Legislature OKs Sales Tax Hike, Welfare Cuts : Budget: Bills to raise alcohol levies, motor vehicle fees are sent to governor. Pension legislation is also approved.

SACRAMENTO —  Breaking a long and contentious stalemate, the Legislature late Friday sent Gov. Pete Wilson the centerpiece of his budget balancing plan--a measure to boost sales taxes by more than $4 billion along with bills to increase alcohol taxes, raise motor vehicle fees and cut welfare payments.

The votes in both houses represented a major victory for the first-term governor. The series of tough votes gave Wilson most of the key elements in his proposal to resolve a record $14.3-billion budget deficit.

Still awaiting final action are nearly $2 billion in other tax measures already passed by the Senate. They include a reduction in the renters tax credit, a requirement to withhold income taxes from independent contractors, a $70,000 annual cap on mortgage interest deductions and a new 2% utility tax. The tax measures all stalled in the Assembly on Friday night. New versions are expected to be considered when both houses resume sessions Sunday, one day before the start of the new budget year.

Progress on the budget had been stalled for weeks, primarily because of opposition from a group of anti-tax Republicans in the Assembly.

But with Wilson pleading for his program in one-on-one meetings and with groups of recalcitrant legislators, the logjam finally broke as the Assembly gave final approval, 54 to 22, to the $4.1-billion sales tax increase. It will hike the base rate 1 1/4 cents and extend the sales tax to newspapers, magazines, candy, snack foods, bottled water and the fuel used by jets and ships.

The Assembly also gave final approval, 55 to 17, to a broad range of alcohol taxes that are expected to generate $230 million in additional revenue for the state during the 1991-92 budget year that begins Monday. The measure earlier had been approved by the Senate. The lower house sent Wilson, on a 54-20 vote, a bill raising vehicle license fees, adding another $769 million for the new budget.

Both houses narrowly approved the pension legislation, which Wilson considers a landmark reform of the nation’s largest public employee retirement system. The measure passed the Senate 27 to 12, garnering the bare two-thirds majority necessary for passage. Then the Assembly approved it on a vote of 58 to 11.

The welfare bill sent to the governor will reduce basic grants to 1.4 million recipients, most of them poor women and children and freeze for five years what had been guaranteed annual cost-of-living increases. It passed on a vote of 55 to 16.

In an effort to help financially strapped public schools, the Assembly also gave initial legislative approval to a bill that would allow school officials to form taxing authorities and place on the ballot proposed sales tax increases of one-quarter cent. The tax increases would take effect if passed by a simple majority of voters.

Meanwhile, the Assembly Ways and Means Committee blocked action on the proposed 2% state utility tax after lobbyists for major business groups swung their support behind a Democratic substitute to boost the income tax on the state’s wealthiest earners.

Initial opposition to the tax bills was led by a group of hard-core 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 would be enough moderate Democrats and Republicans to approve the budget-balancing package.

The pension bill sent to Wilson reduces the power of the autonomous governing board of the California Public Employees’ Retirement System and takes up to $1.6 billion in pension earnings to help financially ailing state and local governments. It also requires all new state employees to enroll in a reduced-benefit pension plan.

In the Senate, 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 when he said, “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.

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. The proposed increase would boost the sales tax to 8 1/4 cents on each dollar in Los Angeles, San Diego and San Francisco counties, to 7 3/4 cents in Orange, San Bernardino and Riverside counties, and to 7 1/4 cents in Ventura County.

In its first vote, the sales tax increase measure 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 1% of the state’s wage-earners.

“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 be the easiest of the tax measures to enact--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 thus help defeat a rival measure--Proposition 134, the so-called “nickel-a-drink” initiative. That measure called for higher tax increases and would have earmarked the money for health and other programs linked to alcohol abuse.

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.

Now, 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.”

Times staff writers Carl Ingram, Paul Jacobs, George Skelton and Daniel M. Weintraub contributed to this story.