Finally, a State Budget: It’s a $76-Billion Deal

Gov. Pete Wilson and legislative leaders announced an accord on a $76-billion state budget Wednesday that includes a $1.4-billion tax cut in 1999, an unprecedented boost for public schools and a 7.9% increase in welfare recipients’ monthly checks.

The Legislature is expected to vote as early as Monday on the spending plan for the 1998-99 fiscal year, and on about 60 bills that would implement it.

The pact comes 36 days after the start of the fiscal year and California’s constitutional deadline for a spending plan.

Wilson, presiding over his eighth and final state budget, hailed the agreement, saying: “It means a lot more money for public schools.

“It means the biggest tax cut not just in the history of the state of California,” Wilson said. “It means the biggest tax cut in the history of any state in the nation. . . . No one is close.”

Democratic and Republican leaders of the Senate and Assembly joined Wilson in lauding the package they fashioned in nearly six weeks of closed-door talks.

“There’s something in it for everybody,” said Senate President Pro Tem John Burton (D-San Francisco).

“It’s not a great budget. It’s a good budget,” said Senate Republican leader Ross Johnson of Irvine.

The main feature of the $1.4-billion tax cut next year is a 25% reduction in the so-called car tax that California motorists pay to register their vehicles each year--half of what Wilson initially proposed.

The leaders also raised the annual income tax credits for children and other dependents to $222, and provided a modest renters’ credit.

In their secretive talks, the so-called Big Five leaders resolved dozens of differences large and small, on issues ranging from welfare and taxes to flood control funding for counties.

But even as the Republican governor and legislative leaders cheered the accord, some Assembly Republicans contended that the tax cut, though a record sum, is not big enough and the welfare increases are too great.

The Senate and Assembly must approve the spending plan by two-thirds margins. Even critics agreed with legislative leaders that there will be enough votes to pass the budget in approximately the form agreed to Wednesday.

The fight over this year’s budget centers on how to spend $4.4 billion in unexpected tax revenue that has arrived since the April 15 income tax filing deadline. Democrats initially pushed for little or no tax cut and for far more spending on schools, public works projects and other programs.

Republicans, though also backing more school spending, wanted deeper tax cuts. In a series of news conferences and speeches during the spring and early summer, Wilson pushed for a tax cut that would total $2 billion next year, and rise to $3.6 billion when it was fully phased in.

That raised Republicans’ expectations, and now has left some of them disappointed by the compromise.

“Taxpayers ought to be livid at this bone they’ve been thrown from this $4.4-billion surplus feast,” said Assemblyman Tom McClintock (R-Northridge), who is pushing to abolish the entire car tax, which brings $4 billion a year into government coffers.

Cushion Built Into Car Tax Cut

Under Wednesday’s agreement, the car tax cut could become heftier in future years, but only if state revenue significantly outpaces current forecasts. By 2003, the car tax could be pared by two-thirds, saving Californians $3.2 billion annually. Democrats wanted the cushion built into the future tax cuts to ensure that they will not be forced to cut spending if the economy sours.

“This budget protects us against going into the red in the future. That was always our concern No. 1,” said Assembly Speaker Antonio Villaraigosa (D-Los Angeles), one of the four legislative leaders who negotiated the deal.

The first 25% cut would lower by $1 billion a year the money Californians pay to register cars, trucks, motorcycles and trailers. Given that the licensing fees averages $171 per automobile, the reduction translates to individual savings of $42.75 a year.

In one of the more surprising developments, Wilson and the Republican leaders agreed to a deal, pushed by Burton, that would grant a 7.9% increase for welfare recipients.

As a result, a mother with two children in an urban area of the state would receive $611 a month, up from the current $565. Two years ago, Wilson and lawmakers trimmed welfare payments by 4.9%.

Wilson said that although he opposes the welfare increase, the legislation that imposed the past cuts was written to ensure that welfare recipients would recoup the money this year. Future welfare grant increases would occur only if the car tax cuts get deeper.

The increases would affect 2.1 million Californians, including 1.5 million children. If the welfare component of the budget is approved, the increases would come a year after legislators finished a massive overhaul of the state welfare system, strictly limiting the time people can collect welfare and forcing adults to find work. Welfare rolls have dropped at least 12% since that law took effect.

The funds for the higher welfare grants come from a pot of money set aside for welfare and cannot be used for other state-funded programs. Still, Republicans had wanted to earmark the money for programs that help people on welfare get jobs.

“It’s just not wise to make welfare attractive,” said Assemblyman Scott Baugh (R-Huntington Beach).

