Sandra Emerson, Staff Writer
Posted: 02/22/2010 06:50:13 PM PST

The Legislature this week is considering a package of Democrat-backed proposals that would cut the $20 billion deficit by $5 billion through fund shifts and tax hikes.

Some of the largest proposals include tax increases on property insurance and fund shifting on fuel taxes, which are undergoing heavy debate from lawmakers on both sides.

“These mid-year budget actions ensure we will not have a cash crisis this fiscal year and makes a sizable dent in the 18-month budget deficit,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento. “We will continue to work with the Administration, Republicans, and the Assembly this week to achieve $5 billion in solutions.”

Democrats acknowledged that their plan does not achieve the savings sought by Gov. Arnold Schwarzenegger when he called lawmakers into an emergency legislative session to tackle the state’s fiscal crisis.

Schwarzenegger asked lawmakers to start cutting education and social service programs, which make up the bulk of state spending. Democrats are waiting to see if tax revenues continue to come in ahead of projections and if federal aid increases, as they have requested.

“The budget solutions proposed by the Democrats this week are a dangerous game of fund shifting, privacy invasion, tax increases and job destruction,” said Assemblyman Curt Hagman, R-Chino Hills.

A fuel tax swap would seek to change the tax structure on gasoline and diesel fuels from a sales tax to a excise tax, which is expected to add $1.8 billion to the general fund. This would alter the 2002 Proposition 42, which allocates fuel taxes for transportation projects, by allowing the money collected to be used in the general fund.

Since much of the bill’s language is fairly new, cities and counties may be concerned about the details of the proposal, said Dan Carrigg, legislative director for the League of California Cities.

“You’re talking about major changes in funding formulas and things like that,” Carrigg said. “Your average city official in any legislative climate is going to be skeptical about such a massive change and want to make sure it really makes sense over the long haul.”

The fuel swap would allow local governments to impose gas fees to make up for money lost through the restructure.

However, the fees would have to be approved by voters.

“Maybe there will be political support, there may not be and so one of the questions is is this a viable replacement tool?” Carrigg said.

Another proposal would defer some of the state’s payment in order to free up cash flow may make it so the cities and counties don’t see the money until April 2011, he said.

“So then, the money you’re going to receive instead of Prop. 42, that money is the swapped out money, is now going to be deferred in terms of your payment,” Carrigg said. “That is not very comforting to a city official whose trying to balance their own budget.”

An increase on diesel fuel sales tax will provide more money to the state, but would jeopardize a vulnerable trucking industry, said Valerie Liese, president of Jack Jones Trucking in Fontana.

“We’re already paying 44 cents in fuel tax, a lot more than any other state,” Liese said. “So now we won’t be able to compete with all of the out of state companies.”

An emergency response initiative would add a 4.8 percent tax to residential and commercial insurance policies in order to sustain or enhance emergency preparedness services. This would save $200 million per year for the next two years.

Allan Zaremberg, president and CEO of the California Chamber of Commerce, released a statement critiziing the legislature’s attempt to provide more protections for state workers at the expense of those employed in the private sector.

“Last week, as they rallied with government employee unions, some at the state capitol made a renewed promise to work to reduce the two third vote requirement for California’s budgets and tax increases,” Zaremberg said. “This, they said, will help our economy and our job climate. Unfortunately, more spent on government jobs at the expense of private sector jobs will only make things worse. Raising taxes and fees will kill both private and public sector jobs.”

The Senate passed most of the package on Monday, but had not taken up a complicated shift in the way the state taxes gasoline.

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