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February 19, 2009


After more than 100 days in a special session that ended in a 45 ½-hour lockdown, the single longest Senate floor session in California history, the California Legislature voted early this morning to approve a massive budget package of tax increases, spending cuts and borrowing to close a $40 billion deficit after granting major concessions to one holdout Republican senator.

Lawmakers had been at a five-day impasse until Governor Arnold Schwarzenegger and legislative leaders today agreed to give Senator Abel Maldonado (R-Santa Maria) major changes he demanded in exchange for providing a crucial 27th vote for the state budget.

Both the Assembly and the Senate worked through the night and into the morning to pass the budget which is now before the Governor. The Governor is expected to sign it tomorrow.

Major provisions of the budget

The final deal included approximately $14.3 billion in tax increases, $10.9 billion in borrowing, and $15.8 billion described as spending cuts.

The following are key provisions that are most likely to affect small and large businesses:

  • Increase the state sales tax 1 percent on April 1. The increase would last for either two years or five years, depending on whether voters approve a spending limit at a May 19 special election. If voters approve a spending limit sought by Republican lawmakers in the special election, the taxes would stay on the books for five years. If voters reject the spending limit, the taxes would expire after two years.

  • May 19 special election will have measures related to further borrowing, legislative pay and the proposed open primary issue.

  • Increase the personal income tax by ¼ percent for tax years 2008/2009. If the federal stimulus package provides enough revenue to hit a certain trigger, the increase will be reduced.

  • Increase the state's Vehicle License Fee on May 19 to 1.15 percent of a vehicle's value, up from the current rate of 0.65 percent.

  • Set aside $200 million to provide $3,000 tax credits, starting in July, for each new full-time worker hired.

  • A very limited tweak to labor laws that expands the menu options for potential alternative work schedules to include a standard eight-hours-a-day, five-days-a-week workweek. Allows an employee to move among a menu of approved alternative workweek schedules on a weekly basis, with employer consent.

What does this mean for Petroleum Retailers?

The earlier version of the budget included a 12-cent additional gas tax, but that provision was removed from the final version of the budget passed this morning. Outside of the broad-based tax increases, credits, cuts and reforms included in the budget that applies to most everyone and every business, the industry isn’t specifically affected nor benefitted by the budget package. It remains to be seen whether the new budget will have any affect on the resumption of payments from the California Underground Storage Tank Cleanup Fund. Suspension of payments from that fund were announced earlier this year.

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