Anti-Tax Groups Sue Over Calif. Budget Package

Anti-Tax Groups Sue Over Calif. Budget Package

Tuesday, January 6, 2009 9:00 PM
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SACRAMENTO, Calif. -- Democratic leaders sent Gov. Arnold Schwarzenegger an $18 billion deficit-cutting package on Tuesday, even anti-tax groups filed a lawsuit to stop it and the governor pledged a veto.

The activity came amid the Legislature's third special session since the November election to deal with California's worsening budget deficit, projected at $42 billion over the next 18 months.

Time is running out for lawmakers to find a midyear fix, with the state controller warning that California will be so short of cash it will have to start issuing IOUs in February to vendors and to taxpayers expecting refunds. Democrats said their plan would avoid what Schwarzenegger has described as a "financial Armageddon," but it appeared to be dead even before it arrived on the governor's desk.

Assembly Speaker Karen Bass, D-Los Angeles, and Senate President Pro Tem Darrell Steinberg, D-Sacramento, accused the Republican governor of changing his demands to prevent a compromise but also sent him a letter promising to address his concerns in the coming weeks.

The Democratic-dominated Legislature passed the series of bills last month. Lawmakers had been keeping it from going to Schwarzenegger's desk in an attempt to negotiate a deal that would allow him to sign it.

Schwarzenegger has pledged to veto the legislation unless Democrats change it to include concessions on labor and environmental issues that he said would speed up infrastructure projects.

Bass said Democrats had agreed to give Schwarzenegger 75 percent of what he said he wanted, but she said the governor then demanded deeper spending cuts. She accused him of "moving the goalposts."

A spokesman for Schwarzenegger, Aaron McLear, said he was not sure what the Democrats were talking about.

"The governor has been very clear for the last several months on what exactly he needs to support a budget fix," he said.

The drama between Democrats and Schwarzenegger was playing out as Republican lawmakers and anti-tax groups filed suit to block the Democratic package. They said it included tax increases that were not passed by the a two-thirds majority in the Legislature, as required by the state Constitution.

The lawsuit, filed in the state's 3rd District Court of Appeal in Sacramento, seeks an immediate injunction. Jon Coupal, president of the Howard Jarvis Taxpayers Association, said the groups want to ensure that lawmakers don't try the same maneuver again.

Legislative Republicans have staunchly opposed any tax increase, and Democrats would need at least a few of their votes to reach a two-thirds majority. But Democrats say their $18 billion mix of spending cuts and new revenue does not technically increase the overall amount of taxes leveled on Californians and therefore needed only simple majorities to be approved.

The package would eliminate gas taxes and replace them with a variety of other charges, including raising the state sales tax by three-quarters of a percentage point, boosting personal income taxes by 2.5 percent, taxing companies that extract oil from California and collecting taxes from independent contractors upfront.

It then replaces the gas taxes with what Democrats call a gasoline fee that would go solely to transportation projects. Fees do not require a two-thirds vote by lawmakers if they are dedicated to a single purpose.

Coupal said the package violated the will of the people. In 1978, California voters passed Proposition 13, which requires tax increases to be passed on a two-thirds vote of the Legislature.

"What the legislative majority have attempted is clearly a change in state law for the purpose of raising revenue, and we are confident that the courts will agree with us," Coupal said Tuesday.

John Eastman, dean of the law school at Chapman University and the attorney who filed the lawsuit, said Legislature's action also amounted to taking private property without due process and diluting the minority party's vote in violation of the equal protection clause of the U.S. Constitution's 14th Amendment.

Schwarzenegger initially said the plan included "illegal taxes" but then modified his position, saying he would leave it up to others _ presumably the courts _ to decide the difference between a tax and a fee.

If Schwarzenegger follows through on his threat to veto the Democratic bill, it's not clear what the next step would be in the efforts to solve California's fiscal crisis. Last week his administration offered a proposal for the remainder of this fiscal year and next one, but no lawmaker has agreed to carry it as a budget bill.