Report: Legal doubts about Calif. tax plan

SACRAMENTO, Feb. 26 (UPI) -- Gov. Gray Davis' plan to cut California's budget deficit by raising taxes may have hit a roadblock in the form of a legal opinion that determined a large portion of the new revenues would have to be diverted into education rather than to the treasuries of cash-strapped local governments.

An opinion by the Legislative Counsel's Office said the proposed new tax revenues were indeed within the provisions of Proposition 98, a voter-approved 1988 measure that guarantees funding levels for public schools, the Sacramento Bee said Wednesday.

"The legislative counsel's opinion is only confirming what was suspected to be a questionable end run around Proposition 98," Kevin Gordon, executive director of the California Association of School Business Officials, told the Bee.

The Feb. 12 opinion, which has not been publicly released but was obtained by the newspaper, puts Davis in a potentially uncomfortable political position as he attempts to cover an 18-month budget deficit of some $26 billion.

Davis has proposed raising taxes in the 2003-2004 budget by $8.3 billion through increases in the sales, cigarette and income taxes. The money would be used by local governments to pay for the "realignment" of a number of state social services the governor would like to transfer to city and county governments.

By earmarking the new revenues for local governments, Davis maintains, the funds would not be applied to the state's general fund. General fund revenues are used as the basis for a complex formula that determines how much money school districts receive under Prop 98.

The Legislative Counsel's opinion didn't agree, the Bee said, and concluded that the new tax revenues actually did qualify as a general fund enhancement that comes under the provisions of Prop 98.

Davis' office told the Bee they disagreed with the opinion, however lawmakers indicated that the Democratic governor was in the position of rewriting his realignment plan, shortchanging local governments, or seeking the suspension of Prop 98, which could leave the state liable to make up billions of dollars to school districts at a later date.

"I never have thought that this realignment had any substantive purpose other than to increase taxes without suspending Prop. 98," said John Campbell, the Republican vice chairman of the Assembly Budget Committee. "If this opinion holds, then the Democrats will have to make a decision: Are they prepared to increases taxes and suspend Prop. 98?"