Assembly Blocks Passage of Tax Increase Measures : Budget: The bills fall far short of approval on early votes. Senate OKs pension legislation sought by Wilson.

SACRAMENTO —  Major tax bills requested by Republican Gov. Pete Wilson and legislative leaders to partially close a $14.3-billion budget gap ran into a solid wall of opposition in the Assembly on Friday.

But in the Senate, Wilson won a narrow victory on what he considered a landmark reform of the huge state pension system.

Early votes on two tax bills--part of a broad legislative program to close the looming deficit by raising taxes and cutting spending--fell well short of the two-thirds majorities they needed to pass. Both had been approved by the Senate.

One of the bills would raise sales tax revenues by $4.1 billion by hiking the base rate 1.25 cents and extending the sales tax to newspapers, magazines, candy, snack foods, bottled water and the fuel used by jets and ships.

The other, an updated version of an alcohol tax initiative rejected by voters in November, would bring in $230 million during the next budget year through a broad surcharge that would be imposed on all alcoholic beverages.

Opposition to the tax bills was led by a hardcore group of conservative GOP legislators who bucked Wilson, their party’s standard-bearer, as well as the Democrats who drafted the bills.

Legislative leaders anticipated the conservative GOP opposition, but hoped there ultimately would be enough moderate Democrats and Republicans ultimately would approve the budget-balancing package.

The pension reform demanded by Wilson would reduce the power of the autonomous governing board of the California Public Employees’ Retirement System and take up to $1.6 billion in pension earnings to help financially ailing state and local governments. It also would require all new state employees to enroll in a reduced benefit pension plan. The measure was passed on a vote of 27 to 12, the bare two-thirds majority, and sent to the Assembly, where it faces another hard fight.

Sen. Alfred E. Alquist (D-San Jose) switched sides and cast the deciding vote, saying he did so only as a courtesy to Sen. Ruben S. Ayala (D-Chino), a supporter of the measure who was in Los Angeles nursing a broken leg.

Pointing to strenuous opposition from public employee groups, Senate leader David A. Roberti (D-Los Angeles) echoed other Democrats in saying, “In 24 years of holding office, this is as tough a vote as I’ve ever seen.” Democrats have received major campaign contributions and other election-time support from public employee unions.

Another bill awaiting action Friday would reduce welfare checks 4.4%, or about $31 a month for a family of three, and suspend automatic cost-of-living increases for five years.

During the day, Wilson met privately with individual Republican legislators trying to coax them into casting the politically difficult votes for the tax increases and spending cuts.

For a time Friday, Wilson contemplated buying satellite time to announce on statewide television plans to veto the $56.4-billion spending plan sent to him by the Assembly last week. He said he would do this if it looked like the Legislature would not send him the taxes and the welfare and pension system “reforms” needed to finance it.

But as the day wore on Wilson decided against it, both because of technical problems and diplomatic reasons. He clearly did not want to alienate the Legislature while it was inching toward a solution.

Before the voting began in the Assembly, GOP leader Ross Johnson of La Habra, the only one of the four legislative leaders to oppose the budget package, said he thought Wilson miscalculated support for his plan in the Legislature and predicted “a very long day.”

The biggest of the tax bills voted on Friday was the Wilson-proposed measure to hike the sales tax and extend it to a number of products that now receive exemptions, including newspapers, magazines, snack foods, candy, the fuel used by jets and ships and bottled water. The proposed increase would boost the sales tax to 8.25 cents on each dollar in Los Angeles, San Diego and San Francisco counties, to 7.75 cents in Orange, San Bernardino and Riverside countes, and to 7.25 cents in Ventura County.

The sales tax increase measure drew only 29 votes in support during the first vote, leaving it fell 25 votes short of the 54 votes needed for passage.

Assembly Democrats, who were expecting to meet into the night, left the voting roll open, hoping to persuade enough legislators over the course of the day to pass it. At least some of the legislators who refused to vote for the measure appeared to be waiting to see the outcome of subsequent votes on welfare and other bills.

Assemblyman John Vasconcellos (D-Santa Clara), who carried the sales tax measure on the floor, pointed out to Republican critics during the floor debate that the tax package was proposed by Wilson.

“Why not talk to your governor who proposed this?” he asked. The lawmaker accused Republicans of “hypocrisy,” noting they had complained about how hard the sales tax would hit middle-class taxpayers but had repeatedly shot down efforts to raise the income tax rate for the top-earning 1% of the state’s taxpayers.

