Deal Reached on Shifting State Programs : Budget: Wilson and legislative leaders tentatively agree on transferring $2.1 billion in health-related services and supporting revenue to counties. Other big issues remain unresolved.

SACRAMENTO — Gov. Pete Wilson and legislative leaders reached tentative agreement Tuesday on a sweeping plan to shift $2.1 billion in state health programs to counties--along with enough new tax revenues to pay for them, participants said.

In what could be the first big breakthrough in efforts to solve the state’s looming $14.3-billion deficit, Assemblyman Bruce Bronzan (D-Fresno) and state Health and Welfare Agency Director Russell S. Gould announced the tentative agreement after a closed-door meeting with Wilson and four legislative leaders.

Gould, a member of Wilson’s Cabinet, said the agreement on the landmark deal was made orally, and cautioned that legislation still had to be drafted. But he said the governor, who originally proposed the idea, was “strongly” in favor of the state-to-county shift and that leaders of both parties had signaled their support.

“I think the foundation of the agreement is there. . . . If everything holds together we are in very good shape,” Gould told reporters after the meeting with Wilson and legislative leaders.

The agreement involves shifting responsibility for all state mental health programs, including state mental hospitals, to the counties, along with health programs for the medically indigent and others who qualify for special health services. In addition, counties would have increased responsibility for child welfare, adoptions and general welfare programs.

To finance the programs, the agreement calls for counties to receive a 0.5% increase in the state sales tax; the authority, with voter approval, to raise the sales tax another 0.5%, and the estimated $800 million that would be raised annually by a hefty increase in motor vehicle license fees that was proposed earlier by Wilson.

The benefit to the state is that the agreement would drop budget obligations by $2.1 billion annually. Counties have said they liked the plan because it would provide them with a hefty new source of tax dollars.

“This gives counties a stable funding source that they’ve never had,” Bronzan said. The lawmaker said the deal came together after all parties agreed on wording that would satisfy state concerns that the health programs would be protected while giving counties enough flexibility to shape them to meet local needs.

“It was important to the governor that this whole package be clean of the onerous mandates that have plagued past legislation,” Bronzan said.

When Wilson emerged from the meeting, he refused to comment on details of the proposed shift in health services.

“I think there is some good work being done. We have to agree on an entire package before it can be said that there is any agreement,” the Republican governor said.

Other lawmakers close to the discussions say that a number of big issues remain unresolved and that until there is agreement on all issues, there will be no ultimate agreement on single items, such as the mental health transfers.

One of the knottiest problems still before lawmakers is whether to suspend Proposition 98 funding guarantees for education and allow Wilson to make cuts in financial aid for schools. Another is whether Democrats ultimately will give in to demands by the Republican governor to reduce welfare grants by 8.8%--and eliminate guaranteed annual cost-of-living adjustments that constantly drive up the costs of welfare programs.

On the tax side, Democrats still have not gotten Wilson to agree to additional tax increases above the $7-billion package, featuring mainly sales taxes.

Signaling what very likely will be the toughest budget fight in recent years, Democrats on the Assembly Ways and Means Committee exchanged obscenity-laced arguments over what had been considered a procedural vote to move a rough-cut budget bill forward for further negotiations.

Assemblyman John Burton (D-San Francisco) angrily denounced Democratic budget negotiators for going along with Republican demands that they cut welfare programs for the elderly.

The fireworks got so hot that Assembly Speaker Willie Brown (D-San Francisco) had to make a special appeal to the committee to move the budget legislation to the floor of the Assembly for a vote by the full chamber. Pulling Democrats together, Brown in equal parts massaged the egos of committee members and angrily threatened rebels such as Burton, telling him at one point, “You want to be cooperative.” Brown didn’t add the words “or else,” but the tone of his voice clearly conveyed that message.

The budget bill finally passed on a 12-9 party-line vote, but the issue of whether lawmakers will be able to get together on a package of tax increases and spending reductions that erases the deficit remains strongly in doubt.

Shortly after the vote, Assembly Republican Leader Ross Johnson of La Habra angrily led 29 Republicans to a news conference where they denounced Democratic resistance to Wilson’s budget initiatives and vowed that they would refuse to cooperate in even procedural budget votes until the Democrats agreed to negotiate long-term budget cuts.

One Republican source, who asked not to be identified, said of GOP legislators: “They are frustrated. They don’t believe that either the governor or the Democrats are listening to them.”

Assemblyman William P. Baker (R-Danville) said Republicans would block the budget until “we get meaningful reform in spending.”

Also Tuesday, leaders of a coalition that includes groups representing senior citizens, children and labor said that they filed the necessary paper work to place a “tax the rich” initiative on the 1992 ballot.

The measure would raise about $1.5 billion a year by returning the top rate of the state income tax from 9.3% to 11% for individuals earning more than $100,000 or couples reporting income of more than $200,000. The 11% top rate was reduced in 1987.