GOP HANGS TIGHT ON TAXES AS RED INK RISES

by Jim Sanders | Sacbee / Our Region / Top Stories

Sunday, 14 Dec. 2008 -- California is bleeding Republican red as the state's minority party tries to squeeze a spending cap and pro-business policies from fiscal chaos.

Badly outnumbered and often ignored by the Democratic-dominated Legislature, the GOP is not getting sand kicked in its face these days.

California is hurtling toward a financial abyss, projecting a $40 billion shortfall by July 2010, and no deal can be struck without at least three Republican votes in both the Assembly and Senate.

GOP officials clutch that trump card with relish as the state braces to pull the plug on $5 billion in public works projects and warns it won't be able to pay all its bills by February or March.

Democrats and Republican Gov. Arnold Schwarzenegger want to shrink the gap through a combination of program cuts and tax increases – but Republican lawmakers adamantly oppose raising taxes and nearly all have signed national pledges to hold firm.

Democrats say the GOP is holding California coffers hostage.

But Jon Fleischman of the state GOP's board of directors said time is on their side.

"At some point, I have to think (Democratic leaders) are going to say, 'OK, the Republicans are serious,' " Fleischman said.

"If nothing happens, then government spending is going to stop because they're going to run out of money, so really, the Democrats need to step forward."

Republicans say their goal is to end boom-and-bust budgeting cycles, bolster a reeling economy, and to make state government more efficient and less costly.

"The point is, if you don't make structural reforms now, I don't know when we can ever do it in this state," said Assembly Republican Leader Mike Villines of Clovis.

Garry South, a Democratic strategist, said the "end game could be that the state goes into default and shuts down financially, and we have no way to pay our bills."

"Right now, we have a crisis, and it's been caused in large part by the fact they tried to play this extortion game all summer," said Sen. Denise Ducheny, a San Diego Democrat who chairs the Senate Budget Committee.

Schwarzenegger and Democrats agree on bridging at least part of the budget gap through a mix of cuts and tax hikes, but they disagree on approach – and Republicans support neither.

The GOP is scheduled to unveil its own proposal Monday, with no tax hike. The plan is expected to identify about $11 billion in budget cuts and, among other things, propose asking voters to redirect money designated for mental health programs and preschool programs and services.

State Treasurer Bill Lockyer, a Democrat, characterized the high-stakes showdown between legislative Democrats and Republicans as political "chicken," with each party expecting the other to blink.

"I think they're going to run off a cliff," Lockyer said.

Republican leaders object to any implication that the GOP is holding up a budget deal. To them, Democrats are the roadblock.

"What we see is a gun being put at the head of the California taxpayer, they're being told, 'All right, look, it's time for you to dig deeper, pony up more or you're going to suffer even more pain,' " said Senate Republican leader Dave Cogdill.

Villines said the GOP is willing to discuss revenue increases – not specifically tax hikes – after a deal is struck on a state spending cap, permanent budget cuts, trimming waste, and amending some environmental regulations and labor laws to bolster business.

The GOP wants to expand flexibility in work schedules to reduce overtime payments, increase contracting for state services, simplify rules on workplace meal and rest breaks, loosen deadlines for greenhouse gas regulations and provide various tax credits to stimulate business, according to a list released last week by Villines.

Republicans have pushed such proposals in the past, but they were killed by Democrats in both good times and bad, he said.

"Democrats have been every bit as recalcitrant about reform as Republicans have been about raising taxes," said Assemblyman Roger Niello, R-Fair Oaks.

Schwarzenegger and state fiscal officials say there is no practical way to bridge the state's massive budget gap without new revenues – doing so, for example, could eliminate funding for the University of California, California State University, welfare payments, mental health programs, services for the developmentally disabled and in-home support services.

Assembly Speaker Karen Bass said her "frustration with my Republican colleagues is that I know they understand that we need revenue, but they can't tell us what revenue they can support."

Republican lawmakers' decision to sign a no-new-tax pledge en masse has torpedoed negotiations, Steinberg said.

"It's a bit of a charade in terms of a real negotiation," he said. "It just isn't one."

Steinberg said the loss to jobs and businesses caused by allowing the fiscal crisis to grow would outstrip any financial benefits from the GOP's economic stimulus proposals.

Allan Zaremberg, president of the California Chamber of Commerce, said his group has not taken sides. He wants a deal that stems red ink, eases business overregulation and revitalizes construction – but does not curb consumer spending with tax hikes.

"We're trying to find a road map that gets the votes, finds a way to stimulate our private-sector economy and, at the same time, makes sure the public sector has resources to provide important and necessary programs," Zaremberg said.

Leaks from closed-door meetings, accusations, blame and public posturing are escalating tensions as the holidays approach.

Schwarzenegger installed an electronic slap in the face in the Capitol – a signboard blaming lawmakers for inaction and providing second-by-second tallies of the massive shortfall.

Sitting in for Schwarzenegger at the weekly radio address Saturday, Finance Director Mike Genest blamed both parties.

Genest criticized the GOP for engaging in "hostage negotiations" without committing to approve tax increases if their demands are met.

"In this case, Republicans would only be willing to consider letting the hostage go," he said.

Genest said Democrats are "just as bad" for refusing to support adequate, long-term cuts or to consider economic stimulus measures such as giving employers more flexibility in employee scheduling.

"In other words, they're more worried about the labor bosses and the special interests than about solving these problems," Genest said.

John J. Pitney, government professor at Claremont McKenna College, said it would "stunning if they came to an agreement before they absolutely had to."

"Sometimes games of chicken end in a crash," Pitney added.