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California may raise sales tax

Schwarzenegger facing massive budget deficit

Gov. Arnold Schwarzenegger talks about the drop in state revenue at a news conference in Sacramento, Calif., on Thursday. (Associated Press / The Spokesman-Review)
By Evan Halper and Jordan Rau Los Angeles Times
Gov. Arnold Schwarzenegger talks about the drop in state revenue at a news conference in Sacramento, Calif., on Thursday. (Associated Press / The Spokesman-Review)

SACRAMENTO, Calif. – California Gov. Arnold Schwarzenegger unveiled a plan Thursday for a steep sales tax increase, new levies on alcoholic drinks and the oil industry, and deep cuts in services to wipe out a budget shortfall that is expected to swell to more than $24 billion by mid-2010.

The linchpin of the plan is the sales tax increase – 1 1/2 cents on the dollar – that could raise $10.8 billion through fiscal 2009-10. In Los Angeles County, where voters Tuesday appear to have passed a separate half-cent sales tax hike to fund transit projects, the rate would shoot up to 10.25 percent. The statewide sales tax rate is now 7.25 percent.

Republicans, who blocked a smaller increase proposed by the governor last summer, immediately vowed to resist his latest plan.

The plan also calls for extending the sales tax to appliance and furniture repairs, vehicle repairs, golf fees, veterinarian services, amusement parks and sporting events. Schwarzenegger proposed a 9.9 percent tax on the extraction of oil within the state, the expansion of sales tax to some services and a 5-cent-per-drink tax on alcohol. His plan also includes a $12 increase in annual vehicle registration fees.

The rash of tax proposals comes as California is again headed toward a cash crisis. Administration officials said the state will not have the funds it needs to cover its bills by March if action is not taken quickly. The state is starved for cash as the economy continues its downward slide and the stock market plunge takes its toll on income tax collections.

“We are living in a different world now,” Schwarzenegger said at a news conference.

His solutions include a number of significant spending reductions, the biggest of which is an immediate $2.5 billion cut from schools and community colleges. And state workers would be required to take a day off without pay each month, as well as to sacrifice two of their state holidays.

The governor proposed canceling dental insurance for poor adults on the state’s MediCal program and lowering subsidies to the aged, blind and disabled. California’s welfare subsidies also would be reduced.