Schwarzenegger urges 'creative' revenue increases without tax hikes

Gov. Arnold Schwarzenegger said Tuesday he believes the state can't solve its current budget problem through cuts alone and called on lawmakers to "get very creative" in finding new revenues that don't qualify as taxes.

California is grappling with an $8 billion budget hole in the roughly $101 billion budget for the fiscal year that begins July 1, imperiling funding for schools, social services, prisons and other state programs.

Schwarzenegger, speaking at a town hall-style meeting in Modesto, said the state must rein in spending but added, "We have to find revenues this year, because I don't think that we can do everything through cuts. So I think that the legislators have to get very creative, because I dislike raising taxes."

The Republican governor did not specify ways the state could raise more revenues without increasing taxes. He previously has discussed leasing the California Lottery to a private firm and reducing tax credits and incentives, said Department of Finance spokesman H.D. Palmer.

Schwarzenegger's remarks Tuesday move him closer to the Democratic position that a balance of cuts and taxes is necessary to resolve the state budget gap. Republicans have stressed that the state must cut spending rather than search for new revenues.

The governor's comment may run counter to his own January budget proposal, which relied heavily on spending cuts without adding major revenue sources. The January plan has come under fire from interest groups because it could lead to teacher layoffs, no cost-of-living increases for social service recipients and an early release of prisoners, among other effects.

Palmer said the governor has remained consistent throughout the budget discussion because he has said the state should remain open to "anything worth looking at."

Republican lawmakers believe the state's budget problems have been caused by years of overspending.

Assemblyman Roger Niello, R-Fair Oaks, vice chairman of the Assembly Budget Committee, questioned why the governor put the burden on lawmakers to find creative solutions for new revenues and was skeptical that any such ideas could be realized without raising taxes.

"The fact of the matter is, the budget proposals are the governor's," Niello said. "I'd be very interested in seeing what creative ideas the governor has to navigate that rather tricky course of raising new revenues without increasing taxes."

Niello said Republicans consider one of the governor's ideas – the closure of tax breaks – the equivalent of a tax hike because it ultimately results in higher taxes.

Despite proposing roughly 10 percent in across-the-board cuts in January, Schwarzenegger increasingly has alluded to tapping new revenue sources, going so far in February as to suggest that the state should terminate $2.5 billion in tax credits identified by Legislative Analyst Elizabeth Hill before specifying later that he was not necessarily backing a particular proposal.

Sen. Denise Ducheny, D-San Diego, chairwoman of the Senate Budget Committee, said she appreciated Schwarzenegger's growing interest in raising more revenues for the state budget.

"I take it that he's actually been listening to some of the hearings we've been holding and to some of the constituents," Ducheny said. "He's starting to understand more than he did in January what impacts cuts will have on programs. I don't think we can tax our way out of the problem entirely, but we can't cut our way out of the problem entirely, either."

Schwarzenegger's January proposal included some new revenue, though none as substantial as Hill proposed through ending tax breaks. The governor's budget proposed a new 1.25 percent fee on homeowners insurance, as well as an $11 increase in vehicle registration fees, neither of which the governor considers tax hikes.

The Republican governor campaigned on a no-new-tax pledge during his 2006 re-election effort, but some Republicans have charged that raising fees or closing tax loopholes is the same as increasing taxes. Schwarzenegger insisted Tuesday that he remains an anti-tax advocate.

"I am not a believer in raising taxes because you cannot raise your way out of this problem," he said.

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