<!--:es-->Gov. Schwarzenegger rejects latest budget proposal<!--:-->

Gov. Schwarzenegger rejects latest budget proposal

SACRAMENTO, Calif. – Gov. Arnold Schwarzenegger vetoed an $18 billion deficit-cutting package Tuesday that legislative Democrats characterized as the only “game in town.”

The Legislature has had three special sessions since the November election to address California’s worsening budget deficit, projected at $42 billion over the next 18 months.

But the latest package passed by the Democratic-controlled Legislature did not meet the governor’s demands for making more cuts, streamlining government and creating economic stimulus, his spokesman Aaron McLear said Tuesday evening.

Time is running out for 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 taxpayers expecting refunds. Democrats said their plan would have avoided 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 and Senate President Pro Tem Darrell Steinberg, both Democrats, accused the Republican governor of changing his demands to prevent a compromise, but they also sent him a letter promising to address his concerns in the coming weeks.

In a letter to the Democratic leaders released by the governor’s office Tuesday night, Schwarzenegger said the budget punishes people with increased taxes without the necessary spending cuts or plans to help reduce foreclosures.

“It is unfair and unacceptable to place an even greater burden on hardworking taxpayers without doing all we can to cut spending, create jobs and keep people in their homes,” Schwarzenegger said.

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 had pledged to veto the legislation unless Democrats changed 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.”

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 a two-thirds majority in the Legislature, as required by the state Constitution.

The lawsuit, filed in the state’s 3rd District Court of Appeals 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 said their $18 billion mix of spending cuts and new revenue did 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.