"Because of the ongoing slump in the housing market, and the breakdown in the sub-prime mortgage market," said H.D. Palmer of the California Finance Department. "The Indian gaming compacts have not come on line as fast as we projected. We had increased costs of the Southern California fires."
While the Governor ordered department heads to come up with ways to cut their costs by 10 percent, Democrats say California cannot cut its way out of this mess and that it's time to raise taxes.
"It's going to be really bad, yeah," said Assembly Speaker Fabian Nunez, D-Los Angeles. "In my view, one of the best options that's there for us, that will help wipe out a significant portion of this budget deficit, is the vehicle license fee."
Though it could bring in an additional $6 billion a year, raising the vehicle license fee is very unpopular because it's essentially a steep car tax.
"We're on a limited income. My husband is retired, and that's going to take money out of our food pocket," said driver Sharon Zunie.
The car tax helped push Governor Gray Davis out of office after he tripled it. Then-candidate Schwarzenegger smashed cars and promised voters he would repeal it if elected -- and he did.
Even though that repeal has come back to bite him, political watchers say there's no way the governor would eat his words.
"Of all the taxes that we raise, it's hard to believe the VLF would be the one that would be raised," said Republican strategist Kevin Spillane. "It was the cornerstone of the recall campaign. It was a fundamental part of Schwarzenegger's play for governor."
Even if the Governor were to support a car tax, there would not be enough Republican support to pass it. So car owners are safe for now. But a declining economy could change things very fast.
