State Legislators OK Business Tax Breaks : Capitol: Lawmakers adjourn for year as package aimed at stimulating economy gets bipartisan support.

Weary state lawmakers adjourned for the year Saturday after meeting through the night to conclude a legislative session capped by the last-minute passage of a comprehensive measure granting tax breaks to business in an effort to create more jobs.

The tax cut legislation--sent to the governor on the strength of bipartisan votes in the Assembly and Senate--was the key piece in a multi-bill package meant to make it easier and more attractive for companies to do business in California.

Another major component of the package was a bill to streamline the environmental reviews required before the construction of housing developments, industrial parks, office towers and other major building projects.

Coupled with an overhaul of the state’s workers’ compensation system passed before the Legislature’s summer recess, the bills were cited by many lawmakers as evidence that state policymakers, after years of stalemate, could act to give California’s moribund economy a needed boost.

“We produced, on a bipartisan basis, a whole series of items that represent significant changes in the lives of the people of this state,” said Assembly Speaker Willie Brown, a San Francisco Democrat.

But the self-congratulation was not unanimous. A handful of lawmakers complained that the tax breaks would deplete the state treasury, depriving the poor, the sick and public schoolchildren of needed services. Others said the changes in state environmental laws would make it easier to place hazardous facilities in or near residential communities.

For the most part, however, legislators left town satisfied that they had strung together enough achievements to begin to erase from the public’s mind the negative image formed a year ago by the failure of the Legislature and the governor to produce much of anything of value.

Last year’s deadlock was most vividly demonstrated in the stalemate that left the state without a budget for 63 days into the fiscal year, forcing the government to pay some bills with IOUs. This year, for the first time since 1986, the budget was signed into law before the July 1 start of the fiscal year.

Building on that procedural achievement, lawmakers passed the workers’ compensation package, which is expected to save businesses at least $750 million a year by eliminating fraud and abuse while boosting benefits to injured workers.

Then, after returning from a summer recess, legislators turned their attention to the other pieces of the economic stimulus package. Those negotiations bore fruit Friday and Saturday.

The biggest piece of the package--and the most heavily lobbied--was the business tax break, which is expected eventually to be worth more than $500 million a year to several types of commercial operations.

Brown brokered the business tax deal, working closely with the California Manufacturers Assn., the powerful business lobby. Gov. Pete Wilson said he probably will sign the bill.

Brown hailed the measure as a “jewel” that would cap a year in which the Legislature made several concessions to business in an effort to stimulate the economy. The tax bill passed the Assembly on a 62-10 vote.

The bill would create a system of tax credits and sales tax exemptions for manufacturing equipment. It would allow a 6% tax credit on the purchase of equipment used in manufacturing, and in research and development.

Brown’s measure also would reduce capital gains taxes and lower by 40% a tax surcharge on the income of limited-ownership corporations, and would give tax breaks for enterprises that use Vandenberg Air Force Base for commercial space flight. Additionally, it would cut the unitary taxes on foreign corporations that do business in California by $70 million.

In pushing the tax deal, Brown allied himself with the Legislature’s most conservative members. One was Assemblyman Dean Andal, an anti-tax Republican from Stockton.

At the start of the legislative session, Brown angered Republicans by refusing to name Andal to the powerful Ways and Means Committee. But when it came to Brown’s tax package, no Republican was more adamant in his support than Andal.

“This tax package is something I never thought I would see,” Andal said. “This is one of the few cases in which I can say I believe in the legislative system.”

The few opponents were liberal Democrats who charged that the measure would force deeper cuts in schools and welfare programs next year.

“It’s a very bad deal,” said Assemblyman Burt Margolin (D-Los Angeles). “It is going to compound our problems next year. It’s a classic example of how shortsighted we can be.”

In the Senate, the bill briefly ran into problems when Sen. Bill Lockyer (D-Hayward), who will most likely succeed David A. Roberti as the next Senate president pro tem, worked to kill it. The measure ended up passing the upper house on a 22-13 vote.

