Legislators, Wilson Agree on Tax Cut Plan

Gov. Pete Wilson and legislative leaders agreed late Friday to cut business and banking taxes by $230 million a year, overcoming a major obstacle that had stalled negotiations on the state’s proposed $63-billion budget.

The break for corporations and banks amounts to a permanent reduction in the tax rate on net profits from 9.3% to 8.84%. That’s far less than the tax cut Wilson originally wanted, but it’s the first time the rate has been below 9% since 1973, during Ronald Reagan’s second term as governor.

“It will help California be more competitive,” Wilson said, emerging after five hours of talks with leaders of the Assembly and state Senate. “This reduces us to the point where we are at least sending a signal that we want to reduce the cost of doing business in this state.”

The cut--which must be approved by the Legislature--would move the California business and banking tax rate from 9th highest in the nation to 15th highest.

The reduction in the first full year of implementation would amount to a saving of $230 million for businesses. For the 1996-1997 budget year that begins Monday, however, the savings would total about $85 million.

With Wilson and Democratic leaders agreeing on the level of the tax cut for the new budget, the Senate-Assembly Budget Conference Committee will reconvene today to resolve other points of contention, among them public school spending.

“This,” said Assembly Speaker Curt Pringle (R-Garden Grove), “is what will mark this budget: a tax decrease to spur on this state’s economy and the fact that [the proposed budget includes] the largest increase in the education budget probably in the history of California. The debate will be how to spend those dollars.”

Senate President Pro Tem Bill Lockyer (D-Hayward) said the Assembly and Senate could vote on the budget as early as Monday, the start of the 1996-1997 fiscal year and the state constitutional deadline for approving the new spending plan.

The deadline has been missed more often than not in recent years. But this year, a budget solution is within grasp because, as the state’s economy expands, more people are working and paying taxes. As a result, the state is flush in taxpayers’ money--more than $2 billion above original forecasts.

Wilson originally proposed a series of 5% cuts in personal income, corporate and banking tax rates in each of the next three years, for a total of $10 billion in cuts by 2000.

But Democrats resisted him, saying that public schools would lose $6 billion they would otherwise receive without the cuts, and Wilson finally dropped the proposal last week. The governor said Friday he is “very likely” to return next year with his income tax cut proposal.

“Those of us who are advocates of education and have worried about the magnitude of the tax think this is an acceptable and balanced compromise and protects education,” said Lockyer, who along with Assembly Democratic Leader Richard Katz of Sylmar signed off on the business tax cut.

Wilson and legislators have already agreed that there will be no tuition increases at state universities and colleges. But while public schools will emerge with a major boost in funding to $28 billion, several education issues remain.

Democrats are pushing to restore $250 million in state money for schools to fund desegregation efforts ordered by courts. Assembly Republicans have proposed cutting the desegregation funding for urban school districts, and shifting it to schools statewide. That move would cost the Los Angeles Unified School District $117 million.

The Senate has killed Wilson’s proposal for further cuts in welfare. But Democrats lost their attempt to give welfare recipients a cost-of-living increase. As it is, the state will spend $2.7 billion on aid to indigent families, $1.6 billion on aid to the disabled and elderly, $1.4 billion for various public health programs and $6.2 billion on the Medi-Cal program for the poor.

In the Medi-Cal program, Democrats are pushing to restore $35 million for prenatal care for illegal immigrants. Anti-abortion Republicans are attempting to gut Wilson’s proposal to spend $43 million on family planning. Wilson, a Republican who favors abortion rights, is joining Democrats to fight that effort.

Some of the other major unresolved budget issues include:

* Pay raises for state workers. The Democrat-controlled Senate proposed a raise of 4%, at a cost of $192 million. Wilson and the GOP-controlled Assembly offered no pay increase.

* Wilson’s push to permit taxpayers to earmark an extra $1 for police protection by checking a box on their state income tax forms. That would cost an estimated $150 million. Democrats are resisting it.

* Wilson’s request to sell bonds to finance the construction of six prisons. With the Department of Corrections budget at $3.5 billion and growing, Lockyer is instead pushing for changes that would move 30,000 nonviolent felons out of state prisons and into alternative settings, such as county jails.

“We’re not going to allow the governor to build six black boxes in the desert without reform,” he said.