Federal stimulus funds won’t save state from tax hikes, spending cuts

As the state’s budget continued swirling into the red, top finance officials said Friday that California won’t get enough federal stimulus money to avoid all of the tax hikes and service cuts lawmakers approved last month.

The announcement by state Treasurer Bill Lockyer and Finance Director Mike Genest reaffirms that California residents will be hit with a $1.8-billion personal income tax boost and nearly $1 billion in slashed spending.

After weeks of number crunching, the pair determined that about $8.17 billion of the hoped-for $10 billion in federal revenue for budget relief would be available through 2010.

California’s personal income tax rate will rise by a quarter percentage point, effective with the 2009 tax year. The current maximum of 9.3% for the highest wage earners will rise to 9.55%.

The increase would have been half that if enough federal stimulus money had been available to completely offset the state’s budget problems.


Meanwhile, $948 million in spending reductions will affect higher education, healthcare, welfare and in-home care programs for the disabled and elderly. Those cuts would not have been made if enough stimulus money had been available.

“This is a shameful day for California,” said Doug Moore, executive director of the 65,000-member United Domestic Workers Homecare Providers Union. “Our governor and our legislative leaders have played a game of Russian roulette with the lives of nearly a half-million of California’s most vulnerable citizens and the people who care for them.”

Lockyer expressed regret about Friday’s announcement in a letter to Gov. Arnold Schwarzenegger and legislative leaders, saying he was “deeply concerned about all these consequences, both fiscal and human.”

He also recommended that the Legislature reconsider two spending cuts -- the decision to slice $200 million in optional Medi-Cal dental benefits and pay increases for in-home care providers. Lockyer said the harmful consequences of those cuts “greatly outweigh any savings.”

Assembly Speaker Karen Bass (D-Los Angeles), one of the state leaders who negotiated the budget, embraced such a reappraisal.

“I wish those cuts weren’t there at all,” Bass said, adding that many of the most painful decisions to trim spending were necessary to win over enough Republican lawmakers to end the three-month budget stalemate.

As part of the budget deal, lawmakers empowered Lockyer and Genest to roll back some of the income taxes and restore some of the cut funds if adequate federal funds arrived.

The news came as state tax revenue continued to plunge. Five weeks after Schwarzenegger signed the budget, lawmakers face the prospect of a new $8-billion shortfall.

That sum could grow if the state economy slumps further -- and if voters reject a half-dozen budget-related ballot measures in a special election May 19. Those proposals would raise $6 billion to help balance the budget beginning in July.

California is receiving about $31 billion in federal stimulus funds through 2011. Most of the money is earmarked for education, transportation and other needs, with less than a third available to address budget woes.