You can almost set your watch by it. The state budget picture is a mess, Democrats ask for a balanced solution, Republicans hold their ground and say no, Democrats don't have the vote so they let it go. It happens practically every single year, and it's happening again, according to CapAlert:
Gov. Arnold Schwarzenegger and Senate President Pro Tem Darrell Steinberg said separately Thursday that they are optimistic a budget deal can be struck within several days.
The tone of their comments marked a stark contrast to Capitol fighting over the last few weeks between Democrats and Republicans over bridging the state's $26.3 billion budget gap.
Steinberg also said Democrats had given up any attempt to increase taxes on tobacco or establish an oil severance tax [...]
The Senate president said that Democrats no longer are pushing for a 9.9 percent tax on oil extraction or for hiking the state's tobacco tax by $1.50 per pack.
"We would like to see an increase in the tobacco tax and the oil severance tax as a solution, but in this chapter that's not realistic and it's not what we're holding out for," Steinberg said.
It's never going to be realistic in ANY CHAPTER. Republicans know exactly how to play this game. Their votes are needed for tax increases, so if they hang together they cannot lose. The Democrats haven't figured out how to shame the Yacht Party or make them pay for their votes, giving them no reason to do anything but hijack the process. You'll notice that as a result of this horrific experiment in governance, California is operating worse than practically every other state in the union.
We've seen this kind of "it's almost over" trial balloon on many occasions, so I wouldn't put on the party hats just yet. But somehow at the end of this process, somebody will step up to a microphone and claim how reaching agreement is a sign of success. No. It's a sign of failure. A failure to responsibly manage the state's finances, reflected by the worst economy in 70 years. The only lesson that can be learned from this process is that it's fundamentally broken.
Schwarzenegger and I then repaired to a tent that he had put up in a courtyard next to his office, which allows him to smoke cigars legally at work (no smoking is allowed inside the Capitol). The tent is about 15 square feet, carpeted with artificial turf and outfitted with stylish furniture, an iPod, a video-conferencing terminal, trays of almonds, a chess table, a refrigerator and a large photo of the governor. Schwarzenegger reclined deeply in his chair, lighted an eight-inch cigar and declared himself "perfectly fine," despite the fiscal debacle and personal heartsickness all around him. "Someone else might walk out of here every day depressed, but I don't walk out of here depressed," Schwarzenegger said. Whatever happens, "I will sit down in my Jacuzzi tonight," he said. "I'm going to lay back with a stogie."
This is the guy who dares to chide others for not doing their job.
The IOUs are on the verge of being distributed. The Pooled Money Investment Board met today to hash out the terms for the IOUs, and surprise, there were some differences. The Governor wants a paltry 1.5% interest rate for the IOUs, and flexibility on repayment until as late as June 2010. That would be worse than a 1-year CD. Controller Chiang supports the staff recommendation of 3.75% interest rates and repayment in October. Chiang won. The board approved his terms.
The reason to offer a more attractive interest rate is to ensure that banks will actually cash them. Wells Fargo and Bank of America announced they will accept them, but only until July 10; after that, it's anybody's guess. Golden 1 Credit Union and Tri Counties bank of Chico also agreed to accept the warrants. This article gives a good rundown of how the IOUs will work. If your bank won't cash them, you're basically stuck with a piece of paper until October.
The most important question, of course, is why we're going down this costly route at all, when the Assembly and Senate Democrats fashioned a solution to avoid this. The answer is that the Governor wanted some leverage, the people be damned.
If the stigma of issuing IOUs triggers a budget deal in the coming days, Gov. Arnold Schwarzenegger might find redemption in his strategy of quashing a stopgap solution that would have avoided those non-cash payments.
But if no budget deal emerges soon, Schwarzenegger will have helped saddle the state with a lower credit rating and have nothing to show for it.
As a negotiating strategy, Schwarzenegger is counting on public pressure to mount against the Legislature as California issues IOUs today for only the second time since the Great Depression. The Republican governor could have backed legislation to avert IOUs this week, but he demanded that lawmakers solve the entire budget problem, which grew Wednesday to $26.3 billion [...]
Schwarzenegger wanted a full budget deal, and part of his calculation was likely that IOUs ramp up the stakes and force lawmakers to reach that goal sooner. Without IOUs, he figured lawmakers might have delayed compromise on the rest of the package, costing the state in a different way.
"If he had signed the stopgap measures, the Legislature would have gone home for Fourth of July weekend and come back when the threat of IOUs came up again," said Tim Hodson, executive director of the Center for California Studies at California State University, Sacramento. "I'm sure the governor went over this and thought: Are the consequences of the delay worse, and would he have lost the leverage that he has now?"
