Sales Tax to Rise by a Quarter of a Cent
Finance: A 1991 law triggers a reduction in good times and kicks it back up
during slowdowns. The state deficit means a higher rate on Jan. 1.
By JULIE TAMAKI
TIMES STAFF WRITER

November 1 2001

SACRAMENTO -- Gov. Gray Davis' administration is expected to confirm today
that state sales taxes will rise next year by a quarter of a cent, a
development eagerly awaited by Republicans who want to make taxes an issue
in next year's elections.

A 1991 law enacted by Davis' Republican predecessor provided that in good
times--when the state budget surplus tops 4% of the general fund for two
years straight--the state sales tax automatically drops by one-fourth of 1%
for one year. That reduction kicked in for the first time in January.

Now the year is almost up, and state finance officials must determine by
today whether the higher rate will reappear next year. Their decision,
however, is a foregone conclusion, because there is no surplus, lawmakers
already have approved a budget that counts on the additional tax money and
state revenues are running more than $1 billion below projections. The sales
tax rate throughout nearly all of Los Angeles County will rise to 8.25%. The
rate in Orange, Riverside and San Bernardino counties is expected to climb
to 7.75%. Sales tax in Ventura County is expected to increase to 7.25%.

Even with the hike, which will take effect Jan. 1 and add roughly $1.2
billion to California coffers in 2002, the state's budget deficit for the
fiscal year is projected to be $8 billion to $14 billion.

The tax is a political headache for Davis, who took credit when the tax rate
fell in January. That was due, he said, to his administration's commitment
to fiscal responsibility in addition to the strong economy.

Republican lawmakers, who fought this summer to maintain the lower rate,
blame the uptick on deficit spending by their Democratic counterparts.

"The budget the governor signed spent over $79 billion when we were only
taking in $75 billion," Senate Republican Leader Jim Brulte of Rancho
Cucamonga said. "This is why the quarter-cent tax is triggering back on."

Republicans contend California taxes are set to rise just as federal
lawmakers contemplate an economic stimulus package that has Washington
Republicans pushing for steep tax cuts.

"We ought to be generating an economic stimulus that is complementary to
what is being done on the federal level," Assembly Republican Leader Dave
Cox of Fair Oaks said.

GOP candidates running for state offices next year will be encouraged by
party leaders to raise the tax increase as an issue in their campaigns, said
James Fisfis, a spokesman for Cox.

"We expect candidates to talk about it, particularly as the economy
continues to slump," Fisfis added.

Senate Budget Committee Chairman Steve Peace, an El Cajon Democrat, lauded
the trigger that controls the tax as the best way to allow voters to hold on
to a portion of a large budget reserve when times are good. When times are
tough, the trigger causes the tax to reappear.

"It's exactly how Pete Wilson designed it to work," Peace said.

The issue of stimulating the economy is clearly a sensitive one for Davis.

On Wednesday, administration officials held a teleconference with reporters
to trumpet financing by the state's Infrastructure Bank to help a biomedical
center in San Francisco double in size. Davis did not participate but said
in a recorded message that the project shows that the state is helping to
spark the economy and create new jobs in important fields.

Davis is scheduled to convene an economic summit of California business
leaders and politicians Friday at the Walt Disney Co. movie studios in
Burbank. The governor has warned most state agencies to prepare for 15%
budget cuts, imposed a hiring freeze and ordered a $150-million reduction in
state spending in the current fiscal year.

A budget deal struck earlier this year between Republicans and Democrats
presumably made it easier for a quarter-cent tax cut to kick in by requiring
the state finance director to determine two things: The reserve at the end
of the fiscal year must be at least 3% of general fund revenues, excluding
money generated from the quarter-cent sales tax, and general fund revenues
from May to September must exceed the forecast, which they have not.