Budget Stalls in Assembly After Senate OK : Government: GOP members say that too much would be spent on social services and not enough on prisons. Controller prepares to start issuing IOUs.

The state Senate on Wednesday passed a $57.3-billion state budget for the fiscal year that begins Friday, but Republicans in the Assembly blocked it from reaching the governor’s desk.

Also stalled in the Assembly were two competing bills that would trigger automatic spending reductions or tax increases if the state’s fiscal condition worsens after a budget is approved.

The discord sent budget negotiators back to the bargaining table to try to craft a compromise spending plan and stave off the issuance of IOUs to pay the state’s bills.

The budget bill failed in the Assembly after Republican lawmakers, acting in concert with Gov. Pete Wilson, complained that the measure would spend too much on welfare and too little on prisons, and could lead to higher taxes.

“This budget is closer to being in a form where it could be supported by members of both parties in this house,” said Assembly Republican Leader Jim Brulte of Rancho Cucamonga. “It’s not there yet.”

But Democratic Assembly Speaker Willie Brown (D-San Francisco) warned that he did not see much room for further compromise.

“It isn’t going to get any better,” he said.

Asked afterward whether a new budget would include deeper cuts in welfare, Brown said, “No way. No way. This is it.”

The atmosphere in the Capitol was markedly different from the past two years, when the budget was negotiated in tense sessions with a sense of urgency. On Wednesday, there seemed to be little concern about the consequences of the deadlock even as Controller Gray Davis warned that he will begin using IOUs as early as Tuesday if a budget is not in place by then.

Wall Street kept a close eye on the budget deliberations, waiting to see what kind of spending plan the state would adopt before going to investors for a planned $7 billion in loans, the largest amount ever sought by any state government.

Moody’s Investors Service warned that it probably would downgrade the state’s credit rating if a budget along the lines of the one being negotiated now ultimately becomes law or if the talks break down and produce a protracted delay.

The problem, Moody’s said, is that lawmakers appear headed toward passage of a two-year plan that relies on a $2.8-billion federal bailout the year after next, an unlikely prospect. Instead, the firm said, it was looking for a plan that honestly acknowledged the state’s ongoing deficit and enacted a long-term strategy to retire it.

The lower the state’s credit rating, the more it will pay to borrow money it needs to keep the state running for the next two years.

The budget rejected in the Assembly would cut welfare grants 2.3% and reduce aid to the aged, blind and disabled by the same amount. Republicans want a cut of at least 5% in these grants.

The plan would boost prison spending about 7%, but Republicans say a 10% increase is needed to keep pace with the rapid growth in the number of inmates.

Kindergarten through 12th-grade education would get enough to keep up with climbing enrollments but would lose ground to inflation. Community colleges would be squeezed a little, but student fees would remain at $13 per unit.

Higher education would get a small increase, but the state’s two university systems still would be expected to raise fees by 10%.

Although there are no new taxes in the proposed 1994-95 spending plan, the budget is linked to legislation that would affect levies paid by tenants and high-income residents.

Renters would lose a $60 tax credit that has been suspended for the past two years but is scheduled to return in 1995. And the wealthy would see the top personal income tax rates--enacted temporarily in 1991--remain in place beyond their scheduled 1995 expiration date.

Republicans--including the governor--generally favor deleting the renters’ credit but oppose extending the top rates on the affluent.

The Assembly vote was 41-34, 13 votes short of the 54 required for a two-thirds majority. All the votes in favor of the budget were cast by Democrats and all but one of the votes against the bill were cast by Republicans.

In the Senate, however, Republican Leader Ken Maddy of Fresno agreed to vote for the budget bill and ignore the Democrats’ planned extension of the higher income tax rate. The extension, he said, would not take effect until 1996 and thus would have no impact on the budget bill voted on Wednesday.

“There is no tax increase in this budget,” Maddy said.

Maddy and four other Senate Republicans voted for the budget bill, along with 21 Democrats and two independents. Nine of the 10 votes against the budget were cast by Republicans, most of whom demanded deeper spending cuts.

The only state Senate Democrat to vote against the budget was Sen. Tom Hayden of Santa Monica, who complained that it would damage public education, universities and the poor while protecting business and the wealthy from higher taxes.

“You begin to wonder whether, at least in the urban areas of California, we have not already become a Third World state,” Hayden said. “There is nothing in this budget to resist the general decline of the state into that condition over the next 10 years.”

But Hayden said he understood why his Democratic colleagues would vote for the budget, given threats from Republicans that any revised spending plan would only include more cuts in spending.

Indeed, state Sen. Daniel Boatwright of Concord spoke for many Democrats when, after criticizing the proposal, he said: “I’m going to hold my nose very tightly and vote for this budget.”

The Assembly also rejected two different versions of the standby legislation that banks have demanded to ensure that the state will repay its debts even if the governor’s hoped-for $2.8 billion bailout from the federal government does not materialize.

A Republican version of the legislation would trigger across-the-board budget cuts if the state’s cash flow falls behind projections and the governor and the Legislature could not agree on a solution. A Democratic version included cuts and a narrowing of a business tax break.

Times staff writer Jerry Gillam contributed to this article.

Keeping a Legislative Habit

Rarely has the Legislature met the constitutional deadline of June 15 for passing the state budget. Lawmakers assess themselves no penalty for their tardiness, but state finances begin to feel effects of a budget stalemate when the new financial year begins on July 1, a situation that forced the state to pay some bills with IOUs two years ago. YEAR: TIMING 1977-78: 9 days late 1978-79: 20 days late 1979-80: 26 days late 1980-81: 31 days late 1981-82: On time 1982-83: 10 days late 1983-84: 34 days late 1984-85: On time 1985-86: 2 days early 1986-87: 3 days early 1987-88: 16 days late 1988-89: 15 days late 1989-90: 15 days late 1990-91: 42 days late 1991-92: 27 days late 1992-93: 74 days late 1993-94: 7 days late 1994-95: Now 14 days late