Factions Brace for Budget War II : Capitol: Serious deliberations will begin this week. Wilson is eager to keep from appearing as the 'gridlock governor' as he faces reelection.

TIMES STAFF WRITER

Get ready, because here it comes.

The state budget battle, which last year brought you unpaid bills, IOUs and deadlock as lawmakers and the governor clashed over the future of the state, is back.

Protesters are ringing the Capitol. Lobbyists are lining up in the hallways outside legislative hearing rooms. And lawmakers are beginning a desperate search for solutions.

Officially, the budget process kicked off months ago, when Gov. Pete Wilson released his proposed spending plan shortly after New Year's Day. But Capitol insiders know that the serious business begins this week, when Wilson unveils a revised plan reflecting the latest economic and fiscal news.

That event is the starting gun for what is supposed to be a six-week sprint to get a new budget in place before the next fiscal year begins July 1. Before then there will be a lot of name-calling, hand-wringing, and finger-pointing. Much of it will take place this week and next when the Assembly and Senate consider their first versions of the 1993-1994 budget.

"Soon we'll have the specter of politicians lashing out like dogs hit by an automobile," said Republican Assemblyman Ross Johnson of La Habra, a veteran of 14 budget battles. "Eventually, people are going to have to sit down and seriously talk about what we're going to do."

Here's the problem: The state is going to spend nearly $41 billion from its general fund in the year ending June 30. But for the 12 months that follow, lawmakers will have only about $37 billion at their disposal. School enrollments, prison populations and welfare rolls, meanwhile, continue to soar.

"We have an enormous deficit and a number of worthy causes that all have a claim on state funds," said Senate President Pro Tem David A. Roberti (D-Van Nuys). "We have to prioritize and apportion."

The state Constitution calls for the Legislature to pass a budget by June 15 and for the governor to sign a spending plan by July 1.

Last year, after the longest deadlock in state history, Wilson signed the budget Sept. 2, 64 days into the fiscal year. During the delay, the state issued $3 billion in IOUs--known as registered warrants--and did not pay the bills from many businesses that sell goods and services to the state.

"Our hope is to get it done on time this year," said Dan Schnur, Wilson's chief spokesman. "Everyone who went through this last year remembers what a hellish time it was."

It does not appear that there will be IOUs this year even if the deadline again passes without a budget. Wilson has quietly agreed to enough short-term borrowing to give the state the cash it needs to pay its bills at least through the end of July.

Although he continues to blame the Legislature for last year's deadlock, the public held Wilson responsible. His job approval rating plunged and an initiative he sponsored to cut welfare grants and seize budget powers from the Legislature was trounced at the polls.

As a result, many political analysts and some of Wilson's own advisers believe the governor has the most to lose if the budget dance drags on again all summer. Wilson does not want to go into next year's reelection campaign looking like the "gridlock governor."

So far, the process this time around is well ahead of where it was a year ago.

Last year, Wilson's proposed budget was obsolete almost before it came off the printing presses because the state's stagnant economy led to a huge shortfall in tax receipts. Even when the governor revised the revenue figures in May, he offered no specific proposal for closing the gap that had opened in his budget.

Democratic lawmakers were busy devising budgets that only could be balanced using tax increases, which even Democratic leaders had said were off the table, or accounting gimmicks, which Wilson had said he would not accept.

In contrast, Wilson's budget proposal this year was more realistic. And although Wilson's proposed spending plan has slipped $2 billion out of balance, his aides say he is prepared this week to offer a revised plan that proposes new ways to close the budget gap.

Legislators have recognized that their options are limited and have begun to prioritize programs with an eye toward saving those they value most and eliminating the services that fall at the bottom of the list.

Last year's sticking point, education spending, appears to be the easiest item on the list this year. Nearly everyone in the Capitol seems to agree that schools should get the same amount per student next year as they are receiving now--about $4,200.

The flash point this time around, if there is one, probably will come over whether to extend a half-cent portion of the sales tax that was enacted as a temporary measure in 1991 and is due to expire June 30.

