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Schwarzenegger's call for budget cuts, tax hikes...

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"Schwarzenegger's call for budget cuts, tax hikes draws catcalls from around the state

By Edwin Garcia

Mercury News Sacramento Bureau
Article Launched: 11/06/2008 07:45:12 PM PST

SACRAMENTO — Just six weeks after being signed into law, California's $103 billion budget is in the red by more than $11 billion — prompting Gov. Arnold Schwarzenegger on Thursday to take the extraordinary step of calling legislators back to the Capitol to weigh a package of deep spending cuts and new taxes.

But the 1.5-cent temporary sales tax increase the governor proposed hinges on whether legislative Republicans will support the plan. Their immediate answer: "No."

Hoping to stave off the legislative gridlock that resulted in a record three-month delay before the original budget was approved, Schwarzenegger touted his new proposal as a balanced approach. Roughly half of the shortfall would be covered by tax increases, which Republicans loathe, and half with service cuts, which Democrats hate.

With a Nov. 30 deadline to bring the two sides together, Schwarzenegger has his work cut out for him. "If the governor can pull this off in the next three weeks, he is beyond gifted," said Bill Whalen a research fellow at Stanford University's Hoover Institution. "He's defying a lot of odds."

The sales tax increase was part of a multibillion-dollar package Schwarzenegger announced at a morning news conference to boost revenue and cut spending. He simultaneously called a special session of the lame-duck Legislature, hoping not only to patch the budget but to consider proposals to ease the mortgage crisis for Californians; prop
up the state's nearly bankrupt unemployment insurance fund; and stimulate the economy by, among other things, cutting red tape for hospital construction and making private-sector employees who earn more than $100,000 a year ineligible for overtime, a move business interests long have backed.

But the headline is the budget patch, which comes just weeks after legislators repaired an earlier $15.2 billion budget gap.

"A drastic situation like this takes drastic measures and it needs to take those measures right away," Schwarzenegger said. "That is the important thing."

The $4.5 billion in new cuts would largely come from hacking $2.5 billion in funding for public schools and millions more from the University of California and California State University systems. Schwarzenegger also would reduce prison funding by eliminating the parole requirement for low-risk offenders; force state workers to take one unpaid day off each month; and cut social service programs, including Medi-Cal health benefits, CalWorks job training and Supplemental Security Income for the disabled.

Most of the $4.7 billion in new revenue would come from increasing the sales tax for three years and broadening it to cover things like vehicle repair, veterinary services and tickets to sporting events. Schwarzenegger also proposes to increase the alcohol excise tax by 5 cents a drink.

Schwarzenegger, who spent the spring and summer telling Californians that the state suffered from a "spending problem, not a revenue problem," has changed his tune in light of the declining national economy. In September alone, the state's revenue was $923 million below forecast, in large part because the plunging stock market has slashed capital gains taxes, on which the state depends heavily. Property and sales taxes are also in the tank, as home values have dropped and consumers tightened their wallets.

"In the six weeks since I have signed the last budget, the mortgage crises has deepened, unemployment has increased and the stock market has lost more than 20 percent of its value," he said. "We must stop the bleeding."

Besides the cuts and tax and fee increases, the new budget eats up the $1.7 billion of California's current reserves.

Democratic legislative leaders praised Schwarzenegger for proposing taxes but expressed concern over deep cuts to education and social service programs.

Republican legislative leaders, by contrast, said raising taxes in a poor economy would leave Californians worse off than they are now. "We're not going to deliver a tax increase," Assembly Republican Leader Mike Villines, R-Fresno, stated flatly.

Assuming all the Democrats vote in favor of his plan, Schwarzenegger would need to persuade two Republicans in the Senate and six in the Assembly to achieve the two-thirds majority needed to pass tax measures.

Public reaction to Schwarzenegger's proposal was swift and mostly negative.

"So much of the economy is consumer-driven, especially as we're headed into the Christmas shopping season," said Jon Coupal, of the Howard Jarvis Taxpayers Association. He predicted the governor's tax increases "will just slam the brakes on any economic recovery."

