Davis Won’t Sign Bill Linking Cuts to Auto Fee Hike

Gov. Gray Davis said Tuesday he will veto legislation that links billions of dollars in spending cuts to an increase in vehicle license fees, angering Democratic lawmakers and casting doubt on a quick solution to California’s budget crisis.

Davis said the veto is necessary if there is to be any hope of attracting Republican support for a solution to the state’s massive budget shortfall. He urged lawmakers to approve even deeper spending cuts than the $3 billion they have adopted, and to do so without any linkage to higher vehicle license fees.

“As governor, I cannot give up hope that a bipartisan compromise can be achieved,” Davis said in a telephone interview after announcing his veto decision. “Is it difficult? Unquestionably. Is it doable? Absolutely.”

Angry Democrats, however, warned that Davis risked alienating his allies in the Legislature as he seeks to curry support among Republicans.

“You’d better talk about being bipartisan on the Democratic side as well,” said Assemblywoman Sarah Reyes (D-Fresno).

Davis needs the support of at least six Republicans in the Assembly and two in the Senate to reach the two-thirds majority required to pass his budget.

As the governor was announcing his position, the Assembly was approving a package of seven bills that would save about $3 billion this year and give the state finance director the authority to triple the vehicle license fee to raise another $4 billion a year.

No Republicans voted for the two bills linking spending cuts to an increase in the car tax. Democratic lawmakers linked the bills to make it more difficult for Davis to veto the legislation.

Davis had asked the Legislature to approve more than $10 billion in cuts and other savings over the next 17 months. But Democratic legislators have balked at cutting programs popular with their constituents and have agreed on only a fraction of the governor’s proposed reductions

Republicans support the Davis cuts and praised him for taking a stand against the proposal to raise vehicle license fees. But they said it doesn’t soften their opposition to $8.2 billion in tax increases the governor is proposing as a partial solution to a budget shortfall estimated to be at least $26 billion between now and mid-2004.

“We recognize the olive branch, and we accept the olive branch,” said Assembly Budget Committee Vice Chairman John Campbell (R-Irvine). “[But] we don’t think the budget can or should be corrected by ... [a] tax increase.”

Republicans say the budget shortfall can be fixed by cutting spending, imposing a cap on spending and repealing laws that they say hurt economic growth.

In an unusually blunt letter, which he released publicly, state Treasurer Phil Angelides warned Davis that Wall Street credit rating agencies “may view negatively the rejection of the legislation [and] what amounts to a return to ‘square one’ of the midyear budget adjustment process.”

A veto of the Assembly cuts would make it “more difficult” for the state to maintain its credit ratings, he said.

Davis defended his decision and said Wall Street would respect his plan to pursue a long-term solution to the budget crisis, rather than what he described as the partial solution offered by the Assembly bills and similar legislation in the Senate.

“I believe the ratings agencies respect clarity,” Davis said. “I think the Legislature has demonstrated its willingness to make difficult choices. I don’t think that will be lost on Wall Street.”

Assembly Speaker Herb Wesson (D-Culver City) said he would hold on to the bills and wait for pressure to mount on Davis from Wall Street and local governments facing devastating cuts.

In the latest embodiment of that strategy, the Assembly will hold hearings today to hear the testimony of police officers. They are expected to warn that public safety will suffer if the governor’s proposed cuts are made without higher vehicle license fees or a continuation of $4 billion in annual state payments to local governments that are linked to the car tax.

Davis went out of his way to try to soften the impact of his decision with Democrats, saying he had “great respect for the Democrats” and praising the cuts they had approved.

But he said raising the vehicle license fees -- and alienating Republicans by doing that with a party-line vote -- would undermine his plan to shift $8 billion in state programs to local governments.

Wesson said Davis was merely wasting time by trying to reach out to Republicans. “I don’t think there’s anything that he can do or say that would make them vote for his total package,” Wesson said.

But Davis said Republican support for restraints on government spending and other structural reforms could convince some GOP lawmakers to vote for a budget that includes tax increases in exchange for some form of rein on future state spending.

“There’s every reason to believe that could happen,” Davis said.

Senate President Pro Tem John Burton (D-San Francisco) refused to comment on the Assembly votes or the governor’s threatened veto. He said he would hold a news conference today.

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Times staff writer Evan Halper contributed to this report.