Gov. Seeks Tax Hikes To Balance Record Calif. Deficit

By Chris Rizo | July 7, 2008 | 8:29 PM EDT

Sacramento ( - Gov. Gray Davis unveiled on Friday his long-anticipated plan to overcome the largest budget shortfall California has ever had, depending largely on tax increases to do it.

Presenting his Fiscal Year 2003-2004 budget proposal to the legislature, Davis called for $8.3 billion in tax increases and $20.7 billion in cuts to state programs.

Rather than hide behind a curtain of quick fixes, as some say the Democratic governor did his first term, Davis said he made tough decisions to help California weather its staggering $34.6 billion revenue shortfall over the next 18 months, a gap more than one-third of the current-year budget.

"The task was not easy, and the choices before me were hard," Davis told reporters. "But I had to balance the books."

Under his plan, the state sales tax would increase by one cent per dollar, smokers would have to dig $1.10 deeper into their pockets to buy a pack of cigarettes, and the wealthiest Californians would pay more in income taxes because of a reinstatement of the top two tax brackets.

While Davis said he was forced to make some difficult choices and painful cuts, he tried to preserve funding for public education programs and struggled not to balance his fifth budget proposal on the backs of the most vulnerable Californians.

Still, the governor is asking that billions be cut from health and human service programs. Among other things, Davis is proposing to eliminate Medi-Cal coverage for 10 "optional benefits," including hospice, physical therapy and optometry.

On the bright side, he said, is that California's Healthy Families program, which provides low-cost health insurance to children of the working poor, will be expanded to enroll 90,000 more children next budget year, which begins on July 1.

"That is basically the good news in this budget," Davis said. "These were hard choices, and I didn't like making them."

To avert even deeper cuts to state services, Davis said he is proposing that responsibility for an array of health and welfare programs be shifted to local governments similar to what former Gov. Pete Wilson, a Republican, did to help overcome a $14 billion shortfall in 1991.

"We are not short-changing counties," Davis said. "All of those (new) revenues will go to local government; none will come to the state."

Lawmakers will scrutinize Davis' proposal in coming months, using it as the starting point for a compromise budget proposal that will be debated in both houses of the legislature and returned to the governor for his signature.

Davis has said he is counting on lawmakers to return a budget to him on time.

To do that, however, Republicans, who have said they will not support a budget that raises taxes, will need to offer a total of eight votes - six in the Assembly and two in the Senate - to muster the two-thirds vote required to pass the budget.

"We are resolute in not supporting any kind of tax increase," Assemblyman Rick Keene (R-District 3) said of the GOP caucus.

Last year, Davis signed the budget a record 67 days late after a partisan standoff over proposals to raise taxes.

'Things may not be much different this year," Keene warned.

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