Posted on Sat, Jan. 11, 2003 by Phil Yeh

State budget plan taps everyone
FROM THE WEALTHY: INCOME, SALES TAXES WOULD GET BOOST
By Dion Nissenbaum
Mercury News Sacramento Bureau

SACRAMENTO - Everyone from the richest to the poorest Californians would have to open up their pocketbooks to help the state through its biggest financial crisis in history if Gov. Gray Davis' austere $96.4 billion budget plan becomes law.

The Democratic governor vowed Friday to ``get through this storm'' of economic turmoil and unveiled a complex spending plan that also calls on local governments to do more while the state does less.

Starting this summer, increased sales taxes could cost California families an extra $200 to $250 a year, and the state's wealthiest families would pay even more in increased income taxes; registering a car would cost $3 more and the price of a driver's license would go up; community college tuition would rise from $11 to $24 per credit; and smokers would pay an extra $1.10 per pack to feed their habit.

But the budget proposal hits local governments hardest by shifting responsibility for programs such as health care for the poor and child abuse prevention services to cities and counties, while siphoning off billions of dollars to pay for state services.

Davis' plan to close a $34.6 billion shortfall in 18 months upset critics across the political spectrum by proposing new taxes and higher fees -- both expected to be a tough sell in the Legislature -- along with severe cuts to health care and social services.

It sets the stage for one of the most contentious budget battles in years. For a spending plan close to what he's proposing to pass in the Legislature, Davis will have to persuade Democrats who want to preserve programs to make deep cuts, and Republicans who abhor tax increases to raise them anyway. The budget requires a two-thirds vote.

While virtually everyone has been asked to take a hit, one of the governor's top campaign supporters emerged from the dust in better shape.

Even as Davis unveiled a plan to lay off more than 1,500 state workers, he inserted a slight increase for the Youth and Adult Correctional Agency budget and called for adding more than 800 new positions to the Department of Corrections. The perks are a huge boon for the state prison guards union, which has been a staunch Davis ally and a major campaign contributor.

But the centerpiece of the governor's plan is a controversial proposal to tap shoppers, smokers and California's richest residents for more than $8 billion in new taxes that would be set aside for local governments, which are being asked to take on more responsibility in caring for the state's most vulnerable residents.

Based on a similar budget-balancing strategy used more than a decade ago by former Republican Gov. Pete Wilson during the state's last budget crisis, the Davis proposal would hand over responsibility for a plethora of programs to cities and counties.

To pay for the services, Davis called for boosting the state tobacco tax, increasing the state sales tax by one penny and re-imposing the top personal income tax brackets on wealthy Californians. Currently, the top bracket is 9.3 percent and hits everyone making more than $38,000 a year. Under Davis' plan, singles with $136,115 in taxable income and couples with $272,230 would pay 10 percent, and singles earning $272,230 and couples with $544,460 would pay 11 percent.

All of those taxes would funnel more than $8 billion to local governments.

Halt to tax shift

Just as Davis was setting aside the new cash, he created an uproar by abandoning a state pledge to keep sending billions in car taxes to cities and counties.

Davis called for an immediate halt to the tax shift, which could cost local governments more than $4 billion during the next 18 months.

``That just devastates us,'' said Pat Leary, lobbyist for the California State Association of Counties.

Release of the governor's highly anticipated budget plan sets the stage for a momentous battle over how to pull California out of its financial morass. In coming months, the spending plan will be dissected and attacked by liberals and conservatives alike.

While the governor's proposal gives state leaders a starting point for talks, it is likely to undergo massive revisions before it is approved later this year. The new spending plan is supposed to be in place by July 1, but that deadline often has been overlooked when times are tough.

Republican lawmakers are a minority in the Legislature, but they still hold enough seats to block any budget bills from passing without their OK.

On Friday, GOP politicians denounced the tax increases as irresponsible proposals that would drive businesses from the state and undermine consumer confidence.

``Two hundred years ago when people were sick, doctors put leeches on patients, thinking they were being helpful, but they weren't -- they were helping kill the patient,'' said Senate Republican leader Jim Brulte. ``Raising taxes when you have a sluggish or anemic recovery doesn't help the recovery. It hinders the recovery. It's absolutely the wrong step to take.''

Well aware of the criticism, Davis called on everyone to put aside their differences and be part of the solution.

``Whether you are a conservative Republican or a liberal Democrat, we have to face reality and balance our books so we can continue making progress in this state,'' Davis said.

Along with the three major tax increases, Davis said he also wants to tap into a new revenue source: California's booming Indian casinos.

While the gambling centers are exempt from state taxes, Davis will have some leverage over the tribes this year when he renegotiates tribal-state compacts that cleared the way for massive casino expansion across California.

When he sits down to renew the deals, Davis said, he plans to ask the tribes to turn over up to a quarter of their revenue to the state. In exchange for such a promise, tribes with casinos -- some of the largest political donors in the state -- are expected to ask Davis to lift a cap on the number of slot machines they are allowed to operate in exchange for helping the state out of its mess.

On top of the taxes, Davis also suggested drawing more money by raising fees for people who use state parks, register their cars or make in-state phone calls.

The flip side of the new taxes are more than $20 billion in cuts to services that strike at the very heart of California's safety net.

While Davis said he tried to protect education and services for children, nothing was spared.

In one of the deepest education cuts in California history, Davis proposed slashing kindergarten-through-12th-grade funding by $5.4 billion during the next 18 months. Davis called for a 6 percent cut in general education spending, including a freeze in the cost-of-living adjustments for school employees, and cuts in dozens of programs from transportation to school safety and teacher training.

Educators feel betrayed

``There's no question you have to make cuts. But Davis says his top priority is education. That's a lie,'' said Wayne Johnson, president of the California Teachers Association.

Johnson said the cuts were equivalent to slashing spending by $450 per student this year or firing 500,000 teachers.

In higher education, fees at community colleges would more than double, and officials at the University of California system, where fees were just raised by 11 percent, said the price may go up 20 percent to deal with a new round of cuts.

Especially hard-hit in the governor's plan was the state's safety net for the poor.

Davis called for slashing payments to doctors and many clinics by 15 percent, blocking about 500,000 adults from getting free health care, and eliminating benefits that now allow the poor to buy everything from wheelchairs to hearing aids.

California's poorest residents are also being asked to sacrifice. Davis called for cutting welfare benefits by 6 percent, which would reduce benefits for the poor in the Bay Area to $637 a month.


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Mercury News Staff Writers Mark Gladstone, Laura Kurtzman, Howard Mintz, Jessica Portner and Joannie Sevilla contributed to this report. Contact Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603.