Senate Democrats Greatly Expand Tax Cut Proposal

In what could be a significant step toward a new state budget, Senate Democrats on Thursday proposed a tax cut worth at least $2.5 billion, more than double their last offer and one much closer to Gov. Pete Wilson’s demand for a $3.6-billion reduction.

Wilson quickly reviewed the offer by Senate President Pro Tem John Burton (D-San Francisco), pronounced himself “interested,” then made a counteroffer that his plan’s full cut take place after the turn of the century.

Assembly Speaker Antonio Villaraigosa (D-Los Angeles) appeared less enamored of the proposals, and seemed less than optimistic that Democrats in the lower house will support a $2.5-billion tax cut. He has said repeatedly that any reduction should be capped at $1 billion a year, a threshold that the Senate Democrats’ proposal would cross.

“I have made my position clear,” Villaraigosa said.

Any deal on the $76-billion budget requires a two-thirds vote in both houses of the Legislature. The 40-member Senate could approve the budget, only to have it stalled in the far more rancorous 80-member Assembly.

The legislative leaders intend to brief other lawmakers today, then resume negotiations with the governor and Republican lawmakers. The leaders said they plan to meet through the weekend in what appears to be a serious effort to wrap up talks on a budget already 24 days past the constitutional deadline.

“This is a very serious proposal, a real serious proposal,” Burton said after a closed-door meeting with Wilson and other leaders of the Senate and Assembly.

The offer and counteroffer came a day after lawmakers, responding to a judge’s order that threatened to shut down state operations, approved emergency legislation to keep California’s government running through Aug. 5. Los Angeles Superior Court Judge Robert O’Brien concluded earlier this week that the state could pay no bills until a new budget was in place or lawmakers approved stopgap spending.

Controller Kathleen Connell, acting on the authority granted her by the special appropriation, began issuing checks Thursday worth hundreds of millions of dollars to retired state workers, civil servants, counties and others, including private vendors doing business with the state.

Meanwhile, neither the California Supreme Court nor a state appellate court in Los Angeles acted on appeals of O’Brien’s order by Connell and labor unions representing state workers.

Under Burton’s proposal, Californians could deduct from their state income taxes part of the annual fees they pay to register their cars. That would amount to a $1-billion tax cut in the 1998-99 fiscal year that began July 1.

The cut would remain at the same level next year. But if state tax revenue continues to flow to Sacramento at its current healthy level, $500 million more would be shaved from state taxes in the 2000-01 fiscal year. Taxes would be cut an additional $600 million in 2001-02, if California’s economy remains strong.

Additionally, Senate Democrats are proposing $449 million in other tax cuts, including breaks for specific businesses and industries, as well as for some renters and homeowners.

Wilson has been proposing to cut the so-called car tax in half this year, saving vehicle owners $1 billion in the 1998-99 fiscal year and $2 billion a year later. He wants to reduce the car tax a total of 75% after the turn of the century. When fully phased in, Wilson’s proposal would amount to a $3.6-billion tax cut.

Wilson still insists on that sum, but counter-offered that the full cut take place after the turn of the century, and only if tax revenue exceeds long-term Department of Finance forecasts by several billion dollars.

Burton’s proposal also includes increased spending for a variety of programs, including raises for state employees and $878 million over the minimum required by state law for public schools.

Wilson had proposed a $500-million increase in school spending beyond the legal minimum. Under either proposal, schools would be receiving more than $30 billion next year in state, local and federal money.