Lawmakers Work for a Budget Deal

With Gov. Gray Davis’ proposed state spending plan on the table, leaders of both political parties are quietly searching for compromises that would secure a balanced budget before California runs out of cash.

So far, leading Republicans and Democrats publicly have stayed glued to their official positions, with Republicans opposing any tax hike and Democrats insisting that a comprehensive budget deal must include more revenue.

But Davis’ so-called May revise, released last week, gives something to each side: He agreed to a Republican-backed deficit-reduction bond, while proposing a half-cent sales tax to pay for it. His spending blueprint also anticipates higher car, cigarette and income taxes, and restores some money to cherished Democratic programs such as education and health care for the poor.

Now, some Republicans are debating whether to use their leverage -- a budget cannot be approved without at least a fewGOP votes in each house of the Democratically controlled Legislature -- to win a cap on government spending or other concessions in areas such as workers’ compensation in return for backing the proposed sales tax or other tax and fee hikes.

The party is also trying to preserve a $500-million tax break for manufacturers set to expire this year.

“The question is being posed by some Republican legislators,” said Bill Leonard, the former Assembly Republican leader who now sits on the state Board of Equalization. “They are asking, ‘Are our goals for workers’ compensation reform and spending controls worth a tax increase of any kind?’ ”

Leonard said that although most in the party remain firm in their position of no new taxes at any cost, several GOP lawmakers are raising the issue with colleagues as they search for a way out of the impasse.

“They are having discussions about how to get out of this,” Leonard said.

As the July 1 deadline for approving a spending plan nears, Republicans are aware Democrats need some GOP support for the sales tax that would support the deficit-reduction bond. There is special urgency this year because analysts say the state’s cash situation is so dire that it could run out in August if the leadership fails to agree on a budget in time.

GOP Leverage

So some are exploring the possibility of using that leverage to make gains in other areas, most notably the overhaul of the state’s workers’ compensation system, a bane of business owners who form a bulwark of Republican support.

Publicly, Republican lawmakers say they have no such strategy. New taxes, they say, are an automatic deal breaker in any budget proposal -- especially after the revised budget proposal unveiled by Davis last week, which Republicans characterized as an unwelcome lurch to the left by the governor.

The revised plan included a proposal, first raised by Republicans, to borrow more than $10 billion to pay off the deficit, but it also called for more than $8 billion in new taxes and had more spending than the governor’s January budget proposal.

“Our members have been very clear,” said Peter DeMarco, spokesman for Assembly minority leader Dave Cox (R-Fair Oaks). “They all said they were not interested in supporting a budget that had a tax increase.”

Yet several acknowledge privately that they are listening closely to groups such as the California Chamber of Commerce, a key part of the GOP base that is more set on reforming workers’ compensation than stopping a half-cent sales tax, no matter how distasteful they find that tax.

“It’s not that we don’t care about the sales tax,” said Richard Costigan, the chamber’s vice president for governmental relations. “It’s just when you start comparing it to the rising cost of workers’ compensation, it’s kind of, which one is worse for you? ... Our members are far more concerned with the rising cost of workers’ compensation and the impact it’s having on them.”

Such sentiments have prompted the Assembly Republicans to tap a group of lawmakers to come up with a workers’ compensation reform package at the height of budget negotiating season.

“We believe strongly that major reform to workers’ compensation has to happen this year,” said Dave Cogdill (R-Modesto), adding that final budget negotiations are the point at which Republicans will be best poised to enact reforms. “We don’t want to lose that opportunity.”

State businesses paid roughly $12 billion in workers’ compensation premiums in 2001, $15 billion in 2002, and are projected to pay $20 billion this year, according to the chamber. Some businesses have seen rates jump as much as 900% in two years.

Republicans seek to drive down rates through a number of proposals: by making the determination that a worker is permanently disabled less subjective, by placing more control over how much doctors can bill patients under the system, and by limiting the number and types of procedures that are covered.

A number of bills to overhaul workers’ compensation were killed in committee after opposition from unions and attorneys who represent injured workers.

The drive to overhaul workers’ compensation represents one Republican Party objective that could emerge as a bargaining point in budget talks. Another is the party’s interest in imposing a government spending cap.

Spending Cap

The proposal Republicans have advanced would restrict spending so that growth in state programs would be tied to population and inflation.

Democrats generally have been wary of that approach, arguing that to impose it this year, after spending is expected to be cut to balance the budget, would make it difficult for the government to restore important services once the economy improves.

But Davis has suggested that he is willing to talk about a spending cap, though he prefers to endorse something less restrictive, which he calls a “spending limitation.” In interviews last week, the governor acknowledged that he anticipates a negotiation that would involve Democrats giving ground on the spending limits in return for Republican support for taxes.

At week’s end, Republicans remained unconvinced. Cogdill, one of the most conservative members of the party, said, “At this point we continue to believe that the [budget] problem, including the workers’ compensation piece of the equation, can be solved without tax increases.”

But Republican consultant Dan Schnur said he is advising party leaders to focus on a plan for declaring victory, with or without tax hikes. Holding the line on taxes and not having an alternate plan, he said, could result in Democrats picking off the GOP votes they need to push a plan through as a shutdown looms and public resentment over the impasse grows.

“My guess is there are a number of Republican legislators who would be more than willing to negotiate in other areas if they can go back to their small-business constituents with some victories,” he said.