Democratic lawmakers on Thursday pushed through an $18 billion package to reduce California's burgeoning budget deficit, but Gov. Arnold Schwarzenegger said he would veto it because it didn't meet his demands for an economic recovery plan.
Schwarzenegger said California will continue on a path toward "fiscal Armageddon" since Democrats sent him a "terrible budget" that didn't make deep enough cuts or include the kind of stimulus he wanted to boost the state's ailing economy. California's deficit is expected to hit $42 billion in the next 18 months.
"This package that they are sending down does really only do one thing, and this is punish the people of California," he said at a news conference shortly after the vote.
But Assembly Speaker Karen Bass, D-Los Angeles, said the Democratic package included economic stimulus provisions and other measures that should have satisfied the Republican governor.
"I am frankly surprised how willing Gov. Schwarzenegger is to push California over a cliff when he clearly is not fully aware of what the bills we passed today do," Bass said. "The governor claims he wants to negotiate and then says things must be exactly as he wants. That is astonishing given the crisis we face."
Lawmakers adjourned for the holidays, even as the governor called on them to solve the problem before Christmas. He did not say when he would call them back into session.
Democrats on Thursday afternoon pushed through a package of bills that would have made more than $7 billion in cuts to education, health care and prisons, and increased taxes and fees by $9.3 billion. It proposed about $1.5 billion in other changes. Democrats claimed their complicated proposal avoided the need for a two-thirds majority vote typically needed for a tax increase.
Republicans are a minority in both houses but are needed to put together two-thirds majorities. They've rejected all tax increase proposals, including a sales tax boost proposed by Schwarzenegger, and want deeper budget cuts than Democrats support.
In all, the Democratic plan addressed part of the state's massive shortfall by cutting some taxes, raising others, imposing a new fee on gasoline and making major cuts to state programs.
Taxpayer groups threatened to sue if taxes were raised without a two-thirds majority. During Thursday's floor debate, Republican lawmakers warned the plan would have hit Californians hard during an already difficult recession.
"We're talking about substantially raising taxes on the people of this state," said Senate Minority Leader Dave Cogdill, R-Modesto. "This proposal before us today will raise the gas tax, it will raise the car tax, will raise the personal income tax, and it will raise the sales tax to the tune of about $1,000 a year for an average family making about $50,000."
Democrats hailed the package as the first breakthrough since Schwarzenegger called them back into a special session on Nov. 5. They said it would protect schools and basic government services while speeding up infrastructure projects to help revive the economy.
But Schwarzenegger said the Democrats' package lacked deeper cuts to welfare and senior assistance programs, flexibility to reduce school spending, and the elimination of two of 14 state employee holidays.
The governor also wanted assistance for homeowners facing foreclosure, broad authority to relax environmental regulation on public work projects and more toll roads.
"We have to act on behalf of the people," Schwarzenegger said. "We have to create jobs as quickly as possible, stimulate the economy, keep people in their homes. ... We don't go out and punish people with extra fees and taxes."
State Treasurer Bill Lockyer, a Democrat, issued a statement before the governor announced his decision to veto the $18 billion package, warning that California's credit rating could be lowered without a deficit-cutting agreement.
"If we throw away an $18 billion solution, under these circumstances, investors will throw up their hands in disgust, and we likely will suffer the humiliation of seeing our credit rating sick even lower," Lockyer wrote.
Jennifer Gibbons, a spokeswoman for Assembly Minority Leader Mike Villines, R-Clovis, said the GOP leader believed the governor acted responsibly.
"We are pleased the governor has decided to veto the package," Gibbons said. "We think he's acting appropriately in vetoing a plan that would have been devastating for Californians.
California has not been able to borrow money for months and faces a cash shortage in February.
The shortfall for the fiscal year that ends in June is nearly $15 billion, about 10 percent of the state's $144.5 billion budget. Officials say the hole will continue to grow unless lawmakers cut spending, raise revenue or do a combination of the two.
Associated Press Writer Samantha Young also contributed to this story.
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