State Deficits Predicted if Car Tax Is Cut

Gov. Pete Wilson’s proposal to slash the so-called car tax could result in annual budget deficits of almost $850 million by the turn of the century, according to a revised estimate produced for lawmakers that will be released today.

The report by the nonpartisan Legislative Analyst’s Office gives ammunition to Democrats who are trying to scuttle or significantly pare Wilson’s proposal to cut the vehicle registration fee by three-fourths, amounting to a $3.6-billion tax cut when fully phased in after the turn of the century.

“This is a boost, and a legitimate one, to the assertion that you can’t impose this kind of cut and not suffer dire consequences,” said Assemblywoman Carole Migden (D-San Francisco), a member of the committee that is trying to shape a new state budget. “It substantiates what we’re saying--that there will be deep cuts. This will mean that education will suffer.”

Republicans, many of whom are making the car tax cut a cornerstone of their election-year strategy, immediately blasted the analysis, insisting that the tax can be cut without damaging state or local government programs.

“We’ve expected the counterattack,” said Assembly Republican Leader Bill Leonard of San Bernardino, one of the leading proponents of cutting the fees that California motorists pay to register their cars each year. “The car tax cut is a fiscal priority, and you move other things around to accommodate it.”

The report, a copy of which was obtained by The Times, offers three possibilities about the state’s economic future, the revenue coming into state coffers in future years and the cost of state operations.

Under the most conservative estimate, the legislative analyst predicts a deficit of $418 million in the 1999-2000 fiscal year, growing to $848 million the following year, and topping $1 billion in 2001-2002--all with the tax cut in place.

Using a less optimistic estimate, the legislative analyst predicts that the deficit would be $1.6 billion by 1999-2000, and grow to more than $3 billion in 2001-2002.

The analysis was prepared for a joint Assembly and Senate conference committee scheduled to begin meeting today to consider various tax cut plans. The tax cut proposals come as lawmakers attempt to fashion a budget for the new fiscal year starting July 1.

California law requires that lawmakers produce a balanced budget. If the legislative analyst is correct, future legislatures and governors would be forced to make deep cuts to higher education, prisons, and other areas funded by general tax revenue.

Wilson and Republican lawmakers are pushing the car tax cut, arguing that Sacramento should return money to taxpayers who were hit with the largest tax increase in the state’s history in 1991 during the depths of the recession.

This year, with the economy booming, there’s a budget surplus of $4.4 billion. Democrats, while privately acknowledging that some tax cut is likely this year, are pushing to spend much of the surplus on public schools.

Wilson’s spokesman, Sean Walsh, labeled the report an “apparent partisan political analysis.”

Walsh said Wilson bases his belief that the tax can be cut by 75% without reductions to most programs on an analysis by the administration’s Department of Finance. The department has underestimated economic expansion in recent years.

“It is our expectation that revenues will be even higher [than forecast],” Walsh said. “They could be high enough for a total repeal of the car tax in coming years.”