Arnold Ends Year with New Budget Pitch

Wednesday, Dec 31, 2008  |  Updated 5:23 PM PDT
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New Plan Released

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SAN FRANCISCO - JUNE 05: California governor Arnold Schwarzenegger delivers a speech to business and community leaders June 5, 2007 in San Francisco, California. Schwarzenegger addressed local leaders outlining his vision for the future of California State. (Photo by Justin Sullivan/Getty Images)

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New Plan Released

Gov. Arnold Schwarzenegger has a new plan to close the state's ever widening budget gap.
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Gov. Arnold Schwarzenegger's administration on Wednesday released his latest plan to close a deficit projected at $41.6 billion over the next 18 months, a proposal that looks much like one he released months earlier.

The Republican governor wants $17.4 billion in spending cuts and $14.3 billion in tax increases and other new revenue, though legislative members of his own party remain steadfastly opposed to tax hikes and are able to block them.

Schwarzenegger's proposals including shortening the K-12 school year by a week. If that provision is approved, it would be the first time in state history that California abbreviated its school year, according to the state Department of Education.

State officials are warning that without a budget fix, California will run out of money sometime in February and the state will have to start issuing IOUs to employees, contractors and taxpayers expecting a refund.

"We are facing a major crisis, probably the most challenging budget situation the state has ever faced," state Finance Director Mike Genest said in releasing the plan to reporters.

The administration's proposal also relies on $10 billion in borrowing and a plan approved by the Legislature to sell bonds to Wall Street investment firms based on the future value of the state lottery.

Lawmakers have a month to act after they begin meeting on Monday. The special legislative session Schwarzenegger ordered to deal with the crisis -- the fourth such session called in the past year -- ends Feb. 1, the day the state controller says he'll have to begin issuing the IOUs.

Schwarzenegger already has signed an executive order forcing 235,000 state workers to take two furlough days a month starting Feb. 1 and required a 10 percent cut for state agencies, a step that could lead to thousands of layoffs.

Schwarzenegger, on vacation in Idaho, so far has been unable to persuade lawmakers to go along with his budget proposals, and it's not clear whether his latest plan will meet with any more success.

His latest proposal would raise the state sales tax from 5 percent to 6.5 percent starting March 1, lasting through December 2011. It also would expand the sales tax to services such as vehicle and appliance repairs and veterinary services, boost taxes on alcoholic drinks, increase the vehicle registration fee by $12 and tax oil production in the state. Some of his proposals would require voter approval in a special election sometime in 2009.

Republicans have refused to support any tax increases and reiterated that position Wednesday.

"Republicans cannot support the governor's proposal to impose $14 billion in higher taxes on Californians. We believe this will devastate an economy already in turmoil and will hurt people who are struggling to make ends meet," said Assembly Minority Leader Mike Villines, R-Clovis.

Instead, he and Senate Minority Leader Dave Cogdill, R-Modesto, favor increased cuts, a firm spending cap and measures favored by corporations that they say will promote job growth.

Democrats hold majorities in both houses of the Legislature, but three GOP votes are needed in each to gain the two-thirds majority needed to pass a budget. Republicans' unwillingness to support the Schwarzenegger administration's latest plan drew criticism from the Senate's Democratic leader.

"The fundamental problem of what the administration laid out today is that they don't bring a single Republican vote to pass the revenue elements of their proposal, and of course that has been the long-standing reality here," said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

The Legislature approved an $18 billion package of cuts and tax increases in December; it did not get two-thirds approval but Democrats claimed that was not necessary because of the way they had structured the legislation. Republicans and taxpayer advocates vowed to sue if it became law, but Schwarzenegger vowed to veto it, saying that it failed to include sufficient steps to stimulate the economy,

Assembly Speaker Karen Bass, D-Los Angeles, said Democrats intend to send Schwarzenegger that plan within days, despite his latest budget proposal.

"It's completely unacceptable and unnecessary for the state of California to issue IOUs when there's a solution right there that only requires his signature," Bass said.

She said Schwarzenegger should sign the Democratic plan to address the immediate cash crisis and then negotiate a longer-term budget solution. His aides said he still planned to veto that package.

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