November 21, 2008

Reporting from Sacramento - State lawmakers began moving toward a deal this week to close California's deficit with the help of steeper car fees that would cost many drivers hundreds of dollars annually, according to people involved in budget talks.

Under the plan, GOP lawmakers -- most of whom have signed anti-tax pledges -- would vote to triple the vehicle license fee that owners pay when they register their cars every year in exchange for a ballot measure that would impose rigid limits on future state spending. Motorists' annual license fees would rise from 0.65% of the value of their vehicles to 2%. For a car or truck valued at $25,000, the increase would be $336.

The higher fees would generate $6 billion annually, helping to fill a budget gap that is projected to reach nearly $28 billion over the next year and a half.

The proposal is being championed by incoming state Senate leader Darrell Steinberg (D-Sacramento). Democrats and advocates for the poor have opposed strict state spending limits, saying they would cripple government services.

Steinberg may be gambling that voters would reject the limits, as they have in the past.

"We don't comment on the specifics of negotiations," said Steinberg spokesman Jim Evans, "but this much is clear: The state is $28 billion in the red and we need new revenue."

Prospects for the plan, however, immediately began to dim after details were published on the Los Angeles Times website. Angry phone calls from constituents, advocacy groups and talk radio hosts prompted lawmakers to publicly distance themselves from the proposal.

Capitol sources who requested anonymity because of the confidential nature of budget discussions said it is now unclear whether the proposal would be presented to rank-and-file lawmakers Monday or Tuesday, as was initially planned. Passage would require two-thirds of the Legislature to vote for the measure.

It is also unclear whether Steinberg would be able to get enough Democrats to sign on to the plan, even if it attracted GOP votes.

The plan would create a political quandary for Gov. Arnold Schwarzenegger, who has already proposed a flat $12 increase in annual car fees.

The last governor to triple the license fee was his predecessor, Gray Davis. Voter anger soared, and the increase played a large role in Davis' removal from office. Schwarzenegger crusaded against the hike throughout the recall campaign, and in his first act in office he cut the fee -- the "car tax," as he and some others call it -- back to its current rate.

But the governor has been adamant that the state needs new revenue. Earlier this month, he proposed closing the deficit with billions of dollars in new taxes, including a 1.5-cent sales tax increase.

In a meeting with Times reporters and editors last week, the governor said he would not rule out raising the car tax.

"Everything is always on the table," Schwarzenegger said when asked about the prospects for a sharp increase in vehicle license fees. "If I hate something, you can bring it up and you can show to me why that is a good idea, and maybe you know with the new circumstances, there is a good idea that I maybe looked at it in the past and didn't think it was a good idea. This is a crisis situation and one has . . . to look at it in a fresh new way."

Administration officials on Thursday declined to discuss the details of the Steinberg proposal.

Jennifer Gibbons, a spokeswoman for Assembly Republican leader Mike Villines of Clovis, also declined to comment on the details of budget meetings but said: "Republicans have been very public that a spending limit is one of our top priorities."

The proposal may represent the last chance for lawmakers to take action on the budget before the emergency special session Schwarzenegger called to address the deficit ends Tuesday.

Some analysts say that in the current economic climate, the plan could be an unwise gamble for Democrats. Voters, they say, may be inclined to approve the kind of spending restraints that GOP lawmakers have long sought. The Republicans' proposed cap would limit growth in government to a modest percentage each year, regardless of how well the economy does and how much revenue flows into the state.

"I suspect the public would vote for it," said GOP political analyst Tony Quinn. "This deal could make a lot of sense from the perspective of Republicans."

The plan could deal another blow to the automobile industry. It would add hundreds of dollars to the price of most new cars sold in California at a time when sales are plummeting, dealerships are closing and major American automakers are on the verge of bankruptcy.

But a fee increase has long been supported by Democrats in the Legislature; they say the current rate of 0.65% was never meant to be permanent. They say it is a discounted rate reflecting tax cuts that were supposed to prevail only when the state was flush. Before 1999, the rate paid by Californians was 2%.

Democrats note that the federal government allows Californians to deduct the tax, meaning Washington would cover roughly a quarter of the increase for the average driver.

Even some proponents of a multibillion-dollar tax increase caution against the Steinberg proposal.

"You should only put something on the ballot if you believe it is in the best interest of California," said Jean Ross, executive director of the California Budget Project, a nonprofit that advocates for low-income Californians. "I don't think this spending-cap provision is in the best interest of California.

"It would be an extremely unfortunate trade-off," she said.