Lockyer derided Brown’s bill, saying it would allow businesses to use the tax code to automate their plants and lay off workers, or buy equipment here and construct plants outside the state.

Because the bill will result in less tax money going to the state, Lockyer said, lawmakers may be forced to cut spending on public schools by $300 million in next year’s budget.

Lockyer fashioned a tax break package of his own that would give businesses tax incentives only if they maintained or increased employment. Although that measure cleared the Senate, Brown invoked a parliamentary procedure and killed the measure in the Assembly.

“We want jobs, not just more money in some CEO’s pocket,” Lockyer said. By passing Brown’s tax bill, he said, the Legislature was “spending like drunken sailors.”

The Legislature also passed and sent to the governor a package of bills designed to make it easier for businesses to obtain permits from state and local government.

One measure would require the state, in cases involving multiple permits for a single project, to designate one office to coordinate the permitting process to avoid conflicting state requirements that businesses complain often hinder their activities.

Another bill would reduce overlap in the regulation of hazardous materials. It passed despite opposition from the Sierra Club, which complained about a provision that would create a panel of scientists, possibly including industry employees, to review the California EPA’s method of evaluating the toxicity of chemicals.

A third bill would begin an overhaul of the California Environmental Quality Act, making it easier for businesses to obtain permits and more difficult for citizens to challenge the adequacy of environmental impact reports.

The bill’s supporters described the measure as a modest first step toward streamlining the state’s environmental laws. Major environmental groups remained neutral on the bill. But opponents said it threatened the health and safety of California communities.

Sen. Tom Hayden (D-Santa Monica) said a provision setting out a new definition of the “substantial evidence” required to trigger the preparation of an environmental impact report would make it difficult for individuals and small, underfunded groups to fight offensive projects.

The bill states that “substantial evidence” includes “facts, reasonable assumptions predicated upon facts, and expert opinion supported by facts.”

“What this means in the real world is that you could site an incinerator in the middle of Los Angeles because the facts are still unknown about dioxin,” Hayden said. “There is no way to establish the certitude that this language requires. The judgment call is replaced by an impartial, objective standard that is impossible to reach.”

Supporters said the bill merely would place into law court rulings that are in effect. The measure passed easily and is expected to be signed by the governor.

As lawmakers prepared to depart for the year, they offered a variety of theories on why the Democrat-controlled Legislature and the Republican Administration of Wilson were able to cooperate so much more this year than a year ago.

One member attributed the change to “fear”--fear that the voters would lash out if another year went by without action on economic issues. Another suggested that the four-week summer break--eaten up the past two years by extended wrangling over the budget--refreshed lawmakers enough to enable them to tackle other issues with vigor upon their return.

Others said that the election of nearly 30 freshmen lawmakers--the first to run for office knowing they would face term limits--spurred the veteran legislators to cooperate.

But more than anything else, legislators said they could not face the prospect of repeating the divisiveness of a year ago.

“There was a decision by the leadership of both parties and the governor that we were going to cooperate and solve problems,” said Assembly Republican Leader Jim Brulte (R-Rancho Cucamonga). “We put together bipartisan consensus.’

Margolin said: “Last year was the worst year in the modern history of the Legislature, and no one wanted to go through that again.”

Times staff writers Jerry Gillam and Carl Ingram contributed to this article.

Last-Minute Legislation

Among bills approved by the Legislature in the final hours Saturday as it rushed for adjournment were:

DRIVER’S LICENSES--The Senate approved and sent to the governor a bill requiring new applicants for driver’s licenses or state identification cards to prove citizenship or legal residence in the United States. The measure, sponsored by Sen. Alfred E. Alquist (D-San Jose), was passed on a 24-2 vote. Gov. Pete Wilson is expected to sign the bill into law. Wilson recently recommended the requirement as an effective way to reduce the tide of illegal immigrants who obtain benefits that are costing the state millions of dollars. All licenses issued after July 1, 1995, also would include a notice that they do not establish job or voter eligibility.

