Gov. Gray Davis said long-term borrowing and passing a budget on
time is the best way to solve a budget deficit that has climbed to
$38.2 billion.
Davis said borrowing $10.7 billion and repaying the money by
increasing taxes on cigarettes, sales and the wealthy would allow
the state to protect education, his “top priority.”
He did not change his January proposal of cutting approximately
$300 million from the University of California, and raising fees
for its students.
“I’ve provided a road map that will fund vital
programs, balance the budget and erase the current deficit with a
multi-year approach,” Davis said.
But Davis’ recommendation is only a proposal, part of an
update of the state’s revenue and expenditures known as the
May Revise. The final version, approved by the legislature, is due
June 15.
It was good news for the university, as some administrators
feared there would be additional cuts.
During the UC Regents meeting held in San Francisco Wednesday,
UC Vice President of Budget Larry Hershman said the university
supported Davis’ proposal.
“We will be supporting the governor’s proposal as
strongly as we can,” Hershman said.
He said this proposal was a good compromise and has a chance of
being accepted by the legislature. Davis presented the proposal as
an attempt to compromise with legislators.
Davis’ proposal assumes UC student fees will be raised by
$795, but the regents will make that decision in the coming
months.
Steve Peace, director of the state’s department of
finance, said further fee increases won’t be needed if
Davis’ plan is approved.
But they could be necessary if the Republican budget proposal
““ which included an additional $400 million in UC cuts beyond
Davis’ proposal ““ is approved, he said.
“No one expected them to go there,” Peace said.
“The UC would have no choice but to dramatically cut back the
size of the next entering class.”
A two-thirds majority in each house of the state Legislature is
required to pass the budget, so Davis must get Republican support
for his plan.
While the two parties have already compromised on $7 billion in
cuts and a pension bond, they may reach a stalemate on whether to
raise taxes.
Davis proposed increasing the tax on cigarettes by $0.23 and
creating a new tax bracket for the state’s highest wage
earners ““ singles who earn over $150,000 or married couples
who earn $300,000.
He also expects the state Department of Finance to raise the fee
for registering a car.
Davis also proposed a half-cent-per-dollar sales tax to generate
funds to repay the money he intends to borrow. It would go away
once the state has paid back the debt, and his estimates say this
would be in five years.
California’s state sales tax is currently at 7.25 percent,
although counties can decide to raise it. Los Angeles
County’s sales tax is currently 8.25 percent.
Because the plan also includes borrowing billions of dollars
from private investment companies, Davis said it is more important
than ever to pass the budget by the deadline, now one month
away.
Last year’s budget was approved a record 67 days late.
A late budget would send a message that the state cannot handle
its business affairs and would make potential investors wary, Peace
said.
He said borrowing would be impossible without creating a new tax
for the sole purpose of repaying this debt.
Using existing tax revenue to repay debt would create legal
difficulties, because every year a two-thirds majority would need
to vote to use the money to repay debt.
The assembly’s top Republican, Dave Cox of Fair Oaks, said
the Davis administration is “misleading the general
public” by saying a new revenue source is necessary.
He said the Republican budget proposal from three weeks ago,
which has more budget cuts but no tax increases, is a better
alternative.
Republican leaders have maintained they will not approve any
budget that includes a tax increase.
Senate Republican Leader James Brulte, R-Rancho Cucamonga, said
his party is ready to move towards a budget solution.
“We are willing to negotiate and be as flexible as
possible on any item except tax increases,” Brulte said.
But UCLA’s representative in the senate Sheila Kuehl,
D-Los Angeles, said the Republican party’s refusal to raise
taxes would lead to a stalemate.
“If the Republicans stick to their promise, then the
budget will not be passed on time,” Kuehl said. “We
will not capitulate to a completely irresponsible stance on their
part.”
With reports from Andrew Edwards and Adam Foxman, Daily Bruin
Staff.