Car Tax Increase Linked to Cuts

Assembly Democrats are poised to pass a package of bills today prohibiting billions of dollars in immediate budget cuts from taking effect unless a major increase in the “car tax” is approved.

If passed, the proposal would put Gov. Gray Davis in an awkward position: To achieve the current-year savings he says are necessary to begin solving California’s fiscal problems, he would have to sign into law a tax that his administration strongly opposes.

The tax, said Davis spokeswoman Hilary McLean, “doesn’t help us with the chore of closing the state’s shortfall.”

Yet Assembly Democrats said that raising the vehicle license fee is one of the few ways they could add revenue in the face of Republican opposition to tax increases, as it would require only a simple majority for passage, rather than a two-thirds vote.

On Monday, the Assembly Budget Committee inserted language that links a car tax hike to bills containing $3.5 billion in cuts from the 2002-03 budget. The cuts could not take effect unless the car fees are increased.

Assemblywoman Jackie Goldberg (D-Los Angeles) said the move was made to avoid the potential loss of hundreds of millions of dollars that any delay in raising the tax could cause. “This is probably the only revenue we’re going to get in the next 18 months,” she said. “We should get it as soon as possible.”

Republicans expressed frustration.

“That’s a drill to jam the governor,” said Assemblyman Ray Haynes (R-Murrieta). “They don’t have the guts to put up the votes themselves to raise the car tax. This is a classic hot-potato move.”

Republicans are mobilizing a referendum campaign to overturn the license fee increase should it pass the Senate and be signed into law by the governor. The Senate passed a similar bill last year.

“If the Democrats want the biggest statewide tax revolt in 24 years, this is the quickest way to get it,” said Sen. Tom McClintock (R-Thousand Oaks).

The car tax increase would be used to reimburse local governments the $4 billion that Davis is proposing to take from them to help plug the state’s budget gap. Davis wants the cities and counties to absorb the cut and has argued that reimbursing them by raising car tax rates to where they were in 1998, before a reduction, would undercut the prospects for other tax increases needed to close California’s deficit.

The car tax would triple under the Assembly proposal to 2%, meaning that the owner of a $22,000 vehicle would owe about $300 in the first year of ownership.

Davis has called on lawmakers to approve $12.8 billion in cuts by the end of this month to begin closing a budget shortfall estimated at between $26 billion and $35 billion over the next 17 months.

Republicans expressed support for virtually all of the deep reductions proposed by the governor, but many Democrats warned that they would be too hard on the poor.

“We’ve said from the beginning we wanted a balanced approach, that we did not believe you could do this all with cuts,” Goldberg said.

During hearings in the budget committees of both houses, the Democrats voted against many of the big-ticket reductions proposed by Davis. Among items that the budget committees rejected were changes in Medi-Cal eligibility that would take health insurance away from hundreds of thousands of poor Californians and a steep reduction in education funding that would take effect in the middle of this school year.

Democrats said they could come close to reaching the immediate savings Davis wanted through other measures, such as implementing the car tax and postponing $1 billion worth of public school funding so that it doesn’t come out of this year’s budget.

But administration officials scoffed at the math, saying that the proposals approved in committee would amount to only half of what the governor called for. Republicans counted significantly less.

“How can you raise taxes and call that a savings?” asked Assembly Republican leader Dave Cox of Fair Oaks. “We don’t believe Wall Street will look favorably on a state that can’t get its financial house in order.”

The budget committees also defied the governor last week by pushing through cuts in the state prison system, the one area that Davis had urged be spared.

The Assembly will vote today on a proposal to delay construction of a prison in Delano and to provide work credits for prisoners qualified to work but for whom there are no jobs available in prison.

On Thursday, the Senate will consider those cuts, plus proposals to release certain nonviolent felons to parole a month early and to soften the penalty for shoplifters with prior convictions.

McLean said Davis would keep an open mind about some proposals, but remains opposed to any plan to release convicts early.

Republicans also are skeptical about the proposed prison cuts, pointing out that Democrats are advocating the early release of felons while refusing to vote for cuts in such programs as a study of prune pesticide residue.

“They make sure public safety is on the chopping block, but not the prunes,” said Assemblyman Tony Strickland (R-Moorpark).