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Taxes drop as budget slashes state services

June 30, 2011 12:00:00 AM PDT
With the new fiscal year set to begin Friday, Governor Jerry Brown signed a rare on-time state budget Thursday. The new budget includes major cuts and an optimistic look at revenue.

"This is the first on-time budget since I've been governor," said Governor Brown Thursday.

While Brown joked about an on-time budget, the $86-billion spending plan was no laughing matter. It pares down state services substantially and brings General Fund spending to its lowest since the early 1970s.

  • Nearly one-quarter of funding to University of California and California State University systems has been slashed.
  • 70 state parks are slated for closure.
  • The poor, elderly and disabled will have to live on smaller welfare grants and cash aid.

"These are really tough, hard decisions. And going forward, Californians are going to have to think very hard about what is it that we want," said Brown.

The Democrats' first choice was to ask California voters if they wanted to extend the expiring tax hikes to save some services. But even after months of arm-twisting, Brown could not convince two Republicans in each house to go along.

"This is a victory for the people," said state Assemblyman Tim Donnelly (R-Twin Peaks).

Assembly Republicans celebrated the end of the temporary tax hikes, marking it "Freedom from Higher Taxes Day."

They estimate the average California household will be able to keep about $1,000 per tax year.

"This is much-needed relief, and it's the result of Assembly Republicans standing together to protect the only special interest group we represent, and that's the hardworking taxpayers," said state Assemblywoman Connie Conway (R-Tulare), state assembly minority leader.

Businesses like car dealerships hope Californians spend their extra money.

On a $20,000 vehicle, the drop in sales tax and the vehicle license fee saves customers a few hundred dollars.

"I think there's a lot of people standing on the sidelines, waiting for the vehicle-license fee and the sales tax to go down," said car dealership owner Ray Enos. "I think there's a pent-up demand and I think it'll certainly help the business."

Democrats, though, say there is a price to having more money in your pockets and less for state coffers.

"In terms of us being able to deliver the services and the educational opportunities for our children, there's a net negative there," said state Assembly Speaker John Perez (D-Los Angeles).

Brown used his line-item veto power to make cuts Thursday, eliminating some state boards and commissions, which means there will be some layoffs in the coming months. He also reduced funding to the state's high-speed rail project.

The bottom line: No new taxes, and vehicle-license fees and the sales tax will be reduced beginning Friday.

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