HUGE FISCAL GAP TOPPLES TABOOS

Once-Sacred Areas Now Fair Game

Sacramento -- There is nothing like a $35 billion catastrophe to open the mind.

As California faces a record-breaking budget deficit -- greater than
deficits in the 49 other states combined -- lawmakers are looking at
once-taboo areas to fill the overwhelming fiscal gap.

Set prisoners free. Tax the Internet. Stop prosecuting certain parole
violators. Make rural counties pay extra for their expensive and
devastating wildfires. Close San Quentin State Prison. Raise the property
taxes on office buildings. Tax the lobbyists.

It's all on the table.

When former Republican Gov. Pete Wilson was faced with an overwhelming
budget deficit about a decade ago, he and the Legislature installed a
quirky "snack tax" on candy bars. Along with a few other expensive
maneuvers, it allowed the state to literally nickel-and-dime its way out of
bankruptcy.

Now, with a record-breaking $35 billion budget hole, even the
tough-on-crime administration of Gov. Gray Davis is cautiously looking at
such radical ideas as letting some prisoners out of jail early to save a
buck or two.

"That's an option I think we need to look at," said Stephen Green,
assistant secretary of the Youth and Adult Correctional Agency, which
oversees the state's prisons.

CREDIT FOR PRISON CAMP Davis already has approved a plan that allows some
nonviolent offenders in prison work camps to get two days' credit for every
day served -- saving several million dollars by releasing them early.

State Senate President Pro Tem John Burton and newly elected Assemblyman
Mark Leno, both San Francisco Democrats, have ideas to let even more
prisoners free. Their plans are wrapped in a debate over drug policy and a
severe parole system that sends people back to prison for months for minor
violations.

Kentucky recently set free 567 prisoners to help cope with its $500 million
budget deficit, while Montana, Arkansas, Virginia, Texas and Oklahoma are
looking for ways to either release prisoners early or halt prosecution of
others.

California has about 98,700 prisoners classified as "nonviolent," mainly
for drug possession and parole violations. It costs $26,894 a year to house
the average prisoner in California, so releasing 10,000 prisoners would
theoretically save the state more than $268 million.

Leno, the new chairman of the Assembly Public Safety Committee, says he
wants to debate whether to release some petty drug offenders or people with
minor parole violations.

Leno acknowledges that his proposal is designed for desperate times.

"If we had a surplus of $10 billion or $20 billion, this discussion would
go no further," Leno said. "Californians now have trade-offs to consider.
Do you want to have fewer subsidized child care slots? Do you want to have
more trauma centers? Do you want to see more seniors with their bag lunch,
or do you want to see more people in prisons?"

Burton also has suggested releasing some prisoners early, reforming the
parole system or releasing some prisoners over 70 years of age. The state
has 503 prisoners older than 70, according to the most recent statistics,
costing $13.4 million a year to house.

"We're going to look at everything," Burton said.

Green, with the corrections agency, says the state has some elderly
prisoners who are violent and also warned against a blanket policy. But he
says the Legislature will have to make some tough political choices it has
avoided in the past, such as perhaps closing the aging and rickety San
Quentin prison or some prison conservation camps that cost $2.86 million a
year to operate.

DAVIS HARD TO CONVINCE Still, convincing Davis -- who has made a political
career lavishing money on prison unions and punishing criminals -- seems
difficult. Hilary McLean, Davis' spokeswoman, said: "It would be an uphill
battle to convince Gov. Davis that the cost-effectiveness of that step
would outweigh any risk to public safety."

The state also is looking at dozens of ways to raise taxes and fees or
invent new ones. The state's car registration fee is expected to increase
dramatically, and some lawmakers are considering a new fee for rural
counties to pay for fighting wildfires, which are now paid with state money.

Another once-taboo proposal would tax "services" such as lobbyists and
consultants. Expect a bit of opposition on that one -- nothing sharpens the
minds of lobbyists more than someone reaching into their pockets.

The untouchable issue of taxing Internet sales in the home of the Internet
also is expected to emerge again, despite vetoes by Davis on previous bills
and conflicts with federal law.

Currently, online companies based in California are required to charge a
sales tax -- but many corporations that have stores here avoid the online
sales tax by setting up separate Internet companies out of state.

A bill vetoed by Davis -- which is sure to emerge again -- would require
any company with a brick-and-mortar store in California to charge a sales
tax on Internet sales to Californians -- even if its Internet operation is
based in another state.

Changing the law would bring in between $23 million and $533 million,
according to several studies of the problem. But Silicon Valley groups say
federal intervention is needed because many proposed Internet taxes clearly
violate federal interstate commerce rules, and the issue is made more
confusing by a hodgepodge of state sales taxes.

"Most of us would like to see everybody collecting sales tax, but to get
there, you've got to have a radically simplified sales tax system," said
Roxanne Gould, vice president of the American Electronics Association.

COMMERCIAL PROPERTY TAXES Another less-talked-about proposal would probably
raise more money and make more people angrier than any other: changing the
way commercial property, such as office buildings and factories, is taxed.

This so-called split-roll property tax could raise an estimated $3.3
billion a year but radically alter the way taxes are paid on land. Lenny
Goldberg, a lobbyist for the California Tax Reform Association, says Davis'
new finance director, former Democratic state Sen. Steve Peace, has
supported such a change in the past.

Goldberg says corporations are able to take advantage of tax loopholes not
available to residential owners and thus avoid property tax increases on
land that is clearly increasing in value -- effectively putting the
property tax burden on homeowners.

Goldberg calls the issue of a split-roll property tax "the 800-pound gorilla."