Well, this is a game played with people's lives. If banks won't cash IOUs, you can be sure Rite-Aid won't accept them. Or landlords. Or health care providers. In addition, this little power play cost taxpayers between $2 and $7 billion dollars, which I don't see Schwarzenegger going into his wallet to cover.
Rather than shock doctrine the legislature into making major policy changes as a condition of passing a budget, a more likely scenario is that this train wreck will spark reform efforts to finally get off this perpetual track of hijacking and stubbornness.
If California has become ungovernable, and teeters now on the brink of bankruptcy, it is due less to excessive spending than a deficit in democracy - the very essence of which is majority rule. A simply worded, one-paragraph initiative to restore majority rule in the Legislature might well prove resoundingly successful with a crisis-weary electorate. And while it may not be sufficient in itself to repair the state's balance sheet and fix its broken governance, restoring majority rule is the necessary first step toward ending gridlock, renewing public confidence, and preventing extremists of whatever stripe from holding future legislatures hostage to their own narrow agendas.
I wanted to add a little more about this "loophole" I discussed earlier. For starters, let's look at how residential properties are transferred. It's a relatively simple transaction, leaving the banks out of it, as the mortgage is a deal between the purchaser and the bank, it really is a two parties, simple transfer. The purchaser pays the seller for the parcel. It's easy to see that there was a transfer there.
But commercial properties are far more difficult. There are several scenarios where it becomes difficult to answer what seems like an easy question: Was the property transferred? The transfer triggers a reassesment, and usually higher revenue for that county. Let's consider a couple of those situations, but these are not the only tough questions on when to reassess:
1) Purchase of a Corporate (or other legal) Entity
Here, the question is what was sold? Did the acquiring company merely purchase stock? Or should the property be considered as having sold since there is a new owner? Take the sale of the Equity Office Group. I used to work in one of the Equity Office buildings in fact. In 2007, the Company was sold to the Blackstone Group, a private equity firm. Yet, Equity Office (EO) was a vast company, and sold for $39 Billion. So, was the purchase of EO a transfer of the properties in California? Did Blackstone simply purchase stock in EO, or did they purchase a bunch of properties? If so, what is the value of the properties? How do they attribute money for each of the buildings that EO owns?
This question is still open for debate. Blackstone made some of this a bit easier by selling off some of the properties, but a complete resolution on these kinds of cases is really tough for the affected assessors.
2) Partial Transfers
There are a few partial sales in residential property, but it is far more common in commercial property. Real estate investment trusts (REITs) allow several owners to own a building or a group of properties. What if one of the large participants in the REITs leave? You might have a new majority owner of the property, yet is there a transfer?
These cases end up in court frequently, and often the owners of teh property can vastly change without triggering a transfer and a reassessment of the property. Homeowners generally can't avoid these reassessments, and besides the fact that commercial properties sell less often, this slight of hand is why commercial properties pay so much less today in comparison to residential properties.
30 years ago in San Francisco, commercial property owners contributed the majority of property taxes, 59%, and residential property owners contributed 41%. Today, we see the reverse: commercial property owners contributed just 43% of property taxes in 2008 while residential property owners contributed 57%. (SF Chronicle 5/21/09)
That statistic should be somewhat shocking to voters who were around to remember the 1978 vote. Looking back at the information from that vote, you'll see the advertising and ballot argument focused on keeping poor granny in her house. Yet Prop 13 was always a project of the corporations and the landlords. Howard Jarvis was whiling away his time as the lobbyist for Los Angeles Apartment Owners Association, incidentally where the Yes on Prop 13 HQ was located, when he emerged from obscurity. The Apartment Owners funded Prop 13, and commercial property owners will be sure to protect it from attack.
If Prop 13 is to be reformed, it must come from homeowners and renters that are being slagged with higher taxes. It should come from those who use services, like our K-12 education system, higher education, and the state parks. It needs to come from a well-informed populace that sees Prop 13 for what it is: A Corporate Power Grab.
This discussion is not to say that the "loophole" is necessarily the biggest issue relating to split roll. It isn't, it is just one way that the corporations have found to use the system that Prop 13 put in place to avoid paying their fair share.
Mary Bono Mack has in her career adeptly threaded the needle, voting mostly with the right but surprising on just enough bills every year to appear moderate to her district, which went for Barack Obama in 2008 and has a PVI of only R+3. But her yes vote on the Waxman-Markey climate and energy bill has incensed conservatives, so much so that they are waging jihad against not only Bono Mack but her Congressman husband, who by the way voted against Waxman-Markey.
