Lawmakers to Miss State Budget Deadline Again

SACRAMENTO —  With legislators apparently hamstrung by a $4.4-billion surplus, California will open a new fiscal year at midnight without a state budget, for the eighth time in the last nine years.

The state Constitution requires that a spending plan be in place by July 1, but Republicans and Democrats alike seem unconcerned.

Gov. Pete Wilson has spoken only briefly about the budget with legislative leaders. The budget conference committee, which is responsible for forging a compromise, meets sporadically. A tax committee, charged with devising potential tax cuts, offers little more than a forum for legislators to tout their own tax cut ideas.

“There’s no sense of urgency that I can detect on the part of legislative leaders or legislative members,” said Senate Republican Leader Ross Johnson of Irvine.

In the recession of a few years ago, legislators blamed late budgets on painful choices about what programs to cut and which taxes to raise.

This year, as the economy booms, the fight is over how to spend money and how big the tax cut will be, as Wilson and the Legislature try to decide how to dole out $4.4 billion more in tax revenue than was anticipated.

Adding to the complications, Democrats, who control the Legislature, face Wilson’s desire to leave a legacy that has people paying lower state taxes now than when he took office in 1991. Toward that end, the Republican governor, in his final year in office, is proposing a 75% cut in the annual tax that Californians pay to register their cars.

If Wilson succeeds, taxes would be lowered by $1 billion in the new fiscal year, $2 billion next year and $3.6 billion in the fiscal year beginning July 1, 2000. The car tax cut would follow tax cuts for businesses and individuals totaling $2.2 billion annually in recent years.

“The Legislature has always tried to figure out how to beat the governor on the budget, and they never do,” said Assembly Republican Leader Bill Leonard (R-San Bernardino). “This is the last Wilson budget. It’s more important to him than ever before.”

Wilson has proposed a $75.8-billion budget that includes the car tax cut as well as more spending for almost all state programs other than welfare.

The Assembly and Senate versions of the budget would add $2 billion in spending, with no provision for the governor’s tax cut.

Democratic leaders fear that Wilson’s tax cut would restrict future state spending on public schools and universities, as well as on health, welfare, parks and other areas, especially in bad economic times.

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Led by Senate President Pro Tem John Burton of San Francisco, Democrats point out that many Californians already deduct car taxes from their federal income taxes. As a result, many state taxpayers would pay as much as two-fifths of any car tax savings to the federal government.

Democrats, however, are working on their own tax cut proposal. Likely to be unveiled today, the package is expected to total about $1 billion, and to include a combination of tax cuts aimed at helping the needy and some businesses.

It’s certain to fall short of what Wilson and Republican legislators want. The result will be a budget battle that is sure to spill into mid-July, at least.

The lack of a state budget has little practical effect. The state Constitution has no penalty for failing to adopt the budget on time. Court orders issued in past budget fights have required the state to pay civil servants and welfare recipients even without a budget in place.

But the legislators’ main concern is elections, in any case. Many Republicans are making their support of a car tax cut a cornerstone of their fall campaigns. Democrats hope that their support for public schools will persuade voters that their opposition to the car tax cut is justified.

The issue has similarly divided the two major candidates hoping to succeed Wilson as governor. Republican Atty. Gen. Dan Lungren has endorsed repeal of the vehicle license fee. Democratic Lt. Gov Gray Davis has endorsed more modest tax relief and favors spending most of the surplus on education.

Although Wilson is not running in an election this year, he is considering running for president in 2000. That makes his tax record all the more important. He has been stumping for his car tax cut at every opportunity. To underscore the cost of the tax, which is 2% of a vehicle’s value, Wilson has been holding press events at new car dealerships.

After pitches from Wilson, associations of county sheriffs and district attorneys have endorsed the proposal. But given that most of the money raised by the car tax goes to cities and counties, local officials are the most vocal foes of the cut, despite Republican promises that the state will make up any losses from other state money.

“Our experience over the last decade has been that the state will make up its deficits by taking the money from local government,” Los Angeles County Dist. Atty. Gil Garcetti wrote in a letter opposing the car tax cut.

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The governor did not arrive at the $3.6-billion tax cut figure by coincidence.

Wilson administration officials cite a Times analysis last year about Wilson’s tax record, showing that Californians pay $3.6 billion more in taxes each year than they paid when Wilson took office. They say half the money goes to local government.

The tax issue has confronted Wilson since his first year in office, 1991.

Faced with a recession-caused budget hole of $14.3 billion, Wilson and legislators pushed through program cuts of $3.1 billion, made accounting changes, shifted responsibility to local governments--and presided over the largest tax increase in state history.

It was designed to raise $7.5 billion a year. But the recession was deeper than expected, so the tax package brought in an additional $5.4 billion.

As part of the 1991 tax increase, the state raised the vehicle license fee, a move that brings about $900 million a year to the state. In seeking a compromise today, some Democrats have suggested rolling back the 1991 car tax hike.

The single fattest source of increased tax revenue still on the books from the 1991 tax hikes is the sales tax, imposed on almost all consumer products other than food. Altogether, sales tax revenue approaches $30 billion--with two-thirds going to the state, and a third going to local government--up from $18.8 billion in 1991.

Senate leader Burton has suggested a sales tax cut of perhaps a quarter cent. Wilson administration officials are cool to the idea, in part because few people would notice a quarter-cent savings from purchases. Spread over a year, however, such a cut would save Californians $900 million.

“The benefit of a sales tax reduction is that it would benefit everybody, from senior citizens buying their meals in a greasy spoon restaurant to even women on welfare buying shoes for their kids,” Burton said.

Burton argues that the state should use the surplus to pump up public schools.

Senate and Assembly Democrats have proposed spending $1 billion more than the legally required minimum on public schools. Wilson has proposed spending $500 million more than the minimum.

Under either the Democratic or Republican proposal, public schools will get more than $30 billion next year, still well below the national average for per pupil spending.