Democratic legislators attempted Thursday to take a big bite out of the state's budget deficit by passing a complex, $18 billion mélange of legally uncertain spending cuts and new taxes, but Gov. Arnold Schwarzenegger quickly doused it with the icy water of a veto threat.
Schwarzenegger labeled portions of the 16-bill package as "bogus," but the parts he rejected related more to so-called "economic stimulus" than its budget-related provisions. He indicated that he could accept a revised version, even though Republican legislators and anti-tax groups denounced it as an unconstitutional money grab.
However, legislative leaders said they don't intend to resume the budget battle until January, which would give lawmakers very little time to deal with the fiscal meltdown that state officials say is looming in February when the state runs out of cash to pay its bills.
Even were Schwarzenegger to sign a revised package containing the provisions that labor unions and environmental groups despise, GOP legislators and anti-tax groups would challenge it as an illegal evasion of the state constitution's requirement that new taxes receive two-thirds of legislative votes.
The scheme hinges on two legally debatable points – whether wiping out per-gallon and sales taxes on gasoline and diesel fuel and replacing them with new sales, income and oil extraction taxes, then imposing a new "fee" on fuel – violates both the two-thirds vote requirement and limits on fees.
Were the courts to ratify the plan, it could effectively repeal the two-thirds vote barrier that has been a major hangup in closing the ever-growing deficit because Republican legislators have steadfastly rejected new taxes. Democrats would be free to impose more fees, such as one on carbon emissions, and they left little doubt they'd do it to close more of the deficit, estimated at $40 billion over the next 18 months.
"Today we end the tyranny of the minority," Sen. Gil Cedillo, D-Los Angeles, declared as the Senate began its debate.
Conversely, if the scheme eventually wins Schwarzenegger's approval but fails the judicial test, it would strengthen Republicans' hand in the perpetual stalemate over taxes and spending cuts. Democrats then could be forced to cave in to GOP demands not only for deeper spending cuts but contentious changes in business regulations that Democrats and their allies have shunned.
Senate President Pro Tem Darrell Steinberg, progenitor of the tax-fee swap plan that would generate $9.3 billion in new revenue, cites the blessing of the Legislature's lawyer, as long as the taxes being raised and lowered are equal. But the legislative counsel's legal advice is notoriously compliant with legislative preferences, and it's a novel legal theory that's never been tested in the courts.
Finally, even were the scheme to win the governor's approval and clear the courts, the state would still face a deficit of more than $20 billion that would have to be addressed in 2009.
Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.
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