WILSON TARGETS GRANTS FOR CUTS : SENIOR, DISABLED FUNDS MAY BE TRIMMED.

Byline: Mark Katches Daily News Sacramento Bureau

Despite a $2.6 billion windfall of revenue generated by a robust economy, Gov. Pete Wilson on Tuesday proposed cutting grants for the elderly and disabled to balance his $63.3 billion revised budget.

Wilson submitted his spending plan to the Legislature, calling for a 3.4 percent grant reduction for recipients of Supplemental Security Income/State Supplemental Payment checks.

The proposed cuts to the SSI/SSP program are on top of the 10.7 percent in cuts to those programs from previous years. Those cuts were supposed to be restored this year, but Wilson has proposed making them permanent.

``It's unfortunate that we have to do that,'' Wilson told reporters via a satellite hookup from a San Francisco elementary school. ``It's been unfortunate when we've had to do it in the past. It's necessary to avoid even uglier alternatives. What we are facing is still a gap of about $200 million even with the increased revenues.''

The cuts amount to $147 million in savings by reducing grants up to $36 a month for elderly and disabled couples and $20 for individuals.

At the same time, the governor is proposing a $1.8 billion spending spree for schoolchildren - plans that he has already announced in recent days.

He is also clinging to his 15 percent across-the-board individual and corporate tax cut, despite strong opposition from Democrats in the Legislature.

Democrats say they were startled by the contrast in spending on children while grants for the elderly and disabled were being slashed.

``The governor appears to be saying he cares very little about seniors and about those I suppose in his opinion will not be contributing to the future economic health of the state,'' said Assemblywoman Sheila Kuehl, D-Encino. ``I think it's a major mistake.''

Aides to Wilson say the cuts are intended to force Democrats to swallow most, if not all, of his tax cut plan to be phased in over three years.

But Democrats immediately drew a line in the sand after the budget was released.

Assembly Minority Leader Richard Katz said his caucus decided it will not participate in any negotiations on a budget that includes the tax cut, which is expected to deplete the general fund of more than $10 billion over the next four years.

Katz said his biggest concern is that the tax cut will take away $6.6 billion through the year 2000 from schools because roughly 60 cents of every dollar the state raises must go to education under state law.

Senate Democrats seemed more willing to compromise. Bill Lockyer, D-Hayward, said he is willing to consider some targeted business tax credits, but he also opposes the 15 percent Wilson plan, which is set for its first Senate hearing next week.

Even Wilson seemed surprised by the revenue the state has generated. Just a few weeks ago, Wilson officials were warning that the state might face a deficit of as much as $3 billion.

``We didn't learn about it until about 10 days ago,'' Wilson said. ``You can't count the revenues until they're in.''

The governor defended his tax cut plan, saying the state can't become complacent in the wake of its economic turnaround.

``We are an island of high taxation surrounded by Western states in particular who are competing dramatically in hopes to get our jobs,'' Wilson said.

``We better understand if we are not competitive we will lose jobs just as we were losing them wholesale when I came to office.''

Wilson also proposed a boost to the state's reserve fund for emergencies from $404 million in January to $516 million.

After schools were allocated their required funding, Wilson needed to cut $200 million in health and welfare programs to balance the budget. The aged and disabled programs took the biggest hit.