Wilson insists that the tax must be allowed to expire on schedule. To do otherwise, he argues, would break faith with the voters. Instead, Wilson has proposed using a limited form of deficit spending to get the state through hard times.

Democrats probably will accept whatever deficit spending Wilson offers. But they also want to extend the tax and use the $1.5 billion that the half-cent levy would raise to soften the blow on health, education and welfare programs.

Defenders of services that are dependent on state funds, however, say that even extending the sales tax may not be enough for the programs they support. In the last two weeks, community college students, law enforcement officers, the elderly and others have marched on the Capitol opposing further cuts. On Wednesday, as many as 3,000 local government officials, unionists and community activists are expected.

"We've got to wake people up here," said Maura Kealey, lobbyist for the service employees union, whose workers provide care for the poor. "A lot of people are saying let's sleepwalk through this and ignore the human effect on California."

At some point between now and passage of the budget, liberal Democrats probably will make a pitch to raise taxes or, as they put it, close tax loopholes to raise $1 billion or so. But few lawmakers expect that strategy to go far.

Eventually, most expect the final sticking points to be the sales tax issue and Wilson's proposal to shift $2.6 billion in property tax revenue from local governments to the schools, which would lessen the state's obligation to public education.

A proposal by Legislative Analyst Elizabeth Hill to shift state programs to the counties, along with the money to pay for them, seems to be catching on as a possible compromise that could help avoid a repeat of last year's deadlock.

The question is whether the breakthrough comes sooner or later.

"I think we're going to get it done on time," said Sen. Frank Hill (R-Whittier). "Everyone is so tender, so sore from what they went through last year. They realize it doesn't get any easier by waiting."

The State Budget Battle

The public schools take the largest share of the $40.8-billion state general fund budget, with $17.5 billion set aside this year for kindergarten through community college programs. The next-largest expenditure is for health and welfare, with $13.2 billion going to programs to provide food, shelter and medical care for the poor. The state will spend about $3.6 billion on higher education programs this year and $3 billion on the state prison system.

THE PROBLEM: The state will end the current fiscal year at least $3 billion in the red. State officials predict that next year's tax revenues will be another $5 billion short of the amount needed to keep all services and programs running at their current levels while accommodating more schoolchildren, welfare applicants, state prisoners and other users of public services.

THE OPTIONS: Under current law, the state would have to cut about $3.5 billion, or 8.5%, from this year's level of spending to balance next year's budget. But lawmakers and the governor already have agreed not to cut school funding below this year's allocation of about $4,200 per pupil. That means the entire reduction in state spending would have to come from the remaining 60% of the budget. State officials are considering three other options that would minimize cuts:

* Extend the temporary sales tax. Enacted in 1991 with bipartisan votes in the Legislature and the support of Gov. Pete Wilson, the half-cent sales tax increase was intended to be temporary. By law, it will expire at midnight June 30. It would take a two-thirds vote in each house of the Legislature to retain the tax. Most Democrats want to extend it or make it permanent, but Wilson says he wants it to expire on schedule. The levy raises about $1.5 billion a year.

* Roll over the deficit. Traditionally, any deficit in the state general fund at the end of a fiscal year is deducted from the amount of money that lawmakers can spend in the following 12 months. Democrats want to spread out repayment of this year's expected $3-billion deficit for more than one year, freeing more money for programs in the fiscal year that begins July 1. Although he has previously opposed such a move, Wilson said recently that he will consider it.

* Shift tax revenues from local government. To help balance the budget last year, the state shifted $1.1 billion in property tax revenues from cities, counties and special districts to the public schools, then reduced state support for the schools by the same amount. Now Wilson is proposing to shift another $2.6 billion from local government, which local officials say would devastate the services they deliver. Wilson's proposal appears to have considerable support in the Legislature but may not yet have the two-thirds majorities needed for passage.

THE DEADLINES: The state Constitution requires the Legislature to pass a budget by June 15 and the governor to sign it by July 1. These deadlines are rarely met and there is no penalty for missing them. Last year, after the longest budget deadlock in state history, Wilson signed the budget into law Sept. 2.

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