Officials Say Budget Gap May Trigger Hike in Car Tax

Searching for a way out of a stalemate between legislative leaders and Gov. Gray Davis over a restoration of the state’s car registration tax, some state officials said Thursday that they are trying to determine whether a 4-year-old law may force the higher fees to take effect without any action by the elected leadership.

The latest plan relies on language in the current car tax law that says if there are “insufficient funds” in the state treasury to cover the rebates drivers have been getting since 1999, the full tax rate goes back into effect.

Ending the rebates would cost the average driver about $124 a year.

Some Republicans said Thursday that they would expect lawsuits if the new interpretation is adopted. They said they would consider backing a ballot initiative to abolish the car tax altogether should state finance officials interpret the law as requiring an increase in the tax.

While Republican leaders cried foul, some Democrats said the hike could bring in substantial revenue for local governments -- the main recipients of the car tax -- at minimum political cost. The new interpretation, they noted, could allow the tax to be reinstated without the governor or Legislature taking action, an attractive prospect for officials who relish money from the fees but are wary of casting a vote to hike it.

“We’re just trying to follow the law,” said Steve Peace, Davis’ director of the Department of Finance and a former chairman of the state Senate Budget Committee. “I am insisting on having a purely legal, nonpolitical evaluation of how this works.” Peace said he is waiting for a ruling from state lawyers on whether California’s fiscal problems will trigger the increase.

Davis, who has opposed legislation to raise the car tax, indicated through a spokeswoman that he would treat a new interpretation of the law differently.

“If the statute determines the trigger should be pulled, that is not a decision made by a Republican or a Democrat,” said Davis spokeswoman Hilary McLean. “That is the statute taking effect.”

Assembly Democrats, who support the higher fee, are waiting for that ruling too.

“At this point, if our comfort level could be elevated that [the increase] would occur, then I think there might be more flexibility,” Assembly Speaker Herb J. Wesson (D-Culver City) said of the willingness of his caucus to negotiate more budget cuts.

Meanwhile, Senate leaders of both parties have struck a deal to approve $3.3 billion in budget cuts Monday. They will then be sent to the Assembly, where Democrats say they will wait for assurances on the car tax from the Davis administration and the controller’s office. If they are assured the 1999 language would restore the tax, they would then send the package of cuts to Davis for his expected approval.

Administration officials have said they opposed raising the car tax because it would weaken the political viability of more than $8 billion in other hikes being proposed to fill a budget gap estimated at between $26 billion and $35 billion over the next 17 months. The state is reimbursing local governments the $4 billion they would have otherwise lost when the tax was cut in 1999.

Davis wanted to stop the reimbursements and use that money to plug the budget gap, leaving local governments to endure the loss. But legislative Democrats -- heeding the cries of local leaders who warned that the move would cripple police, fire and other services -- went ahead and passed a package of bills that would force a car tax hike before billions in savings Davis had called for could be achieved.

Davis criticized legislative Democrats for pushing through the measure without Republican support, but Republicans say raising the tax by administrative order would be just as bad.

Sen. Tom McClintock, (R-Thousand Oaks) said there are only two situations in which the tax hike would be triggered: if there were insufficient funds in the state treasury to fund the reimbursement to local governments, or if the state lost its ability to borrow money.

“Neither of those events has ever occurred,” said McClintock. “If they do this, I believe you have a scramble among many different tax groups to file a lawsuit.”

McClintock said the initiative to repeal the car tax is already drafted and ready to go, as is the check to cover filing fees.

“We are ready to file on a moment’s notice,” he said.

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Times staff writer Carl Ingram contributed to this report.