Senate OKs $77-Billion Budget That Cuts Car Tax

California’s car owners, renters and families moved a step closer to receiving a record $1.4-billion tax cut as the Senate on Monday overwhelmingly approved a 1998-99 state budget now estimated at $76.9 billion.

On the other side of the Capitol, however, it was a different story, one of disarray and finger-pointing. After conferring in private partisan groups throughout the day, the Assembly was unable to reach agreement on the most basic question--when to vote on the budget and various follow-up bills to implement the spending plan.

Democrats and Republicans threw up their collective hands and called it quits shortly after 9 p.m. without holding public debate or taking a vote. “I don’t know what or why is happening to this house,” said Assemblyman Dick Floyd (D-Wilmington), blaming Republicans for the latest delay. “Did they sleep during negotiations during this budget?”

Republicans responded that Democrats were trying to jam through dozens of bills that are part of the budget accord without allowing adequate time to analyze them.

Assembly leaders said they would attempt to take up the budget again today.

As approved by the Senate, the budget includes a mere $130-million reserve for emergencies, although Gov. Pete Wilson is expected to boost that sum by deleting as much as $500 million from the spending plan with his line-item veto power.

The upper house swiftly approved the budget--which was 41 days overdue--on a 34-4 vote. The state Constitution requires the budget to be in place July 1.

A handful of Republicans opposed the budget, complaining that it includes $45 million for state-funded abortions for poor women, and contending that the tax cuts are not deep enough. For the most part, however, senators heaped praise on the package of spending increases and tax cuts.

Sen. Mike Thompson (D-St. Helena), chairman of the Budget Committee, called the spending blueprint a “budget that was worth waiting for.” Senate Republican Leader Ross Johnson of Irvine cited the $25 billion for public schools and community colleges in the package, including $195 million to extend the school year to 180 days from the current 173, and said: “We can be proud of that.”

Wilson and the leaders of the Assembly and Senate reached consensus on most of the budget deal last week. The focus of their negotiations was over how to spend a surplus of $4.4 billion, brought about by an unexpected windfall of tax revenue.

Slightly less than $2 billion will go to a variety of public works projects. Of the remaining $2.5 billion, most will go toward the tax cuts and more funding for public schools. Ten percent will go for welfare payment increases, something that gave several Republicans pause.

“It is absolutely beyond my understanding why the welfare recipients are getting an increase,” said Sen. Rob Hurtt (R-Garden Grove), one of the four Republicans who voted against the budget.

While Democrats hailed the increased spending on public schools and social service programs, most Republicans praised the tax cut--although Hurtt and others grumbled that it was not big enough. The Senate approved separate legislation authorizing the tax cuts by a 37-1 vote.

“Republicans did hold out for and insist upon substantial tax cuts,” Johnson said, calling the cut significant.

The main feature of the tax package is a 25% reduction in the annual fee that Californians must pay to register their cars.

That will save California motorists $1 billion in 1999, although the reduction will pare only half that sum from the 1998-99 fiscal year budget.

Higher Credit for Dependents

In another broad tax cut, the Senate approved an increase to $253 in the credit that Californians can claim on their 1998 state income taxes for children and other dependents.

Wilson and lawmakers approved the increase in the dependent credit as part of a two-year tax deal last year. But faced with the $4.4 billion in unexpected revenue this year, they chose to implement a larger dependent credit a year earlier than planned, raising it to $253 per dependent, from what had been $68 per dependent last year.

The higher dependent credit affects as many as 3 million taxpayers who have children or other dependents, such as elderly parents, for whom they care.

The Senate also approved an income tax credit for renters. The renters credit was suspended in 1991, as part of a $5.4-billion tax increase package aimed at filling a $14-billion budget deficit caused by the state’s deep recession.

Under the new version, low- and moderate-income renters will be eligible for the tax credit. Individual renters who earn $25,000 or less would receive a $60 credit. Couples earning $50,000 or less would receive a $120 credit.

For many Californians, the restored renters tax credit and, especially, the higher credit for dependents could result in greater savings than the much-debated car tax cut, which Wilson and other Republicans have made the basic tenet of budget negotiations. The renters tax break and the increased credits for dependents resulted from negotiations between the governor and legislative leaders.

Currently, Californians pay an annual tax equal to roughly 2% of the value of their cars, trucks, motorcycles and trailers when they register their vehicles. Next year, they will pay 1.5% of a vehicle’s value. The annual tax averages $171 per car; motorists will save an average of $42.75.

The car tax measure is written so that cuts will deepen at yearly intervals starting in 2001, and continue through 2003, but only if California’s economy remains strong and tax money flowing to Sacramento exceeds current estimates. By 2003, the car tax could be cut by 67.5%, for an annual savings of $3.2 billion.