So it was probably a bit of a shock to her when she saw the headline above that I captured in a screen shot from the Republican Party blog, Red State: Mary Bono Mack Should Be Burned In Effigy And Voted out Of Office. It was written by Georgia Republican Party operative Erick Erickson and something tells me Erickson isn't about to endorse Palm Springs Mayor Steve Pougnet, who's not just gay, but married (to another man) and happily raising their two children! Too far a stretch for Republicans who seem to always be involved with "opposite marriages," or whatever they call the degrading situations traditional marriage sanctity defenders like Mark Sanford, David Diapers Vitter, Larry Craig and John Ensign are in.
Erickson and the fringe loons on the furthest reaches of the non-criminal right are so upset with Bono Mack that they are threatening to not just defeat her but to go after the right-wing extremist husband to boot! He demands that she vote against health care reform and against the energy bill when it comes back from the Senate-- where it will probably be watered down and look more acceptable to mainstream conservatives!!!-- or face the consequences.
"Otherwise, we beat her and her husband at the polls.
Yes, you heard me. We can get at Mary Bono Mack in two ways-- her district and that of her husband. He should feel the heat just as much as her."
Now, Erickson is a silly person. And his frothing at the mouth is unlikely to result in any change in CA-45. However, I wonder if they can entice some far-right activist to run in the primary. Gary Jeandron, who lost to Manuel Perez convincingly in 2008, is supposedly preparing for a rematch. But AD-80 is far less cordial to Republicans than CA-45 is. And maybe enough foot-stomping tea partiers can persuade him - or some other teabagger - to challenge Bono Mack in the primary. As one of only 8 Republicans to vote for the Waxman-Markey bill (and one of them, John McHugh, is about to become Barack Obama's Secretary of the Army), the wingnuts don't have many targets. Bono Mack may have poked her head up on the wrong bill.
This could be a good time to check out Steve Pougnet.
SF Assessor Phil Ting's "Close the Loophole" event last night was a pretty big success. Turnout was exceptional with an overflow crowd at the SF LGBT Center's Ceremonial Room. It's clear that a lot of people are very, very frustrated with Prop 13. If you missed it, and would like to get more involved, here is the Close The Loophole website and here is the Facebook Page.
Phil Ting spoke for a relatively short time, maybe 15 minutes or so. He briefly explained where his focus lay, the split roll. Basically, the split roll would pull commercial properties out of Prop 13, and change the system for assessing and taxing those properties. Because of the way commercial properties are transferred, in small percentages at a time or by selling a whole company, etc., they can be transferred without being reassessed. Thus, the "loophole" to which Phil Ting refers in his Close the Loophole campaign. All in all, a splitting of the rolls would in the current fiscal year bring in about $7.5 Billion for local governments. It would not resolve the budget crisis in one chunk, but that money spent wisely could have helped us mitigate the crisis.
The key to this meeting however, was building a working group to begin the process towards moving past talk and into action. Let us not hold any illusions, messing with Prop 13 will not be an easy task. Business organizations will spend millions of dollars to defeat a split roll initiative, with some political folks suggesting that the No campaign for a split roll campaign measure could raise over $100 million. It's tough to beat such a large and spendy No campaign, very hard indeed. The only way that happens is to a) have a substantial budget of our own and b) build a grassroots wave of support.
So, after Mr. Ting spoke, the group broke up into work groups to discuss important features of the campaign. I joined the fundraising group, and we went over ideas of whom to reach out to and how we could raise the kind of money that we would need to pass this measure. A coalition group had some good ideas of natural allies and an online organizing group worked on building support through the Politics 2.0 toolset. A policy group also went through ideas, both on the split roll and a further ideas that could be included in a package of reform.
After getting back together to share ideas from the work group, the group committed to reconvening in September. But, we'll need to have more groups like this across the state. So, let's work on getting similar events set up elsewhere. If you have access to a meeting space, and would like to host an event, let's get that going. Feel free to post something here, or shoot me an email. I'll do my best to help you organize an event.
• A very rare bit of good news: yesterday the EPA finally granted the official waiver for California to implement its tailpipe emissions law, which will allow the state to mandate an average fuel economy of 35mpg for all vehicles sold by 2016. This is a major, long-overdue win for environmentalists who have been working on this for years. One of them, Clean Air Act amendments author Henry Waxman, was admitted to Cedars Sinai Hospital yesterday, so hopefully this will brighten his mood. We at Calitics wish Rep. Waxman well.
