Budget stalemate: Day 52
Governor urges sales tax hike
Published: Thursday, August 21, 2008 at 5:10 a.m.
Last Modified: Thursday, August 21, 2008 at 11:35 a.m.
SACRAMENTO — Gov. Arnold Schwarzenegger moved to end the stalemate over a state budget Wednesday by offering a compromise spending plan that calls for a temporary 1 cent sales tax increase and additional cuts.
In the past, Schwarzenegger has said he opposes raising taxes. But with the budget nearly two months overdue, he said it is time to move beyond partisan ideology. He said Republicans and Democrats must find a middle ground between taxes and cuts to state programs.
But Assembly Minority Leader Mike Villines, R-Clovis, who walked out of budget talks a day earlier, immediately rejected the governor’s proposal, saying it was the same thing Schwarzenegger has been negotiating in private with Democrats.
“Substituting one tax increase for another is not a bipartisan compromise, nor will it solve our longterm budget problems,” he said. “Increasing taxes on hardworking Californians, whether temporary or permanent is not only unnecessary, it is irresponsible.”
Assembly Speaker Karen Bass, D-Los Angeles, welcomed the governor’s plan for revenue, but she said she needs to review his plans for further cuts.
“I appreciate that the governor now believes that we need more revenues, and we’ll keep working with him and other legislative leaders to craft a balanced budget,” she said.
California was supposed to have a budget in place by July 1, the start of the fiscal year, but lawmakers differ over how to close the $15.2 billion deficit.
“This compromise budget proposal puts our state on the road to fiscal sanity and will give California a budget that works,” he said at a news conference.
Republicans have been adamant about not raising taxes, while Democrats proposed a combination of cuts and tax increases.
Schwarzenegger’s latest proposal seeks $9.9 billion in cuts and the temporary sales tax increase that is projected to generate $4 billion in the current fiscal year and slightly more in the following two years. The state sales tax would then be permanently cut by one-quarter percent below its current level after three years, Schwarzenegger said.
The state currently collects 7.25 percent in sales tax, with 1 percent of that automatically sent back to local governments.
Many local entities add their own sales taxes.
The governor’s plan also includes a formula for a rainy day fund to smooth out state spending when the economy declines.
Schwarzenegger said the fund would eventually be equal to 12.5 percent of the state’s general fund, which is projected to be about $103.4 billion this year.
He also is seeking the ability for the governor to make midyear cuts when revenues are coming in below projections and for what he called an economic stimulus package. That plan would expedite infrastructure spending from bonds, offer targeted tax credits to help retain jobs and give employers flexibility in overtime laws.
He also wants a tax credit for Hollywood productions.
The governor proposed generating $1.1 billion this fiscal year by temporarily suspending tax rules that allow businesses write off losses and $470 million through an amnesty program that would let residents and businesses to pay delinquent taxes without penalty.
Schwarzenegger rekindled a proposal he first floated in January to modernize the state lottery, saying the state could borrow about $5 billion in future earnings for the 2009-2010 budget.
After that, lottery proceeds would help pay down debt and fill the rainy day fund.
He proposed more cuts to social services and maintained a 10 percent reduction for Medi-Cal providers despite a court challenge from doctors, hospitals and pharmacists.
Schwarzenegger’s finance director Mike Genest said the administration believes it will win the lawsuit.
Democrats initially proposed closing the deficit with about $7 billion in spending cuts and $8.2 billion in tax increases, mainly on the wealthy and corporations.
A revised proposal brought taxes down to $6.6 billion, but that plan was shot down over the weekend by Assembly Republicans.
By calling for an increase in the sales tax, Schwarzenegger appears to be violating one of his core principles. He consistently has said he would not raise taxes to solve the state’s budget crisis.
Administration officials have explained the gulf between Schwarzenegger’s words and his actions by saying his sales tax proposal ultimately will turn into a tax cut.
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