SACRAMENTO — While offering the grimmest forecast yet of California's finances, the Legislature's nonpartisan fiscal analyst recommended Tuesday that lawmakers pare back Gov. Arnold Schwarzenegger's proposed 1 1/2 -cent sales tax increase and instead hike fees on cars.
In a new report, Legislative Analyst Mac Taylor forecast that the state would need to close a $27.8-billion budget gap during the next 20 months. That projection is more than $3 billion higher than the Schwarzenegger administration has estimated.
"The numbers are just truly awful," Taylor told reporters. "There are no good options left."
The analyst's wider budget gap was influenced by the rapid decline in the state's housing market. He projected that school districts would lose $1.5 billion over the next three years, requiring the state to fill that gap.
The economic downturn also has led to more people on health and social services programs. In addition, firefighting costs are higher than projected.
The governor last week called a special session of the Legislature and proposed deep cuts in services and tax increases to deal with California's collapsing finances.
Though calling the governor's proposal "credible," the analyst said that raising the sales tax would further hurt the economy by discouraging Californians from buying products locally and instead shifting them to Internet purchases that escape the state sales tax.
Schwarzenegger's proposed increase would make California's sales tax, which varies from city to city, the highest in the nation, at an average of about 9.5%, the analyst said.
"That's not something you want to be No. 1 in," he said. Taylor recommended a smaller increase of 1 cent on the dollar.
The analyst favored increasing the annual vehicle license fee, from 0.65% of a car's value to 1%. It is an idea that has traction among Democratic lawmakers, but one that Schwarzenegger has resisted.
His opposition to that fee was a main plank of his 2003 election, and he reduced the fee, then 2%, as one of his first acts in office.
The governor instead has proposed charging people an additional flat fee of $12 more when they register their automobiles each year. That would bring in only about a 10th of the $1.6 billion in revenue that a vehicle license fee increase would net.
The analyst said that without major changes, the state would run shortfalls on the order of $22 billion annually over the next five years even if the economy rebounded.