• Among other laws that take effect today, Los Angeles inaugurates its half a penny sales tax increase to pay for public transportation projects. Because of the recession, the revenue from this is expected to be lower than at first advertised, and that may affect federal matching dollars.
• Asm. Noreen Evans has a good rebuttal to the Governor's press conference today. Here's a hint: he wasn't exactly telling the truth.
• Here's a good report on yesterday's public hearing over the death penalty, which turned into a day-long debate. Hey wait, didn't the Governor's Department of Corrections put together that public hearing? During a BUDGET CRISIS! That's not leadership...
• A great organization, The Friends of Santa Cruz State Parks, has released a video of people around California opposed to the closing of the state parks. Enjoy -->
• Speaking of Newsom, his campaign reports that they raised $1.6 million from over 3,600 donors in the first half of the year. Jerry Brown, who has not yet announced as a candidate, raised significantly more.
• Dr. Howard Dean hits California tomorrow in support of his new book "Howard Dean's Prescription for Real Healthcare Reform." As debate on heath care reform moves forward, this is a vital perspective to include and promote. He'll be at Warwick's in La Jolla at 5pm signing books and meeting with bloggers, so be there or be square. If you can't make it, he'll be back to visit Hollywood and San Francisco later this month.
• A military board in Syracuse recommended a discharge for Lt. Dan Choi, an Arabic linguist, from the National Guard, due to the discriminatory Don't Ask Don't Tell policy. On the flip, CA-10 candidate Anthony Woods, who has been endorsed by Choi, offers his reaction.
Dave mentioned a bit of what Sen. Steinberg said last night, but I thought this was worth while video.
In the end, we learn a few things. First, that Arnold was negotiating in bad faith. He refused to budge, and then piled on additional grand policy changes.
But, Steinberg starts out with 2/3. It's worth transcribing...even if I miss a few things.
The 2/3 requirement that we have in this state. I know it's a tired old saw. But when you really think about, that is the cause of so much of the dysfunction in the legislature. you have a minority party that obviously worked in tandem with the governor that cost the state 6-7 billion dollars tonight for no good reason. To somehow improve your negotiating position. It is without question the most irresponsible act that I have seen in my 15 years of public service...I hope that the significance will truly capture enough attention that the people will decide it is time to change the system that allows the minority to essentially rule the day. That's not just the Senate Republicans, it was the Governor too, who was apparently out to prove a point. And he proved a point.
At one point, you can really see the emotion in his voice. Check out the video, it's worth a few minutes.
Arnold Schwarzenegger thinks he's got a "hook" for the budget crisis. It's so stupid it'll probably work.
In between vetoing acceptable solutions for the budget crisis, Schwarzenegger directed his staff to create a YouTube video of a Senate hearing held today on SB 135, which would ban animal cruelty and the practice of tail docking of dairy cows. Simply because it's mildly annoying to have a tail in their faces while working, farmers chop them off of cows, for no material benefit to hygeine or anything else, and to the potential detriment of milk production by increasing stress. It's illegal in much of Europe and opposed by the American Veterinary Medical Association. There's an article here.
Apparently the 63% of the voters who passed Prop. 2 last November were wrong - animal cruelty is a secondary issue to the very important work of wasting billions of dollars through stubbornness.
So in the YouTube video Schwarzenegger cuts back and forth from the hearing to his schoolmarmish denunciation in his press conference to create the impression that "in the midst of the budget crisis, the Senate is debating cow tails."
Hey Arnold, this is something called "governing." I know you know nothing about it, since you spent a month dithering with different budget solutions while the legislature was holding a month's worth of public sessions on the budget. But lawmakers actually can do more than one thing at a time. Some have standing committees, while others, in the leadership, can run into the brick wall that is the California budget process over and over, a brick wall you just applied with a new coat of paint by vetoing real solutions that would have stopped $7 billion dollars in additional cuts and the issuance of IOUs. For anyone who has been this much of a failure to say one word about how OTHER people govern is absurd.
By the way, Darrell Steinberg has already cancelled all future policy committee hearings to focus on the budget, which I think is a silly and unnecessary reaction to the rantings of a dullard Governor. But as long as we're going down this road, here are a few tweets I contributed exposing the Governor's horrible inattention in the midst of a budget crisis:
Right now, in the midst of a budget crisis @Schwarzenegger actually slept for EIGHT HOURS! That's not leadership #cabudget
19 minutes ago from web
Right now, in the midst of a budget crisis @Schwarzenegger had dinner... at a restaurant! That's not leadership #cabudget
19 minutes ago from web
Right now, in the midst of a budget crisis @Schwarzenegger excused himself to go to the bathroom! That's not leadership #cabudget
19 minutes ago from web
Right now, in the midst of a budget crisis @Schwarzenegger breathed both in and out! That's not leadership #cabudget
18 minutes ago from web
Join in with your own if you want.
