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UPDATE 1-California gov vetoes Democrats' budget plan
January 7, 2009 / 3:39 AM / 9 years ago

UPDATE 1-California gov vetoes Democrats' budget plan

(Recasts, adds comments)

By Jim Christie

SAN FRANCISCO, Jan 6 (Reuters) - Republican California Governor Arnold Schwarzenegger has vetoed a budget plan pressed by Democrats who control the state legislature, an aide said on Tuesday evening.

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 flagging economy.

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 foreclosures.

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 services.

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 actions.'” (Editing by Richard Chang and Tomasz Janowski)

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