Calif. wrestles with budget shortfall

California's multibillion-dollar budget shortfall has grown, the state's nonpartisan fiscal watchdog said Wednesday as she offered a trim-and-tax plan that competes with Gov. Arnold Schwarzenegger's proposal for across-the-board cuts.

The report by Legislative Analyst Elizabeth Hill shifted the state's fledgling budget debate to whether new taxes should be part of the solution — an approach the Republican governor has opposed.

It also sparked the kind of partisan sniping that Democrats and Republicans had so far avoided in hopes of preventing a repeat of the protracted budget debate that paralyzed the capital last summer.

Schwarzenegger last month pegged the shortfall at $14.5 billion through June 2009, but Hill said it has grown to $16 billion. She said Schwarzenegger's proposal for the 2008-09 budget year was flawed because it fails to set funding priorities or correct the state's chronic imbalance between spending and revenue.

"A decline in revenue means we have a larger shortfall than the governor projected," she said. "Our recommendations will affect all Californians in some way. However, we think that will benefit all Californians in the long run."

It is the first time Hill, California's budget analyst for the last 22 years, has offered a wholesale, competing approach to a governor's plan before state lawmakers began debating the budget. The spending plan for the 2008-09 budget year takes effect July 1.

Hill criticized Schwarzenegger's proposed 10 percent cuts to most state agencies. Instead, she called for targeting and eliminating nonessential state services and raising tax revenue by cutting personal and corporate tax credits for families, businesses and motorists. She also advocated a higher gasoline tax.

Republican Roger Niello, vice chairman of the Assembly Budget Committee, said Republicans disagreed with the tax credit plan put forth by Hill.

"Californians already pay enough in taxes. Republicans stand ready to begin our difficult budget work today," Niello said in a statement.

But Assembly Speaker Fabian Nunez, a Democrat, said he agreed with Hill's alternate approach.

The "report makes it clear that a slash-and-harm, cuts-only approach of dismantling state government won't fix our budget problem," he said in a statement.

Schwarzenegger said he looked forward to negotiating with lawmakers but remains opposed to tax increases.

"While I believe that we should begin negotiations with all ideas on the table, I have been very clear in my position against raising taxes to fix Sacramento's spending problem and our budget," he said in a statement.

Schwarzenegger's finance director, Mike Genest, said he did not consider Hill's competing budget proposal an affront.

"She's saying she believes how serious the problem is," he said.