Schwarzenegger offers budget compromise
August 20, 2008
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 percent sales-tax increase and additional cuts.
In the past, the governor has said he is against 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.
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.
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Schwarzenegger’s latest proposal seeks $9.9 billion in cuts and a 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 then would be permanently reduced 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 increases.
The governor’s plan also includes a formula for a rainy-day fund to smooth out state spending when the economy declines. Schwarzenegger said when fully funded, the rainy-day fund would be 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 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 also proposed generating $1.1 billion this fiscal year by temporarily suspending tax rules that allow businesses to write off losses and $470 million through an amnesty program that would let residents and businesses to pay delinquent taxes without penalty.
Schwarzenegger also is rekindling the proposal he first floated in January to modernize the state lottery, saying the state could borrow about $5 billion in future earnings for the 2009-10 budget. After that, lottery proceeds would help pay down debt and fill the rainy-day fund.
The governor 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.
Assembly Minority Leader Mike Villines, 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 long-term budget problems,” Villines, R-Clovis, said in a news release. “Increasing taxes on hard-working Californians, whether temporary or permanent, is not only unnecessary, it is irresponsible.”
Assembly Speaker Karen Bass, a Democrat, welcomed the governor’s plan for revenue but 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.
Democrats initially had 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 Republicans in the Assembly.
With the state’s spending plan nearly two months overdue, Schwarzenegger said it’s time for legislators to compromise so they can move on to other urgent state business such as resolving the state’s water problems, prison reform and health care.
“I think it is key for us that we finish this year with victories and not another year where nothing gets done just because everyone is stuck in their ideology,” he said.
On Wednesday, he urged legislators to come out of their partisan corners or risk being in the same position six months from now.
“I keep hammering away at them every time I talk to them, ‘Let us get together, let us work this out, don’t come to the table with the same stubborn position,’ ” he said. “The Republicans came in with the mantra, ‘No taxes, no taxes, no taxes,’ and then the Democrats came in and said, ‘No cuts, no cuts.’ You can’t continue this way.”