Wilson’s signing of the budget, state Controller Gray Davis released more than $500 million in state employee paychecks and payments to state creditors that had been held up pending completion of action on the new spending plan. “I’ve ordered all paychecks to be hand-delivered to all 7,000 employees who missed their payday on Monday,” Davis said Wednesday.

Before signing the budget, Wilson vetoed $191 million from the spending plan sent to him by the Legislature. Included was the veto of a measure that would have transferred money earmarked for construction of two prisons in Los Angeles County--one near downtown, the other in Lancaster--to a prison project in Madera County. The vote means that money is again available to build the Los Angeles County prisons once lawsuits that have blocked construction are resolved.

The income tax bill will affect an estimated 1.5% of the state’s taxpayers. It imposes a new top rate of 10% for single taxpayers earning more than $100,000 and people filing join returns earning more than $200,000. The rate jumps to 11% for single people earning more than $200,000 and joint filers reporting more than $400,000. Currently the top tax rate is 9.3%.

The tax bill also eliminates renters’ tax credits for individuals earning more than $20,500 and for couples or people filing as heads of households earning more than $41,000.

Another controversial feature of the bill extends for five years a provision in current law that allows money-losing businesses to write off business losses over 15 years.

Earlier, Wilson signed $5 billion in other tax increases, including a statewide 1.25-cents-per-dollar boost in the sales tax and its extension to previously exempt items, such as candy, snack foods, newspapers, magazines and bottled water. Consumers started paying that tax on Monday.

The new sales tax rate will be reduced by half a cent in two years and the new top income tax rates will come off the books at the end of the 1995 tax year.

In all, the higher taxes are projected to bring in $7.3 billion over the next 12 months to finance the new spending plan. The Department of Finance also said the budget requires a reduction in state services of $5.1 billion and the saving of another $2 billion through accounting changes and various bookkeeping transfers of various state funds.

Overall, spending will grow in the new budget year by 4.6%.

Nearly all the increases are because of higher caseloads.

The biggest areas of the growth in the budget are in support of public schools and prisons.

Wilson, in a news briefing on the budget, stressed changes that he contends will save money over the next several years.

“The Legislature and I, working together, have passed more reforms in one budget than all the cumulative reforms within recent memory,” Wilson said.

In outlining the money-saving moves, Wilson stressed a 4.4% reduction in welfare grants, a five-year suspension of all cost-of-living increases for welfare and public assistance recipients and a shift of state health services to counties, changes that he hopes will lead to a reduction of contributions to the pension system. He also called the workers’ compensation system bill “a modest” start on an overhaul of the costly program that assists injured workers.

The workers’ compensation bill, which Wilson had demanded in exchange for his support of the income tax measure, denies workes the right to collect stress benefits in their first six months on the job, except under extraordinary conditions. Wilson first argued for changes that would make most stress claims more difficult to obtain for all employees, but backed down under strong opposition from Democrats in the Legislature.

The historic deficit, most state officials agree, was caused by a merging of two major problems: the lengthy recession, which caused state revenues to nose-dive and heightened demand for state services for the needy, and legally required spending increases mandated by various laws, court decisions and voter-approved initiatives.

Wilson attributed about two-thirds of the $14.3-billion deficit to the recession. Going into the budget negotiations, Wilson insisted that the Legislature address short-term and long-term budget problems. Although he did not get all of his program, Wilson said he was pleased.

“The taxes and the spending cuts will not be welcomed by almost any Californian,” the Republican governor said, “ . . . (But) we have made the tough decisions now. We have saved ourselves, thereby, a world of pain later on.”

Apparently, Wall Street bond rating firms were in agreement. Firms contacted Wednesday indicated that the state’s top-rated AAA bonds are in no immediate danger of being downgraded. There had been threats in recent months that the credit rating might be lowered.

Here is a summary of some of the key elements of the budget:

STATE EMPLOYEES

As many as 20,000 positions in a work force of more than 200,000 state employees could be eliminated, although the number of actual layoffs is expected to be far less. Wilson Administration officials are engaged in collective bargaining talks with state employees. The Administration hopes to minimize the number of layoffs by encouraging early retirements and voluntary furloughs. Wilson also wants state employees to take a 5% pay cut and pick up increases in the costs of their health insurance.

Wilson pressed lawmakers to pass legislation that would allow him to short-circuit collective bargaining talks by imposing layoffs, pay cuts and furloughs. But Senate President Pro Tem David A. Roberti (D-Los Angeles) and Assembly Speaker Willie Brown (D-San Francisco) said Wednesday that they will not give Wilson the bill he is seeking.

WELFARE

The budget plan requires a 4.4% reduction in monthly benefit checks to welfare recipients. The monthly payment for a family of three on the Aid to Families With Dependent Children program will decrease by $31, dropping to $663. The budget agreement suspends for five years legal requirements that the state provide annual cost-of-living increases for welfare and other public assistance programs. New progams also were enacted that Wilson hopes will lead to increased child support collections from scofflaw parents.

HEALTH SERVICES

The budget provides $11.4 billion for the Medi-Cal program, which provides medical services to 4 million people a month. That represents a 9.1% increase required largely because of a growing caseload. Only five years ago, Medi-Cal was serving 2.9 million people a month, according to budget documents.

COUNTY GOVERNMENT

Legislation passed last month will transfer $2.3 billion in mental health and other human service programs to counties, along with a host of new taxes to pay for them. That includes a permanent half-cent increase in the sales tax.

HIGHER EDUCATION

The budget calls for 20% fee increases for students in the University of California and the California State University systems. The nine-campus UC system will receive $2.2 billion, about the same as in 1990-91. The 20-campus Cal State system will receive $1.66 billion, $4 million less than the current year and $402.5 million less than requested by the Board of Trustees. There will be no salary increases for faculty or staff.

PUBLIC SCHOOLS

Public schools will net about $17.2 billion during the current year after repaying the state for a $1.2-billion Proposition 98 funding “overpayment” last year. That will provide schools with a 6.3% increase for kindergarten through high school programs, or a 1.5% increase when figured on the basis of each student. Wilson also vetoed $9.2 million for the California Assessment Program, a state testing program that was eliminated from this year’s budget by former Gov. George Deukmejian. Wilson said he is setting the same amount aside for a new testing program that is contained in a bill being carried by Sen. Gary K. Hart (D-Santa Barbara).

Wilson also kept the issue of how to count school attendance alive by vetoing $50 million out of $250 million the Legislature had restored to the budget. Wilson initially proposed changing the way pupils are counted in a manner that would have reduced average daily attendance and would have cost the schools $250 million next year.

The Legislature rejected the idea and restored the money. Wilson went along with that for a time but, in the end, decided to veto part of the augmentation.