This is just idiotic grandstanding from the Governor, who appears to know nothing about public policy or the American system of government. Any reporter who runs with this should be ashamed of themselves.
According to Mike Genest, the Governor's Director of Finance, the $24.3 billion dollar problem expanded by $2 billion dollars last night. He's not taking into account the interest on IOUs, of course, or the expanded borrowing costs. But he's factoring in the education spending that now cannot be cut below a certain level because of "maintenance of effort laws." Genest said that higher education has agreed to keep their books open an extra month, until July 31, meaning that the $1 billion in higher education cuts to the 2008-09 budget year could still be enacted. This is basically fuzzy math, since the additional expenditures due to the Governor's stubbornness do not get addressed.
What the Governor wants to do now, to recoup those cuts under Prop. 98, is to suspend the law. Once again, the reckless lawlessness of the Governor and his allies, out of an unwillingness to deal with budget reality, exposes itself. In addition, the Governor has backed off on the outsized budget reserve as well as eliminating vital programs like welfare, state park closures, children's health care and student grants. Of course, this has been replaced by unrelated items like cutting public employee pensions and social services fraud inspections, both of which would do nothing to the deficit in the near term.
The Governor has declared a state of emergency, under Prop. 58 rules. This means that the legislature has 45 days to come up with a solution on the budget, and if they fail to do so, they cannot adjourn or act on other bills. This is a moot point, since the Governor has vowed already to veto any non budget-related bill until a solution is reached. This just brings the legislature into special session (the fourth since December, I believe).
In addition, the Governor announced three furlough days a month for state employees to save cash, which amounts to a 15% pay cut. And IOUs will get issued tomorrow. They will have an interest rate for the banks which accept them of between 2-5%.
Even more dramatically, Olson and Boies, who have an amazing track record of winning cases, had requested a preliminary injunction against the initiative while the courts heard the merits of their case. In other words, this would have put the enforcement of Prop 8 in the Golden State on hold during the trial, consequently allowing same-sex marriages to occur again.
The hearing on July 2nd would've centered around the merits of the injunction, but Judge Walker had other thoughts in mind, calling recently for a move to "proceed expeditiously to trial."
"Given that serious questions are raised in these proceedings ... the court is inclined to proceed directly and expeditiously to the merits of plaintiffs' claims," the judge declared. "The just, speedy and inexpensive determination of these issues would appear to call for proceeding promptly to trial."
While the Legislature is busy trying to figure out how to cut as fast as they can, some school districts are at risk of not being able to cover their expenses at all. Kim Wetzel at MediaNews rounded up some data:
A recent analysis found that 19 districts statewide have filed "negative" interim budget certifications; 89 districts filed "qualified" certifications. Two years ago, there were just five with negative budgets and 19 qualified.
"Billions of dollars of state budget cuts to education have left school districts with deficits that school boards and administrators are attempting to address," O'Connell said at a news conference in San Jose. "The decisions they have been forced to make are heartbreaking: increasing class size, laying off teachers and classified staff; eliminating summer school; canceling arts, music, and sports. These are choices no educator in California wants to make. But the alternative is bankruptcy and entering state receivership."(IBA 7/1/09)
Basically, a negative certification means that the district "will be unable to pay the bills for the remainder of the current year or the subsequent year." The qualified certification means there is a risk of being unable to meet the obligations. You can grab the complete list here.
The largest districts to be negatively certified are Pajaro Valley Unified in Santa Cruz County, and quite unsuprisingly enough, Vallejo City Unified. Of course, the City of Vallejo is currently in bankruptcy proceedings as we speak, so not a good time to be an elected official in Vallejo, I guess.
But what happens if these districts can't cut their way out of it? DO they simply stop paying teachers? Send class sizes to 60 per teacher? Stop air conditioning the buildings? Certainly the state won't be there to bail them out, and while some districts are getting parcel taxes passed, the 2/3 requirement for those votes makes them difficult to pass in some locations. Apparently some would rather that their children be educated in cramped classrooms with poor facilities.
As to whether districts can declare bankruptcy - that still seems a stretch. The districts have decent mechanisms for layoffs when they are out of cash, but that is clearly only hurting our own future.
