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Sales tax hike push riles GOP

Gov. says a temporary increase could help close gap. Party leaders would rather borrow.

August 20, 2008|Evan Halper | Times Staff Writer

SACRAMENTO — Gov. Arnold Schwarzenegger has taken on an unlikely role as one of the Capitol's most steadfast champions of a tax hike, spurning his fellow Republicans' uncharacteristic effort to borrow their way out of budget trouble.

The GOP lawmakers, preferring debt to a tax increase, say Democrats might have agreed to close the $15.2-billion budget gap with loans by now if not for Schwarzenegger.

"The legislative leaders understand we will not support a tax increase," said the leader of the Assembly's Republicans, Mike Villines of Clovis, who stalked out of budget talks in anger Tuesday afternoon. "I don't think the governor understands that. . . . It is so frustrating to sit through these meetings in his office. How many times can we say no to taxes?"

In an interview with The Times on Tuesday afternoon -- 50 days into the new fiscal year -- Schwarzenegger said resistance to tax hikes had led GOP lawmakers down a reckless path. He said they wanted to balance the budget by raiding local governments and public transportation accounts for billions of dollars. That money, under state law, would have to be repaid with steep interest.

The governor, who came to Sacramento promising never to raise taxes, now wants to raise the sales tax temporarily. If Republicans agree, he said, they would get, in return, Democratic support for future spending restraints.

"I think the sweet spot is a sales tax increase," Schwarzenegger said in the interview, "with the Democrats compromising on the budget reform in such a way that we have a real spending limit here. . . . Not everyone sees it that way. That's what I see."

Republicans say the governor's proposed spending controls, which would force lawmakers to put more money into a reserve, are inadequate. They want to prohibit state spending from growing faster than the population and inflation.

One of the governor's first big moves in office was cobbling together a plan to bail the state out of its last budget crisis, with more than $10 billion in borrowing. Despite pledges never to take that path again, the governor agreed this year to borrow $3 billion more. Now, he says, he is closing that door.

"We still haven't paid off the money we borrowed in 2003," Schwarzenegger said. "How can you go and borrow more? It is irresponsible."

Villines said that although GOP lawmakers' refusal to raise taxes may force the state to fall back on borrowing, the Democrats who control the Legislature are actually calling the shots, as the loans would pay for programs that they insist should not be cut.

Democrats, however, say the solution is more taxes.

Villines said the governor's continued support of that view had set negotiations back weeks.

"The approach he is taking is wrong on this one," Villines said, suggesting that talks among legislative leaders would be more productive if Schwarzenegger weren't in the room. "We would have been much better served having our own meeting and getting some work done."

The governor and legislative leaders refused to share details of the borrowing proposals being debated in confidential negotiations. But a memo obtained by The Times that was drafted by local government and transportation lobbyists close to the negotiations spells out what is on the table.

It involves diverting money specifically set aside by voters for local governments, road and other transportation projects, mental health programs and early childhood education. All of it would have to be repaid. Schwarzenegger, while refusing to discuss details, said the plan would leave the state with a $9-billion shortfall next year.

"What we need to do is just fix the problems and recognize we are short on revenues and deal with the issue right now," he said. "I don't know why we would wait."

Following Tuesday's rancorous meeting, Democratic leaders slipped out a back door, avoiding reporters. The governor stepped out of his office to hold a rare impromptu news conference.

He called on lawmakers not to leave town until a budget is passed, a comment that appeared aimed at Democrats who may be itching to attend their party's national convention in Denver next week. Assembly Speaker Karen Bass (D-Los Angeles), who is scheduled to host a fundraiser for the California Democratic Party at the convention, said she would cancel her plans in the absence of a budget.

Senate Leader Don Perata (D-Oakland) has said he told his caucus to plan on being in Sacramento next week.

As lawmakers bickered with one another and the governor, a federal judge issued a ruling that added significantly to their problems. U.S. District Judge Christina A. Snyder ordered the state to reverse a budget cut approved by lawmakers this year to the Medi-Cal health insurance program for the poor.

The ruling, which restores a 10% reduction in Medi-Cal reimbursement rates for doctors and other healthcare providers, will cost the state $575 million this fiscal year.

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