Wilson Weighs Pared-Down Budget

By DAN MORAIN

July 29, 1997 12 AM PT

TIMES STAFF WRITER

SACRAMENTO —

With several Democrats seemingly resigned to a budget deal they won’t like, Gov. Pete Wilson said Monday night that he may decide as early as today whether to pay a $1.36-billion legal bill in a lump sum, resulting in a dramatically pared-down spending plan for the new fiscal year.

If Wilson decides that the legal bill should be paid at once, a vote on the 1997-1998 budget, already 29 days overdue, could take place as early as next week, key legislators said.

Wilson shook up legislators Sunday by threatening to pay nearly all of the $1.36-billion legal judgment to the state employees’ pension fund in one lump sum this year if Democrats refuse to go along with his $1-billion personal income tax cut proposal.

In a stark example of the gulf that divides the two parties, Democrats remain steadfast in their opposition to the tax cut, saying that it would force sharp reductions in public school spending.

Increasingly convinced that he cannot win sufficient votes for the tax cut, Wilson appears to be on the verge of ending the budget impasse by simply spending all extra money on the legal bill, instead of on programs that Republicans and Democrats want.

“After the discussions [Monday], it seems there is little point in delaying,” Wilson said. “We have to consult a little bit with our lawyers and with the director of finance. . . . We may be able to tell [this] morning exactly what the mechanism will be [for repayment].”

The $1.36-billion legal judgment stems from a suit by the Public Employees Retirement System board alleging that Wilson and the Legislature violated the law by delaying pension payments during the height of the recession in the early and mid-1990s.

A state court ruled earlier this year that legislators did not have the authority to delay the pension payments and ordered immediate repayment of the money.

Hoping to win raises for state workers, union leaders have been pushing for a settlement that would allow the state to repay the judgment over the next decade, with interest or a boost in benefits for retirees and current employees.

Wilson, however, has tied any pay increase to his call for a $1-billion personal income tax cut aimed primarily at middle-income Californians.

State employees have gone without a raise since January 1995. Legislators said Wilson’s plan could mean that state workers would go without a raise or a contract until 1999, when a new governor takes over.

Wilson’s Department of Finance prepared a list of dozens of spending proposals that would disappear if the legal judgment is repaid this year, turning the $68-billion spending plan into little more than a status quo continuation of last year’s budget.

For example, a $67-million effort to keep fees down at the University of California and California State University systems would disappear. Among other spending proposals that would fall is one to provide $100 million in aid to local police, and another championed by Bustamante and Latino legislators to provide more than $100 million in state aid to legal immigrants who will lose federal welfare starting in August.

But even at that, Senate Democrats said Monday that the lump sum payout is preferable to the tax cut.

Senate President Pro Tem Bill Lockyer (D-Hayward) said he believes that “the short-term misery” of paying off the legal judgment “is worth the long-term reduction in programs that would result from the governor’s programs,” including the tax cut plan and an increase in prison construction spending that Wilson is advocating.

Lockyer seemed resigned to accepting Wilson’s latest plan. He said the bare-bones budget that now appears increasingly likely could win the necessary votes in the Senate, but said: “For me, it feels like a personal and institutional failure.”

Emerging from a meeting with the governor Monday night, Assembly Speaker Cruz Bustamante (D-Fresno) took a harder line, saying the governor’s new proposal would devastate the new budget and might not win support in the lower house.

“No assistance to public safety officers. No assistance to legal immigrants,” a grim Bustamante said. “I’ve asked the governor to consider those issues and to help me in trying to figure out how to make the budget vote happen.”

However, Assembly Republican Leader Curt Pringle of Garden Grove said he expects a budget vote by the “first of next week,” and predicted that unless Democrats capitulate and agree to the tax cut, Wilson’s plan to pay the court judgment would win GOP support.

“It falls within being fiscally conservative and prudent,” Pringle said. “People will be grumbling, but sure, there will be votes to do that.”

Union officials set out Monday to kill Wilson’s plan to repay the judgment in one year--even though they joined the plaintiffs in charging that the original delay in the pension payments violated the law.

“We’re frankly amazed that [Wilson] wants to use this type of wedge politics against the unions,” said Drew Mendelson, spokesman for the California State Employees Assn., which presents 135,000 current and former state workers. “It’s old-style Wilson politics.”

Mendelson said organized labor is pressing legislators to reject Wilson’s plan to repay the $1.36-billion debt this year, adding: “We expect them to stand fast on the issue of state worker pay.”

He added a threat of his own: “The governor ought to be aware that the possibility of a strike is out there.”

“I would be very pleased to give them that [pay raise],” Wilson said. “At the same time, it’s only fair that taxpayers get a tax cut.”

Lockyer added that workers may be forced to go without a contract this year, because Senate Democrats remain adamant in their view that the income tax cut would harm public education by reducing school spending by about $500 million a year.

“I’m disappointed for the state employees [who wouldn’t get pay raises],” Lockyer said. “However, this minimizes the long-term damage if we were to adopt Wilson’s budget priorities.”

Meanwhile, Lt. Gov. Gray Davis proposed a constitutional amendment Monday that would force legislators and elected officials to forfeit their paychecks until a state budget is approved. It would take effect in 1999.

“I’m reluctant to try to legislate responsibility, but there appears to be no other way to get state government off the dime,” Davis said.

Also on Monday, Los Angeles attorney Richard I. Fine filed a suit on behalf of Orange County taxpayer groups alleging that state Controller Kathleen Connell is violating the state Constitution by paying state employees without the authorization of a new budget.

Fine said he got the idea for the suit in part from an article last week in The Times citing the state constitutional provision requiring that an appropriation be made before such bills are paid.

Connell is threatening to withhold legislators’ Aug. 1 paychecks. If the impasse continues beyond Saturday, the Legislature--dominated by first-termers--will become known as the one that presided over the second-longest budget impasse in state history.

Times staff writers Carl Ingram and Max Vanzi contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Missing the Deadline

Rarely has the Legislature met the constitutional deadline of June 15 for passing the state budget, thus enabling the governor to sign a budget into law by the required July 1. Lawmakers assess themselves no penalty for their lateness, however. As of today, budget delivery is the third-latest in the past 20 years.

JUNE

12: 1986-87 / 3 days early

13: 1985-86 / 2 days early

15: 1981-82, 1984-85, / On time (Constitutional deadline)

24: 1977-78 / 9 days late

25: 1982-83 / 10 days late

30: 1988-89, 1989-90, 1993-94, / 15 days late

****

JULY

1: 1987-88 / 16 days late

4: 1994-95 / 19 days late

5: 1978-79 / 20 days late