Tax hikes sought for state

Governor calls for major spending cuts, $4.7b in new levies to fix budget.

Thursday, Nov. 06, 2008

SACRAMENTO -- Gov. Schwarzenegger on Thursday called for major spending cuts and $4.7 billion in new taxes -- including a temporary 1.5-cent sales tax hike -- to help close an $11.2 billion revenue shortfall in this year's budget.

The lower tax-collection estimate comes just six weeks after lawmakers agreed to the 2008-09 spending plan. Finance officials blamed the severe economic downturn, which is marked by weak corporate profits, slowing consumer spending, job losses and falling home prices.

The governor asked the Legislature to act by Dec. 1 on the unusual midyear proposal, meaning votes could conceivably come from a slew of lame-duck lawmakers who are termed out on midnight Nov. 30.

If lawmakers do not act soon, the state would run out of cash and could not pay some of its bills, Schwarzenegger said.

"We have a dramatic situation here, and it takes dramatic solutions and immediate action," he said. "We must stop the bleeding."

But the proposal ran into immediate resistance from Republican lawmakers -- and the chances of enacting major changes soon appear slim.

"Raising taxes is the worst thing we could do right now. It will devastate an economy that is hanging on by a thread, threaten jobs and hurt working families," Senate Republican Leader Dave Cogdill of Modesto and Assembly Republican Leader Mike Villines of Clovis said in a joint statement.

Villines pushed for longer-term solutions, such as selling state assets and auditing state spending for waste.

The $4.5 billion in cuts include slashing school funding by $2.5 billion and eliminating state funding for the Williamson Act, which provides revenue to local governments that give property tax breaks to landowners who agree not to develop farmland. The $35 million program is heavily used in the Valley.

The sales tax would not only be raised, but broadened. Consumers would pay taxes on golf greens fees, appliance and furniture repair, vehicle repair, veterinarian services and tickets to sporting events and amusement parks.

Other taxes include a new "oil severance tax" on oil extracted from state land, as well as an alcohol tax hike of five cents per drink. Also, motorists would pay $12 more in vehicle registration fees to backfill a shift of Department of Motor Vehicles revenue to local crime prevention programs.

The governor, who has long said the state has a "spending problem," shifted gears Thursday, saying California now has a "revenue problem" because of the deteriorating economic conditions.

Democrats took issue with some of the cuts, but were pleased with the Republican governor's assessment of the revenue shortfall.

"This dramatic statement marks a renewed sense of urgency that Democrats and the governor feel to fix California's worsening fiscal condition," said incoming Senate leader Darrell Steinberg, D-Sacramento.

Schwarzenegger, who pledged not to raise taxes when he ran for re-election two years ago, broke the promise earlier this year when he pushed a 1-cent sales tax hike. Republicans rejected the idea, and the 2008-09 plan was passed without new taxes, relying instead on spending cuts, accounting maneuvers and closure of some tax loopholes to bridge a $15.2 billion deficit.

But the partisan tax fight led to an 85-day delay in enacting the plan, which was out of balance almost immediately after the governor signed it on Sept. 23.

The 1.5-cent sales tax hike proposed Thursday would start Jan. 1 and last for three years, raising $3.54 billion in the current fiscal year.