Democrats Appear Ready to Meet Wilson Budget Demands : Finances: Terms of Assembly’s surrender on school funding are still to be negotiated. Treasurer taps pension fund to cash workers’ IOU paychecks.

Having crashed through their final budget deadline this side of Election Day, state lawmakers remained in the Capitol on Tuesday past their scheduled adjournment, attempting to finish a package of fiscal bills and finally get California’s long budget crisis behind them.

Assembly Democrats appeared ready to give Gov. Pete Wilson most of what he has demanded on education spending, with only the terms of their surrender left to be negotiated.

The Democrats’ last hope for significantly denting Wilson’s demands faded early Tuesday when the governor promptly vetoed a Democrat-backed education bill that reached his desk just after midnight. Although that measure contained almost all of a Senate-passed bill Wilson supported, he said he could not sign it because it lacked a provision to suspend the state’s constitutional guarantee for school funding in the event the education budget is struck down by the courts.

As lawmakers gathered for late-afternoon floor sessions, state Treasurer Kathleen Brown was redeeming IOUs with money borrowed from the state employees pension fund. State workers lined up at Brown’s office to cash paycheck IOUs issued Monday.

Controller Gray Davis, meanwhile, prepared to churn out thousands of checks to vendors who have been providing goods and services to the state without reimbursement since July 1. Davis said he will begin paying the $3 billion in overdue bills as soon as Wilson signs a budget. The first payments will be made with IOUs until the treasurer can borrow money to ease the state’s cash crunch.

Wilson on Tuesday met in his office with Republican members of the Senate and Assembly to plot strategy for the evening. He also reviewed the $57.6-billion spending plan on his desk, looking for items he might trim with his line-item veto. Wilson has vowed not to sign the budget until the Legislature sends him the entire package of bills needed to make it balance.

The Legislature completed action on most of the measures over the weekend but did not pass the major bills on health and welfare, local government and education before its scheduled adjournment for the year Monday night. Without those bills, the budget would be more than $5 billion out of balance.

So Assembly Speaker Willie Brown (D-San Francisco) and Senate President Pro Tem David A. Roberti (D-Van Nuys) officially called lawmakers back into session immediately--delaying the legislative recess and postponing the start of the fall campaign season.

Monday’s midnight deadline was only the latest in a series of busted checkpoints along the way in a budget stalemate that now has extended one-sixth of the way through the fiscal year.

The Legislature’s constitutional deadline for passing a budget was June 15. The fiscal year began July 1. Many banks stopped accepted IOUs issued after July 31. Payments to doctors and hospitals who care for the poor ended on Aug. 14. And lawmakers were scheduled to go home for the year on Tuesday. None of these dates proved sufficient to compel completion of the compromises and capitulations that eventually will be part of the budget deal.

But Tuesday, it appeared that final action on the remaining pieces was imminent.

The health and welfare measure, which would save $1.7 billion, was awaiting passage in the Senate. A bill to shift $1.3 billion in property tax revenue from local government was in the Assembly. And negotiations were proceeding on what has always been the toughest piece: education.

Members were optimistic that the intense focus on the schools issue, now that almost all other legislative action is complete, would allow for quick resolution of the budget package.

“If you get rid of the 500 things we did yesterday and all the other budget issues and it’s just down to this, maybe we can shrink the tumor,” said Assemblyman Tom Hayden (D-Santa Monica).

For elementary and secondary education, the dispute has come down to a handful of narrow side issues.

“What happens to schools has been decided,” said a dejected Bill Honig, state schools superintendent. “That was decided in the budget. We’re going to be held flat three years in a row and we’re going to be $1,100 per student below the rest of the country next year.”

Honig conceded that no deal would go forward without Wilson’s so-called poison pill, which is meant to discourage a legal challenge to the education measure. The challenge is expected to arise over the state’s effort to deduct from this year’s Proposition 98 guarantee $1 billion the schools got last year in excess of the legal minimum. The poison pill would trigger a suspension of Proposition 98 and allow the state to set school funding at any level.

Although the Legislature has the power to do the same thing simply by voting directly to suspend Proposition 98, Wilson has conceded that there are not enough votes among lawmakers to suspend the measure, an action that would be portrayed by critics as an attack on the voters’ desire to protect school funding.

In exchange for the Democrats’ acceptance of the provisional suspension of Proposition 98, Wilson reportedly was willing to guarantee that schools would not fall below their current level of $4,185 per student next year, no matter what happens to the economy.

Republican Assemblyman Pat Nolan of Glendale, who has been trying to negotiate a bipartisan resolution of the schools issue, also is trying to keep state-mandated community college fees to $9 a unit, up from $6 but short of the $20 Wilson had been seeking. Local districts would be allowed to tack an additional $3 per unit onto the state fee. And Wilson, under Nolan’s deal, would drop his insistence on charging higher fees for students who return to community college after earning a bachelor’s degree.

For higher education, Nolan would set aside nearly $100 million of the $340 million in cuts called for in a Senate bill backed by the governor. Nolan’s plan would save the same amount by cutting the state bureaucracy and slicing into the state Commerce Department and the aeronautics program.

“I’m optimistic,” Nolan said early Tuesday.

Wilson’s office late Tuesday was signaling an expected end to the standoff, now in its 64th day, but was keeping details closely guarded.

“This is like watching a no-hitter in the bottom of the eighth inning,” said Dan Schnur, Wilson’s chief spokesman. “You don’t want to say anything to jinx it.”