Legislative Budget Talks Center on Sales Tax Dispute : Spending: Issue could cause showdown with Gov. Wilson. As deadline approaches, conference panel reports progress on other issues.

With a constitutional deadline looming Tuesday for passage of the next state budget, the Legislature’s joint fiscal committee Sunday appeared to be on a collision course with Republican Gov. Pete Wilson over extension of a temporary half-cent portion of the state sales tax.

The Democrat-controlled conference committee on the budget met late into the night to try to resolve two crucial questions about the tax: How long should it be extended, and for what purpose should the revenue be used?

Unless they resolve those issues quickly, lawmakers will fail for the seventh consecutive year to meet their June 15 deadline for passing a budget. Last year’s record-setting budget stalemate lasted until Sept. 2.

Democratic Assemblyman John Vasconcellos of Santa Clara, chairman of the conference committee, favors extending the sales tax for three years. He wants to use the proceeds to retire the state’s deficit and then to pay off loans that the state forced the public schools to accept last year as part of its budget.

But Wilson wants the tax extended for only six months and shifted to local governments. He says local voters should then decide on a county-by-county basis if they want to make the half-cent levy permanent.

Wilson wants to move the half-penny sales tax to local control to complete a roundabout transfer of tax dollars that is the centerpiece of his proposed $38.3-million budget for the 1993-94 fiscal year, which begins July 1. As part of the tax shift, Wilson would give $2.6 billion in local property tax money to the schools, enabling him to keep his promise to maintain per-pupil funding at its current level for another year.

The governor’s proposed tax shift is strongly opposed by county governments, which maintain that the sales tax revenue, even if approved by voters, would not replace the property tax that would be lost to the schools.

The rival plan offered by Vasconcellos includes a $1.3-billion property tax transfer. It relies on the multiyear extension of the sales tax but would keep that money in state coffers. Vasconcellos is calling for a statewide vote next June on an additional, half-cent increase in the tax to help pay for schools.

“If the election failed, then local governments would be at risk,” Vasconcellos said.

Steve Olsen, Wilson’s deputy finance director, said Wilson does not intend to change his position.

“I’m not aware that the governor is entertaining any extension of the sales tax beyond six months,” he said. The full sales tax, including the temporary half-cent portion, is now 7 1/4 cents on the dollar. Counties have the authority to add on another 1 1/2 cents.

Despite their differences, the six members of the budget conference committee--four Democrats and two Republicans--appear to have come closer than any legislative committee in recent years to crafting a spending plan that might win the required two-thirds majorities on the floors of the Senate and Assembly.

In meetings Friday and Saturday, the members compromised on funding for welfare, higher education, primary and secondary schools, the community colleges, and the renter’s tax credit.

The committee agreed to cut welfare grants 2.7% and plow half of the budget savings back into reforms, including increased child care, cash bonuses for teen-age mothers on welfare who stay in school, and a provision that would allow recipients to keep more of the money they earn if they get a job.

The panel also cut aid to the aged, blind and disabled by 2.7% and suspended the renters tax credit for two years.

For kindergarten through 12th-grade education, the Democrats on the conference committee voted to give the schools $4,209 per student, about $22 more per pupil than Wilson has proposed. But as a compromise, the committee also agreed to freeze funding for most special, narrowly targeted education services--known as categorical programs, such as those for handicapped and gifted children--in a way that, over a period of years, would bring total school funding back down toward the $4,187 per pupil that Wilson favors.

The committee also rejected Wilson’s proposed budget for community colleges, which would have led to a tripling of fees for first-time students and would have charged students with bachelor’s degrees who return to community colleges the full cost of their education.

As an alternative, the panel voted to increase basic fees from $10 per unit to $12 and to keep the $50-per-unit charge for students who have bachelor’s degrees. To replace the money Wilson was counting on getting from higher fees, the committee voted to extend a $245-million loan to the two-year colleges.

Patrick McCallum, executive director of the Community Colleges Faculty Assn., said an estimated 300,000 students would have been forced to drop out of the two-year colleges if the committee had not scrapped Wilson’s proposal.

“We’re very happy,” McCallum said.

The conference committee also approved an extra $150 million for higher education.

The members earmarked the money to reduce the University of California’s proposed fee increase from 35% to 22% and the California State University’s planned fee increase from 37% to 10%. The funding boost included more money for financial aid, which would wipe out a 15% reduction imposed a year ago by Wilson, and would provide more grants to help students.

As it stood Sunday, the two-year plan put together by the panel would allow the state to end the 1994-95 fiscal year with a $395-million surplus. But the spending plan includes about $800 million in reductions to the prison budget over two years that Wilson Administration officials have said are unacceptable.

To appease Wilson and his Republican allies in the Legislature, Vasconcellos was trying late Sunday to find an alternative to the prison reductions.