SACRAMENTO — Assembly Speaker-elect Karen Bass, D-Los Angeles, sounds as if she wants to continue the good working relationship with Gov. Arnold Schwarzenegger forged by outgoing Speaker Fabian Nunez, also a Los Angeles Democrat.
Bass, who takes office Tuesday, said at a news conference today that Schwarzenegger has talked to her about leasing the state Lottery, a proposal the governor may make when he proposes a revised state budget Wednesday.
“I frankly want to look very seriously at it, but I don’t think it’s going to be an end-all solution,” Bass said, referring to a huge state budget shortfall.
Schwarzenegger, opposing a tax increase, has been talking about leasing the state Lottery, which Wall Street firms reportedly estimated last year could yield a lump-sum payment of $14 billion to $37 billion.
Among the problems, said Bass, is that making a Lottery lease attractive to a private sector bidder may require more aggressive marketing and allowing a variety of new Lottery games.
Bass will lead Democrats who are pushing for a “balanced” budget solution with tax increases and spending cuts. Republican legislators have signed a no-new tax increase pledge.
The speaker also said the budget reform advocated by Schwarzenegger, a “rainy-day reserve,” makes sense. But she is concerned about parts of the plan that limit spending and provide for automatic mid-year cuts when revenue declines.
Bass did not bluntly say what other Democrats have said: The governor’s plan would tie the hands of legislators, and the reserve approved by voters in 2004, Proposition 58, has not yet had time to work.
Bass has her own budget reform proposal. She plans to appoint a bipartisan commission to recommend an overhaul of a tax system created in the 1930s, a modernization said to have been done by a number of other states.
One of the goals would be a more stable source of revenue. More than half of California’s general fund revenue comes from the income tax, which makes big swings with the economy and the fortunes of the wealthy.
“If Google has a good year we all do well, and if Google doesn’t we are in trouble,” said Bass, citing an example of a high-tech boom that produced a windfall in state revenue.
Bass said she spoke with Judy Chu, a former Assembly member who now chairs the state Board of Equalization, before Chu sent Democratic legislative leaders a letter last month urging that the sales tax be extended to services.
The sales tax, a more stable revenue source than the income tax, was enacted in 1933 and applies mainly to “tangible goods,” not services that have become a major part of the U.S. economy.
Chu said the sales tax collected by her agency dropped from 37 percent of state general fund revenue in fiscal 1980 to just 28 percent in the current fiscal year, even though the tax rate increased during the period.
If California extended the sales tax to the most common types of services taxed in other states, but not here, the state general fund would receive about $2.7 billion a year, Chu estimated.
Some of the services on her list: automotive repair and service, movies and spectator sports, equipment repair and maintenance, and personal services such as dry cleaning and laundry.
Bass said that “everything is on the table” for the commission, presumably including a recent “flat tax” proposal from Robert Murphy of the Pacific Research Institute, a conservative think tank.
Murphy estimated that a flat 3 percent tax rate, allowing no deductions, could yield as much revenue as the current income tax and corporate taxes with top rates, respectively, of 10.3 percent and 8.84 percent, and a broad menu of deductions.
The new speaker’s plan is to ask the commission to issue a report in a year — or perhaps even this year if there is an early agreement on an issue. But she wants to avoid a rush to judgment.
“There are all kinds of complications, and I don’t think it should be proposed without the consequences being thought through,” said Bass.
She is asking former governors Gray Davis, a Democrat, and Pete Wilson, a Republican, to help identify leading members of the commission. She would “love” to have the two former governors serve on the commission, but she doesn’t expect that to happen.