Schwarzenegger's budget proposes tax hikes, steep cuts

Reporting from Sacramento -- The administration of Gov. Arnold Schwarzenegger presented a new plan this morning to raise several taxes and cut deep into dozens of state programs to close an 18-month budget deficit that is projected to reach $41.6 billion.

Under the proposal, presented at the Capitol by the governor's staff while he was vacationing with his family in Sun Valley, Idaho, Californians would be dealt a steep sales-tax increase, a new tax on alcoholic beverages and higher vehicle registration fees. A dependent care tax credit would be reduced, and oil companies would be charged a new severance tax.
The cuts in the proposal are deep, including a reduction of billions of dollars in K-12 education spending from current levels. State university and community college offerings would also be cut back as tuition and fees go up. Healthcare programs for the poor would be slashed, as would welfare for the elderly and disabled.

The plan also includes reductions in the state workforce, which the governor already implemented by executive order two weeks ago. The order requires state workers to take days off without pay, amounting roughly to a 10% pay cut. Labor unions are challenging that order in court.

"We have to act immediately," said Department of Finance Director Mike Genest. He explained that even if all the program cuts and tax hikes proposed by the governor were passed by the Legislature -- an unlikely prospect -- the state will still be confronting a cash crisis as a result of the precipitous decline in revenues. To keep California solvent, the administration is also proposing to purchase an unconventional multibillion dollar bridge loan that is certain to saddle taxpayers with steep interest charges.

The governor's latest plan comes after he vowed not to sign a smaller deficit-reduction package that Democrats pushed through the Legislature earlier in the month. That plan would have wiped out $18 billion of the deficit with increased taxes on sales, gasoline and personal income, as well as a tax on oil companies similar to the one the governor is proposing.

Schwarzenegger said the program cuts in that package were not steep enough, and it does not include enough measures to stimulate the economy. The economic stimulus measures the governor is seeking include the relaxation of certain environmental protection laws that have delayed road building and promotion of public-private partnerships that would allow the state to contract out infrastructure projects to private enterprise.