State to Miss Deadline for New Budget

As Gov. Pete Wilson considers a new tax cut proposal and Democrats hope to tuck money aside for state workers’ pay raises, the governor and lawmakers once again are heading into the new fiscal year without a budget in place.

The state Constitution requires that a new budget be in place by the start of the 1997-98 fiscal year, which begins at midnight today.

But that deadline will lapse.

A joint Assembly-Senate conference committee trying to write the plan for spending $68 billion in tax revenue has been meeting fitfully.

And Wilson and top legislative leaders, who will strike the final budget deal, have met only briefly to discuss the budget, although they’re scheduled to meet again today.

The goal, said Wilson, is to “less than gently prod” the conference committee to resolve more issues.

The conference committee has agreed on hundreds of items in the phone book-size budget. But so far, there’s no compromise on broader questions of statewide importance, ranging from school spending to welfare and prisons.

“We are very late and in danger of being much later if [the conferees] don’t move,” Wilson said Friday.

This year’s disagreements don’t come because money is short. California’s economy is bustling. As a result, state coffers are brimming with $4 billion more than last year--$68 billion in all, to be spent on everything from roads and parks to medical care for the poor.

Although some lawmakers say a budget deal could fall into place in a matter of days, several issues remain unresolved, suggesting an agreement is unlikely until mid-July.

Perhaps the biggest differences revolve around welfare and a tax cut.

As California tries to implement last year’s federal welfare overhaul and move 600,000 people off the dole and into jobs, Democrats and Republicans remain divided on several costly welfare issues.

Democrats last week moderated their welfare plan, agreeing to deny any increase in welfare grants for at least a year, and strictly limiting aid to people who fail to find work after five years.

“It changes welfare as we know it,” said Sen. Mike Thompson (D-St. Helena), co-chairman of the budget conference committee. “It moves people to work. It doesn’t allow for the destruction of the blind, aged and disabled, and children.”

But siding with the Republican governor, Assemblyman Gary Miller (R-Diamond Bar), a budget conference committee member, voted against the Democratic welfare proposal, declaring: “This is welfare enrichment.”

Democrats continue to push to fund food stamps for 345,000 legal immigrants, at an annual cost of $175 million. They also want the state to take over from counties the $62.5 million cost of general assistance, the welfare program that is viewed as the final safety net.

Republicans, seeing the potential for political gains, are gearing up for a fight that would pit Democrats’ desire to protect welfare recipients against the GOP desire for a tax cut.

“I refuse to punish taxpayers and reward welfare recipients,” Assemblyman Brett Granlund (R-Yucaipa) said, reflecting many Republicans’ view. “Taxpayers deserve a break. They’ve earned it. Welfare recipients have not earned a bonus.”

Wilson has called for a 10% tax cut for corporations and banks. But he is contemplating going further, reviving and retooling his plan of past years for a personal income tax cut directed more at the middle class.

Although he would not divulge details, Sean Walsh, Wilson’s spokesman, said: “The governor is interested in providing tax relief to working Californians, and we’re reviewing a number of options to provide tax relief.”

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Senate President Pro Tem Bill Lockyer, the most powerful Democrat in Sacramento, does not reject out of hand an income tax cut, but he favors tax cuts targeted to specific industries and has called for a cut in student fees at state universities and colleges.

“The problem with any significant tax cut is that 60% or more would come out of public school support. It takes it off the top,” Lockyer said.

Other Democrats are proposing an earned income tax credit similar to one being contemplated in Congress. The state plan would be aimed at working parents who earn less than $28,000 a year, at a cost of $500 million. Some Democrats have endorsed a plan by Sen. Jim Brulte (R-Rancho Cucamonga) to give a tax break to small businesses that provide employee health benefits.

The deadline for the Legislature to send a budget to the governor’s desk came and went June 15. Wilson’s deadline of July 1 for signing a new budget has been met only once in the 1990s. Last year, the budget was not in place until July 15.

There is no penalty for missing the deadlines, and most of the state’s bills will be paid whether or not there’s a budget. But if the impasse continues past July 10, Controller Kathleen Connell has warned that she will be unable to write checks to vendors who supply goods such as food to state prisons or provide nursing home care.

Complicating the mix, the state in May lost a major lawsuit filed by the Public Employees Retirement System and must repay the pension fund almost $1.4 billion.

Public employees had sued Wilson after he and lawmakers delayed payment into the pension fund as part of an effort to balance the state budget during the depths of the recession in 1992 and 1993.

Now, the requirement that the pension fund be repaid is threatening state workers’ immediate goal--getting a pay raise. A 5% pay raise pushed by Democrats for the more than 200,000 state workers would cost $400 million.

If the Wilson administration and lawmakers pay off the entire judgment in the new fiscal year, there would be no money in the budget for various extras, including a tax cut and raises for state workers.

“It ought not to be a lump sum payment,” Drew Mendelson, spokesman for the California State Employees Assn., said of the pension repayment. Most likely, a settlement would be reached in which payments are spread out over five to 10 years.

Beyond taxes, pensions and welfare, several sticking points remain, among them:

* Schools. The issue is not money. Public schools will be flush with a record $32 billion. But Wilson and the Legislature differ on how to spend it.

Wilson, for example, wants to spend $83 million statewide on an assessment test, saying it’s of “critical importance.” Democrats want the money used for projects more geared to their districts, such as increasing funding for programs in a broad category that includes special education, continuation high schools, school meals and schooling for gifted children.

* Prisons. Wilson wants to fund construction of three new prisons, and begin planning for three others. Lawmakers have yet to agree to fund even one.

* Local government. Wilson proposes giving $100 million to counties and cities in property tax money that otherwise would go to schools.

However, several Democratic and Republican legislators want to give $280 million to local government. They are backed by lobbyists for local government, developers and the building trades, who contend that the money would spur home building by reducing the strain on local services brought about by new construction.

* A new $2.4-billion Bay Bridge. Although the budget can be written without a decision on how to pay for an earthquake-safe bridge between Oakland and San Francisco, this issue is of vital importance to Bay Area lawmakers, chiefly Lockyer, who represents the Hayward area. Until the funding issue is resolved, it’s doubtful a budget deal will be struck.