Democrats to add tax breaks to budget package, hoping to gain Schwarzenegger’s support

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Legislative Democrats are taking another shot at garnering Gov. Arnold Schwarzenegger’s signature on midyear budget cuts, adding several tax-break sweeteners to the package he vowed to vetoed last week.

Chief among the tax breaks: a tax credit of up to $10,000 for either first-time home-buyers or those who are buying a newly-built home in California. The state would cap the total in home-buyer tax breaks at $200 million.

A second tax break would allow companies that buy green-technology manufacturing equipment to avoid paying sales tax on those purchases. The tax break would sunset after 10 years.

Both houses of the Legislature are expected to approve the tax breaks Monday, legislative officials said. The governor’s office did not immediately respond to a request for comment on whether he will sign the bills.

In a letter to top lawmakers last week, Schwarzenegger threatened to veto a centerpiece of the Democrats’ budget package, in part because he accused them of failing “to take meaningful steps to stimulate job creation.” Specifically, he demanded the two tax breaks lawmakers will vote on Monday.

In passing the tax breaks, Democrats hope the governor will reconsider signing a complex change in the way gasoline is taxed in California. The plan, a variation of which was first proposed by the governor in January, would allow the state to divert $1.1 billion that mass transit agencies are currently owed and use the money to pay down the deficit.

The governor had hoped to ax state funding for local mass transit entirely. (For that reason, many local transit agencies are supporting the Democrats’ smaller cuts.) Schwarzenegger had also criticized the Democrats’ gas tax plan because it kept gas taxes equal to their current level; he wanted to reduce taxes by five cents per gallon.

Neither Assembly Speaker John Perez’s office nor Senate leader Darrell Steinberg’s office would say if there was an agreement with the governor to sign the plan with the addition of the tax-break sweeteners. But Nathan Barankin, a spokesman for Steinberg (D-Sacramento), hinted at a deal, saying, “There’s not much point in going through the exercise unless he’s willing to” sign the legislation.

-- Shane Goldmacher in Sacramento