GOP may back tax hikes

Analyst urges immediate action to stem state deficit

 By Rebecca Kimitch, Staff Writer

On a day when the Legislative Analyst suggested raising the  state income tax by 5 percent, one termed-out Republican lawmaker said his  party may have no alternative than to support tax hikes.

 California  Legislative Analyst Mac Taylor said Tuesday the state deficit could reach $28  billion by June 2010. Besides recommending the income tax hike, he urged  lawmakers to act immediately on Gov. Arnold Schwarzenegger's proposals to  eliminate this fiscal year's $11.2 billion deficit. The governor last week  proposed billions of dollars in cuts and a temporary, 1.5 percent hike in the  state sales tax.

 "I don't  think we are going to get there without some sort of tax modification,"  said state Sen. Bob Margett, R-Arcadia. "The vehicle license fee is in  that realm, so is that proposal of the tippler tax - a nickel for every drink.

 "The  governor could say, `I need this half-cent sales tax.' And if he says that (the  sales tax) dies at some point in time, and if he says this is how it would be  spent ... I think you would probably find Republicans saying we have no other  route to take."

 Republicans have  so far adamantly opposed using a tax increase to bridge California's budget  deficit. Because a tax hike requires approval of two-thirds of the Legislature,  at least eight Republican lawmakers would have to approve it. Margett's  legislative career, which began in 1995, ends Nov. 30.

 Local lawmakers  said regardless of the proposal, the governor needs to be active at the  negotiating table.

 "Where are  the eight Republicans going to come from? It is incumbent on the governor to  provide this solution, versus just holding a press conference making a  proposal, and walking away," said Assemblyman Anthony Portantino,  D-Pasadena. "He has to say: `I might be a movie star, I might be the  governor, but I really have sit down at the table and craft a bipartisan  solution."'

 Schwarzenegger  has said that Republican lawmakers might be more willing to support a tax  increase, despite past opposition, because the election is over and the economy  has reached a level of crisis.

 But Margett said  Schwarzenegger has not reached out to rank-and-file Republicans yet.

 Margett said  that to get GOP support, a sales-tax increase would need to be temporary and  the proposal would need to include specific education and welfare reforms.

 Besides a  sales-tax increase, Schwarzenegger's proposal includes $4.4 billion in  across-the-board spending cuts.

 Taylor said the two-pronged approach was necessary. He supported  the framework of the governor's plan and called it "comprehensive and  ambitious" because it does not rely on borrowing.

 The state's  revenue collapse is so bad that if lawmakers did nothing, California would face  $22 billion shortfalls each year from 2010 to 2014, Taylor said.

 "We have to  do something in the ballpark of what the governor proposed ... ongoing spending  reductions and some tax increases," Taylor said.

 Assemblyman Mike  Eng, D-El Monte, said a vote on budget reforms could come as early as next  Wednesday.

 Taylor's report Tuesday said cuts alone will not solve  California's budget deficit because the state's weakening economy is cutting  the flow of tax revenue.

 Last week,  Schwarzenegger had projected a $24.5 billion deficit for the rest of this  fiscal year and the one that runs from July 1, 2009, to June 30, 2010. But the  analyst's office estimated tax revenue will be even lower, which will widen the  shortfall another $3.5 billion.

 Since the  governor signed the overdue state budget in September, revenue has been lower  than expected. It is $1 billion below the $22.6 billion that was expected for  the first quarter, according to the state Department of Finance.

 "With the  expected slow recovery of the state's economy, it is imperative that the  Legislature attack the grim budget problem aggressively, making permanent  improvements to the state's fiscal outlook," Taylor wrote in his report.

 He said elected  officials should do more to raise revenue because the governor's proposals  would address only about half the state's long-term problems.

 In addition to  an income tax increase, which would be deductible on federal tax returns,  Taylor's report offered a list of potential revenue sources for lawmakers to  consider.

 One option was  to boost the licensing fee on vehicles, which Schwarzenegger cut when he took  office in 2003. That action cost the state about $6 billion a year.

 The legislative  analyst said increasing a portion of the vehicle license fee would generate  about $1.6 billion annually, money that could be used by local governments on  public safety and mental health programs. The state would benefit because it  would not have to compensate local governments for the amount they lost when  Schwarzenegger cut the licensing fee.

 The state's  financial officers have been urging swift action amid a Wall Street nosedive  and as the housing market continues its slide.

 The tightened  credit market is adding to California's fiscal misery. The state is having  trouble borrowing money to pay its daily expenses, a routine action the state  takes each year until most of its tax revenue arrives in the spring.

 State Treasurer  Bill Lockyer cited unfavorable market conditions in postponing the issue of $2  billion in short-term loans next week.

 Lawmakers have  scheduled a budget hearing on Friday to debate the governor's proposals.

 The Associated  Press contributed to this story.