The future cuts “are going to happen,” Assembly Republican Leader Bill Leonard of San Bernardino predicted.

Even without any future cuts in the car tax, the $1.4-billion tax reduction in the 1998-99 fiscal year amounts to a record sum for a single year in California, according to the California Taxpayers Assn.

The car tax cut represents a significant compromise on the part of Wilson, other Republicans and Democrats. The governor initially called for a 50% cut in the first year, followed by a second cut in 2001, lowering the tax by 75%, for a total of $3.6 billion.

But as Wilson backed off that demand, Democrats--who initially opposed any tax cut--also relented, agreeing that the car tax cut would extend to businesses that own cars and trucks. Previously, they sought to give the break only to individuals.

Democrats also agreed that there would be no cap, after initially arguing that no motorist should be able to save more than $130 a year.

Increases in Welfare

Even as Democrats compromised on taxes, Senate Republicans agreed to welfare payment increases.

After imposing cuts through the 1990s, lawmakers approved a 7.9% boost in welfare payments, pushing the monthly check for a mother with two children from the current $565 to $611.

The budget also includes more state-funded food stamps for legal immigrants, $54 million more for the state’s troubled foster care system and $32 million for an expansion of care for the elderly.

“For the first time in a long time, the poor people of this state got a piece of economic bounty,” said Senate President Pro Tem John Burton (D-San Francisco), who had made welfare spending a priority during this year’s negotiations with Wilson and other legislative leaders.

Lawmakers were especially proud of the education spending package. For the first time, the governor and lawmakers agreed to spend more than the minimum required by law on public schools--by about $800 million.

“Clearly, it’s a budget that defines tax cuts and education as its highest priorities,” Leonard said.

Altogether, the state will spend about $25 billion on public schools and community colleges, about $2.5 billion more than last year. Local government spending adds $10 billion.

The University of California and California State University systems will receive almost $5 billion combined, an increase of $700 million from last year.

Included in the package for public schools is an agreement to spend an extra $89 million to lower class size in ninth grade math and English classes to 20 students for each teacher; $250 million for more math and science material in all grades; $158 million more for school libraries, and $75 million for remedial summer classes.

For all the high-minded spending aimed at trying to improve dismal performance on standardized tests by many California students, the state’s education budget is laced with special projects pushed by lawmakers.

There is, for example, $1 million for school libraries in Glendale, $200,000 to remodel the Buena High School stadium in Ventura, $500,000 for a performing arts center at Lucia Mar School District in San Luis Obispo and $700,000 for Los Alamitos High School for the Arts.

“It’s just pork. Whoever has the best lobbyist wins,” said one education lobbyist.

Lawmakers also plan to use the budget to revamp the Smog Check program by making it easier for Californians to obtain smog permits. The program includes money to help low-income motorists repair their cars, or pay them to junk the high-polluting vehicles.

Among the issues left unresolved is Wilson’s desire for $67 million to construct new reservoirs and the possible $130-million purchase of the 7,000-acre Headwaters Forest, the largest stand of redwoods still in private hands.

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

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

State Tax Cuts

The record tax cut package approved Monday by the Senate as part of the $76.9-billion 1998-99 state budget would pare nearly $1.4 billion from Californians’ collective tax bill. The Assembly is scheduled to debate the deal today. Here are highlights:

* Car tax: 25% reduction beginning in 1999. Annual saving to taxpayers of $1 billion; would take $500 million from state coffers during the 1998-99 fiscal year.

* Dependent credit: Income tax credit for taxpayers with children and other dependents would rise from $68 to $253 per dependent per year for 1998 tax year. Annual saving: $612 million.*

* Renters tax credit: $60 for individuals earning $25,000 or less, and $120 for couples with incomes of $50,000 or less. Annual saving: $133 million.

* Horse racing: Fees paid by horse tracks would be cut by half. Annual saving: $40 million.

* New military fighter: A tax credit would be designed to entice defense contractors to build some or all of a new joint strike fighter jet in California. Annual saving to defense contractors who hire Californians to work on the project: Zero next year, but could rise to $60 million.

* Business taxes: A variety of measures would grant tax breaks for Hollywood, high-tech firms, agriculture and others. However, they would not take effect if voters this November approve Proposition 7, which would grant as much as $218 million in credits annually for individuals and businesses that exchange high-polluting equipment for low-polluting machinery. Annual saving: $52 million.

* Miscellaneous changes: Some state tax law would be brought into conformity with federal law. For example, Californians would be able to deduct a greater amount of interest on student loans. Annual savings: $29 million.

* As part of a deal last year, Gov. Pete Wilson and lawmakers agreed to raise the dependent tax credit over a two-year period. This year, they accelerated by one year the increase to the full $253 per dependent.