I suppose the only good news to come out of last night, and indeed this entire cycle of budget nightmares, is that we are not alone. Several other states missed their fiscal year deadlines. Illinois has no budget and no plans to enact one; Pennsylvania may not be able to pay state employees due to a failure to reach agreement; Arizona got a budget in under the wire, but the Governor has not indicated whether or not she'll sign it, because it doesn't include a sales tax increase she sought; Ohio approved a temporary 7-day budget as legislators continued to wrangle; Mississippi left their utility regulatory agency unfunded; Connecticut's Governor signed an executive order to keep the government running despite no budget. We can take little solace in these difficulties other than to note that the national erosion of tax revenues combined with balanced budget agreements make the situation almost impossible for many states, particularly the large ones, and because of the threat to any economic recovery that would result from massive reductions in state spending and services, the door may crack open for a second federal stimulus package that specifically targets state budgets. I don't think we're quite there yet, but the crisis reaches a whole new level starting today.
First of all, this is the first day that budget cuts from the previous agreement in February take effect for fiscal year 2009-2010. These include major reductions in health and human services:
SSI/SSP grants for low-income seniors and people with disabilities will drop by 2.3 percent, cutting the maximum grant for an individual from $870 to $850 per month. A previous SSI/SSP grant cut took effect in May, reducing maximum monthly grants for individuals from $907 to the current $870.
CalWORKs grants for low-income families with children will be cut by 4 percent, reducing the maximum grant from $723 to $694 per month (the same amount as in 1989) for a family of three in high-cost counties. CalWORKs grants have been frozen since 2004-05.
Dental services for most adults in the Medi-Cal Program will be eliminated along with seven other benefits, including eye exams and incontinence creams and washes. (Last week, a trial court judge in Sacramento County ruled against a group that sued to stop the cuts from taking effect.)
Grants on those who make the least are the most stimulative to an economy, because that money gets spent quickly. Now it's drying up.
Of course, there's also the matter of the still-yawning budget gap here in California, which just got $7 or $8 billion dollars larger, depending on your math. This means that even more damaging cuts, likely to the most vulnerable elements of society, will ensue, leading to another wave of job loss, foreclosures, and pain. The Governor and Senate Republicans are completely responsible for that addition to the deficit - consider that $7 billion is MORE than the money at stake to the near-term budget in the May 19 special election - and for the issuance of IOUs, which will add billions in unnecessary interest obligations.
In a nutshell, under the governor's IOU plan the state pays vendors and others it owes with the equivalent of a post-dated check that is good for the face value of the amount owed plus interest. IOU recipients, for the most part, "sell" their IOUs to a bank for the face value of the check for quick cash. The bank holds onto and then redeems the IOU at a later date, earning millions of dollars in interest.
This type of borrowing is nothing like pulling out the state's credit card to pay the bills. Rather, this is more like the state going down the street and getting an expensive payday loan.
The Governor's payday scheme not only makes California the laughingstock of the credit markets, but it unnecessarily puts a black eye on the state's long-term credit rating.
This means that, for years to come, millions of taxpayer dollars get shoved into the pockets of Wall Street bankers every time we issue long-term debt to build schools or roads, or other needed public projects.
Somewhere in the neighborhood of $6 billion dollars in additional interest alone will be added to the cost of selling bonds that voters have already approved.
Of course, by that time, Schwarzenegger will be out of office, so what does he care?
Harold Meyerson has the must-read of the day about this disaster, pinning the blame where it needs to go - on shock-doctrinaires like the Governor who demand to use this crisis to destroy the public sector. Read the entire thing, but here's an excerpt:
Right-wing ideologues see the crisis as an opportunity to shrink government regardless of the consequences. Schwarzenegger is proposing to end welfare, not just as we know it but altogether, and to throw 1 million children off the rolls of the state's healthy families program. But the consequences of closing the deficit simply through cutbacks will be felt by more than the poor. Already reeling from $15 billion in cutbacks that the state put through in February, many school districts, including that of Los Angeles, have canceled summer school this year. Scholarships that enable students of modest means to attend California's fabled university system have been slashed. Most of the state's parks may have to be closed as well.
The terrible irony in decimating the public sector to save the state is that the California that was the epicenter of the postwar American dream was fundamentally a creation of government. Fighting a Pacific war during World War II compelled the federal government to spend billions on California industry and infrastructure, and the state was the leading beneficiary of Pentagon dollars during the Cold War. As Kevin Starr, California's leading historian, points out in "Golden Dreams," his brilliant new history of the state in the 1950s and early '60s, fully 40 percent of all defense dollars for manufacturing and research in 1959 went to California, anchoring the state's booming economy in a well-paid workforce that was either unionized or professionalized, and seeding an electronics and high-tech sector that was to blossom in the following decades. Building on that prosperity to create more prosperity, Earl Warren, Goodwin Knight and Pat Brown -- two Republicans, one Democrat -- invested state dollars in schools, universities, freeways and aqueducts that were the best in the world. The Golden State was never more golden.
