DAVIS SEEKS TAX HIKES DEFICIT PLAN CALLS FOR DOUBLING AUTO LICENSE FEES, RAISING CIGARETTE LEVY.

Byline: Erik N. Nelson Staff Writer

Gov. Gray Davis proposed on Tuesday more than doubling taxes on car and truck licenses and raising the cigarette tax by 50 cents a pack, while slashing some programs to erase a budget deficit of $23.6 billion.

The governor's plan also cuts spending for health care, including reducing payments to medical providers for the poor, and ends the governor's monetary rewards for teachers and schools with improved test scores.

``The problem is not spending. The problem is a lack of revenue,'' Davis said as he announced the program of tax hikes and deep budget cuts prompted by a new budget forecast that was based on lagging April tax revenues.

For months, Davis had said he had no plans to increase taxes. But the state budget shortfall, which was estimated at $12.5 billion in January, has deepened since then.

Without the proposed increase in the state Vehicle License Fee and the cigarette tax increase, the state would not be able to meet its education funding obligations, Davis said.

The governor's vehicle fee proposal would still be 25 percent below the fee's previous level, which levied a 2 percent tax on a new car's value and declined for older vehicles. The tax currently averages about $64 and would increase to $148 under the governor's proposal.

The proposed cuts will have their greatest impact on health and human services in county governments, including the state's largest, Los Angeles County.

The county's health system, already on the verge of collapse, is expected to take further cuts, including a large portion of the governor's $1.1 billion Medi-Cal cut statewide.

Also, the governor has not included the $25 million needed to keep the state's trauma care system operating after July 1.

The governor's budget plan also proposes sharp reductions in the county's welfare, child services, probation and mental health departments, including a $74.4 million statewide cut in mental health services and a $169.8 million statewide cut in welfare and child welfare services.

``When you hold law enforcement harmless, when you hold education harmless and when you hold prisons harmless, that doesn't leave very many places to cut,'' said Zev Yaroslavsky, chairman of the Los Angeles County Board of Supervisors. ``Anytime you cut services to human beings, it's messy, it's ugly and it's painful.''

Davis said the cuts were necessary to preserve education funding at levels guaranteed by state law, and prevent more expensive tax increases.

``I'm not going to sacrifice the future of our children, particularly in public education, without some revenue increases,'' Davis said.

Business owners - especially those just starting out - will also take a temporary hit as Davis' plan would defer for two years a net operating loss carry-over provision in the state's tax code.

The rule allows a business that loses money to carry over 60 percent of one year's loss to offset taxes on a subsequent year's profits. The federal government allows a 100 percent carry-over.

But the loss could be saved up for a tax break after the two-year deferral ends, said state Department of Finance spokesman Sandy Harrison.

The Democratic governor's proposal drew criticism from taxpayer groups and Republicans, who said Davis should have kept the lid on spending during his first three years in office to prepare for the current fiscal crisis.

``These tax increases are going to take an economy that's already on its deathbed and take it off life support,'' said Jon Coupal, president of the Howard Jarvis Taxpayers Association. ``These tax increases will be horribly damaging to the state's economy.''

State Sen. Tom McClintock, R-Thousand Oaks, predicted a legislative battle over the governor's tax proposals.

``If he wants to try to double the car tax at a time when this state is already spending a larger portion of your earnings than at any time in history, he's going to have a fight on his hands,'' McClintock said.

McClintock also predicted prolonged misery for San Fernando Valley commuters with likely cuts to projects such as the reconfiguration of the 101-405 freeways interchange in Sherman Oaks.

``I would predict that we won't see any progress on that while this administration is in office,'' McClintock said.

But Assemblyman Tony Cardenas, D-Mission Hills, who sits on the Assembly Budget Committee, was much kinder to the governor's proposals. Cardenas said he has advocated tapping cigarette and alcohol taxes to fund health and social programs.

He noted that the license fee has been cut back 67.5 percent with the expectation that it would be restored in the event of such a budget crisis.

``Maybe it's time we look at that as a place to make sure that kids have health care and make sure that kids have a good education,'' Cardenas said.

The May budget revision places public education among the top four priorities in the state, along with public safety, health insurance for children and vital programs for senior citizens.

The governor called for fully funding enrollment growth for an anticipated 80,000 new students and to increase per-pupil spending to $7,183. The revised budget also promised to meet the state's minimum funding guarantee for public schools with $47.2 billion.

Those funds, required under Proposition 98, could mean more than $80 million for the Los Angeles Unified School District, Superintendent Roy Romer said. He said the state funds could help the district avert its own fiscal crisis.

Earlier this month, the Los Angeles school board approved $384.6 million in budget cuts, with the board still facing a shortfall of nearly $60 million.

``The Proposition 98 funds would help balance our budget, but it's not enough to do all that we want to do, such as increase salaries for teachers,'' Romer said.

Staff Writers Troy Anderson and Sonia Giordani contributed to this report.

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Gov. Gray Davis gestures as he discusses his plan for erasing a $23.6 billion deficit.

Rich Pedroncelli/Associated Press