How Top Contenders Weigh In on Key Issues

The main challengers in Tuesday’s recall election offer voters a sharp contrast in philosophies about how to plug California’s deep budget hole and jump-start its sluggish economy.

Lt. Gov. Cruz Bustamante, the only Democratic officeholder running to replace Gov. Gray Davis, favors higher taxes as well as additional program cuts to shrink the state’s projected $8-billion budget deficit. He wants to regulate the state’s electricity market to bring down rates for businesses, and he supports a stronger safety net for the state’s workers.

The platforms of Republicans state Sen. Tom McClintock (R-Thousand Oaks) and Arnold Schwarzenegger are staunchly anti-tax.

Both have called for reduced government spending as the main solution to balancing the state’s books. They want to lighten Sacramento’s mandates on businesses to spark economic development, and they oppose pending legislation that would put additional cost burdens on industry.

Economists say it’s a classic battle that pits bigger government versus smaller government, regulation versus laissez faire, public investment versus private sector, labor versus employers.

The outcome of the election “is going to have a tremendous impact on the business climate,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. “I think right now you have lot of businesses just sort of holding on waiting to see what happens.”

The economy has been a central theme of the recall election. Employers are seething over rising business costs, including workers’ compensation, and are furious at new health-care and living-wage legislation that could drive their expenses even higher.

The Republican front-runners have seized on the discontent, warning of an exodus of jobs and businesses that could sink the recovery and damage the state’s long-term prospects.

Bustamante and incumbent Davis have countered that California’s economy has performed no worse than the nation as a whole.

Both the state and the nation, in fact, have lost about 2% of their nonfarm payroll jobs since the downturn began in March 2001.

It’s no secret many business groups support the anti-tax, smaller government, lower-regulation stance of the leading Republican challengers. But whether a party change in the governor’s mansion can have a real effect remains to be seen. With the California Legislature solidly Democratic, a changeover could be a recipe for gridlock.

Whatever voters decide Tuesday, “the symbolism is going to be huge,” said Mark Schniepp, director of the California Economic Forecast Project in Santa Barbara. “I think the psychological impact could be bigger than anything else.”

What follows are the candidates’ positions on some key economic issues, as gleaned from their public statements, Web sites and written responses to questions posed to them by The Times:

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Taxes

Bustamante proposes boosting the cigarette tax by $1.50 a pack and alcohol taxes by 25 cents per gallon. He would raise personal income taxes above the 9.3% ceiling by reinstating brackets of 10% and 11% for top wage earners. He also wants to raise commercial property taxes by allowing regular reassessments of business properties to keep pace with rising values. Such a change would require a constitutional amendment to Proposition 13. At the same time, Cruz wants a partial rollback of the vehicle licensing fee hike by exempting cars that sell for less than $20,000 from the increase.

McClintock has steadfastly opposed any tax increases, or new taxes of any type. The state senator supports balancing the budget solely through program cuts. He favors a rollback of the recent tripling of the vehicle licensing fee.

Schwarzenegger espouses an anti-tax philosophy, but he has stopped short of promising no tax increases. He wants to repeal the recent car tax increase and stop pending hikes in unemployment insurance taxes on businesses. He has affirmed his support for Proposition 13, which caps property taxes in California.

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Electricity

Bustamante has declared the state’s deregulation plan a failure that has resulted in higher electricity rates for many California businesses. He proposes regulating the electricity market “to restore safety, reliability and predictability to energy pricing,” although he hasn’t specified what the new rules would look like.

McClintock is committed to privatization and blames the skyrocketing electricity prices that accompanied deregulation on government meddling that interfered with the working of market forces. He wants to void more than $40 billion in long-term energy contracts signed by the Davis administration, which he describes as “massively overpriced.” He plans to encourage the construction of new hydroelectric and nuclear power facilities to provide more sources of power.

Schwarzenegger also favors private ownership of the electricity market and wants to renegotiate lower rates for long-term contracts entered into by the Davis administration. He would like to see more diverse sources of power in California, which has become heavily dependent on natural gas partly because of strict air-quality regulations. He wants to abolish the California Power Authority and restructure the wholesale market for electricity.

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Workers’ Comp

Bustamante supports AB 227 and SB 228, the recently passed reform legislation that seeks to cut as much as $6 billion annually from the state’s $29-billion workers’ comp system mainly through tighter controls on medical costs. He hasn’t ruled out further reform, but wants to give the current measures time to work before proposing additional changes.

McClintock says that AB 227 and SB 228 do not go far enough in giving California businesses the rate relief they need. He favors a model based on Arizona’s system, which he claims would reduce workers’ comp costs in California by two-thirds. He wants to call a special session of the Legislature to address the matter within 30 days of taking office. If the Legislature fails to act, McClintock would push for a ballot initiative.

Schwarzenegger seeks additional reforms to the system to reduce litigation and to eliminate “excessive” permanent disability payments to injured workers. He plans to appoint a new team to the Division of Workers’ Compensation to focus specifically on cost containment.

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Health Insurance

Bustamante supports the legislation, SB2, that would require California companies with 50 or more employees to either provide health insurance for their workers or pay into a state pool that would do it for them. The measure was approved by the Legislature in September and signed Sunday by Davis.

McClintock opposes SB2 as too costly and says it will hamper economic growth by encouraging companies to cut their payrolls to stay below the 20-worker limit. He favors tax credits for uninsured workers, who would be free to choose their own health plans and receive tax breaks to help defray the cost.

Schwarzenegger opposes SB2 as too costly and burdensome for businesses. He supports expanding California’s Healthy Families Program, which uses state and federal tax dollars to provide health care for low-income children. But he has not articulated a strategy for extending coverage to California’s 6 million uninsured working adults.

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Wages

Bustamante says low-wage jobs hurt California by forcing low-income workers to depend on government assistance programs that the state’s taxpayers can’t afford. He supports raising California’s $6.75-an-hour minimum wage to help lift more workers out of poverty. He also supports living-wage legislation. He is the author of AB 1093, which requires vendors doing business with the state to pay their employees wages of at least $10 an hour if they have health insurance or at least $12 an hour if the company doesn’t provide health insurance. The bill was approved by the Legislature last month.

McClintock says government efforts to boost minimum wages and mandate living wages hurt the state’s poorest workers because companies tend to hire fewer employees or pass along costs to consumers. He says all workers can benefit from lower tax rates by keeping a bigger piece of their paychecks.

Schwarzenegger has not staked out specific positions on higher minimum wages or living wages for low-income workers. He has stated that “access to opportunity is the only way to overcome poverty.” He believes opportunities for working Californians will be enhanced by reducing taxes and regulations on employers to encourage more hiring.

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Affordable Housing

Bustamante wants to change the financial incentives that encourage local governments to approve retail development over housing in order to obtain sales tax revenue. He wants taxpayers to continue funding affordable housing programs.

McClintock wants to encourage more home building by easing regulations on builders and developers and by offering them tax incentives.

Schwarzenegger has not outlined a specific housing strategy, but he favors a plan in which government would remove barriers and offer incentives for infill development in urban areas, thus creating more housing while curbing sprawl.