The legislative outlook for California businesses at mid-session following the June 2 deadline for bills to pass their house of origin is looking much sunnier than the outlook of a year ago.

Far fewer anti-business bills are on the table, and a number of pro-business bills are still alive, including several tax credit and infrastructure spending packages being pushed by business interests.

It's a stark contrast to last year, when California companies were facing dozens of bills that threatened to raise the cost of doing business, only to be saved by vetoes from Gov. Gray Davis.

What's changed, of course, is that legislators have realized that Davis intends to stick to his centrist path, which is effectively holding the more liberal, anti-business tendencies of the Democrat-controlled Legislature in check.

"The governor doesn't want a whole slew of anti-business bills; he showed this last year and again earlier this year with his veto pen," said Tony Quinn, a Republican political analyst in Sacramento. "The legislators now understand he's not going to sign these bills, so they are not introducing them or are stopping them on their own in committee."

As of the June 2 deadline for bills to pass their house of origin, less than a dozen major anti-business bills had made it through. What's more, the $12.3 billion state budget surplus is making it easier for Davis and legislators to hand out goodies to businesses, like tax credits, and to push for long-delayed infrastructure projects.

As a result, business lobbyists are more optimistic than they have been in years about getting tax breaks approved, including a hike in the manufacturer's research and development tax credit.

"The budget surplus is helping us a lot," said Gavin McHugh, senior vice president of the California Manufacturers and Technology Association.

Nonetheless, business lobbyists are still concerned about some of the anti-business bills that have made it through, particularly a proposed $2.7 billion hike in workers' compensation benefits and a $700 million unemployment insurance tax increase.

Coming in a year when businesses across the state have seen an average 20 percent increase in their workers' comp insurance premiums, the 15 percent benefit increase proposed in SB 996 by Sen. Patrick Johnston, D-Stockton, could hit the bottom lines of businesses very hard. The bill, if passed, would increase the amount of money that businesses would be required to pay injured workers. Labor and trial lawyer lobbies are vigorously pushing for the bill.

"It's moved along nicely so far and we think it's going to pass," said Tom Rankin, president of the California Labor Federation.

But Gov. Davis vetoed a similar bill last year that called for $2 billion in benefit increases. In his veto message, Davis said the amount of the benefit increase was too large.

SB 996 is now in a joint Assembly-Senate conference committee, where labor, business, trial lawyer and insurance interests are trying to hammer out a compromise. Observers believe a smaller increase this year might win Davis' approval, especially if it were to be coupled with some cost-saving reforms.

Employer groups are also concerned about a bill that would expand the scope of the Family and Medical Leave Act. SB 1149, by Senate Insurance Committee chair Jackie Speier, D-San Mateo, would make the existing law apply to businesses with 20 or more employees, instead of the current threshold of 50 workers.

"This is a big threat hanging out there," said Fred Main, senior vice president of the California Chamber of Commerce. "It could really hit thousands of small businesses that can't afford to have people out on long leaves. Such decisions are best left to be handled on a case-by-case basis."

Businesses already have dodged one bullet when it comes to family leaves. Earlier this year Davis vetoed a bill by Sen. Tom Hayden, D-Santa Monica, that would have expanded the scope of the Family and Medical Leave Act to allow workers time off to care for people outside their immediate families.

"That bill was very popular with liberal groups, and when Davis vetoed it, it taught legislators another lesson," Quinn said.

Tax breaks on the table

On the other side of the ledger, California businesses appear likely to get two major tax credits they have long pushed for; both are included in Davis' latest budget proposal. One is an increase in the allowance for "net operating loss carry-forwards," in which companies can reduce their taxable income by deducting operating losses suffered in previous years.

AB 1774, by Assemblyman Ted Lempert, D-Palo Alto, would increase the net operating loss carry forward from the current 50 percent to 65 percent, starting in 2004.

The other tax credit measure calls for an increase in manufacturers' research and development allowance from the current 12 percent of total R & D; costs for new products to 15 percent.

"Both of these bills are very important to high-tech companies, which often have high start-up and development costs," said McHugh of the California Manufacturers and Technology Association. "We've been trying for years to get them through and we think that with the budget surplus, this might just be the year."

Equally important for business interests is infrastructure spending. The California Business Roundtable, made up of executives from the state's largest blue-chip companies, has identified some $90 billion worth of infrastructure improvements needed over the next 10 years, most of those in transportation projects.

Billions for transportation

In his budget proposal, Davis set aside $5 billion in one-time funds for major transportation projects throughout the state. But some Democratic legislators have been pushing for more transportation spending. A compromise bill, SB 315, by state Sen. John Burton, D-San Francisco, is now in a joint Assembly-Senate conference committee.

"We think the governor's proposal is a very good start, and we are fully on board," said the California Chamber's Fred Main. "But we have a $90 billion problem that needs a more long-term solution. And that is what we're grappling with now in conference committee."

Business interests are also pushing for a 10-bill housing package designed to ease environmental and legal restrictions on building new housing projects. Their main argument turns on the critical shortage of affordable housing in the state.

A key target of these bills is the California Environmental Quality Act, which allows project opponents to sue on environmental grounds to stop or slow housing projects. However, environmental activists are putting up stiff opposition to these new measures.

"We are extremely concerned about business and builders' efforts to 'streamline' CEQA," said Sandra Spelliscy, general counsel for the Planning and Conservation League, a Sacramento-based environmental lobbying group. "What these business interests really want to do is get rid of CEQA altogether, and we're not about to let that happen."

As of the June 2 deadline, four of the 10 bills in the package had passed their respective houses and were awaiting committee hearings in the opposite chamber. The rest failed to clear their houses by the deadline.

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