Today, its governor seems determined to turn that gold to dross. On Monday, the Democrats in the legislature passed a budget that included cuts of $11 billion, levied a tax on oil companies and tobacco, and raised auto registration fees by $15 per car to keep the state parks from closing. Schwarzenegger reiterated his refusal to raise any taxes or fees and said he would veto the budget.
There's still a chance to avoid IOUs, though I wouldn't call it likely. There is no chance to avoid the devastating impact of a broken political process and irresponsible legislating which at this point can only slide California into depression.
Despite all the political wrangling over specific budget solutions, there is one thing Democrats and Republicans in Sacramento agree on: the bulk of the budget solution should be spending cuts. All that is being fought over now is whether the cuts will be merely reckless or catastrophic. It reflects a political consensus that isn't based in economic logic - we've demonstrated before how the budget cuts are going to worsen the recession.
And it is also based on massive lawbreaking. The budget cutting mania of the last two years in Sacramento has been, at its core, an attack on the laws of the state of California and the United States of America. Zeal to make budget cuts has led the Legislature and the Governor to fall afoul of any number of laws designed to protect public services and resources. Some examples:
• The National Parks Service threatened to seize numerous state parks in recent days and reminded the state of its obligations under laws dating back 60 years to keep parkland purchased with federal aid open "in perpetuity".
• A state appeals court ruled yesterday that diverting billions in public transit money to other uses was illegal. An earlier court ruling that such diversions were illegal didn't stop the legislature from trying to revise the law to make legal the elimination of state funding of local transit agencies, but yesterday's ruling held that even this violated at least four state laws and voter-approved initiatives.
• There is the ongoing saga over the February budget deal's cut of $9 billion in education money owed under Prop 98. The California Faculty Association, the California Federation of Teachers, and several other organizations sued the state over the refusal to pony up the money owed. Sacramento tried to head off the suit by Proposition 1B on the May 19 ballot, which voters rejected.
• Efforts to cut state worker pay, benefits, and jobs have frequently run afoul of the courts, in examples sadly too numerous to list here.
• And of course there's the long-running battle over prisons. Federal receiver J. Clark Kelso remains likely to take billions directly from the general fund to address prison health care problems. Sacramento's reaction? Sue to deny Kelso authority over state prisons.
This is all part of a larger pattern of lawbreaking, from the habitual ignorance of the constitutional mandate to have a budget in place by June 30 to the efforts to evade the rules regarding the federal stimulus funds. John Adams once called the United States an "empire of laws, not men" and yet Sacramento appears to have instead decided Howard Jarvis is the state's true Founding Father, holding the line against taxes by any means possible, even illegal means.
Americans are becoming inured to the systematic ignorance of the law by their political leaders. The Bush Administration and their Democratic enablers have set the tone - when your path is blocked by a law, ignore the law. It's deeply damaging to our democracy, to our institutions, not to mention to our economy. We keep being told the state must "live within its means" - and yet those means never seem to include the law.
The so-called stopgap measure was the focus of much consternation last night, and more than a few tweets from the governor. I don't think anyone had any illusions that the stopgap was a broad based solution, but Arnold's brinksmanship and refusal to avoid the IOUs was, well, typical Arnold Schwarzenegger 4.5, the Shock Doctrinaire. This was the most notable tweet:
It's almost 10 and they r still running drills upstairs. Trying 2 pass the same bills I vetoed hours ago. We need 2 solve entire deficit.(Schwarzenegger Twitter 6/30/09)
Of course, this completely discounts the possibility of a legislative override of Schwarzenegger's veto. You can't really blame the Governor for forgetting that such a process exists in our state Constitution, as there hasn't been an override in over 25 years. Heck, the Legislature couldn't even get together to override bills passed unanimously. But, just to be clear, the stopgap votes were not drills. If the Dems could have attained the two Republican votes, they would have gone through the override process. And, with St. Abel's crazy waiting game, it appears that he was just waiting for one Republican to join him. No one did.
But, what exactly is that stopgap? For the most part, it is delays in funding for education. John Myers does some explaining:
Of course, now the sobering news: the $3.3 billion in missed savings is now being estimated as adding $8 billion in problems for the state budget. For that, you only have to look to the voter-approved Proposition 98, whose complicated formulas are based on spending in the previous fiscal year. Because that school spending wasn't reduced by $3.3 billion, it comes out on the other side as much more.
