In a rather disheartening statement about the status of California's debt, the state was forced to pay a shockingly high 4% (tax-free) for about $1.9 Billion in bonds sold this week:
Borrowing $1.9 billion on Tuesday via bonds that mature in June 2013, the state was forced to pay a 4% annualized tax-free yield to lure investors. As recently as Friday the brokerages underwriting the deal, led by Goldman Sachs, had estimated that the bonds could be sold at a yield of 3%.
The boost in the yield demanded by investors reflects the "saturation" of the market with California debt over the last seven weeks, said George Strickland, a bond fund manager at Thornburg Investment Management in Santa Fe, N.M. Since Sept. 23 the state has sold more than $21 billion in short- and long-term debt for budget-related reasons and to fund infrastructure projects. (LA Times 11/11/09)
Unfortunately, with the state looking at about $14 Billion of budget deficits over this fiscal year and the next, there's no indication that we will be able to take it easy on the borrowing. And this bond itself is to repay $2 Billion that the state took from local governments to cover the gaps they opened up in the budget "solutions."
Furthermore, with the signing of the water package, the state is looking at taking another $11 Billion of general fund bond indebtedness. Treasurer Lockyer points out that with these bonds, our debt service as a percentage of budget looks like a rather ugly figure, possibly rising as high as 10%. If we continue to heap on debt, basic services will continue to suffer.
But the decision on water still must pass a vote, and the decisions that face the voters of California are some very difficult ones. The question of whether the winners in this deal, primarily the wealthy farmowners of the Western Central Valley, are able to keep the anti-debt forces at bay is still an open question. Or as Peter Schrag puts it in the California Progress Report:
Water is a fixed - and probably declining - resource. The only way it can be stretched is by conservation, recycling of waste water and by more efficient use. This deal takes the first baby steps in that direction, but only by promising more goodies to agriculture and by taking most of the money to pay for it not from the beneficiaries but from schools, universities, the old and the sick, and from the taxpayers, present and future. Next November, when they get to vote on the bonds, they'll have the last word on that.
With all the recent campaigning about what will happen if the special election doesn't pass, there's another side of the rather grim situation. Namely that we have a budget deficit that will require drastic action either way. It's been said to be at least $8 Billion, but the tax revenues suggest that might be a tad bit optimistic.
State Controller John Chiang said today that California's revenue picture continued to deteriorate in March, thanks to a sharp decline in retail spending statewide.
In his monthly report detailing California's cash balance, receipts and disbursements in March, Chiang said general fund revenue in March was down $178 million, or 5.2 percent, from estimates in the recently adopted 17-month state budget.
"Unfortunately sales taxes continue to be hammered by diminished retail spending across the state," Chiang said in a news release. (CapAlert 4/10/09)
On the plus side, personal income tax and corporate tax revenues are slightly higher than expected. Controller John Chiang is fairly upbeat that revenues will meet projections from the budget compromise, but with the craptastic economy it is far from certain.
The budget is real, and there will be additional, excruciating, cuts. I'll leave you to decide how you think this would factor into your decision on the special election. I'm just like FoxNews, I report, you decide. Or something like that.
Assembly GOP leader Mike Villines of Clovis (Fresno County), one of three Assembly Republicans who voted for taxes in the latest budget package, said taxes to close additional budget shortfalls can't be on the table.
Sen. Dennis Hollingsworth, R-Murietta (Riverside County), who became the Senate minority leader last month after a coup during the marathon budget session, said passing any more taxes or fees "would add insult to injury to California taxpayers."
It seems highly unlikely that Republicans will support new taxes without a major public movement to demand that they do so. And if Californians understand that new revenues are the only way to protect schools and health care services from even more crippling cuts then they might be willing to make those demands.
As reported by the SF Chronicle several Democratic legislators have proposed various measures to raise revenues, most of which are very sensible:
AB87 (Davis)/SB531 (DeSaulnier): Fees for shoppers who use plastic bags.
AB89 (Torlakson)/SB600 (Padilla): Increases the cigarette tax.
