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Another budget showdown expected in California

California proposes new taxes and budget cuts as it struggles to tame its $24.3 billion deficit.

By Shane Goldmacher and Eric BaileyThe Los Angeles Times / June 17, 2009

The mayors of several of California's largest cities met with Gov. Arnold Schwarzenegger at the Capitol in Sacramento, Calif., Tuesday, June 9, 2009, to ask the governor not to undermine local governments when balancing the state budget. Los Angeles Mayor Antonio Villaraigosa (second from l.) discusses the meeting while San Diego Mayor Jerry Sanders (l.), Sacrament Mayor Kevin Johnson (third from l.), and Santa Ana Mayor Miguel Pulido (r.), look on.

Rich Pedroncelli/AP

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Sacramento, Calif.

Setting up a contentious partisan showdown, a legislative budget panel approved plans Tuesday to boost oil and tobacco taxes, slash money for schools, eliminate the high school exit exam and reduce the budget for state prisons.

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But in completing a budget blueprint to put before the full Legislature next week, the committee pulled back from some of the deepest cuts proposed by Gov. Arnold Schwarzenegger to tame California's $24.3 billion deficit.

The Democrat-controlled group, working into the evening, also voted to raise community college fees by $6 a unit, reduce court funding and slice social services for the poor. But members declined to endorse Schwarzenegger's bid to eliminate some health and welfare programs altogether.

The most contentious vote came on the Democratic plan to hike taxes on the oil and tobacco industries.

The proposal, approved on a straight party-line vote by the six Democrats on the 10-member budget panel, calls for a new 9.9 percent levy on oil pumped from California soil, which would produce about $830 million in the coming fiscal year. It would increase the state's cigarette tax by $1.50 a pack, raising $1 billion. And the repeal of a corporate tax break approved just months ago would net $80 million.

But the levies on big business are anathema to the Republican governor and GOP lawmakers, who blasted the plan and vowed to block it.

"In the midst of the worst recession since the Great Depression, it makes absolutely no sense to solve our budget with proposals that target Californians' pocketbooks," said Aaron McLear, Schwarzenegger's spokesman.

Assembly GOP Leader Sam Blakeslee said the proposal to raise taxes portends a battle between Republicans and Democrats that will "jeopardize the Legislature's ability to solve this crisis in time to avoid insolvency."

Even some Democrats who voted for the taxes expressed reservations.

"Californians are struggling to pay their mortgages, to pay their rent, to put food on the table," said state Sen. Alan Lowenthal, a Democrat from Long Beach and a panel member. "The perception of the Legislature is that we can't live within our means."

The panel also voted to impose a new 3 percent income tax withholding requirement for independent contractors. Lawmakers said the proposal would speed the arrival of those funds and improve compliance, netting the state $2 billion. Ana Matosantos, the governor's chief deputy finance director, said Schwarzenegger opposes the idea.

With Wall Street analysts considering yet another downgrade of California's credit and the Obama administration reiterating its refusal to guarantee loans to the Golden State, lawmakers on the budget panel rolled up their sleeves Tuesday with a renewed sense of the inevitable.