Capitol Alert: Schwarzenegger's office: Democrats' latest budget plan is D.O.A.

The Schwarzenegger administration today declared a new Democratic plan to close the state budget deficit to be dead-on-arrival even before it was officially unveiled.

"It's a tax increase," Gov Arnold Schwarzenegger's press secretary, Aaron McLear, told reporters, adding, "Tax increases are dead-on-arrival."

The plan, to be unveiled later today by legislative leaders, centers on delaying or canceling $2 billion in business tax breaks enacted last year and an elaborate tax swap under which income taxes would rise and sales taxes would be cut, with the increased income taxes partially offset by their being deductible on federal tax returns.

The 2010-11 state budget has a projected $19-plus billion deficit but negotiations have stalled because Democratic legislative leaders were at odds on a unified approach. The state constitution says the budget was to have been enacted by June 17, seven weeks ago. The fiscal year began July 1 without a budget in place. Controller John Chiang says he may have to begin using IOUs to pay state bills in a few weeks if the budget is not finalized soon.

"At least Dems are on the same page," McLear said, adding, "Now we can start negotiating."

Schwarzenegger, meanwhile, told a Latino business group in Fresno today that the budget is being stalled by "philosophical differences," criticizing Democrats for wanting to raise taxes or borrow more money.

"I say no to more borrowing and no to increased taxes," Schwarzenegger said. "That's not the solution." More taxes, he said, would "punish the people" and "the worst thing you could do."

"We have a $20 billion deficit and the only way you can do it is to cut services," Schwarzenegger said, saying that borrowing or raising taxes would emulate Greece and other countries in crisis.

He said he wants "a balanced budget without increasing taxes" and renewed his demand that public pension reform must be enacted as part of the budget settlement, repealing enhanced benefits that were enacted in 1999 under predecessor Gray Davis. He blamed higher pension costs for some of the spending reductions in education and other services, saying they are "crowding out other programs."