Wilson Seeks Sales Tax Break for Business : Budget: Governor would offset the nearly $500-million program with deeper cuts in health and welfare services. Proposal is seen as a way to create jobs.

Gov. Pete Wilson wants to set aside nearly $500 million in the next state budget to pay for a business tax break that would exempt purchases of manufacturing equipment from the state sales tax, a Wilson Administration source said Wednesday.

To pay for the tax break, Wilson will propose far deeper cuts in health and welfare services than otherwise would be needed to balance the 1993-94 budget, the source said.

The Republican governor needs to close a shortfall of more than $2 billion that has opened in the budget he proposed in January for the fiscal year that begins July 1.

The governor intends to stand by the two most controversial elements of that proposed budget: a $2.6-billion transfer of property tax revenue from local government and the assumption that a temporary, half-cent sales tax increase will expire on schedule June 30.

Wilson will disclose details of his new budget proposal at a news conference in Los Angeles today. The source, who spoke on the condition that he not be identified, said Wilson’s finance department has concluded that the state will receive about $300 million more in tax revenues in the coming year than had been anticipated based on pessimistic January budget projections.

“When we came to the point where we realized that the actual revenue numbers were above what we expected, the question was whether to put the additional money into existing programs or to use it for potential job creation,” the source said.

The proposal to set aside money to pay for a business tax break is sure to draw criticism from many Democrats in the Legislature and from local government officials upset by Wilson’s proposed property tax transfer.

The mayors of nine of the state’s 10 largest cities and the president of the Los Angeles City Council met with Wilson and legislative leaders Wednesday to argue against the property tax shift.

Their message: The transfer would wreak havoc on municipal services, forcing cities to shut libraries and parks, trim police forces and close down after-school programs that keep youths off the streets.

“They were very sympathetic,” Long Beach Mayor Ernie Kell said. “But we’re going to need more than sympathy. We need results. They cannot continue to balance the budget on the backs of local government.”

The mayors’ meetings inside the Capitol came as hundreds of local officials, union members and others attended a rally outside to protest the governor’s proposed budget. The demonstrators focused their ire on Wilson as speaker after speaker condemned the governor and blamed him for threatened cuts to health clinics, libraries and emergency services.

Also Wednesday, the Assembly scheduled preliminary votes on two alternative budgets. One version assumes that the temporary half-cent sales tax will be extended. The other version assumes that the tax will expire on schedule.

Republicans, however, said neither budget was balanced. The GOP lawmakers said Wednesday’s action was a procedural move to set the stage for an Assembly-Senate conference committee that would hammer out a final budget agreement.

“There’s no question that difficult spending reductions are going to be required,” said Dan Schnur, the governor’s chief spokesman. “State government has been making reductions just as difficult through the last two budget cycles. We’re just asking local government to assume a share of the responsibility also.”

Schnur said Wilson believes that local government officials should seek voter approval for a local sales tax increase if they think that the property tax shift would devastate their services.

“If the people of a community are willing to pay a higher level of taxes in return for a certain level of services, they should be making that decision, not a bunch of politicians, either in Sacramento or in Los Angeles,” Schnur said.

The mayors, however, said in a joint news conference after their meeting with Wilson that county approval of a sales tax increase would do little to relieve their plight.

Instead, they said, they need the power to levy local “sin taxes” on alcohol and tobacco, and they need relief from state laws that require them to provide services.

City Council President John Ferraro represented Los Angeles in the discussions. Mayor Tom Bradley’s spokeswoman said Bradley was not in the office and she was unsure of his whereabouts Wednesday.