A Quarter-Cent Looms Large in Budget Impasse

Six pennies a day or nearly $600 million over six months.

Depending on whether a Democrat or a Republican is doing the talking, that’s how much maintaining a quarter-cent cut of the state sales tax will save Californians.

The seemingly trivial amount--a quarter of one penny--has taken on a larger-than-life presence around the Capitol, where passage of the state budget is being held up by Republican demands that Democrats preserve the tax cut.

The debate--a largely political controversy built around the posturing of the two parties--has overtaken all other issues in California’s $101-billion budget.

The two sides cannot even agree on what to call the proposed change in the sales tax: One argues that allowing the quarter-cent to return is a tax hike, while the other describes it as the anticipated result of conditions built into the law.

The reduction, which was triggered for the first time in January under provisions of a 1991 law, is expected to return next year, barring intervention from the Democratic-controlled Legislature or Gov. Gray Davis.

Democrats contend that the state, with its softening economy, is in no position to grant the Republicans’ pricey request.

Republicans counter that there would be plenty of money to pay for their proposal if only the Democrats would quit growing government.

“Raising taxes to fund runaway government spending is not our idea of good public policy,” said Senate GOP Leader Jim Brulte of Rancho Cucamonga.

Political sparring aside, the tax fight caused Davis to bust a midnight deadline for signing California’s 2001-02 budget in time for the new fiscal year, which begins today.

Senate Leader John Burton (D-San Francisco) said he expects negotiations to continue on several Republican requests that could result in spending $40 million to help make funding between urban and rural schools more equal and also allowing voters to choose whether sales taxes raised on gasoline should be permanently dedicated to transportation.

Another issue worth examining, Burton added, is how state agencies spend millions of dollars in salaries for positions that go unfilled. Continuing the sales tax cut, however, is not on the list.

“As far as I’m concerned and the governor is concerned, that’s a non-starter,” Burton said Saturday of the sales tax issue.

The political standoff marks one of the few times this year that the Republicans, with their dwindling numbers, have been able to flex some political muscle.

“The Republicans have been all but marginalized on most issues in the state because of their numbers,” GOP consultant Allan Hoffenblum said. “It’s only at budget time, which requires a two-thirds vote, where they can have some real influence on state policy.”

The decision by the Republicans to draw a line in the sand over the tax issue has unsurprisingly sent the Sacramento spin machine into top speed as each party attempts to win public support for its position.

The Republicans, for example, are citing results of a study maintaining that the tax’s return would cost 83,500 California jobs.

They are also circulating copies of a play penned by a budding thespian, Thousand Oaks Assemblyman Tony Strickland, printed on fancy, gold-colored paper. The play’s plot: a baffled taxpayer trying to get a politician to explain why state sales taxes are rising next year.

Democrats have fired back with their own wave of paper proof that preservation of the quarter-cent tax cut will hurt residents by forcing the state to slash funding to crucial programs, including education.

Their handouts include a breakdown of the $4.3 billion in tax breaks contained in the 2001-02 budget blueprint and a decision by the state’s independent legislative analyst that allowing the tax to return is not technically a tax increase.

They have also released a memo completed by a state economist who concludes that permanently abolishing that portion of the sales tax would create 12,000 jobs--a far cry from the 83,500 that Republicans say would be lost by restoring the tax.

Republicans, according to Democratic Assemblyman Darrell Steinberg, should throw their support behind the spending plan in order to maintain the public’s faith in the political process, if for no other reason.

“We’re ready to approve the budget and get on with the state’s business,” Steinberg said. “I think we ought to live up to the public’s expectations and get the job done.”

Republicans say they are merely sticking to their philosophical guns.

In a show of unity last week, Assembly Republicans burst into a room where their Senate counterparts, who a day earlier blocked passage of the budget in the upper house, were meeting to applaud them.

“The one thing that unites Republicans--whether they are conservative or liberal--is our core opposition to tax increases,” said Sen. Jim Battin (R-La Quinta).

Republicans contend that the quarter-cent break saves the average household of four about $120 a year--an amount they characterize as a healthy sum that will help Californian families pay for rising electricity costs and keep the economy humming.

But Democratic Assemblywoman Sarah Reyes of Fresno said during a speech she gave last week that the tax cut actually saves the average Californian only about $21.90 a year, which amounts to six cents a day.

“Let’s be honest,” Reyes said on the Assembly floor as she counted six coins. “Six pennies a day is what we’re talking about.”

Jean Ross, executive director of the California Budget Project, a liberal nonprofit group, said keeping the tax cut would save the poorest California households $12 a year, average ones about $30, and the wealthiest 1% about $216.

Tom Lieser, senior economist with the UCLA Anderson Business Forecast, declined to take sides. UCLA forecasters issued a report last week that predicts the state will slump into a recession this year.

“If you sustain the tax cut, you’re giving more money back to the households and businesses to enter the spending stream, and that’s a plus,” Lieser said.

“But you’re also cutting into the state’s revenue stream during a period where we may be facing revenue shortfalls or certainly weaker revenues.”

A diminished revenue stream, he warned, could harm the state’s ability to market bonds.

“I think the governor is trying to get a tax increase taken care of this year so he doesn’t have to deal with it next year during elections,” Brulte said.

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Times staff writer Carl Ingram contributed to this story.