Davis’ Revised Budget to Add Car Tax Increase of $4 Billion

When Gov. Gray Davis unveils his revised state budget Wednesday, it will include a $4-billion increase in the license fee required of California drivers and continued support for a program to help students get more attention from their teachers.

Both moves, Capitol observers said, are designed to appeal to the Legislature’s liberal-leaning Democratic majority and shore up an important political base as he girds to fight a campaign to recall him from office.

Higher vehicle license fees will annually cost drivers an average of $136 more than they pay now but help lawmakers avoid an array of program cuts. Continuing the $1.7-billion school class-size-reduction program will probably come at the cost of other services but gain favor from one of the governor’s key support groups: teachers.

“He’s scared,” said Wayne Johnson, president of the 330,000-member California Teachers Assn. “He sees this recall movement as having some potential, and he needs education and labor.”

Johnson said Davis has begun meeting with the union’s officers every other week in his Capitol office to talk about the budget and other issues. Such meetings, Johnson said, used to occur about twice a year.

“Now when he’s in trouble, he’s moving back to talking with his core constituencies again and doing something [for] them,” Johnson said. “It’s so obvious that it’s almost insulting.”

The move on the so-called car tax also will please those core constituencies. Labor union officials said the tax hike is vital to overcoming the state’s $35-billion shortfall over this year and next. But Davis has so far resisted calling for the vehicle fee hike, which polls show is unpopular with voters.

Though administration officials would not comment Monday about what will be in the revised budget, lawmakers briefed during a meeting of the Democratic Latino caucus in the Assembly confirmed that the car tax will be included.

Many of Davis’ critics in his own party feared that the governor would resist including the car tax in his revised budget because it would hand his opponents a potent weapon in their drive to recall him.

In February, when Davis threatened to veto a Democratic bill to hike the fee, he said it was because he did not want to anger anti-tax Republicans whose support could be crucial to passing a final budget.

A March 7 opinion by lawyers for the state Department of Finance and Controller Steve Westly, however, set forth a roadmap to raise the car tax by what some Capitol insiders call “immaculate conception.” In essence, the opinion said the state Department of Motor Vehicles can raise the fee by administrative action if general tax revenues are so low that the state risks not being able to pay its bills. And the revised budget that Davis will issue Wednesday is key to that calculation. That document will show that costs are significantly higher than he predicted in January, and that revenue is running below expectations.

Several Democrats, including some who have been critics of Davis, believe that he can begin to redeem himself at least among Democratic activists by presiding over the car tax increase. Those lawmakers believe that such a move would help him show himself as a leader.

“In many instances, he overcompensates or panders to [the conservative] part of the electorate,” said Sen. Gil Cedillo (D-Los Angeles). “That part of the electorate is never going to be with us.”

Assemblywoman Jackie Goldberg (D-Los Angeles) said that although Davis has expressed concern about incurring the wrath of Republicans by raising the car tax, not raising it could be more dangerous politically.

“Let’s say he doesn’t do it and cuts $4 billion,” Goldberg said. “You don’t think that is going to [anger] people?”

Some Republicans vow to challenge the tax hike. Sen. Tom McClintock of Thousand Oaks has repeatedly warned that he will file papers in court to stop the car tax hike “within minutes” of its taking effect. He said that raising the car tax will lead to an outright “tax revolt.”

Such a challenge could ultimately prolong budget negotiations, as a few Republican votes are needed to get a budget passed by the two-thirds majority required by the state Constitution.

Other Republicans, however, such as Assemblyman Keith Richman (R-Northridge), said that although they oppose the car tax increase, it may be inevitable and it is therefore reasonable to factor it into budget solutions.

Wall Street analysts are watching closely. They want to see Davis offer a plan that calls for a secure revenue source that could back up the state’s borrowing need.

Internal documents from the state Department of Finance show that another key part of the revised budget could be a plan to borrow as much as $10 billion to pay off the deficit. Wall Street firms have warned that loans of that?? size may not be available to the state if lawmakers do not approve new taxes, such as the vehicle license fee increase or a new sales tax.

School officials, meanwhile, are closely watching as Davis prepares to unveil his revised proposal for education funding. Many said Monday that they still may have to scrap part or all of the class-size reduction program that Davis vowed to protect.

“I am opposed to any retreat from class-size reduction,” Davis said last week. “I’m not going to reduce the state’s commitment.”

State government has spent more than $10 billion over the last seven years to keep classes small in the primary grades. The state’s current contribution of $906 per student pays most of the cost to reduce class size in kindergarten through third grade to 20 pupils per teacher.

School districts, also beset by the worst budget crunch in a decade, have said they can no longer pay their share. Many have said they will have to proceed with plans to raise class sizes up to 30 or more students -- abandoning the voluntary program that has been popular with teachers and parents since it was introduced by former Gov. Pete Wilson.

“In dozens and dozens of districts throughout the state this year -- and maybe hundreds more next year -- you will see a grade-by-grade erosion of the program,” said Supt. Jim Fleming of Capistrano Unified, an Orange County district that is considering eliminating smaller classes in third grade to save nearly $1 million.

“My prediction is that without flexibility, class-size reduction will be a memory by the end of this decade,” Fleming said.

Indeed, school districts and others have been lobbying Sacramento to create more flexibility in how the program is run.

A bill in the state Senate would allow districts to have as many as 22 students in K-3 classrooms, as long as school averages remained at 20.

Davis has not taken a position on the bill. Administrators said it would stop schools from overstaffing to ensure the hard cap of 20 to 1. Opponents, including the state teachers union, said the measure would open the door to ever-larger classes.

“It’s the only reform in the last 15 years that I know of that has had some kind of positive impact,” said Johnson, of the teachers association.

Nancy Vogel contributed to this report.