By Michael B. Marois
Feb. 20 (Bloomberg) -- California Governor Arnold Schwarzenegger signed a $130 billion budget and a package of tax increases, spending cuts and borrowing plans, ending a four- monthlong impasse that left the most populous U.S. state on the verge of going broke.
The nearly three-dozen bills Schwarzenegger signed close a record $42 billion deficit expected over the next 16 months, enact a $92.2 billion general fund budget for the fiscal year that begins July 1, make mid-year cuts to the current budget and place eight related measures on statewide ballots for voters to consider. He vetoed $1 billion of spending from the budget.
Passage in the Senate yesterday ended a deadlock in the Legislature that left California short of cash and with the lowest credit rating among U.S. states. The impasse threatened the jobs of 10,000 government workers and had forced the state to halt $5.5 billion of bond-financed construction of schools roads and other public works.
“During a down economy and facing an historic budget deficit we had to make some very difficult decisions, but I am very proud that California is back on the best path forward,” Schwarzenegger said in a statement. The signing was not done in public.
The budget raises the state sales-tax rate to 8.25 percent from 7.25 percent and boosts vehicle license fees to 1.15 percent from 0.65 percent of the value of an automobile. The package doesn’t contain a gasoline-tax increase that was included in previous versions.
Tax Increases
The plan also adds 0.25 percentage point to all personal income tax brackets for two years, so that a resident currently taxed at 8 percent will face an 8.25 percent levy. That increase would drop to 0.125 percentage point depending upon how much money California receives under the economic stimulus measure signed by President Barack Obama. The budget anticipates at least $7.8 billion in such federal funds.
The spending plan also cuts $15 billion of spending, half from schools and colleges, and anticipates issuing $5 billion of bonds backed by the state’s lottery, though voters must approve the debt in an election in May.
The cornerstone of the plan, $13 billion of tax increases, passed after Republican Senator Abel Maldonado of Santa Maria broke ranks with his party to cast the deciding vote in exchange for support of unrelated changes to election law. His support allowed the budget package to attain the two-thirds majority needed for approval in the Senate, where it had languished since Feb. 14.
Democratic Control
While Democrats control both chambers of the Legislature, taxes and budgets must be approved by a two-thirds supermajority equal to 27 of 40 seats in the Senate and 54 of 80 in the Assembly. The tax increase passed 27-12 in the Senate; 54-26 in the Assembly.
Signing the budget will restore California’s ability to raise money by selling bonds to investors, which it hasn’t done since June. Without the ability to borrow, the state in December cut off funding for 5,300 public works projects, seeking to conserve cash until the Legislature acted.
Treasurer Bill Lockyer will review the state’s finances over the next few weeks with an eye toward returning to the bond market “as soon as possible,” he said in a statement today.
“This budget paves a major segment of the state’s road back into the bond market,” he said. “We’re still assessing all the short-term and longer-term ramifications of the final product, but I believe investors will conclude this plan passes the credibility test.”
To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net
Last Updated: February 20, 2009 17:50 EST
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