By Mike Zapler – San Jose Mercury News Sacramento Bureau
6/18 - SACRAMENTO — With California veering toward insolvency, partisan sniping over the budget intensified Wednesday in the Legislature. Democrats unveiled their blueprint to close the state's $24 billion budget shortfall, and Republican Gov. Arnold Schwarzenegger vowed to veto the plan because it calls for new taxes on oil, tobacco and car registrations.
The Democratic proposal has much in common with Schwarzenegger's budget plan, calling for cuts to education, the social safety net and prisons. But the differences between the two approaches threatened to trigger a protracted stalemate, despite warnings that the state must pass a budget soon to avoid running out of money next month.
Democrats rejected some of the governor's most drastic cuts, such as eliminating the state welfare program, slashing an in-home nursing program by 90 percent and ending health insurance for children whose families can't afford private insurance, but don't qualify for Medi-Cal. Those programs would still be cut under the Democratic plan, but by significantly less.
The majority party also refused a Schwarzenegger proposal to reduce about 235,000 state workers' salaries by an additional 5 percent, in addition to the 9.2 percent cut those workers have taken through unpaid furloughs. And it declined to scrap Cal Grants, the state's college financial aid program, while putting forward a controversial proposal to suspend the high school exit exam.
To make up for those lost savings, Democrats suggested several accounting maneuvers that would raise billions of dollars upfront but push the deficit into the future. They would delay one month's worth of state payroll costs — about $1.2 billion — until the fiscal year that starts in July 2010 and impose a 3 percent income tax withholding for payments to independent contractors, netting a one-time gain of nearly $2 billion.
Those ideas would be over and above nearly $3 billion in one-time accounting maneuvers that Schwarzenegger proposed. By resorting to those one-time tools to paper over the deficit, lawmakers are banking on the economy making a comeback in coming months.
Perhaps most controversial, Democrats called for about $2 billion in tax increases. Those include a 9.9 percent oil extraction tax, a $1.50-per-pack tobacco tax and a $15 increase for car registrations. Money from the vehicle fee would be used to prevent closing state parks.
But the political terrain for higher taxes is unwelcoming, at best.
While Schwarzenegger and a handful of Republican lawmakers agreed to $12.5 billion in tax increases earlier this year to patch a previous deficit, the governor says that is as far as he is willing to go. To even reach the governor's desk, the tax increases would have to be approved by two-thirds majorities in both houses, a hurdle that appears insurmountable given stiff GOP opposition.
"I will, without any doubt, veto it," Schwarzenegger said Wednesday afternoon after meeting with Democratic legislative leaders about their plan. "I'm very, very much against any tax increase whatsoever."
Even so, Democrat lawmakers — who are under intense pressure from state Democratic Party activists, labor groups and advocates for the needy to press for extra tax revenues — vowed to put their plan up for votes next week. Assuming those votes fail, how hard Democrats dig in after that could determine how close the state comes to a fiscal train wreck.
Controller John Chiang said that the state will run out of cash July 28. But he and Treasurer Bill Lockyer have said a budget plan needs to be adopted several weeks before then — July 1 at the latest — to avoid missing billions in payments to service providers and vendors.
If the tax increases are ultimately defeated, the battle will shift to how to make up the gap between the two plans, which could be several billion dollars. Altogether, the Democratic proposal called for $11.5 billion in spending cuts, while Schwarzenegger put forward $16 billion in cuts.
Sen. Mimi Walters, R-Laguna Hills, said that she and probably other Republicans would reject the Democratic spending cuts as too shallow.
"I don't think that Democrats have come to grips," she said, "with the reality that deeper cuts will have to be made."
In another point of controversy — and confusion — Democrats also proposed suspending the high school exit exam for an unspecified period of time. High school 10th-graders who now take the exam would still do so to satisfy the federal No Child Left Behind law, but passing the test would no longer be required to graduate.
Assembly Speaker Karen Bass, D-Los Angeles, said it doesn't make sense to keep the mandate in place at the same time the state is cutting resources that help schools meet the requirement.
But Jack O'Connell, the state superintendent of public instruction, said: "I strongly disagree with this concept that we should have lower expectations and lower standards as a result of the budget crisis."
Democratic staffers were unable to provide an estimate of how much the proposal would save, but O'Connell believed the amount would be small.
Bay Area News Group Sacramento Staff Writer Steven Harmon contributed to this report.