Monday, September 15, 2008


By JUDY LIN – Associated Press | 8PM - 15 Sept

SACRAMENTO, Calif. (AP) — State lawmakers on Monday were considering a compromise plan to end California's longest-ever budget stalemate, a proposal that includes increasing the paycheck withholding for state income taxes.

The withholding provision was one of several steps lawmakers used to close a $15.2 billion deficit without borrowing or new taxes. They acknowledged the proposal would get the state through its current fiscal year but not solve California's ongoing fiscal problems.

The Senate and Assembly scheduled floor sessions for Monday evening. Rank-and-file lawmakers scrambled to understand the compromise that was announced Sunday afternoon, while Republican and Democratic leaders sought to revise the language in a way that would assure the bill's passage.

The budget requires a two-thirds vote in both houses so it can be sent to the governor, who indicated he would not sign the plan in its original form.

In a letter to the four legislative leaders, Gov. Arnold Schwarzenegger said he will not sign the budget unless it includes a stronger rainy day account that could be tapped in years when revenue declines.

The budget proposal includes $7.1 billion in spending cuts and fills the remaining gap by moving up tax collection deadlines and closing some tax loopholes. Those maneuvers will generate $9.3 billion, leaving a small reserve for unanticipated expenses.

A large portion of the revenue depends on increasing income tax withholdings by 10 percent for working Californians, a move that would raise $1.6 billion. It also would require those who pay quarterly taxes — including limited-liability corporations and wealthier Californians — to pay 30 percent of their taxes in each of the first two quarters of the fiscal year instead of 25 percent. That move would generate $2.3 billion.

Tax experts said the result of higher withholdings will mean less take-home pay for many workers. Taxpayers can adapt by adjusting withholdings once the change takes effect, said Lenny Goldberg of the California Tax Reform Association.

"It's really about timing," he said. "It will come out of people's take-home pay, and they will end up getting a bigger refund in April."

Assembly Speaker Karen Bass said the $104.3 billion general fund spending plan does not address California's long-term difficulty in balancing spending with revenue. But the Los Angeles Democrat said it was important for lawmakers to finish work on the budget for the current fiscal year, which began July 1.

During the impasse, Republicans have refused to raise taxes on corporations and the wealthy, as Democrats had proposed. The impasse continued despite Schwarzenegger's offer to increase the state sales tax 1 cent for three years.

"At the end of the day, we weren't able to raise the revenues we wanted," Bass told reporters Monday. "But we were able to close significant budget loopholes that is giving us revenue in this budget year that prevent us from having to make the draconian cuts."

The agreement was announced Sunday by the Legislature's Democratic and Republican leaders, who were pitching it to their respective caucuses ahead of the floor sessions.

The cuts include many of those the governor proposed in his May budget revision, although Democrats rejected what they considered the worst of those cuts. They did not want to reduce foster care funding or kick children off welfare if their parents don't find work within five years.

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