Rival Fiscal Ideas Aired

While Gov. Arnold Schwarzenegger was in Southern California on Tuesday promoting his plan to fix the state’s financial problems, Democratic lawmakers here were crafting their own remedy, proposing to borrow less money than he requests and perhaps to raise taxes on the wealthy.

Meanwhile, state Treasurer Phil Angelides, a Democrat, launched a campaign to fight the Republican governor’s plan to borrow up to $15 billion to help close a projected budget gap this fiscal year. And educators stepped up their opposition to Schwarzenegger’s proposed cap on state spending.

Under the proposals being considered by Senate Democrats, led by President Pro Tem John Burton (D-San Francisco), California would borrow nearly $13 billion over five to eight years. Schwarzenegger’s borrowing plan would stretch over as much as 30 years.

And the lawmakers considered an income-tax increase on top earners, an option used by two previous Republican governors -- Ronald Reagan and Pete Wilson -- to fill budget gaps.

“There are a number of senators who would like to see a revenue component, because it essentially would relieve the pressure created by the spending limits” and the governor’s proposed $15-billion bond issue, said state Sen. Sheila Kuehl (D-Santa Monica). “Several senators have asked John [Burton] to present the revenue increase as part of the package.”

Some Republicans as well as Democrats fault Schwarzenegger’s borrowing plan as excessive, and educators say his proposed spending limits could jeopardize funds for public schools and community colleges. The governor has said he is open to other proposals on the spending cap but has repeatedly voiced opposition to higher taxes.

Schwarzenegger’s proposals are part of his effort to bridge a gap between what the state generates in revenue and what it spends. The governor has also proposed $1.9 billion in cuts to government programs.

He has asked the Legislature to approve the bond issue and spending cap proposals by Friday to put the measures to a statewide vote in March. Friday is the deadline the secretary of state has set for March ballot measures.

Senate Republican Leader Jim Brulte (R-Rancho Cucamonga) on Tuesday restated Republican lawmakers’ opposition to a tax increase. But he said they would support the Democratic proposal for less borrowing over fewer years on the condition that “we just fully expect the Democrats to be with us then, when we have to make the spending reductions.”

Republican lawmakers this year and last year rejected Democratic proposals to increase the income tax on top earners by establishing new 10% and 11% tax brackets, a measure that could generate up to $2 billion annually in new revenue, the nonpartisan legislative analyst has estimated. Currently, the top rate is 9.3%.

Democrats are planning to push for that tax increase again. Some, like Sen. Don Perata (D-Oakland), say it is too early to make that push. He favors waiting until January, when the governor must propose his first budget for the fiscal year beginning July 1. Democrats say Schwarzenegger will be unable to balance the budget with cuts alone.

“I can tell you that no one’s quibbling over whether we need to issue debt,” said state Sen. Dean Florez (D-Shafter), adding that most Democrats support borrowing. “The argument is over the way we do it.”

Angelides, who is expected to run for governor in 2006, has been outspoken in criticizing Schwarzenegger’s fiscal plan, calling the borrowing excessive. At a Sacramento elementary school for underprivileged children Tuesday, the treasurer unveiled a 30-second TV ad aimed at defeating the bond proposal and vowed to rally voters against the plan.

Flanked by college students, advocates for the poor and disabled and others, he said it was wrong to stretch the state’s debt over decades simply because lawmakers would not make the hard decisions needed to balance the budget. He called on Schwarzenegger to consider raising taxes before asking voters to borrow.

“We should have an open and honest and truthful debate with the people of California about what is required to balance the budget,” Angelides said, calling the proposed bond measure a “hide-the-ball technique.”

Opponents of the bond issue will air television spots in Sacramento, the San Francisco Bay Area and Bakersfield urging voters to reject the measure, Angelides said. The ads, which show sullen children as an announcer says the governor’s bond plan “will saddle our children with debt for decades,” will be paid for with at least $350,000 in contributions from Angelides and others, the treasurer said.

In a radio interview Tuesday afternoon, Schwarzenegger declined to criticize Angelides, saying, “I’m only working toward one thing, and this is to accomplish my goal so the initiative will be on the ballot in March.”

Other Republicans were less diplomatic.

“Angelides’ solutions fly in the face of the people of California,” Richard Riordan, former mayor of L.A. and now Schwarzenegger’s education secretary, said in a telephone interview.

He said the overwhelming majority of voters in the recall election chose anti-tax candidates.

The California Republican Party issued a statement likening the treasurer’s planned tour of the state -- a tactic Angelides employed earlier this year to advocate a tax increase opposed by Republicans -- to “a scene from the movie ‘Groundhog Day’ ” and ridiculed him as “Punxsutawney Phil Angelides,” a reference to the Pennsylvania groundhog featured in the Bill Murray comedy.

Educators, meanwhile, widely denounced Schwarzenegger’s proposed spending cap at their own news conference, saying it would erode funding guarantees for education and reduce expenditures on schools by an estimated $2 billion a year.

“The education community stands together in opposition to the governor’s current proposed spending cap,” said Jack O’Connell, state superintendent of public instruction. “I cannot agree in good conscience to a cap that could take away $2 billion a year from our schoolchildren. This is simply unacceptable.”

Schools in future years could expect to lose $10,000 per classroom if the governor’s proposal became law, the educators said.

O’Connell and the state’s leading education groups, including the California Teachers Assn. and the California School Boards Assn., advised against rushing the proposed bond issue and spending cap onto the March ballot without fully examining the repercussions. Classes would grow, schools would have fewer textbooks and campuses could lose teachers, they said.

The state Constitution now guarantees schools about 40% of general fund revenue. The state can reduce its commitment, however, when revenue declines, pledging to repay the debt in better times.

“The governor has promised to protect school funding. We believe him,” CTA President Barbara Kerr told reporters. “But the spending cap does not protect that promise.”

The governor’s cap plan also came under scrutiny Tuesday in the Senate at a hearing of the budget and appropriations panels.

“It seems to me we would be a lot better off, no matter what we vote on Friday, to make something that is temporary,” said Sen. Dede Alpert (D-San Diego).

In a report released Monday, Legislative Analyst Elizabeth Hill warned of potential pitfalls.

Without changes in the law, her report predicted, spending would exceed revenue by $15 billion in the coming budget year. She said actions taken to close this gap “will to a large degree ‘lock in’ future revenue and expenditure levels.” Hill questioned whether it was “reasonable” to do so in the next budget.

She said Schwarzenegger’s plan had “the potential to fundamentally shift the balance of power between the executive and legislative branches of government” by expanding his power to determine what is a fiscal emergency and how to address it.

But consensus is emerging in the Legislature that any cap that makes it onto the ballot is likely to be less restrictive than what the governor proposes, and temporary.

Assemblyman Joe Canciamilla (D-Pittsburg), who has long pushed for the kind of strict spending cap Schwarzenegger is advocating, said prospects for decisive action on the issue were bleak.

“I just don’t see how we’re going to get a permanent, constitutional amendment spending cap in the next three days,” he said. “It’s not something that I think people feel comfortable blowing through in 48 hours just so Arnold can say he’s got something on the ballot.”

Times staff writers Duke Helfand, Peter Nicholas, Jeffrey L. Rabin and Nancy Vogel contributed to this report.