From Bloomberg.com:
Democrats who control California’s Legislature said tax increases are needed to help close a $24 billion deficit, setting up a battle with Republicans that may leave the state short of cash next month.
Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger. His proposed reductions would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.
The Democrats’ stance sets the stage for a confrontation with Republican lawmakers because California law requires a two- thirds vote to approve tax increases. While Democrats control both chambers, they are six votes short of a supermajority. State Controller John Chiang has warned lawmakers since May that they had until June 15 to fill the gap or the state will find itself unable to pay all its July bills.
“The budget that we will be voting for on the floor will be a balanced approach and it will be a combination of cuts and new revenues,” Bass told reporters in her office yesterday.
The state’s projected cash shortage absent a fix to next year’s budget led Standard & Poor’s late yesterday to place California’s credit rating, already the lowest among U.S. states, under review for a possible cut.
“Although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments in our view,” S&P analysts led by Gabriel Petek in San Francisco said in a news release.
Fitch Ratings on May 29 revised California’s credit-rating outlook to negative, indicating a longer-term likelihood of reduction if lawmakers don’t act quickly to solve the latest budget problems. California’s full faith and credit pledge is rated A by S&P and Fitch and a comparable A2 by Moody’s Investors Service, five steps below the top investment grade.
California taxable 30-year Build America Bonds paying 7.55 percent traded at about 93 cents on the dollar today to yield 8.18 percent, down from 94.7 cents and 8.02 percent yesterday, according to Municipal Securities Rulemaking Board trade data.
The Democrats’ new $15 vehicle registration fee would raise about $300 million a year that would be used to finance the operation of California’s 275 state parks. Anyone driving a vehicle with California license plates would be allowed to enter state parks without paying an entrance fee. Schwarzenegger wants to eliminate all funding for parks.