Capitol Alert: Cut out of budget talks, Republican exercise tax leverage on final night

Annual closed-door budget talks between parties evaporated after Democrats won expanded majority-vote powers in 2010, but a new version of the cross-party leverage play is unfolding in the final hours of the legislative session.

Democrats need Republican votes for key tax measures that still require a supermajority vote, none bigger than Speaker John A. Pérez'sproposal to tighten corporate tax formulas and generate $1 billion mostly from companies based out of state. The Los Angeles Democrat wants to use much of funds to reduce costs at California colleges and universities, where tuition rates have soared in recent years.

Pérez is discussing a grab bag of items with Senate Republicans, from a $50 million exemption for tobacco firms to a restoration of Healthy Families coverage for lower-income children against Gov. Jerry Brown's wishes, sources said.

But Democrats also need Republicans to approve a consumer tax on lumber, a tax on managed care plans and an extension of various fees on motorists.

Pérez is discussing with Senate Republicans two of those items - the lumber tax and managed care tax - as part of a potential megadeal on his corporate tax change, according to several sources. The speaker's "Middle Class Scholarship" proposal has cleared the Assembly, but remains stuck in the Senate.

With less than seven hours until the midnight session close, neither the speaker nor Republicans have provided written details on changes to the package. The plan was sent Friday to the Senate Rules Committee for amendments that have yet to be added.

Senate Republicans say their votes are not the only ones needed, and that moderate Democrats also are holding out. One of those moderates, Sen. Rod Wright, D-Inglewood, said he had not decided Thursday, suggesting he didn't want to keep changing tax laws and doubted that the proposal would raise as much money as expected.

It remains in flux and has changed several times in the last 24 hours, but the following have been discussed, sources said:

-- An exemption for Altria and, possibly, other out-of-state tobacco firms that would exclude them from paying higher taxes by granting them an agricultural exemption. The American Lung Association has already issued an alert urging lawmakers to reject this change. According to one estimate, the change would save $50 million for tobacco firms.

-- An exemption for Kimberly-Clark, a Dallas, Texas-based corporation that has workers in Orange County. Pérez had been courting moderate Democratic Sen. Lou Correa, whose district houses Kimberly-Clark facilities, for a vote.

-- Dropping Brown's proposal to impose a 1 percent consumer tax on lumber purchases, but using $30 million of the corporate tax revenues to pay for forestry regulation that was supposed to be funded by the lumber tax. Republicans want to help the forestry industry but do not want to impose a new consumer tax.

-- Approving the tax on managed health care plans to raise $183 million for the budget, which managed care plans support because it draws down additional federal funds. But Democrats would also have to restore Healthy Families coverage for lower-income children after eliminating the program in a June budget deal with Brown. The governor has said so far he opposes that reversal, so including the Healthy Families restoration could jam him.

-- Retaining the $150-a-year fire fee on rural residents. The last version of the proposal required the state to reverse the fee, but sources said that had been dropped from the latest version of the deal.