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Legislature Ends Budget Deadlock : Government: Tax hike for the wealthy and curb on workers' compensation are passed. Wilson signs the $56-billion spending measure minutes before deadline.


SACRAMENTO — Ending a partisan stalemate over the state budget, lawmakers on Tuesday night sent to Gov. Pete Wilson legislation to raise taxes on the state's most affluent residents and to limit the right of workers to collect disability payments for stress suffered on the job.

Passage of the tax and workers' compensation legislation prompted the governor to sign the $56-billion budget that has been on his desk for nearly a month. A Wilson spokesman said the governor vetoed about $200 million from the spending plan and signed it minutes before a midnight deadline.

"I'm delighted to finally have this process come to an end," Wilson said as he signed the budget in his Capitol office. He called the spending plan "a fair and a wise budget which represents fair and wise compromises."

The budget deadlock ended when some Republicans, prompted to compromise by passage of the workers' compensation bill, dropped their opposition to the $2.3-billion measure that will raise income taxes on those earning more than $100,000 a year. Wilson said the tax increase was needed to balance the budget, but had linked its approval to his demand that employers be granted some relief from ever-increasing workers' compensation insurance premiums.

The workers' compensation measure will sharply limit the right of short-tenure workers to be compensated for stress, but it falls far short of what Wilson and some Republicans initially demanded.

After Wilson signaled that he would approve the workers' compensation measure, the Assembly promptly took up the tax bill--the last major piece of the governor's plan to bridge the state's $14.3-billion budget gap. The measure initially fell four votes short of the two-thirds majority needed for passage. But ultimately three Democrats and one Republican added their support to pass the tax hike on a 54-22 vote. The Senate later voted 27 to 11 and sent the bill to Wilson's desk.

"The governor's deal on workers' compensation is the best deal that he's going to get," said Assemblyman Charles W. Quackenbush (R-Saratoga) after voting for the income tax bill. "The governor is asking us (Republicans) to help him bridge the rest of the gap, so we are going to help him out."

Other Republicans ridiculed the agreement as a capitulation by Wilson.

Together, the Senate and Assembly actions resolved the problem that has preoccupied the Wilson Administration since the governor took office in January. Wilson faced a midnight deadline to sign or veto the spending plan or return it to the Legislature.

Already enacted were more than $5 billion in new taxes, including a 1 1/4-cent increase in the sales tax that took effect Monday. Also included in the overall budget agreement was legislation to cut welfare benefits by 4.4% and suspend for five years automatic cost-of-living increases for recipients of welfare and other social services.

The tax measure approved Tuesday night would raise the top personal income tax rate from 9.3% to 10% on single filers earning at least $100,000 a year and couples making more than $200,000. Individuals earning $200,000 or more and couples making more than $400,000 would pay a top rate of 11%. These provisions would be automatically repealed in five years.

The bill also would phase out some deductions for upper-income filers and conform the state tax code to federal law. In addition, it would suspend for two years and then reinstate a tax break for business that allows companies to carry forward their operating losses into future years and use them to offset taxable income.

Finally, the measure for the first time would establish a means test for the renters' tax credit. The credit would be available only to individuals earning less than $20,500 a year and couples making less than $40,500.

Despite the earlier agreement on the bulk of the new taxes, Wilson, backed by Assembly Republicans, engaged in a lengthy standoff with Democrats over the issue of workers' compensation. The governor said he would not sign the budget for the fiscal year that began July 1 without major changes in the law governing stress benefits. Democrats refused to give the governor what he wanted.

But as state workers began to go without their paychecks and the financial houses considered lowering California's bond rating, Wilson changed his tack, scaling back his proposal.

He had insisted on a measure requiring workers who seek disability benefits to prove that at least 50% of their stress was caused by the job. The current threshold is 10%. He also wanted to prohibit compensation for stress that arises out of a firing, layoff or other legitimate personnel action, including discipline, transfers and evaluations.

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