EMPLOYMENT--The upper chamber also approved, 23 to 2, and forwarded to Wilson a bill requiring taxpayer-financed employment agencies to verify the legal status of all applicants before providing job placement or training. The governor has indicated that he will sign the bill, carried by Sen. Newton R. Russell (R-Glendale). It would apply to state and local job agencies and private organizations that contract with government agencies. Proponents said the measure was necessary to ensure that job services financed by taxpayers are only extended to legal residents. Opponents argued that it would establish a costly program that would discriminate against California residents who appear “foreign-looking.”

CESAR CHAVEZ--The Senate approved and sent to the governor a measure designating March 31 as a state holiday in honor of the late Cesar Chavez, founder of the United Farm Workers union. The bill, by Sen. Art Torres (D-Los Angeles), was passed on a 25-5 vote. The Assembly had approved the bill on a 42-23 vote. Although designated a holiday, the bill does not mandate a day off for government workers.

CARJACKING--The Assembly approved and sent to the governor a bill making carjacking a state crime punishable by three, five or nine years in prison and/or a fine of up to $10,000. The measure, by Assemblyman John Burton (D-San Francisco), was passed on a 78-0 vote. Burton called carjacking one of the fastest-growing crimes in California. The Senate approved the measure on a 37-0 vote and also passed a bill by Sen. Robert B. Presley (D-Riverside) that would prohibit plea bargains for accused carjackers.

COMPTON SCHOOLS--The Assembly unanimously approved a bill providing the financially troubled Compton Unified School District with a new $9.4-million emergency loan. A 75-0 vote sent the legislation, by Assemblyman Willard H. Murray Jr. (D-Paramount), to the governor. The Compton school district previously received a $10.5-million state loan. The first loan triggered a state-appointed administrator to manage the district in place of the superintendent and the school board.

NEW CAMPUS--The effort to build a University of California campus in the San Joaquin Valley moved forward when the Assembly approved a bill appropriating $1.5 million for the preparation of an environmental impact report of the yet unselected campus site. The bill, (AB 47) by Assemblyman Rusty Areias (D-San Jose), was approved 59 to 20 and sent to the governor. UC regents have determined that a 10th campus is necessary to accommodate projected enrollment growth through 2005.

NEEDLES--A bill that could enable pilot projects allowing drug addicts to exchange dirty needles for clean ones to try to reduce the spread of AIDS was sent to Wilson’s desk. After a spirited debate, the Senate narrowly passed the legislation, which would require state officials to approve an exchange program in San Francisco and allow other counties the option to establish programs, provided that they meet state approval. Proponents argued that enactment of the bill, (AB 260) by Assembly Speaker Willie Brown (D-San Francisco), would save lives being lost to AIDS, but opponents argued that it would lead to increased drug use, as evidenced by European experiments. Wilson vetoed similar legislation last year.

Key Elements

Here are the key elements of the business tax cut legislation sent to Gov. Pete Wilson on Saturday. Wilson is expected to sign the bill.

* Manufacturing equipment. Provides a tax credit equal to 6% of the cost of certain equipment used in manufacturing, research and development, or the repair or maintenance of that equipment. New companies would have the option--beneficial for start-up operations--of taking an exemption from the 6% state sales tax normally charged on the purchase of such equipment.

* Small-business profits. Exempts from taxation half of the gain realized from the sale of certain small-business stock held for five years or longer. To qualify for the break, the stock would have to be in a company with less than $50 million in assets and at least 80% of its payroll in California.

* Limited-ownership corporations. Reduces by 40% the tax surcharge levied on the income of shareholders in family-owned corporations and firms with fewer than 35 stockholders.

* Space-flight material. Exempts from state and local taxes material used in launches from Vandenberg Air Force Base.

* Multinational firms. Repeals a fee now charged to multinational firms that choose a certain method of taxing the portion of their income earned in California.

* Business meals. Reduces the amount businesses can deduct for meals and entertainment from 80% to 50% of the total cost.