“It is time to bite the bullet,” Vasconcellos said.

One Republican critic, Assemblywoman Doris Allen of Cypress, criticized Vasconcellos for wanting to tax snack foods mothers put in their children’s lunch boxes. She said to the assemblyman, a bachelor: “Obviously you have never had to pack lunches for school . . . that may not mean much to you but it means a lot to a lot of families.”

Assemblyman Tom McClintock (R-Thousand Oaks), a staunch anti-tax conservative, ripped Wilson for proposing the sales tax increase. He said Californians shopping in Oregon would save $240 for every $3,000 they spend--enough, he said, to pay for a weekend shopping trip.

“We can call these Wilson vacations with the same disdain as earlier generations referred to Hoovervilles after another Republican politician who raised taxes in the middle of a recession,” he said.

McClintock argued along with other Republicans that the tax increases would lengthen the recession and hurt job growth. “It turns a gloomy future into a ghastly one,” he said.

Assemblyman Tom Hayden (D-Santa Monica) noted the sales tax bill would hit newspapers and other “interest groups” with first-ever sales tax levies. “I think it is extremely important that we take on newspaper editors,” he said.

The initial vote on the alcohol tax proposal--which lawmakers generally believed would will be the easiest of the tax measures to enact--was 45 in favor to 15 opposed, leaving left it nine votes short of the two-thirds majority.

A legislative analysis of the bill said the measure would raise the cost of a six-pack of beer about 9 cents and add about 4 cents to the cost of a bottle of wine.

During the floor debate, one of the alcohol tax bill’s supporters, Assemblyman William J. Filante (R-Greenbrae), said while the revenue was not specifically earmarked for health programs it was only fitting that the liquor industry be asked to cover some of the public costs of alcohol abuse, such as treating the poor for liver disease, cancer and cardiovascular disease.

Pointing up the friction within the group of 31 Republicans in the Assembly, Assembly GOP leader Johnson argued hotly against the tax, saying the alcohol tax initiative Proposition 126 was “turned down by the people of California overwhelmingly just last November.”

Proposition 126 was one of two alcohol tax measures on the ballot last November. It was backed by the liquor industry in what many viewed as an obvious effort to create confusion and help defeat a rival measure--Proposition 134, the so-called “nickel-a-drink” initiative, which called for higher tax increases and would have earmarked the money for health and other programs linked to alcohol abuse.

Despite the initial opposition to the tax bills, there was a feeling by critics of the budget package that the plan ultimately would succeed. Lawmakers were scheduled to meet through the weekend.

Said Assemblywoman Allen: “We already know what the outcome will be.”

The pension legislation would take as much as $1.6 billion in reserves from the $62.4-billion public employee pension fund. In exchange, the legislation drafted by Wilson and legislative leaders promises members of the California Public Employees’ Retirement System that all current retirees would be brought up to 75% of the original purchasing power of their retirement checks.

Currently, money accumulating in the reserves is used to supplement retirement checks, but the money is expected to run out within 10 years and there is no guarantee that the supplemental payments would continue to be made, state officials say. Employee groups contend the guarantees are not in the legislation.

Part of the pension plan calls for creation of a new office that would be empowered with the authority to set contribution rates, now held by the CalPERS board. Pension fund officials are putting up a strong fight to fend off what they consider a “raid” by Wilson and legislators on retirement money.

The coalition of public employee organizations that have been lobbying against the changes in pension benefits said they were planning lawsuits.

The employee groups have offered compromises, but they were repeatedly rebuffed by Wilson and budget negotiators.

The pension proposal, along with the welfare benefit reduction bill, left some liberal Democrats angry.

Sen. Diane Watson (D-Los Angeles) said before the voting that she would oppose both. “I don’t think we have the constitutional right to rip off the retirement funds,” she said.

She said she was “furious” that Wilson rejected Democratic proposals to raise the top income tax rates on the state’s wealthiest taxpayers while proposing to reduce pensions and welfare benefits. Her anger also was directed at Senate Democratic leaders who went along with the plan.

“We have blurred the lines between the two parties,” Watson said. “Liberal Democrats are doing conservative things to balance this budget.”

Sacramento bureau chief George Skelton contributed to this story.