Wilson Urges Tax Cuts to Help Create Jobs for State Comeback : Economy: Governor’s speech is conciliatory. He does not say how he will balance budget while giving new incentives to business.

Pledging to lead a “California comeback,” Gov. Pete Wilson on Wednesday called on the Legislature to reduce taxes, cut government regulation and provide incentives for businesses to create jobs.

Wilson, delivering his third State of the State address to a joint session of the Senate and Assembly, warned legislators that only when the state’s faltering economy turns around will California be able to afford all the services its people desire.

And the key to that economic recovery is cutting taxes, said Wilson, who less than two years ago embraced a record tax increase and helped push it through a reluctant Legislature.

“If we are to create jobs, we’ll have to cut taxes,” Wilson said.

The address, interrupted 14 times by applause, was more upbeat and conciliatory than the one Wilson delivered a year ago, when he dwelt on the state’s problems and foreshadowed a nasty year of political brawling with the Legislature.

Wilson did not say how he intends to balance the state’s already deficit-ridden budget while also reducing taxes. Although he is expected to propose deep reductions in health, welfare and higher education when he releases his new budget Friday, none of that was mentioned in Wednesday’s address.

Instead, the 28-minute speech focused entirely on jobs, as Wilson sought to drive home the point that he is concerned about the economy and intends to do all he can to improve it. To give the issue high visibility, he named former U.S. Treasury Secretary and Secretary of State George P. Shultz to chair a new Council of Economic Policy Advisers.

Wilson’s public approval ratings have plummeted during the last year and aides said the emphasis of Wednesday’s address was designed to confront the same sort of political problems blamed for the defeat of President Bush in November. Bush was criticized for failing to convey a strong enough interest in fixing the economy.

Wilson, like Bush, also risks being blamed for government gridlock, but he extended an olive branch Wednesday to the Democrats with whom he has been at war for a year. If they work together to solve the state’s problems, Wilson told legislators, there will be ample credit to go around.

“I can’t do it without you. And you can’t do it without me,” Wilson told legislators. “But together, we can get the job done.”

Wilson’s legislative nemesis, Democratic Assembly Speaker Willie Brown of San Francisco, missed the governor’s speech because he was in Texas to attend the funeral of his mother. Wilson, in a gesture to Brown, extended his sympathies and said, “We know you made your mother proud.”

Wilson’s call for cooperation was welcomed by leading Democrats, but some were skeptical about his new tax cut proposals.

“I want to know how he intends to pay for those things,” said Assembly Floor Leader Tom Hannigan (D-Fairfield).

Democratic Assemblyman John Vasconcellos of Santa Clara, the longtime chairman of the Assembly’s budget committee, said Wilson could get his tax cuts approved if he is willing to close other tax loopholes that benefit businesses or the wealthy.

“Those tax incentives ought to be paid for by other tax adjustments, not the general public,” Vasconcellos said.

Other Democrats complained that Wilson barely mentioned education, which they consider the state’s most important issue.

“You can’t talk about a healthy business climate without talking about education,” said Senate President Pro Tem David A. Roberti (D-Van Nuys). “We can talk about tax credits. We can talk about tax incentives. But you have to have an educated population.”

But Wilson stressed that neither education nor any other program supported by the state can prosper until the economy recovers. The Republican governor noted that California has lost more than 800,000 jobs since the recession began. Those job losses, he said, have led to chronic revenue shortages for state government.

“People who are out of work can’t pay taxes,” Wilson said. “And as a result . . . state government cannot pay for all the increased services we’re asked to provide.”

Wilson said it takes the tax receipts generated by three jobs to pay the cost of sending one undergraduate to the University of California. It takes 22 jobs to support each elementary school classroom and five jobs to keep one criminal in prison, he said. And he said it would take nearly 250,000 jobs to pay for this year’s growth in the state Medi-Cal program.

“Jobs make all else possible,” he said.

Wilson called on the Legislature to allow a temporary, half-cent sales tax enacted in July, 1991, to expire on schedule June 30, a move that would cost the state $1.5 billion a year.

He also said a provision allowing businesses that lose money to carry the losses forward and use them to reduce their income taxes in the future should be allowed to return to the books on schedule in July. That would cost the state about $300 million a year in tax revenues.

He also repeated his call for an overhaul of the workers’ compensation program and a reduction of government regulation.

“We all agree that regulations stifle growth,” he said. “And yet we have a maze of rules and regulations that only high-priced lawyers can navigate.”

On his own, Wilson said, he would create a Council of Economic Policy Advisers, headed by Shultz, and a Task Force on Quality Government to make government more responsive.

The governor also asked the Legislature to:

* Expand a tax credit for investment in research and development and make it permanent. Wilson wants to increase the credit to 12% from 8% on private research and to 24% from 12% on research contracted to universities. It is estimated that the expanded tax credits would cost the state $55 million a year.

* Enact a tax credit for investment in small businesses. The credit would be structured to reward “patient capital” by allowing a 4% credit on investments held two years, an 8% credit after three years, 12% after four years and 16% for five years and more. This could cost as much as $30 million a year but none of the revenue loss would come in the first year.

* Expand the state’s loan guarantee program for small businesses.

* Consider a sales tax exemption for the purchase of manufacturing equipment, an idea that Wilson said he would first submit for review to his new economic advisory panel.

The governor’s advisers said the tax credits, if enacted, could lead to the creation of as many as 10,000 jobs a year.

Wilson said he would ask the Public Utilities Commission to develop policies to take advantage of rapidly developing fiber-optic technology. And he said his Administration would work to help market California-developed environmental technology around the world.

Wilson evoked the experience of two men in the Los Angeles riots as a metaphor for the challenge facing state government.

Bennie Newton, an African-American minister, threw his body over a severely beaten Latino man and saved his life, Wilson said. Michael Stennis, who owns a chain of fast-food chicken restaurants, is rebuilding after two of his stores burned down and seven others were vandalized and looted.

“If we are to lead, you and I must follow their example,” Wilson told legislators. “It’s time to put ourselves on the line for California. It’s time for us to set the stage for the great California comeback.”

Times staff writers Jerry Gillam, Carl Ingram, Paul Jacobs and Dan Morain contributed to this story.

CAPITOL JOURNAL: Wilson tries tough but extraordinarily upbeat tone. A3

SPEECH EXCERPTS: A20

4 Californians’ Heroism, Travails Recognized

In his State of the State address Wednesday night, Gov. Pete Wilson cited the heroism and travails of these four Californians:

Bennie Newton, a black minister, who risked his life during the Los Angeles riots when he saw Fidel Lopez, a Guatemalan father of three, dragged from his truck and brutally beaten. Newton covered Lopez’s body with his own and screamed: “Kill him and you kill me too!” Newton saved Lopez and carried him to safety.

Michael Stennis, the president of Golden Bird Chicken Inc., a popular restaurant chain in South Los Angeles and Compton. Wilson said that during the riots two of the company’s outlets were burned and destroyed; seven others were damaged and looted. Committed to remaining in the area, Stennis repaired and reopened seven of the shops within 10 days of the riots and reconstruction of another store is almost complete, according to Wilson’s office.

Fred and Donna Silva, who own a hardwood floor business in the foothill community of Newcastle, east of Sacramento. During a chance encounter at a New Year’s Day get-together, Fred Silva told the governor he is being forced to close his business, citing the spiraling cost of state workers’ compensation insurance. Wilson said that even though the Silvas never had a claim filed against them, the cost of the insurance has become unaffordable. Fred Silva will now work without employees, Wilson said.