Assembly Republicans on Sunday blocked a proposed spending plan that would have closed the state’s $15.2-billion shortfall with the help of tax hikes on the wealthy and corporations.
The failure of the Democratic plan means the state will continue to operate with no budget more than a month and a half into the fiscal year, heightening uncertainty for schools, healthcare providers and other services.
The move by GOP lawmakers came as little surprise on the Assembly floor since Republicans have long said they would vote against the tax proposal. But as public pressure mounted on lawmakers to take action on the budget, and back-room negotiations continued to falter, Democrats decided to bring the measure to the floor Sunday night.
The Assembly heard nearly four hours of debate during which 49 members spoke. In the end, the plan garnered a 45 to 30 plurality, but fell short of the 54 votes, or two-thirds majority, it needed. No Republican voted for it.
“The bottom line is we cannot solve a $15-billion deficit without new revenue,” said Assembly Speaker Karen Bass (D-Los Angeles).
Republicans, almost all of whom have signed a pledge not to raise taxes, said the proposal would do irreparable damage to the state economy.
“This budget runs the risk of putting California on the brink of bankruptcy,” said Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks). “It is time for Democrats to take their heads out of the sand.”
The Assembly held its first Sunday session since 2003 to vote on the bill.
The plan would have raised the income tax rate for families earning more than $321,000 to 10% and those earning more than $642,000 to 11%. Both groups currently pay 9.3%, one of the highest rates in the country. Earnings above $1 million carry a 1% surcharge.
The proposal also included plans to raise the corporate tax rate from 8.8% to 9.3% and suspend a tax break for businesses that allows them to deduct losses.
The tax hikes proposed by the Democrats would have covered about half of the budget shortfall. The remainder would have been closed with program cuts, borrowing and accounting shifts.
In private negotiations, Democrats had shifted their focus away from income tax hikes but reverted to the proposal for the floor vote after Republican lawmakers refused to consider any tax increase at all.
Gov. Arnold Schwarzenegger is the only Republican who has signaled flexibility on taxes. Democrats are close to an agreement with him on a plan that would temporarily raise sales taxes by one cent per dollar. The governor has yet to line up any other Republicans in support of that plan.
Democrats had hoped to get Republican support for the proposed tax increases by offering constitutional spending restraints, long a priority for the GOP. The restraints would limit how much the Legislature could spend when the state is flush with revenue, forcing the state to sock money away so it would be available when the economy falters.
But GOP lawmakers Sunday dismissed the spending restraints offered by Democrats as insubstantial. The plan would have forced the state to bolster its rainy-day fund and limit when and how often the Legislature could raid it. Republicans want the constitution to be changed to prohibit spending from growing any faster than population growth and inflation, regardless of how well the economy is doing and how much cash arrives in Capitol coffers.
“What we get instead of real reform is phony reform pushed by our Democratic friends,” said Assemblyman John Benoit (R-Palm Desert). He said the Democratic spending restraint proposal “will do nothing to help us live within our means.”
Lawmakers are running out of time to settle on a compromise. Any constitutional change to restrain spending would require approval from California voters. The Secretary of State’s office has indicated it may be too late to get a measure on the November ballot after this week. Republican lawmakers and the governor have warned that failure to get spending restraints on the ballot could trigger a total breakdown in negotiations.
As the impasse drags on, the paychecks of tens of thousands of government employees hang in the balance. Schwarzenegger signed an executive order late last month to pay most state workers no more than the federal minimum wage of $6.55 an hour until a budget is signed. That temporary salary cut would be reflected in a couple of weeks, when the employees get paid for all of August.