The Associated Press May 17, 2011, 8:19AM ET

Calif. revenue up, but gov still pushes tax hikes

Gov. Jerry Brown is betting that California continues its gradual climb from the depths of the recession but said Monday that even a multibillion-dollar bounce in tax revenue will not close the state's budget deficit and he wants to keep pursuing a series of tax increases.

The Democratic governor released his revised budget proposal for the fiscal year that starts July 1, a spending plan that mixes hope for better days with a warning about the future if the Legislature fails to enact his plan for higher taxes.

Public schools will receive nearly $3 billion more under his plan but would be hit particularly hard if his call for tax renewals is rebuffed in the Legislature or by voters.

The governor proposed spending of $88.8 billion, a nearly 5 percent increase over the budget he introduced in January. The boost was fueled by rising sales, personal income and corporate tax receipts -- the three main sources of the state's general fund.

The governor expects an overall increase of $6.6 billion in tax receipts through July 2012.

The rising revenue and spending cuts already enacted by Brown and Democratic lawmakers have reduced the projected deficit to $9.6 billion. It had been estimated as high as $26.6 billion at the start of the year.

Noting the increased tax revenue, Brown slightly modified his call for a renewal of expiring tax increases. But he defended his decision to push ahead with the tax plan, saying the state faces deficits into the future.

"California's finances were plunged into turmoil by the Great Recession and a decade of short-term fixes and fiscal gimmicks," he said during a Capitol news conference, his first public appearance since late April, when he had a basal cell carcinoma removed from the right side of his nose and underwent reconstructive surgery. "This is not the time to delay or evade. This is the time to put our finances in order."

Brown and Democratic lawmakers want to renew increases to the personal income, sales and vehicles taxes that were approved two years ago but are scheduled to expire June 30. Brown had wanted the increases extended for five years.

He said Monday he still wants to renew the 1 percent increase to the state sales tax and the half percent increase to the vehicle license fee this year but not the quarter percent increase to the personal income tax. Instead, that increase would be reinstated for the 2012 through 2015 tax years.

The governor said his proposal for spending cuts and tax increases represented a reasonable, balanced approach that would put the state's finances on sound footing over the next few years. Brown said California faces a budget deficit of about $20 billion in two years without the renewal of the higher taxes.

Even with the anticipated rise in tax revenue, California's income is far below its pre-recession level. Brown's $88.8 billion spending plan represents a 13.7 percent decline from the 2007-08 fiscal year, when the state spent $103 billion from its general fund, the state's main checkbook.

The governor would not say whether he had an alternate plan if Republican lawmakers continue to block his call for tax renewals.

"I'm not going to give the Republicans a roadmap to ruin. I'm giving them a roadmap to success," he said.

Even though Democrats have majorities in the Assembly and Senate, two Republican votes are needed in each house to reach the two-thirds threshold to approve tax increases or place a measure on the ballot.

The governor's May revise, as it's called in the Capitol, marks the unofficial starting point for lawmakers to get serious about their most important job -- creating a state spending plan for the coming fiscal year.

It's not clear whether the parties will be able to agree on Brown's plan by their June 15 constitutional deadline to pass a budget.

Brown ran for governor last year on a promise not to raise taxes without voter approval. He wants to place the tax extension question before voters in a special election, perhaps this fall, but some Democrats and unions representing public employees have pressed for the Legislature to approve the taxes outright.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said the Legislature should approve the taxes through 2012 so school districts do not face uncertain funding levels in the coming year. Educators have warned of thousands of teacher layoffs, increased class sizes and a shortened school year if the remaining budget deficit is closed through cuts alone.

Steinberg said any special election, if authorized, should be in 2012.

GOP lawmakers have steadfastly refused to go along with Brown's plan to extend the temporary tax increases and say a combination of an improving economy and targeted spending cuts can solve the remaining deficit for the fiscal year that starts July 1.

They want deeper cuts to services to the poor, elderly and disabled; 10 percent salary cuts for state workers; and a raid on one-time funds intended for early childhood development and mental health.

Republicans also want long-term reforms to public employee pensions, a strict spending cap and regulatory reforms for businesses. Brown has proposed a package of pension reforms and on Monday agreed that the state needs a spending limit.

Sen. Bob Huff, R-Diamond Bar, vice chairman of the Senate Budget Committee, also said he would prefer to wait until 2012 for a special election. He reiterated his opposition to continuing the tax increases but said the issue could re-evaluated in a year.

"Let's give this economic recovery an opportunity to recover before we start throwing more taxes out there," Huff said.

State Treasurer Bill Lockyer, a Democrat, sounded another warning about the uncertainty of relying on voter approval of taxes.

He said it might prevent the state from the routine borrowing it would need to pay its bills over the summer, when tax revenue typically dips. He said the budget would need to have "real, inescapable, quickly implemented spending cuts that would be triggered if voters reject the taxes."

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Associated Press writers Lien Hoang and Adam Weintraub contributed to this report.


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