Democrats Shuffle Budget Proposal

Lawmakers may not have succeeded in passing an overdue state budget last week, but Democrats did take steps to diminish Republican opposition and undercut a key GOP criticism of the plan.

Assembly Speaker Herb Wesson (D-Culver City) announced that he was dropping a proposal to raise vehicle license fees and would instead seek a massive hike in tobacco taxes.

His strategy shift changes the dynamics of the budget debate by diminishing two key points of Republican opposition: Under Wesson’s plan, the budget would no longer be balanced on the backs of motorists, and it would lead to smaller imbalances in the future between revenue and spending.

Unlike the proposed one-year increase in vehicle license fees, raising the state cigarette tax to $3 per pack is seen as a permanent increase that would bring in $1.7 billion in the current fiscal year. The sum could rise in subsequent years when taxes are increased on other tobacco products, including cigars, but could be diminished if the hikes cause a sharper drop in sales than analysts predict.

“Certainly the tobacco tax is one that voters are more sympathetic to,” said Jean Ross, executive director of the California Budget Project, which weighs the impact of budget decisions on low-and middle-income Californians.

“The fact that you have a larger share of the tax increase that is permanent will help address the long-term problem.”

Assembly Democrats, who voted to make the changes to the tax package last week, were quick to capitalize on their decision by arguing that increasing tobacco taxes would not only help get the state out of the red, but save lives by causing price-sensitive smokers, such as teenagers, to cut back.

“For me, it’s personal,” said Wesson, a self-described addicted smoker. “I feel it in my heart and soul; we’re on the right side of the issue.”

In another development that could diminish the threat of future budget holes, Gov. Gray Davis’ Department of Finance directed state agencies to prepare plans to permanently reduce spending in ongoing programs by 20% next year. If carried out, the cuts would have a ripple effect that saves the state money in subsequent years

Republicans blocked the tax package last week, but for the most part steered clear of defending smokers. And while they continued to call for spending cuts, they were no longer able to cite analysts’ predictions of $50 billion in revenue shortfalls over the next five years as a reason why programs must be diminished this year.

GOP legislators made an issue out of the state’s increasing reliance on smoking to balance the budget, however. They also questioned whether the cigarette tax would be a reliable source of revenue, given that it’s expected to reduce smoking rates and could trigger an increase in smuggling. Democrats contend they already have taken those factors into account.

“Taxes are not the answer,” Assemblyman John Campbell (R-Irvine) said during a floor debate last week. “Reduced spending is the answer.”

“At the end of the day, nothing in this budget has changed,” said Peter DeMarco, a spokesman for Assembly Republican Leader Dave Cox of Fair Oaks. DeMarco said the spending plan would leave the state’s books out of whack. California’s nonpartisan legislative analyst, Elizabeth Hill, has not adjusted her forecast of a $9.8-billion budget gap next year to reflect the change in the tax package proposed last week or the fact that revenues are coming in weaker than anticipated.

As the budget battle enters its seventh week since the new fiscal year began July 1, attention is likely to turn to the issue of additional spending cuts.

Republicans have called for enough cuts to wipe out the need for any tax increases.

Democrats want them to make a compromise offer. In the meantime, efforts continue to woo four Republicans--the minimum needed to approve a new budget--to break from their party and join Democrats in voting for the plan. The strategy worked in the Senate, which approved the spending package June 20.

In perhaps a foreboding sign, Senate officials notified their offices last week that the budget can be taken up any time between Aug. 31--the date the Legislature is scheduled to adjourn--and Nov. 15 without the need for a special session.