Assembly passes state budget after striking deal on tax credits |

Assembly passes state budget after striking deal on tax credits

SACRAMENTO (AP) ” Lawmakers in the state Senate were weighing Friday whether to support a major tax-credit package as part of the state budget the Assembly passed earlier in the day without their blessing.

The tax package ” the state’s first since 2001 ” emerged in the Assembly as the key piece of legislation that gave way to the approval of a $145 billion state spending plan. It would give tax credits to movie studios, tech firms and other companies.

It also angered the Senate’s top leaders, who raised the possibility the 19-day budget impasse could continue.

“I think what the Assembly has done is irresponsible and does not take into concern the needs of Californians,” said Sen. Mike Machado, D-Linden, who said he would not vote for the tax credits. “It was done to placate big business and movie moguls.”

The budget deal, approved in the state Assembly 56-23 shortly after 4 a.m., was made possible by the compromise, a separate move that was assailed by the Senate leader.

Senate President Pro Tem Don Perata said he was dismayed by the action, especially because lawmakers already had made painful concessions, such as cutting $185 million worth of tax credits for teachers, to help balance the budget.

“How could you now throw them over for Hollywood movie moguls and multinational corporations?” he wrote in a letter to Assembly Speaker Fabian Nunez, D-Los Angeles.

Perata, D-Oakland, said the “tax giveaways” would make it harder to fund education and social service programs. By some estimates, the credits could cost the state $600 million a year in tax revenue.

But Nunez also gave the Senate wiggle room. The tax credits were contained in a separate bill, approved 51-19, that was not joined to the budget legislation. That would allow the Senate to pass the budget without approving the tax credits.

The Senate cannot amend the state budget approved by the Assembly, but it could reject the spending plan and send an alternative back to the Assembly, forcing its members to return to Sacramento before their scheduled return on Aug. 20.

Still, Nunez said he was pleased he was able to negotiate the budget agreement without joining the tax cuts Republicans wanted to the spending plan. He said he supports the movie industry credit and one to stimulate high-tech research and development, but said he did not care for the other tax breaks and conceded there were other parts of the plan he also did not like.

“Public transit takes a hit,” he said. “But we didn’t take food out of the mouths of hungry children, and we protected education.”

The Assembly’s chief budget negotiator, Democrat John Laird, said there was something in the budget for both sides of the aisle. He said the budget plan reduces the state’s projected deficit beyond the version Gov. Arnold Schwarzenegger offered in May and adds to the state’s reserves.

It also fully funds education, law enforcement and other priorities without raising taxes or adding social programs, he said.

“There’s a lot to like,” said Laird, of Santa Cruz.

Assembly Minority Leader Mike Villines, R-Clovis, said he viewed the budget and tax credit package together as a victory for the state.

“It was phenomenal. It was good for California,” he said. “Let’s see if with a little bit of investment if we can have a lot more revenue for California. This will prove it one way or the other.”

It’s unclear how the Senate will react.

On Thursday night, Perata said it was at an impasse. Republican leaders seemed to agree, saying they would not support the budget plan, as is. The Assembly’s move to pass the tax-credit package was likely to complicate negotiations in the Senate.

The budget requires a two-thirds vote in the heavily Democratic Legislature _ meaning two Republicans in the Senate have to go along. The budget goes to the governor’s desk once it’s passed by both houses.

The Assembly debate on the spending plan began about midnight, just hours after it appeared Republicans and Democrats had reached an impasse in negotiations.

The budget adopted before dawn Friday contained about $103 billion in general fund spending, $1 billion less than Schwarzenegger proposed in May. It also reduced the state’s operating deficit from $1.5 billion to about $700 million and provided what lawmakers said would be the state’s largest-ever reserve in a single year, $3.4 billion.

It does so largely by shifting $1.3 billion in unexpectedly high gasoline tax revenue to help pay for the state’s operating expenses. Democrats had sought to keep that money in funds for public transit agencies.

Republicans noted that shift also would help reduce the expected deficit next year, in fiscal year 2008-09, by about $1.2 billion.

The compromise tax proposal included five special tax credits.

Some Democratic tax analysts warned the credits could cost the state more than $600 million a year in lost income. Republicans argued they would boost investment in California, attract businesses to the state and ultimately buoy state finances.

The largest part of the package will alter a complex formula for how large businesses in the state pay taxes. It would allow companies that invest hundreds of millions of dollars in their in-state business to weight taxes more on sales, a change that could reduce their overall tax burden.

Another credit will help movie studios that relocate independent film operations or television shows to the state, providing a potential tax benefit of $100 million. Yet another piece would provide as much as $175 million annually for credits to biotech, high-tech and other firms that boost investment in research and development.

Schwarzenegger and Nunez tried to push through similar credits last year.

The tax package also included a new sales tax exemption for the purchase of jet fuel in California and tax incentives for low-sulfur diesel fuel, designed to improve air quality around ports.

The Assembly and Senate were supposed to pass a budget by June 15, and Schwarzenegger was to have signed it by July 1, the start of the new fiscal year.

Lack of a budget has meant that hundreds of legislative employees and the state’s vendors are not being paid. State rules say the vast majority of the government’s civil servants continue to get paid even without a budget in place.


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