(Recasts, adds comments)
By Jim Christie
SAN FRANCISCO Jan 6 Republican California
Governor Arnold Schwarzenegger has vetoed a budget plan pressed
by Democrats who control the state legislature, an aide said on
Schwarzenegger's veto came after Republican lawmakers
joined anti-tax activists in a lawsuit to block the plan.
"He has vetoed," said spokesman Aaron McLear.
Democrats passed their plan last month on a majority vote
and forwarded it to Schwarzenegger late on Tuesday despite his
threat of a veto amid continuing talks to potentially arrive at
an alternative plan.
Schwarzenegger agrees with Democrats that the state's
swelling budget shortfall must be filled in part with tax
increases but he is holding out for deeper spending cuts than
they proposed and for changes to state regulations he says will
speed construction projects to create jobs.
By contrast, the lawsuit filed in state court is squarely
aimed at the Democrats' proposed tax increases. It contends the
Democrats' $18 billion plan would undermine California's
landmark Proposition 13, a voter-approved change to the state
Constitution that limits property tax increases and requires
any plan to increase taxes to receive the approval of at least
two-thirds of the legislature.
The lawsuit said the Democrats' plan is invalidated by
Proposition 13, approved by voters in 1978 and credited with
sparking anti-tax sentiment in other states and assisting
Ronald Reagan's election as U.S. president two years later.
"This dishonest effort to raise taxes without a two-thirds
vote is a dagger at the heart of Proposition 13 and every
California taxpayer," said Jon Coupal, president of the Howard
Jarvis Taxpayers Association.
Democrats lack the two-thirds votes to pass tax and budget
bills on their own. Republican lawmakers routinely oppose tax
increases, forcing long stalemates in budget talks to win
concessions from Democrats for their critical votes.
OUT OF CASH
Their latest dispute is set against a grim financial
situation for the government of the most populous U.S. state.
It is on track to run out of cash within a few weeks as its
revenues slide amid the economic slowdown. Its budget shortfall
through mid-2010 has been estimated at $40 billion.
"We had legitimately hoped we could convince some
Republicans to at long last compromise and support reasonable
solutions. Clearly, they aren't interested," Assembly Speaker
Karen Bass said in a statement.
Separately, Bass said Democrats would continue to work with
Schwarzenegger on a budget bill and hinted they may agree with
some of his demands, which he has said will boost the state's
Bass held out the possibility of compromise on his demands,
including greater room for public-private tie-ups for state
construction projects, easing environmental regulations to
speed road construction, a tax incentive to keep film
production in California and legislation to prevent home
Additionally, Bass' office in statement pointed to "some
additional budget cuts and modifications to the revenue package
so that the package contains more in expenditure reductions
than new revenues."
Standard & Poor's Ratings Services last month lowered a
rating on California's short-term notes and warned of possible
further cuts to other state debt ratings in light of the
state's budget woes. Among the debt at risk of a downgrade is
nearly $47 billion of California bonds backed by the state's
general fund, whose revenues are shrinking at a worrying pace.
California's coffers have been thinning so fast that state
officials recently decided to stop making loans for public
works projects in order to use the cash for vital public
In an interview late last month, State Treasurer Bill
Lockyer told Reuters that the budget impasse was making
municipal debt investors nervous. Lockyer said they have been
telling him, "'We want to see some corrective budget
(Editing by Richard Chang and Tomasz Janowski)