AB390 (Ammiano): $50-an-ounce tax on marijuana, which would be legalized for recreational use.
AB462 (Price): 1 percent income tax for individuals who earn more than $1 million a year, to fund public schools and universities.
AB656 (Torrico): Oil severance tax to help fund the state's community colleges and universities.
AB1019 (Beall)/SB558 (DeSaulnier): Tax or fee on alcohol.
AB1082 (Torrico): Sales tax on pornography.
AB1342 (Evans): Cities and counties would be allowed to raise income taxes and vehicle license fees.
SB96 (Ducheny): Increases the income tax rate on the state's wealthiest residents while lowering the rate for some middle-class taxpayers.
California remains one of the few oil-producing states that does not tax companies for taking that oil out of the ground, and Torrico's bill would change that. Ducheny and Price are on the right track with their tax-the-rich proposals, probably the best way to quickly raise a significant amount of money to help close the budget gap. Tom Ammiano's marijuana proposal is interesting and deserves serious consideration.
Of particular importance is Noreen Evans's bill to give local governments more of their own tax power. Republicans, who generally loathe democracy when it comes to government finances, do not want to give Los Angeles and San Francisco the power to raise their own taxes in such a broad way, even though many cities (like New York) possess that power and even though it could help ease the state's own financial burdens by letting localities make up some of the difference. This is a bill that definitely ought to pass.
I also think Democrats would be wise to get behind efforts to tax the wealthy. That dovetails nicely with President Obama's own federal tax proposals, and is probably one of the revenue answers that Californians can rally behind at this time. Doing so would help expose Republican obstruction for what it is - a naked defense of wealth and power. And if Democrats are to be serious about building a long-term movement to break anti-tax politics in this state, higher taxes on the rich are a necessary starting point.
Darrell Steinberg, after the brutal February budget battle, doesn't seem inclined to make that fight:
"Frankly, our focus ought to shift to tax reform," he said. "That means seriously addressing the volatility in our tax system. That means realigning the relationship between state government, local government and school districts. Whoever is providing the service ought to be able to raise revenue."
Last month's passage of the $12.5 billion tax package as part of the budget "was an exception to the rule because of the magnitude of the problem," Steinberg said.
I think he ought to be more supportive of exploring the wealth taxes, but he is clearly indicating support for the kind of ideas Noreen Evans is talking about - giving local governments the power to help fix their own problems. If a local school district wants to impose an income tax to support schools, why not let them do so?
That's a question we ought to force Republicans to answer publicly and often.
In an interview with KGO-TV in San Francisco Republican gubernatorial hopeful Tom Campbell suggested a higher gas tax as a solution to the state budget deficit:
Former State Finance Director Tom Campbell will be offering legislators his idea of a partial solution -- an 18 cent temporary gasoline tax.
"The price of gasoline has now fallen in our state. Last June it was about $4.60. If you were to put on a gasoline tax of about 18 cents, so we'd still be well under two dollars a gallon," said Campbell.
It would be nice if KGO explained that the Democrats' budget deal - which Arnold vetoed - would have basically done the same thing, replacing the current gas tax with a "gas fee" that would result in a net 13 cent increase to the taxes paid on gasoline. But it's good to see Campbell proposing an eminently sensible plan like this.
Whenever higher gas taxes - or higher taxes of any sort - are proposed, some progressives react with criticism, pointing out that some of these taxes are regressive. They're not wrong - when you're talking about taxes, progressive income taxes and property taxes are generally a fairer way to obtain revenue than excise and sales taxes.
But if you stop there, you're missing the point.
Because when you include the whole equation - the effect of spending cuts as well as tax increases - it becomes clear that even sales and gas taxes are much better for the economy, and especially for working and poor people, than spending cuts.
The economies of states that substantially increased taxes in recent years performed as well or better than states that did not
The economies of states that enacted large tax cuts in the late 1990s and early 2000s performed worse than other states
Personal income taxes are better than spending cuts as they don't have as harmful an effect on consumption or local economies.
