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Aug 2008
Schwarzenegger's budget calls for temporary sales-tax increase

SACRAMENTO -- Hoping to break a partisan logjam and prevent the Legislature from borrowing its way out of a state spending crisis, Gov. Arnold Schwarzenegger went public Wednesday with his own budget blueprint, the backbone of which is a tax hike and a large rainy-day cushion.

The governor made the unusual move 51 days into the fiscal year, as private talks between him and legislative leaders appeared to be collapsing. Typically, governors do not publicize new spending plans after submitting their revised budgets in May. The governor's May plan included no taxes.

Schwarzenegger is eager to take control of the budget process as lawmakers begin drafting borrowing plans that the governor warns will saddle his administration with a $9-billion shortfall next year. The governor, who prefers the new tax to borrowing, hopes to use his popularity with the public to pressure legislative Republicans to break their vow to never raise taxes. He is lining up business groups to join him.

"This budget will not get done by taking it easy or doing easy things," Schwarzenegger said at a Sacramento news conference. "This budget will only get done by making tough choices we thought we would never make."

The most controversial element of the plan -- the one-cent-on-the-dollar sales tax hike -- would remain in effect for three years. After that time, the tax would be reduced by 1 1/4 cents on the dollar, putting it below the current rate of 7.25%. The temporary increase would not apply to diesel, gasoline or jet fuel. The new tax would raise $4 billion this year.

Schwarzenegger's budget proposal also calls for constitutional spending restraints. The measures would require the state to transfer 3% of revenue to a rainy-day fund every year until the fund grew to 12.5% of the state's general fund budget. The new fund, according to the governor, could be tapped only in the event of a fiscal emergency.

Voters would have to approve any such changes to the Constitution, and administration officials say lawmakers have only a week or so to meet the deadline for getting it on the November ballot. Schwarzenegger said that if the spending restraints had been in effect over the last several years, the rainy-day fund right now would be large enough to erase nearly two-thirds of the current $15.2-billion budget shortfall.

Republicans were dismissive of the governor's plan Wednesday. They accused him of conspiring to push through a tax increase with Democrats, who have for weeks been calling for the state to hike income tax rates on the wealthy. Republican lawmakers are also seeking stricter spending restraints than those proposed by the governor.

Assembly Republican Leader Mike Villines of Clovis said the proposal "looks remarkably similar to the plan the governor's office has been negotiating with Democrats for weeks. Substituting one tax increase for another is not a bipartisan compromise."

Senate Republican Leader Dave Cogdill of Modesto called the proposal "disheartening" and accused the governor of "walking away" from the "core principles" of the GOP.

Democrats welcomed the governor's support for new taxes but said it didn't help for him to wait until late August.

In addition to new taxes, the governor has adopted other proposals that had been put forward by Democrats.

They include a temporary suspension of a tax credit for business losses and the ramping up of tax collection efforts, which would generate $1.5 billion.

Hours before the governor unveiled his plans, a Sacramento judge stymied his effort to lower the hourly pay of most state workers to the federal minimum wage of $6.55 until a budget is passed.

The court opted to wait until next month to consider whether it should force the state controller to carry out the pay cut.



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