Acting Santa Clara County Executive Gary Graves said the proposed cuts would represent "an additional burden that we really can't afford right now." If approved, Schwarzenegger's plan would hit the county's in-home health workers hardest, as their hourly pay would be reduced to $8 from $12.35.

Local education leaders had already anticipated budget cuts but reacted with alarm over the size and the difficulty of slashing their own budgets midyear. "This is a budget bomb for us," said Superintendent Don Iglesias of the San Jose Unified School District, which would lose an estimated $10 million and possibly have to trim programs, purchases and employees.

The Planning and Conservation League, which lobbies for stronger environmental laws, worried about a proposal to waive certain environmental rules for state infrastructure projects, which Schwarzenegger says will stimulate the economy by speeding construction.

"The environmental community will fight it tooth and nail," said Tina Andolina, a spokeswoman for the group, which has many allies in the Democratic caucus. She charged that the proposal would increase pollution and thereby create billions of dollars in health costs.

Extending the sales tax for veterinary care drew heated responses as well.

"With the tough economy, people already are having to make tough decisions about discretionary spending," said Valerie Fenstermaker, executive director of the California Veterinary Medical Association. "We'd hate to see that because of the budget crisis, people might decide they can't afford treatment for their cat or dog."

The proposed sales tax increase would take effect Jan. 1; the tax on services would begin Feb. 1.

But first, the proposal would need to be approved by the Legislature. And while he tries to cajole votes, the governor also will need to make his case to Californians that approving the revised budget is in the state's best interest.

Said Shaun Bowler, a political-science professor at University of California-Riverside: "This is just not a good time to be governor."

Mercury News Staff Writers Sharon Noguchi, Linda Goldston, Karen de Sá and Denis C. Theriault contributed to this report.

Contact Edwin Garcia at or (916) 441-4651.

# Increasing the portion of the state sales tax that feeds the general fund from 5 percent to 6.5 percent for three years.
# Extending sales tax to certain services, such as golf-course greens fees, auto, appliance and furniture repair, and veterinary care. Tickets for amusement parks and sporting events also would be taxed.
# Increasing the alcohol excise tax by 5 cents a drink.
# Taxing petroleum companies on the oil they pump from beneath California "” an idea Schwarzenegger opposed just two years ago while running for re-election.
# Adding $12 to the current vehicle registration fee.

# Hacking $2.5 billion in so-called Proposition 98 funding for public schools and about $66 million each from the University of California and California State University systems.
# Reducing funding for state prisons to the parole requirement for offenders who were not convicted of serious, violent or sexual crimes.
# Cutting social service programs, including Medi-Cal benefits, CalWorks job training and Supplemental Security Income for the disabled.

CAUSE OF the slide

The state projects personal income taxes will be down $7.2 billion from what was anticipated. Of that figure, $4 billion is from capital gains taxes."

I'm all for it- ironically enough, the day before I read this in the actual newspaper I was bitching about how the US should raise taxes from its current lowass level to something a bit more moderate. Plus, It's not even going to really make a big difference... unless it really bothers you that you have to pay an extra couple of cents on your lunch just to try and fix our budget problems here in Cali.
Although the extra tax on alcohol, for me, is a bit of a "blah" situation  :|


I think that this is going to put allot of small businesses out of Business

Well, I'm looking at the percentages and I don't see it being a huge increase for consumers overall. Maybe a few cents and a few dollars here and there on large bills.

People want to have their cake and eat it too (People want little taxes, full range of government services, and everything in the budget being fine). Shit just doesn't work that way.

I heard about that a couple of days ago, that's so stupid.

What exactly is stupid about it? What would you omit and what would you add?

I know it sucks to have services cut and what not.
I know it sucks to have to pay an extra few cents on every dollar we spend.

But is the deficit that we face not a longer lasting problem that could have a broader range of implications in the future?


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