Schwarzenegger ally has second thoughts on cutting car tax

SACRAMENTO — Cutting California’s car tax was a signature issue when Arnold Schwarzenegger campaigned to oust Gray Davis from the governor’s office in 2003. In one of his best-known stunts, he dropped a wrecking ball on an Oldsmobile and told the crowd, “hasta la vista, car tax,” echoing the actor’s famous line from “Terminator 2.”

Now a former top aide, Susan Kennedy, is sharing some second thoughts about how the controversial issue was handled, which has cost the state billions of dollars a year in lost revenue.

The car tax — an annual fee California drivers pay to license their vehicles — had been cut by Democrats and Republicans over the years, but Davis jacked it back up in 2003 to help the state deal with budget problems. The decision gave Schwarzenegger a potent campaign issue, and he lowered the tax by executive order on his first day in office.

In a Tuesday interview with KQED, Kennedy said, “I think he made one mistake that he would look back on and say it probably wasn’t the smartest idea to put in the permanent reduction in the vehicle license fee when he did.”

Kennedy expanded on her thoughts in a subsequent conversation with The Times, saying it may have been better to combine the car tax cut with spending reductions. That way, the state would have faced a smaller budget gap down the road.

“If [Schwarzenegger] could do it over again, now that he has the hindsight, there was a missed opportunity,” she said.

However, Kennedy said cutting the car tax was the right idea and she doesn’t think a sweeping deal on taxes and spending would have been possible at that point in Schwarzenegger’s administration.

“I’m not sure he would have had the public support,” she said.

It’s unlikely the car tax will be raised soon. Sen. Ted Lieu (D-Torrance) proposed increasing it in November, but rescinded the idea days later after prompting a storm of opposition.

“I think it’s lost for a generation,” said Sen. Mark Leno (D-San Francisco), who called Schwarzenegger’s decision to lower the tax “the most fiscally irresponsible action in recent history.”

If the tax hadn’t been cut, the state would likely reap an extra $4 billion in revenue this year, according to Gov. Jerry Brown’s Department of Finance.

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Twitter: @chrismegerian