After proposing a budget in January and issuing the standard "May Revise" after tax returns were counted this spring, Gov. Arnold Schwarzenegger on Wednesday made yet another budget proposal. He hopes lawmakers will embrace it to end the 52-day standoff over the spending plan. Here are key points:
Taxes
• Increases state sales tax by 1 cent for three years, exempting gasoline, diesel and jet fuel, starting Sept. 1. After three years, the tax would decrease by 1 1/4 cents.
Analysis: The governor is breaking his no-tax-increase pledge, but he and tax-averse Republicans can say the program would result in a tax decrease. The hike would bring in about $5 billion a year, but when the decrease kicks in by 2012, state coffers would instantly be about $6.5 billion a year poorer.
Business losses
• Suspends for tax years 2008 and 2009 businesses' ability to deduct their net operating losses against future earnings, but makes other permanent changes that would benefit businesses later.
Analysis: State coffers would gain about $1.7 billion over two years. But starting in 2010, when the permanent changes kick in, the state would begin losing money, about $1.3 billion over the first three years.
Cuts
• Reduces spending by about $10 billion for the current year, $2 billion more than the Democrats have proposed. About half of the further reductions – $1.1 billion – would come from schools.
Analysis: Democrats are likely to balk at the school reductions as the plan does not fund cost-of-living increases for schools.
'Rainy-day fund'
• Beefs up a "rainy-day fund" in state budgeting to help bridge bad economic years by requiring money be set aside in good years.
• Allows governor to unilaterally cut spending by up to 7 percent and suspend cost-of-living adjustments in bad years.
Analysis: Schwarzenegger has said repeatedly that he will not sign any budget without this component. Democrats may trade the changes for a tax increase, but Republicans want a stronger spending cap.
Economic stimulus
• Relaxes workplace rules to allow some workers and employers to agree on flexible schedules without paying overtime.
• Expedites bond-funded building program.
• Provides tax breaks for film industry.
Analysis: Republicans are demanding some sort of stimulus program, but Democrats could balk at the overtime changes, which have been a sticking point for years.
Sources: Governor's Office, Bee research
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