California Democrats Seek Tax Increases as Budget Battle Looms
Democrats who control California’s legislature said tax increases are needed to help close a $24 billion deficit, setting up a battle with Republicans that could leave the state unable to pay its bills next month.
Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger that would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a new $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.
The Democrats’ stance sets the stage for a confrontation with Republican lawmakers because California law requires a two- thirds vote to approve tax increases. While Democrats control both chambers, they are six votes short of a supermajority. State Controller John Chiang has warned lawmakers since May that they had until June 15 to fill the gap or the state will find itself without enough cash to pay all its July bills.
“The budget that we will be voting for on the floor will be a balanced approach and it will be a combination of cuts and new revenues,” Bass told reporters in her office late yesterday.
Fitch Ratings said May 29 that California may have the credit rating on its bonds lowered if lawmakers don’t act quickly to solve the latest budget problems. California’s full faith and credit pledge is rated A by Standard & Poor’s and an equivalent A2 by Moody’s Investors Service, five steps below the top investment ranking advance cash loan month paid.
State Bonds
A California bond maturing in 2037 traded for as much as 89.627 cents on the dollar to yield 5.75 percent on June 12, up from as little as 80.40 cents on Dec. 29.
The Democrats’ additional $15 vehicle registration fee would raise about $300 million a year that would be used to finance the operation of California’s 275 state parks. Anyone driving a vehicle with a California license plate would be allowed to enter state parks without paying an entrance fee. Schwarzenegger wants to eliminate all funding for parks.
The latest tax proposal comes after six Republicans broke ranks with their party in February and approved $14 billion in tax increases to end a four-month impasse over how to close what was then a record $42 billion deficit. To fill that gap lawmakers also agreed to cut $15 billion in spending.
Since then the deficit re-emerged as California’s economy worsened amid the national recession, though Schwarzenegger and Republicans have said they won’t support tax increases again.
Bass said the budget plan could be put up for vote as early as next week. It would include $13 billion in spending cuts instead of the $16 billion sought by Schwarzenegger. Another $6 billion would raised by the higher fees and taxes, transferring funds between accounts and fiscal years, and accelerating personal and corporate income tax withholdings.
Filed under: technology by Wolf