By HOWARD FINE

Staff Reporter

Two days after Gov. Gray Davis and the Democrats swept to power in Sacramento last November, the state’s major business lobbying groups were in a state of panic as they gathered for a strategy meeting in San Diego. They feared billions of dollars in new mandates would be coming down on California businesses.

But with the first legislative session under the Democratic regime ending Sept. 10, most of these same groups are breathing a sigh of relief.

While business did take some hits reinstatement of daily overtime pay and new health care mandates among them many other bills that could have driven up costs were killed, scaled back or face a likely Davis veto.

A $1 billion-plus hike in unemployment insurance premium paid by employers was defeated. A Davis veto is expected on a $2 billion increase in workers’ compensation benefits paid by employers to injured workers. And several other bills, such as a proposal to require developers and manufacturers to take into account pollution impacts on poor communities, were watered down.

“Sure, we lost some bills, and that was to be expected,” said Gavin McHugh, vice president of the California Manufacturers Association. “But it could have been worse a lot worse.”

Business lobbyists and political observers credit Davis and a powerful group of moderate Democrats in the state Assembly for reining in the more far-reaching legislation.

“It appears that Gray Davis and the moderate Democrats in the Legislature learned the key lesson of Bill Clinton’s first term: not to overreach,” said Sherry Bebitch Jeffe, a political science professor at Claremont McKenna College.

Assembly Speaker Antonio Villaraigosa, D-Los Angeles, who comes from a liberal union background, agreed that the just-concluded session had a more moderate outcome than some might have initially expected.

“Despite predictions to the contrary, Democrats are capable of moderating themselves and acting on issues that are of common interest to the business community and working Californians,” he said. “(In addition), the year included over half a billion dollars in tax cuts, including expansion of the R & D; tax credit and eliminating the minimum tax for new businesses.”

That’s not to say Democrats weren’t tempted to push for more legislation that business lobbyists opposed. After seeing their agendas largely stifled during the 16 years of Republicans in the governor’s office, key Democratic contributors especially labor unions and trial lawyers put immense pressure on Davis and state lawmakers to enact their agendas wholesale. That would have meant sharply higher wages and benefits paid out by employers and much broader rights for people to sue large corporations.

“At the beginning, it was open season on business,” said Tony Quinn, a Republican strategist in Sacramento.

And while Davis never veered from his stated position that he would be a centrist, there was virtually no indication for months of just how that would be reflected.

When the governor finally turned his attention to the torrent of bills being readied in the Legislature, he ruffled some lawmakers’ feathers, saying through a spokesman that he would “do his best to ensure that his vision of what is best for California is accomplished.”

At the top of the list was health care reform. While Davis’ package largely incorporated existing Democratic proposals, like outside review of treatment decisions and a new regulatory oversight body, it differed in one key respect: It allowed patients only a limited right to sue health plans.

Davis also proposed a scaled-down workers’ compensation benefit increase of about $400 million, noting that the union-sponsored $2 billion increase proposed by Democratic legislators would be too costly for business.

In the meantime, something quite unexpected was happening in the Legislature itself. Quietly and largely behind the scenes, a moderate Democratic caucus was taking shape, somewhat akin to the so-called Blue Dog Democrats in Congress. This caucus is composed largely of Assembly Democrats from the more-conservative Central Valley and from some high-tech districts in the Bay Area. Its members are more pro-business than the Democratic leadership in both houses.

“Many of us were businesspeople ourselves before coming to the Legislature,” said Assemblyman Dennis Cardoza, D-Merced, and one of the caucus leaders. “Our goal is to make sure that whatever laws do pass are not undue burdens on business.”

The caucus, which consisted of about 10 members at the beginning of the session, grew to as many as 18 members by the final few weeks roughly one-third of all Democratic votes in the lower house. With frequent Republican support, the moderate Democratic caucus was able to block or water down some of the more far-reaching bills once they reached the floor. (The caucus has no counterpart in the Senate, but that didn’t matter too much because all bills that passed the Senate had to pass the Assembly.)

“As you know, the California Chamber put out a list of what they termed ‘job-killer’ bills,” Cardoza said. “Nearly all of those measures were put in a better form from the business perspective because of the work we did on the moderate caucus.”

As an example, the caucus claims credit for defeating a bill authored by Speaker Villaraigosa to raise the malpractice damages cap on doctors. It also helped stop a bill by Sen. Adam Schiff, D-Altadena, that would have allowed consumers unlimited ability to sue insurance companies. A slightly weaker bill by Jack Scott, D-Pasadena, did pass.

And a bill by Sen. Martha Escutia, D-Montebello, that would have required new air-quality standards to protect the health of children was amended to require only that such standards be studied.

Earlier in the session, El Monte Democrat Sen. Hilda Solis’ bill to hike unemployment insurance benefit levels by more than $1 billion was defeated in committee.

Meanwhile, a key infrastructure bill that was strongly supported by the business community did pass the Legislature: a $1.9 billion bond measure to boost the state’s water supply and water quality. Assuming Davis signs that bill, it will go on the March 2000 ballot.

Not all bills with a negative impact on business were stopped. The $2 billion workers’ compensation increase carried by Solis made it to Davis’ desk, although the governor has said he plans veto it. The Legislature also passed a bill by moderate caucus member Helen Thompson, D-Vacaville, that will require employers to offer mental health coverage to their employees. Davis has not taken a position on that measure.

Then there’s the daily overtime bill, AB 60, by Wally Knox, D-Los Angeles, that has been signed into law. The measure reinstates overtime pay for workers who put in more than eight hours in a day.

“We don’t automatically oppose anything that will cost business money,” Cardoza said. “There are some bills that have societal benefits that outweigh the costs to business, and those bills we supported.”

The daily overtime reinstatement and workers’ compensation increase were heavily supported by organized labor, which managed to push through much of its agenda.

“We had 16 years of anti-worker government in Sacramento,” said Sharon Cornu, communications director for the California Labor Federation. “We made significant gains this year for working families.”

Cornu pointed to bills reinstating prohibitions against age discrimination and expanding sick-day rights for employees that already have been signed by Gov. Davis.

A pair of bills aimed at cracking down on employers in the garment industry who violate wage and overtime laws is now on Davis’ desk, as is a bill that would impose stiffer penalties on employers for health and safety violations that result in injury or death to workers.

Enough legislation already has been signed into law to elicit deep concern from at least one business group: the California chapter of the National Federation of Independent Business.

“We expected the worst and, from a small-business point of view, that’s pretty much what happened,” said Martyn Hopper, the NFIB’s California director. “You can always say it could have been worse than it was, but the final outcome hardly seems moderate to us.”