 |
 -0 |
 |
|
||||||||
 |
||||||||
 |
||||||||
|
||||||||
|
||||||||
 |
|
Davis team mulls half-cent tax increase The tax increase - which in Orange County would bump the sales tax to 8.25 percent – would be used to pay off $8.2 billion in new borrowing by the state. Davis and his staff were careful to say they are not endorsing the plan, at least not yet, and characterized the draft, which was obtained by the Register, as one of several working papers. The documents, which were provided to legislative leaders, were drafted in response to a jittery Wall Street banking community that wants to know how California intends to wrestle its $30 billion-plus deficit to the ground. "This is merely an analysis, not a proposal," Department of Finance spokeswoman Anita Gore said. Several Wall Street firms have acknowledged that California's deficit "is widely recognized as being so large that some form of 'settling up with history' by bonding out over time would be inevitable," according to a letter by UBS PaineWebber in response to the scenario posed by the state. Under the scenario, the state would: Establish the California Fiscal Recovery Financing Authority, which would issue $8.2 billion in bonds; Increase sales taxes by a half-cent until the bonds were paid off in five to ten years; Divert the new taxes to the "Fiscal Recovery Tax Fund," which would act as a shield, so that a portion of the money wouldn't be devoted to public schools, as is usually required under Prop. 98 when the state receives a new income stream. The plan could mean taking at least a quarter of the deficit off the table and spreading it out over the next few years, rather than the severity of the cuts that would have to be weathered if budgeters had to shave off all $30 billion-plus in a year. Financing the deficit this way, however, would cost the state an additional $690 million to $1.8 billion, depending on whether the bonds were paid back over five or ten years. The plan mirrors methods eight other governments, including New York City and Massachusetts, have used. While Wall Street financial firms have said the sales tax increase is not imperative, it would certainly help. Goldman Sachs told state finance officials in a letter that the half-cent sales tax is "immensely preferable to using a portion of the existing tax." Davis has been working on his May budget revision and has not made a decision about the draft plan, his spokesman said Wednesday. The mere fact, though, that any tax increase was floated at all raised the ire of Republicans, who last week unveiled a plan to spread the state's debt over five years without raising taxes. The Republican plan, however, would call for $15 billion in cuts and freeze spending in two years. Any such bond borrowing would require the approval of at least eight Republicans and all of the Democrats in the Legislature. Assemblyman Joe Canciamilla, D-Pittsburg, leader of a bipartisan working group on the budget, said the only thing that's clear now is the fact that the state can't solve the deficit all in one year. "We have to do some kind of multiyear rollover of the accumulated debt," he said. What's not so clear, is how it gets paid off. "That, I suspect, won't come until the final round of negotiations," Canciamilla said.
DAILY BUDGET UPDATE
What's new
Gov. Gray Davis' Finance Department has drafted a plan to raise the sales tax but has not decided whether to formally introduce it.
Today's deficit index
$70.8 million: The amount needed per day through June
|
|
|
