YOU ARE HERE: LAT HomeCollections

Gov. pushes hike in sales tax, big cuts

Schwarzenegger calls for raising the rate by 1 1/2 cents and including services such as auto and appliance repairs.

November 07, 2008|Evan Halper and Jordan Rau | Halper and Rau are Times staff writers.

SACRAMENTO — Gov. Arnold Schwarzenegger unveiled a plan Thursday for a steep sales tax increase, new levies on alcoholic drinks and the oil industry, and deep cuts in services to wipe out a budget shortfall that is expected to swell to more than $24 billion by mid-2010.

The linchpin of the plan is the sales tax increase -- 1 1/2 cents on the dollar -- that could raise $10.8 billion through fiscal 2009-10. In Los Angeles County, where voters Tuesday appear to have passed a separate half-cent sales tax hike to fund transit projects, the rate would shoot up to 10.25%. The statewide sales tax rate is now 7.25%.

Republicans, who blocked a smaller increase proposed by the governor last summer, immediately vowed to resist his latest plan.

The plan also calls for extending the sales tax to appliance and furniture repairs, vehicle repairs, golf fees, veterinarian services, amusement parks and sporting events. Schwarzenegger proposed a 9.9% tax on the extraction of oil within the state, the expansion of sales tax to some services and a 5-cent-per-drink tax on alcohol. His plan also includes a $12 increase in annual vehicle registration fees.

The rash of tax proposals comes as California is again headed toward a cash crisis. Administration officials said the state will not have the funds it needs to cover its bills by March if action is not taken quickly. The state is starved for cash as the economy continues its downward slide and the stock market plunge takes its toll on income tax collections.

"We are living in a different world now," Schwarzenegger said at a Capitol news conference. "We have a dramatic situation and it takes dramatic solutions."

His solutions include a number of significant spending reductions, the biggest of which is an immediate $2.5-billion cut from schools and community colleges. And state workers would be required to take a day off without pay each month, as well as to sacrifice two of their state holidays.

And the governor proposed canceling dental insurance for poor adults on the state's MediCal program and lowering subsidies to the aged, blind and disabled. California's welfare subsidies also would be reduced.

Schwarzenegger opened an emergency session of the sitting Legislature on Thursday to deal with the budget shortfall. Lawmakers will have until the end of the month to take action. The new class of lawmakers, elected Tuesday, will take office Dec. 1.

Legislative leaders expressed little optimism that the state could bolster its finances by month's end. Assembly Speaker Karen Bass (D-Los Angeles) and Senate leader Don Perata (D-Oakland) said it was Schwarzenegger's responsibility to find Republicans who will vote for taxes. A tax increase requires a two-thirds majority of the Legislature, meaning at least eight GOP lawmakers under the current makeup of the Assembly and Senate.

The governor was unable to round up GOP votes for the smaller tax hike he proposed last summer. And no Republicans stepped forward Thursday to support the latest plan.

"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," said a statement by Assembly Republican Leader Michael Villines of Clovis and Senate Republican leader Dave Cogdill of Modesto.

Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks) said any tax increase would "prolong the recession."

The governor, however, said he was confident that some GOP lawmakers would come around.

"Everyone here has gotten a wake-up call" as revenue has plunged, he said. "We are running out of money."

Schwarzenegger, who has repeatedly said during his tenure that the state's problem is overspending, not a revenue shortage, reversed course Thursday. The stock market declines, soaring unemployment and the housing bust, he said, are crippling cash flow and more tax revenue is essential.

Democrats embraced that message but balked at the governor's proposed spending cuts, saying they would be too big a blow to the state's poor and middle-class. Neither they nor Republicans offered their own plan to close the $24-billion budget gap.

Many of the new taxes and program cuts the governor wants have been proposed before and rejected by lawmakers or voters. Taxes on oil companies, nickel-a-drink proposals, extending the sales tax to services and events, and a statewide sales-tax hike have all stalled at the ballot box or in the Legislature in the recent past.

Deep cuts to schools were recently fought off by educators, who are preparing to fight again.

State Supt. of Public Instruction Jack O'Connell said Schwarzenegger's latest proposal would cause a "catastrophic disruption in our schools and harm to our students in the middle of the school year."

Public employee unions are also gearing up.

Los Angeles Times Articles