Schwarzenegger, Democrats dig in their heels on budget

California’s governor said Thursday he would veto Democrat lawmakers' plan if it had any tax hikes.

Speaking in a Fresno auditorium, with about 50 protesters outside demanding everything from more water for Valley farms to more money for universities and social services, Gov. Arnold Schwarzenegger reiterated Thursday that he would reject any budget from Democrat lawmakers that had tax increases.

The latest bout of wrangling between lawmakers and the governor suggests that Democrats and Republicans here remain far apart on key issues, and the budget process is likely to be protracted over the summer.

Lawmakers missed a Monday deadline to pass a budget amid warnings that the state would run out of money next month.

Governor Schwarzenegger’s admonition Thursday came a day after a Democratic-controlled legislative committee proposed a $15 hike in the vehicle license fee, the second this year, and a tax on oil production. The committee also wants to increase cigarette taxes by $1.50 per pack, require income-tax withholdings for independent contractors and close some corporate loopholes. Schwarzenegger already increased personal income, sales and vehicle taxes in the February budget deal.

Speaking before a 200-strong audience, including Fresno Mayor Ashley Swearengin and Clovis Mayor Harry Armstrong, Schwarzenegger said he will not sign any budget that has tax or fee increases. Instead, he said, he would cut money to education, healthcare, and prisons.

“They used to ask Willie Sutton, ‘Why do you rob banks?’ And he would say, ‘because that’s where the money is' ... and so Governor Schwarzenegger has gone after the places where California spends its money,” says John Ellwood, a professor of public policy at the University of California, Berkeley.

The prolonged debate over the current budget deficit in Sacramento – about $24.3 billion since legislators closed a $43.5 billion deficit in February – shows that the state’s citizens have changed attitudes, Mr. Ellwood says.

“In the early '90s, when the state had a budget deficit, the governor would go to the Legislature and cut a compromise deal – solve the problem by cutting some programs and raising some taxes,” says Ellwood. “The people are no longer willing to cut that deal.”

Schwarzenegger’s entrenched stance on tax hikes reflects his interpretation of the May 19 special election on budget reforms as a voter mandate to cut programs instead of raising taxes, say some analysts.

“Governor Schwarzenegger tries to tell the audience over and over again that we face few choices when it comes to the current budget crisis,” notes Jessica Levinson, policy analyst for the Center for Governmental Studies in Los Angeles.

Schwarzenegger is still trying to address the state’s underlying revenue problems with a tax-revenue commission. Since Proposition 13 put a 1 percent cap on property taxes in 1978, the state has had to rely on personal and corporate income tax – which means that when the economy falters, the revenue drops precipitously.

The Democratic legislative committee this week rejected the governor’s plan to reduce the pay of 235,000 state employees by an additional 5 percent. Schwarzenegger already implemented a two-days-per-month furlough in February that dropped those workers’ pay by 9.3 percent.

“Californians don’t want to cut services but they don’t want to pay additional taxes for these services,” says Robert Stern, president of the Center for Governmental Studies.