(There were varying accounts by the end of the drama as to the ballooned size of the missed savings; the above came from comments on the floor by Sen. Denise Ducheny, chair of the upper house's budget committee. Some estimates call it a $7 billion problem. And then another question: does that mean the deficit is now... $28 billion? Too much math.) (Capital Notes 6/30/09)
You can't really win for losing in the state budget process, but what this delay really means is a bit surprising. It means that under Prop 98, the schools must get additional funds. It's probably not the worst thing for the schools, our future, or the teachers. As a side note, I don't know what exactly the California Teachers Association's position on this whole stopgap measure was, but the failure to pass the stop gap does provide teachers with additional leverage.
Of course, the problem is now that additional cuts will have to be made from other sectors of the budget because they cannot be made from education. So that means more cuts to the social safety net, state parks, etc. With so much of the budget untouchable due to ballot box budgeting, the takeaway from May 19: "Sacramento, do your job" seems increasingly challenging. Or, more accurately: Sacramento do your job whilst in handcuffs, wearing cement shoes and sinking in the Delta.
It has been truly depressing to watch the Twitter feeds of John Myers and Scott Lay tonight, as the mood shifted from guardedly hopeful to despairing. The Senate keeps voting on things and not coming up with any solutions. They tried to pass the stop-gap solution again, and came up short of the votes needed. They passed the majority-vote budget with some fee increases, and the Governor vetoed them. Let's all please remember that. With a stroke of the pen, the Governor could have ended this.
If SB 64 and SB 80 (the stop-gap) don't pass by midnight (and actually, in an hour or so, because it takes a couple hours to prepare the necessary paperwork), the state will forfeit $3 billion in cuts to the 2008-09 budget year, which they will have to find in the following year, and a total of around $7 billion in total costs, when you add in the costs of additional borrowing, etc.
At some point, a large majority-vote budget (which wouldn't take effect for 90 days), absent the tax increases, passed the Senate and moved on to the Assembly, where it will be voted on tonight. According to Scott Lay, it covers all but $1 billion of the target, which is probably enough for the Governor to veto it. Why, it's almost as if he doesn't want a solution but instead an opportunity to push through a bunch of long-sought goals shock-doctrine style!
The Senate just tried again to get the necessary votes for the stop-gap, and fell short by the exact same amount. They're in recess until 9:30 and will probably get only one more shot.
...we're past 10pm at this point, the Senate has yet to reconvene, and by most calculations the die has been cast. Enjoy your scrip! Zed Hollingsworth has been spotted in the Governor's smoking tent, for whatever that's worth. But the Governor remains intransigent and apparently determined to bring the state to complete failure.
...counting down the minutes until the end of the fiscal year is kind of like waiting for New Year's, only it involves budgets and trailer bills and at the end people die.
...So the Senate is going back into session. John Myers tweets: "Senate pro Tem Steinberg calls senators back..we've watched a lot of "shuttle diplomacy" betwn Dems, GOP, and Guv's ofc. Still, long odds." We're at T-minus 43 minutes.
...the way this is going from the Twitter feeds, Steinberg looks like he's desperately trying to pass the stop-gap measures again. The odds are long. He pleads to the Yacht Party not to be party to irresponsibility. I wonder what the response will be?... this: "Reeps still refuse to put up votes." Maldonado, in fact, won't vote at all. He's just walking away. Abstaining his way into oblivion.
...Democrats are spending a lot of time lobbying Leland Yee (who has been consistently voting against this stop-gap solution because it hurts schools too much) and Abel Maldonado (who isn't voting), but of course even if they switched their votes that would leave the Senate one vote short of being able to override Arnold and put the stop-gap into effect.
...Republicans are playing their usual game of holding back all their votes until all the Democrats vote for something, so they're waiting on Yee to flip. But assuming he does in the next 20 minutes, who joins him? Two GOP votes are needed. Beyond Maldonado, who would change their vote?
...Yee just came back to the floor, I'd bet he'll vote with the majority this time around, but time is running out... indeed, Yee votes aye. Will there be a second Republican? Or even a first?
...Maldonado still not voting on the three-bill stop-gap package. 10 minutes and counting...
...This is pretty much over. At midnight, the state loses the equivalent of $7 billion in savings. I will remind everyone that Senate Democrats, in the end, voted 25-0 for this deal; Republicans, 0-14 with 1 cowardly abstention (Maldo)... and Steinberg shuts it down. It's over. IOUs will go out on Thursday, $7 billion wasted by the so-called fiscal conservatives.
