THE CALIFORNIA BUDGET CRISIS : Wilson Criticizes Democrats’ Latest Spending Proposal : Finances: Governor’s letter to conference committee contains his first conciliatory words.

The Democrats’ latest budget proposal appears to be balanced on paper but includes several provisions that would lead either to tax increases or “unnecessarily harsh” spending reductions a year from now, Gov. Pete Wilson said Thursday in a letter to members of the Legislature’s budget-writing conference committee.

The letter, Wilson’s most detailed statement to date on his differences with the Democrats over the budget, contained the governor’s first conciliatory words for the Legislature’s product, which he said is closer to his own proposal now than it was a week ago.

Wilson’s missive came amid increasing uncertainty over how long private banks will continue cashing the IOUs that the state is using to pay its bills and renewed optimism among lawmakers from both parties that they might soon be able to reach a bipartisan settlement on the budget.

As Wilson took his statewide media tour to the Bay Area in hopes of winning more support for his budget-balancing plan, Assembly Speaker Willie Brown (D-San Francisco) continued his series of meetings with legislators and interest groups. With the budget 10 days overdue, Brown is seeking to craft a compromise that can win support from both parties in the Legislature even without the governor’s cooperation.

Wilson, in his letter, said the Assembly-Senate conference committee had “taken some actions to narrow the scope” of differences with his own plan. Some of the committee’s actions, he added, have been “constructive.”

But Wilson said he did not accept the accuracy of financial summaries of the committee’s $40.4-billion general fund proposal--including one report by his own Department of Finance--that showed the spending plan is balanced with a reserve as high as $500 million.

“While progress is being made, it still is a plan for deficit spending, and one that would require tax increases and unnecessarily harsh spending reductions” in the 1993-94 fiscal year, which begins 12 months from now, he said.

Wilson says that because the plan includes a number of one-time provisions--such as accelerating the collection of income taxes from independent contractors--it would allow ongoing spending in excess of the state’s expected, ongoing revenues.

Democrats, however, say such measures are an acceptable way of paying off the deficit being carried over from the fiscal year just ended. If the new budget is balanced, as they say theirs is, the deficit will not recur.

Furthermore, Democrats say, it makes more sense to use one-time measures to tide the state through the recession than to cut programs deeply this year and then come back and restore the reductions a year from now if the economy improves and revenues climb again.

“You do one-time things to cure one-time problems,” said Democratic Assemblyman John Vasconcellos of Santa Clara, chairman of the Assembly Ways and Means Committee. “That’s a standard, fiscally responsible way to go.”

The independent contractors provision would raise an estimated $400 million in the new fiscal year by requiring companies to withhold taxes from contractors’ pay in the same way they do now for employees who are paid wages and salaries.

Wilson also cited $335 million in transfers from special funds--such as the Energy Commission and the Department of Boating and Waterways--that could be challenged in court. Those agencies, and many others, are supported by fees that by law are supposed to go for specific purposes. The conference committee budget orders 18% spending reductions in those programs, which would create surpluses to be transferred into the state’s cash-poor general fund.

“While I anticipate that a budget agreement will include some such transfers, the conference plan is unrealistic,” Wilson wrote.

The governor also took exception to the level of savings the committee estimated could be generated from several health and welfare proposals. For example, the committee projected that $40 million might be found by more intensive efforts on the part of the Medi-Cal program to bill insurers for care given to people who are covered by private health policies. Wilson said such efforts would produce only $3 million in the first year.

In addition, Wilson complained again about the Democrats’ proposal to account for Medi-Cal bills when the state pays them rather than when the services are rendered by doctors and hospitals. This would help balance the budget by shifting about $900 million in claims--about a month’s worth--from the end of one fiscal year to the beginning of the next.

“This proposal is just a gimmick,” Wilson wrote.

In other budget developments Thursday:

* Speaker Brown met with Assembly Republican Leader Bill Jones of Fresno and a delegation of rank-and-file Republicans to try to reach consensus on a plan to take $1 billion or more from local governments and then allow counties to raise local sales taxes to replace the money.

* State Controller Gray Davis issued the largest batch of registered warrants to date--154,000 IOUs to pay $308 million in Medi-Cal bills. The federal government, which normally pays half of the Medi-Cal claims, refused to match the state’s IOUs, forcing the state to pay twice the expected amount. The federal government will reimburse the state when the IOUs are redeemed.

* Nancy Badely, spokeswoman for the California Banking Assn., said banks are getting “less and less willing” to cash the IOUs. Although major banks had said they probably would cash the warrants through the end of July, Badely said they may re-evaluate that decision around the 15th of the month.

“They’re starting to analyze it a little more carefully,” she said. “This is money we could be lending elsewhere, money we’re probably not making a profit on, and it’s creating a lot of hassle and a lot of confusion in the industry.”

A spokeswoman for the Bank of America said the state’s largest bank is evaluating the situation on a “day-to-day” basis.