Dems try end-run around GOP to close budget hole

Democrats gave up hope of getting support from Republican legislators on a budget plan, and put their own combination of tax increases and spending cuts before lawmakers that require simple majority votes for passage – which the Democrats can muster.
The Democrats’ $18 billion plan came after a week which saw Republicans unveil a proposal to ease the state’s deepening cash crunch that cuts state services while tapping into voter-approved money intended for the mentally ill and early childhood development.
On Tuesday, Assembly Speaker Karen Bass, D-Los Angeles, put up a plan of tax hikes and spending cuts that had been considered last month, but found no Republican support for the proposal. Even some moderate Democrats balked at the revenue and spending cut package.

“Because of the state’s historic fiscal crisis and the refusal of legislative Republicans to support solutions that require a two-thirds vote, Democrats have no choice but to move forward and do what we can on our own,” Bass said. “Had Republicans stepped up to join us we could have made even more progress toward solving California’s deficit, but we are prepared today to make real progress on that deficit and address the state’s immediate cash crisis.”

But this new plan, which has $7.3 billion in cuts and $9.3 billion in new revenue, plus $1.5 billion worth of other changes, looked Wednesday as though it may be headed for approval in floor votes scheduled later that evening.

The proposal involves a convoluted system of lowering some fees, while raising others. The net effect is a 13-cent-per-gallon hike in gas taxes, a 0.75-cent increase in the state sales tax, a 9.9 percent surcharge on oil pumped in California, and a 2.5 percent income tax surcharge for every California taxpayer.

Schwarzenegger spokesman Aaron McLear said the governor’s office was reviewing the proposal. And discussion continued Wednesday about an economic stimulus package that the governor has said he needs before signing any tax hike plan.

If approved, the package may put a temporary end to increasingly rancorous budget negotiations. The state faces an immediate $15.2 billion hole in the current fiscal year, and upwards of $40 billion in red ink through the middle of 2010 as the economic crisis chokes off income tax revenue, corporate payments and property taxes.

Republicans had hoped to use existing tobacco and income tax revenues that are currently used for early childhood development and mental health programs to help close the state’s budget gap. Republicans also proposed more than $15.6 billion in spending cuts to bring the budget into line.

“It was not a solution. It was simply a rehash of all of the cuts that have been on the table for months,” said Schwarzenegger spokesman Aaron McLear.

Among them is the reversal of part of the so-called “triple flip” that was used to bring the state’s 2003-04 budget into alignment.
Under that plan, the local sales tax was reduced by about $1.4 billion. The state sales tax was increased by the same amount, and was used to provide a dedicated revenue stream to pay off bonds used to balance the 2003-04 budget. The state general fund then repaid locals for the loss in local sales tax revenues, a cost of about $1.4 billion to the state.

State Controller John Chiang says the state will run out of cash by February unless lawmakers address the state’s budget shortages. Also imperiled will be public projects seeking money from bond sales, because lenders will be skittish buying bonds if the state’s fiscal house is not in order.