As Talks Stall, No-Win Budget Is Considered

After another standoff session on the overdue state budget Sunday, Gov. Pete Wilson and Democratic leaders warned that they are moving toward detonating a no-win budgetary “neutron bomb” that would eliminate funding for an array of programs dear to both parties.

If they carry through on the drastic budget alternative, officials said, it would probably end hope for funding a variety of priorities, such as Wilson’s proposed tax cut, a pay raise for state workers and--perhaps--continuation of welfare aid to legal immigrants. Among the top priorities, only schools would be spared.

Because they cannot agree on the budget, Wilson and state Senate President Pro Tem Bill Lockyer (D-Hayward) said Sunday that they might decide to throw in the towel and use virtually all of the state’s massive discretionary budget to pay an outstanding $1.2-billion court debt.

“This is definitely not the best way to do it, but it may be the best that is available under the circumstances,” Wilson said during a hallway news conference after the budget meeting Sunday evening.

Capitol insiders were left wondering whether the threat was genuine or whether the two sides are engaged in a high-stakes game of chicken. Observers, however, said the mood in the meeting was more like weary resignation than hostility. It has been nearly a month since the $69-billion budget was supposed to be signed.

How to pay the lawsuit debt has been a major issue in the budget deliberations. The money is owed to state workers who filed a court action several years ago after lawmakers dipped into their retirement fund to help cover a massive budget deficit. Earlier this year, the state Supreme Court ordered the government to repay the workers fund.

State employees, however, have encouraged lawmakers to take up to 10 years for repayment, in part because they want money available this year for a pay raise.

Both Wilson and the Democrats said one benefit of paying the court debt in full this year would be more money available for the budget in future years.

“It has certain things arguing for it--it would be the cheapest in the long run for the taxpayers under a strict interpretation,” Wilson said.

But it also would end the chance for a number of high priorities sought this year by both sides. In all, the wish lists of the two parties far exceed the $1 billion in the budget that is now available for discretionary spending.

Wilson insisted that the drastic solution is “very likely” if Democrats do not capitulate to his demand for a tax cut in the next few days. He wants a cut--beginning in 1999--that would grant taxpayers a savings between 4% and 15%, with the greatest benefit going to couples earning between $60,000 and $80,000 per year.

Democratic leaders have complained that the tax cut would harm education by automatically reducing the Proposition 98 funding formula for schools.

That impasse is what led to Sunday’s threat by both sides.

Lockyer told reporters after the meeting that paying the lawsuit “is one of the options that we at least ought to understand.” Later, his aide went further and suggested that the lawsuit payout is likely.

“I think there is an excellent chance that this is how it will turn out,” said Sandy Harrison, Lockyer’s spokesman. “It is better than Wilson imposing the tax cut and cutting education spending for all time.”

Democrats are seeking funds to extend to legal immigrants welfare benefits that are scheduled to be dropped soon by the federal government. Bay Area lawmakers need money to replace a span on the Bay Bridge. State employees, who have gone three years without a raise, are discussing a possible strike if they are passed over again this year.

Wilson, meanwhile, has insisted that he will not approve a pay raise unless Democrats agree to his tax cut plan.

Harrison said Lockyer and Assembly Speaker Cruz Bustamante (D-Fresno), who was unavailable after the meeting, suggested a smaller tax cut, which was refused by Wilson.

Harrison said the leaders did not discuss welfare. For now, that issue has been negotiated by a separate committee of legislators who are said to be nearing a bipartisan agreement.

Wilson and the budget negotiators are scheduled to meet again today. At the meeting, finance Director Craig Brown is expected to outline the cuts in the proposed 1997-98 fiscal year budget that would be necessary to pay a $1.2-billion court debt in one year.

“It is worth having the fiscal analysis done of what the short-term misery might be if we make this repayment and get it over with,” Lockyer said.