What’s Not in State Budget May Become Deal’s Legacy

The defining mark of the state’s new $68-billion budget agreement may not be the items that survived the hostile bargaining that ended this week. It might be the ones that didn’t.

In just three weeks, because Democrats were unable to prevail with one of their top priorities, nearly 100,000 poor legal immigrants will lose their food stamp assistance.

Local governments, once promised they could share in the state’s economic prosperity, are forced instead to again stretch their scarce resources.

State employees are girding for a year of pickets and rallies because their hopes for a pay raise were scuttled for the fourth year in a row.

And in Republican campaign headquarters around California, the tax cut that lost at the state government negotiating table will rise again at the election strategy tables of GOP candidates for 1998.

“It could definitely be a major issue,” said David Puglia, spokesman for the leading Republican candidate for governor, Atty. Gen. Dan Lungren. “There are not too many issues that touch so many people so directly as does the tax issue.”

In many ways, the 1997 state budget may seem like a place-holder. With the exception of education--where funding levels are preset by law--this budget continues the status quo operation of government and little else.

Both sides started out the year with a list of priorities to fund. But when they could not agree on each other’s, they threw in the towel and spent all of their discretionary money to pay a huge outstanding legal debt.

The upshot is that many of the same disagreements will be back on the agenda next year. And many of the same needy groups--such as local governments, state employees and the poor--will suffer another year.

The good news is that budget experts are already suggesting that California appears headed for a third consecutive year of windfall revenues--perhaps easily enough to pay for all of the groups now lined up for a share.

Gov. Pete Wilson is not expected to sign the recent budget agreement until sometime next week. By then, the spending plan will be about seven weeks late, the second longest delay ever for a state budget.

Already, though, before lawmakers fled the Capitol this week for a brief vacation, they were whispering high hopes that another windfall next year might approach $2 billion or even more.

Earlier this month, the state Franchise Tax Board fueled the optimism by predicting that next year’s revenues will be almost half a billion dollars higher than anticipated just because a federal capital gains tax cut is expected to prompt a sell-off of property and other assets.

State analysts expect at least another $1 billion to be available next year because lawmakers decided this month to pay off a $1.36-billion legal debt to the Public Employees Retirement System that hung ominously over future budgets.

The still-booming California economy could boost next year’s budget further if it continues to exceed expectations as it has for two years.

“The outlook is very good,” said Sean Walsh, spokesman for Wilson. “All signs show a continued robust economy, which means more revenues to the state and the possibility of additional discretionary spending.”

There will scarcely be a pause before the groups overlooked in this year’s budget start pushing hard for their share of next year’s budget.

At the head of the line will probably be local governments. Before the latest budget talks collapsed, Wilson and the Democrats were in agreement on a generous--but still incomplete--assistance plan that would have provided local governments with hundreds of millions of dollars.

The effort was in recognition of the severe financial crisis facing many cities and counties that have suffered in part because of state-imposed burdens and have not yet enjoyed a rebound from the improving economy.

For the first time this year, as many as 30 members of the Legislature have formed an informal local government caucus made up mostly of former county supervisors and mayors.

Two of those members--Assembly members Tom Torlakson (D-Antioch) and Helen Thomson (D-Davis)--voted against the state budget bill this week solely because it failed to deliver for counties.

“The stage is set for real action next year,” Torlakson said. Local governments, joined by their cities’ chambers of commerce, “will be adamant,” he added.

Next year’s pie already is being carved by Wilson, who has promised that he will resubmit his plan for a tax cut. The governor is also expected to repeat the demand he used this year to box in the Democrats: no pay raise for state employees unless there is a tax cut too.

Right now, state employees have gone three years without a raise and two years without a contract. “We will be publicly agitating, and you will be seeing more demonstrations, pickets and rallies,” said Drew Mendelson, president of the California State Employees Assn.

This year, budget talks broke down when Democrats refused to agree to Wilson’s tax cut. Now, Republicans are planning to take that partisan split to the public as a campaign issue that defines a sharp difference between the two parties.

Democratic strategists said, however, they are not convinced that the tax cut pitch will be very powerful in next year’s campaign. In good economic times like these, they say, the desire for a tax cut could easily be outweighed by the demand for better public schools.

In the last two years, the state’s heated economy has generated at least $3 billion for school budgets that was unanticipated. The result has been full funding for many of the top priorities in the education community, most noteworthy of which is the plan to reduce class sizes in kindergarten through third grade.

Still, California schools rank low on national standards. And Democrats believe that the issue will remain politically salient until that perception is gone.

“People want better schools, and I think the hole is still pretty deep,” said Bill Carrick, Democratic advisor to U.S. Sen. Dianne Feinstein, a possible candidate for governor next year. “You’ve had 16 years of Republican [governors], and it parallels, in most voters’ minds, the time that the troubles have been around.”

State lawmakers, trying to overcome the image of gridlock and setbacks that characterized this year’s budget process, are expected to highlight the money for education as a success. Wilson may even underscore the message by staging his budget-signing ceremony next week at a public school.

One other major accomplishment lawmakers can point to is their agreement on the state’s historic welfare overhaul. After months of bitter debate, Wilson prevailed on many key issues, forcing a plan that would impose unprecedented time limits and work requirements for the state’s 2.3 million welfare recipients.

There are still some loose strings. Nobody has determined what will happen to thousands of legal immigrants--many in Los Angeles County--who will lose assistance in coming weeks. Several legislators also worry that government has not taken steps to boost the number of entry-level jobs for the welfare population.

But the bite of welfare-related problems is months or even years away. So political observers do not expect the issue to play a major role in campaigns next year.

“Welfare has been dealt with to the satisfaction of most Californians,” said Darry Sragow, the Democratic strategist for gubernatorial candidate Al Checchi.

Times staff writer Max Vanzi contributed to this story.