Detour Sought for Roadblock Over Budget

In proposing to more than double the vehicle license fees paid by California motorists, Gov. Gray Davis is asking Republican lawmakers to roll back a tax cut that they fought hard to win, and thus hold dear.

The Democrats’ foray onto Republican sacred ground has contributed to a standoff over a new state budget that would close a $23.6-billion revenue shortfall.

With the spending plan now six weeks overdue, Davis and his fellow Democrats are scrambling to find a way to break the impasse.

Democrats assumed they could find just enough Republicans to vote for a $99-billion spending package that includes the car fee increase.

The strategy worked in the Senate, which approved the budget June 29. But it failed in the Assembly, where most Republicans remain staunchly opposed to it and cite analysts’ projections that it would set the stage for at least five more years of budget deficits.

“It’s the single most objectionable tax,” said Assemblyman John Campbell (R-Irvine).

“Cars are not only necessities for Californians because of the size of the state and because of our transportation system, but they’re also a significant part of our culture. This is the car capital of the world.”

So the majority Democrats are examining how they might eliminate the proposal, possibly through a combination of substitute tax increases and spending cuts.

Another option that is guaranteed to send shock waves through California communities would be for the state to keep the reduced fees but no longer to reimburse cities and counties for the cut as the state has been doing since it began slashing the fees in 1998.

The problem with dropping the license fee proposal, according to Democrats, is that raising almost any other tax would have a ripple effect that would increase the amount of money the state must pay schools.

Consequently, they contend, eliminating the car tax hike and the $1.3 billion it is expected to raise in the current fiscal year, which began July 1, would force them to scrape together $1.8 billion to cover the added school costs.

“I think the [the vehicle license fee] is very significant in the minds of Republicans,” said Senate Budget Committee Chairman Steve Peace (D-El Cajon). “They see it as symbolism, and that’s getting in the way of the math.”

Republicans say a different brand of symbolism is at play.

“It is the only tax that was permanently reduced, and that sticks in the craw of the spending lobby,” said Sen. Tom McClintock, the Thousand Oaks Republican senator who has crusaded to abolish the tax entirely. “It is a symbolic objective.”

The impasse illustrates the difficulty of finding a middle ground in a partisan budget battle. After approving the spending package in June, the Senate adjourned on a summer break that ends today.

The Senate’s return could pave the way for a breakthrough because upper house lawmakers must sign off on any changes made to the plan they have already approved.

“Having the Senate come back gives us an opportunity to close this whole thing out,” said Assembly Budget Committee Chairwoman Jenny Oropeza (D-Long Beach).

The fee increase is the centerpiece of the tax package sitting in the Assembly. It would more than double the fees levied on all registered vehicles to raise $2.4 billion during the 2003 calendar year.

Davis proposed increasing the fees as an alternative to raising personal income taxes, which in recent years have proved to be a volatile source of revenues.

But his proposal received a chilly reception, even from Democratic legislators, many of whom would prefer to tax the rich.

Republicans successfully sought a reduction in vehicle license fees in 1998 as a nod to taxpayers who had been hit with the biggest tax increase in the state’s history as former Gov. Pete Wilson struggled in 1991 to close a $14-billion budget gap.

State officials crafted a $7-billion tax package that, because of the recession, brought in $5.4 billion through higher vehicle license fees in addition to boosts in sales, income and other taxes.

They latched onto the car tax after watching Republican Jim Gilmore win a landslide victory in the 1997 Virginia’s governor race, partly on his pledge to eliminate the commonwealth’s vehicle license fee.

Voters booted Bill Clinton from the Arkansas statehouse in 1982 after he raised the state’s annual car registration fee from $17 to $25.

In California, a 2% fee has been reduced by slightly more than two-thirds since 1998 in a series of rebates.

To help close a $23.6-billion budget gap, the governor now wants to suspend part of the rebate--restoring the fee to 1.5% of a vehicle’s depreciated value--for the 2003 calendar year.

California is home to 29.6 million cars, motorcycles, trucks and trailers that are subject to vehicle license fees.

Under the Democratic proposal, the charge for a car valued at $9,200--the state average--would rise from $60 to $138, an increase of $78.

The state has been paying local governments, which receive the bulk of vehicle license fees, for the state-ordered cut in the car fees. Last year, those payments totaled about $3.8 billion.

Increasing the fees would thus reduce the amount the state owes cities and counties.

Peace said the same goal could be accomplished if the state stopped reimbursing local governments for the cut.

Local officials note that the 1998 legislation authorizing the tax cut was written in such a way that, if times got tough, the fees could go up.

“If someone says times aren’t tough right now, I’d like to know what they think is tougher,” said Steve Szalay, executive director of the California State Assn. of Counties.

Driving the Republican push to eliminate tax hikes is their belief that state revenues and spending are out of whack.

GOP lawmakers point to forecasts by state analysts that the spending plan they are being asked to approve will leave the state in the red for the next five years.

A decision by state officials to rely on onetime solutions to balance this year’s budget--as well as solutions that will come back to haunt the state later, such as deferring expenses and borrowing--is contributing to the threat of future imbalances.

Republicans are calling for a spending limit to correct the problem.

“It becomes a question of what permanent tax increase do you want to make, because there are deficits for as far as the eye can see,” said Assembly Republican leader Dave Cox of Fair Oaks.

For that reason, Cox views all of the Democrats’ proposed tax hikes as equally offensive, as does Assemblyman Bill Leonard (R-San Bernardino).

“I cautioned the Republican caucus not to focus on the car tax because they might win that one in exchange for a substitute tax increase,” Leonard said. “But I don’t know where the Republicans are individually.”