While Republicans are balking at the welfare increases, they readily agreed to grant 3.8% raises to the blind, elderly and disabled. For an elderly or disabled person, the increase would result in monthly checks of $676. Blind individuals would receive $732 a month.

Wilson and the Democrats agreed to give public schools and community colleges as much as $818 million more than is legally required by California’s school financing law.

Altogether, the schools will receive $24.8 billion from the state, plus $10.6 billion from local sources. That’s an increase of more than $2.5 billion over last year.

The extra school money will pay for an additional seven days in the school year, at a cost of about $350 million, pushing the school year to 180 days from the average 173-day year now.

Wilson and the leaders hope to spend about $89 million to reduce class size in 9th grade to 20 students per teacher. They already included enough money to keep class size to no more than 20 students in kindergarten through third grade.

Some other aspects of the deal:

* Wilson said there is no agreement to grant a raise to state workers, who have gone without a raise since 1995. Labor negotiations are at an impasse over the Wilson administration’s demand that state workers give up key Civil Service protections.

* Villaraigosa secured $59 million to provide state-funded food stamps for 200,000 low-income legal immigrants ages 18-64. About half of California’s legal immigrants live in the Los Angeles area. Low-income immigrants had lost federal food stamps as a result of the federal welfare overhaul in 1996.

* In another provision won by Villaraigosa, the leaders agreed to spend $14 million for monthly payments to disabled and elderly immigrants who lost federal benefits last year.

* The state will spend $45 million to recruit poor and minority children into state colleges and universities.

* At the behest of Orange County legislators, the leaders agreed to pay $40 million of the state’s $172-million share of local flood control projects. The money is especially important to cities along the Santa Ana River.

In addition to the car tax cut, Wilson and the legislators agreed to accelerate a cut approved last year aimed at families. The 1997 law raised the annual income tax credit for children and other dependents to $120, from the previous $60 per dependent. The new proposal would raise the credit to $222 starting in 1998, saving families a combined $124 million next year.

Smaller Tax Cuts Also Proposed

A variety of smaller tax cuts also would take effect in 1999:

* Renters with taxable income of $25,000 or less could deduct $60 from their income tax bill. Couples who rent and have taxable income of $50,000 or less could take $120 off their income tax bill.

* A special tax paid by horse racing tracks would be halved, reducing the state take to $40 million a year.

* In a measure that would benefit Southern California, a special tax credit would be aimed at persuading defense contractors to build a new military fighter called the Joint Strike Fighter at Edwards Air Force Base, and give subcontract work to Californians.

A dozen other tax breaks worth several million to the Silicon Valley, Hollywood and other industries and individuals also could take effect. The entertainment industry, for example, would not have to pay sales tax on post-production equipment. Self-employed people could deduct more of the cost of health insurance from their income tax bills.

But in some gamesmanship orchestrated by Burton, these 12 tax cuts would not take effect if voters approve Proposition 7 on the November ballot. That measure would give $218 million in annual tax credits to individuals and businesses that exchange high-polluting equipment such as diesel engines for lower-polluting machinery.

Although the ballot measure had appeared to be rather noncontroversial, industries that would otherwise gain tax cuts might now be inspired to oppose the initiative--although Burton said he “couldn’t care less” about such things.

“Pathetic,” said Gerald Meral, of the Planning and Conservation League, a Sacramento lobby group that is sponsoring the initiative. “This is an attempt to create opposition.”

Several spending issues remain unresolved, and will be the focus of debate in the final month of the legislative session. The biggest is whether lawmakers will place on the November ballot a $9-billion bond for school construction. Several other bond measures also are under consideration.

Wilson and the lawmakers also failed to decide whether to spend $130 million to buy 7,000 acres of redwoods in the Headwaters Forest in Northern California from Pacific Lumber. Environmentalists are pushing the state to force the company into preserving more of the forest.

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Clinching a Deal

More than five weeks after the legal deadline for a state budget, Gov. Pete Wilson and legislative leaders have agreed on a $76-billion spending plan, which now heads to the full Legislature for a vote. Some highlights:

* Taxes: A $1.4-billion tax cut, including a 25% reduction in the annual car tax (an average savings of $42.75 per vehicle.).

* Welfare: A 7.9% increase in monthly checks for welfare recipients.

* Education: An unprecedented $818 million more for public schools than is required by state law. Altogether, schools will get about $25 billion from the state.

* Food stamps: An added $59 million for food stamps for 200,000 low-income legal immigrants.

(Southland Edition, A1) * Pay raise: No agreement on a pay raise for state workers.