GOP Stalls Budget in Sales Tax Standoff

Voting as a bloc, Senate Republicans halted passage of the state’s estimated $101-billion budget on Tuesday, saying it would result in a tax increase that would hurt California families.

A single Republican vote was needed to approve the 676-page document by a two-thirds majority in the Democratic-controlled Senate. But the Tuesday-night vote split perfectly along party lines, with Republicans casting all 14 of their votes against the plan, compared to the 26 votes that Democrats threw up in its favor.

The standoff threatens to force Gov. Gray Davis to miss the deadline for signing the budget by Sunday, the start of the new fiscal year.

The Senate is expected to vote on the plan again today or Thursday. The timing of an Assembly vote on the budget bill was uncertain.

When the budget reaches the lower house, a similar face-off is likely because Democrats need four Republican votes to approve the plan. Assembly GOP leaders said their members could not be counted on to back the plan.

A series of issues have divided the two parties over the state’s 2001-02 budget blueprint, but the biggest has been a disagreement over a quarter-cent of the sales tax that Republicans want eliminated. Their proposal is expected to cost state coffers--and consequently save taxpayers--nearly $600 million in the first six months of 2002.

“This is a tax increase,” Senate Republican Leader Jim Brulte (R-Rancho Cucamonga) said. “Not only that, it’s the most regressive form of tax increase because it affects the poor and those who can least afford to pay for it.”

Democrats called the demand, with its hefty price tag, irresponsible because it would likely force the state to cut back programs including prisons, health care and education.

“Tell me how much you want to cut out of schools, Mr. Brulte, how much you want to cut out of higher education. . . . Tell me how many prisoners you want to put out on the street,” Senate Budget Committee Chairman Steve Peace (D-El Cajon) demanded of the Republican leader.

Consumers have enjoyed a quarter-cent sales tax reduction since Jan. 1 of this year because of a 1991 law crafted during Gov. Pete Wilson’s administration saying that if the budget surplus tops 4% of the general fund for two consecutive years, the sales tax must be lowered by a quarter-cent. But that tax is expected to return to its full level next year for several reasons, including a budget reserve that falls below 4%.

Republicans want the Democratic-controlled Legislature or Davis to intervene and keep the quarter-cent in taxes from reappearing. They have suggested that the state redirect $400 million for vacant government positions to the general fund and reject $120 million in special-funding requests made by individual lawmakers to pay for the cut.

Senior Davis administration officials contend that the Republican tax demand conflicts with economic realities facing California. Recent developments include revenues falling $66 million short of projections for the month of May and a federal repeal of estate taxes that is expected to cost state coffers $100 million in the upcoming fiscal year and grow to $1.1 billion by 2004-05.

Republicans also are asking that voters be allowed to decide whether sales taxes on gasoline should be permanently dedicated to transportation projects. In addition, Republican lawmakers want money for rural and urban schools to be made more equal and also are calling for a budget reserve of at least $3 billion.

Each of those issues still could be the subject of talks between leaders of the two parties.

The spending plan negotiated by a special legislative budget-writing committee set aside a rainy-day reserve account of $2.2 billion, a sum that is expected to grow by another $400 million once Davis finishes making selective cuts to new programs and ongoing ones.

Those cuts, according to Peace, could save the state enough money to avoid a possible $4-billion deficit in the 2002-03 budget year, though the state still could face a shortfall of $700 million to $1.1 billion that year.

“They keep talking about this sales tax thing, which is kind of a bogus argument at the same time they want a big reserve,” said Senate Leader John Burton (D-San Francisco).

The spending plan is largely the product of negotiations between the Davis administration and Democratic legislative leaders. It boosts annual per-pupil spending from $6,678 in the current fiscal year by about 5% to $7,006 in the upcoming one. It also includes about $200 million to rescue the state’s lowest-performing children and about $95 million to bolster teacher and principle training.

“The budget from an education point of view protects the governor’s priorities,” said Kerry Mazzoni, Davis’ education secretary.

The budget also extends health insurance through the Healthy Families program to certain parents, infuses $30 million into the state’s trauma care system, and adds $12.6 million to the Aids Drug Assistance Program.

At the same time, however, it relies on at least $1.5 billion in funding shifts to balance the budget, including keeping about $1.3 billion earmarked for transportation in the general fund.

Assembly Republicans want Democrats to scale back new spending to pay for the continued quarter-cent reduction, including money targeted at bolstering welfare and the Healthy Families expansion.

“These are all new programs,” said Lancaster Assemblyman George Runner, the Republican’s budget point man in the lower house. “These are not things we think you should do when you’re thinking of raising taxes.”