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Deukmejian's View of Law on Tax Rebate Losing Support

June 19, 1987|RICHARD C. PADDOCK | Times Staff Writer

SACRAMENTO — To Gov. George Deukmejian, the issue is simple: The California Constitution requires that the state give back to the taxpayers $700 million it received in unexpected revenues.

To use the money in other ways, such as spending it on schools, would break the law, the Republican governor has said. "As the Constitution requires," Deukmejian said last week, "I have proposed to provide a rebate. . . . "

Around the Capitol however, Deukmejian's interpretation of the Constitution has become a minority viewpoint.

A variety of lawyers, budget experts and politicians disagree with the governor's stance on the law, including the business-supported California Taxpayers Assn., the office of Atty. Gen. John Van de Kamp, nonpartisan Legislative Analyst Elizabeth Hill, Legislative Counsel Bion Gregory, State Supt. of Public Instruction Bill Honig and Democratic leaders of both the Senate and the Assembly.

"The state has a number of options if more revenues are collected than can be appropriated," the nonpartisan Taxpayers Assn. concluded in a study last March. The report identified 10 possible actions available to the state, one of which would be a tax refund.

Constitutional limits on spending, approved by voters in 1979 and known as the Gann limit after its sponsor, anti-tax crusader Paul Gann, came into play at the state level for the first time with the Deukmejian Administration's discovery in May that the state would receive $1.1 billion in unexpected tax revenues.

The question of what is permitted under the Gann limit has become central to a legislative stalemate over the proposed state budget for the fiscal year beginning July 1. On Monday, Republican lawmakers in both houses sided with Deukmejian and blocked passage of the $41.1-billion spending plan--despite a separate constitutional requirement that the Legislature approve a budget by that day.

Under the Gann limit, incorporated in the state Constitution as Article XIII B, the state and local governments can increase their annual spending at no more than a rate based on the combination of population growth and inflation.

If the state or a local government collects more than it can spend under the limit, the Constitution requires that excess revenues "shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years." This is the section cited by Deukmejian Administration officials to support the governor's claim that the money must be returned to the taxpayers.

Another section of the Constitution provides, however, that a variety of expenditures do not count toward the appropriations limit, including money transfered by the state, without strings attached, to counties, cities, school districts, community colleges and special districts.

Other exceptions from the limit include paying off bonds approved by the voters and paying for programs ordered by the federal government or the courts.

The Constitution also provides that the state or a local government can go to the voters and ask that the appropriations limit be raised for a period of no more than four years at a time. There have been at least 189 such elections, roughly two-thirds of them tied to proposed tax increases, according to a March study by the California Taxpayers Assn. Of the 125 elections in which results were compiled by the organization, voters approved raising the limit on 90 occasions.

Another alternative employed by the Deukmejian Administration in previous years has been to change its interpretation of what spending comes under the limit, thereby increasing the amount of money that could be spent.

Chief Assistant Atty. Gen. Richard D. Martland said the Constitution clearly provides the state with alternatives to a tax rebate. "Our view is that there are several ways to deal with the revenues that come in that cannot, in essence, be appropriated," said Martland, who headed the government law section when Deukmejian was attorney general.

'Not the Only Option'

Hill and Gregory drew the same conclusion in reports submitted to the Legislature. "While a rebate is a legitimate option for dealing with increased revenues, it is not the only option," Hill said.

Deukmejian's finance director, Jesse Huff, defended the governor's position, pointing out that the Legislature would have to act before June 30, the end of the fiscal year, to appropriate the money for some purpose other than a tax rebate. Anyway, he asserted, a combination of constitutional requirements and related state laws makes a tax refund the only legal alternative.

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