Much of this ought to be common sense. We are facing a recession driven by rising unemployment and folks having less money in their pocket. While the right-wing ideologues would have us believe taxes take money out of that pocket the amounts pale in comparison to the money lost to spending cuts.
In the early 1990s recession both California and the US government raised taxes. It didn't worsen the recession, and it didn't prevent an economic boom from emerging after 1993.
Spending cuts are really just a euphemism for mass layoffs. When you fire tens or hundreds of thousands of public employees that means they are spending less money. Fewer shopping trips, fewer visits to restaurants, fewer people paying their mortgage. That creates a spiral of job losses and business failures, which in turn mean fewer tax revenues. Spending cuts ultimately leave the budget worse off, not better off, than before.
This is true especially for lower-income families. A sales tax or gas tax hike will have some bite. But as much as a school closure? As much as a father being laid off from his job on a state infrastructure project, or a mother being laid off from her job in the county government office? I strongly doubt it.
For example, the cost to a family of a restored VLF, between $150 and $300 a year, is chump change compared to the cost of having to provide health care to an uninsured family kicked off of state assistance. If a school closes or higher education is priced out of reach that is going to have a far larger cost to a family both immediately and over the long-term than any tax increase.
This is common-sense stuff, obvious to anyone willing to give even a cursory glance at reality. But 30 years of anti-tax rhetoric has blinded us to these realities. Spending cuts are the most regressive form of budgeting there are - and while we need as progressive a tax code as possible, we need to keep in mind that this is a continuum of progressivity:
Income and property taxes > sales taxes > spending cuts
While there are differences among kinds of taxes and spending cuts, the above is a good shorthand to keep in mind as we push back against 30 years of ruinous policies and bad priorities that have brought California to the brink of a Depression.
Back in 2002-03 it was hard to get away from media coverage of the failing Gray Davis administration. At least, that's how it got framed in the state and even the national press. At the time I was living in Seattle and all the coverage I saw was of Davis screwing up this way or that way. Friends would ask why Californians voted to reelect someone so clearly incompetent. With media coverage like that it was never any doubt that Davis would lose the recall.
Five years later California is in a worse situation than we were in 2002-03, when Davis was blamed for everything that had gone wrong in California and was recalled just 11 months after having been reelected. Arnold has given us a $40 billion deficit - larger than anything Davis grappled with. And when Democrats, facing a severe cash crisis, got creative in finding a solution and gave Arnold almost everything he demanded, Arnold vetoed the solution anyway. California bankruptcy seems more likely than ever, a direct consequence of Arnold's actions.
But that's not the story the media tells the public. The Arnold that you read about in the newspapers or see on TV is a strong governor willing to make tough choices for the good of the people. An environmental leader who has the people's interests, but who's weighed down by a typically screwy legislature, where Democrats and Republicans (though it's mostly Democrats) are to blame for any problems we face.
Last night's appearance on 60 Minutes was a classic case of media enabling of Arnold's failures:
But now "home" is in trouble. California is the foreclosure capital, and unemployment is above eight percent. The governor proposed to close that budget deficit half with tax increases and half with budget cuts. Republicans and Democrats opposed him.
When 60 Minutes sat down with Schwarzenegger at the Capitol, he had just left the legislative leadership and he seemed in no mood. Before they got settled, Pelley was worried that the last thing the governor wanted to do was talk to him.
"I'm not sure that meeting went all that well. You seem pretty preoccupied. You got the 'Terminator look' on your face," Pelley remarked.
That was basically the extent of the conversation on the budget and the economy - issues that dominate our state right now. The rest of the piece was typical greenwashing of Arnold's environmental record. Arnold is touting green jobs as a solution to economic recovery, and in a hypocritical Newsweek op-ed he called for sustainable infrastructure spending as economic stimulus...just as the state had to suspend ALL infrastructure projects owing to the cash crisis.
That crisis - for which Arnold bears primary responsibility right now - is even jeopardizing crucial planning work on high speed rail, which will create hundreds of thousands of green jobs in California - unless Arnold's efforts to destroy the state succeed in derailing that as well.
Arnold's 60 Minutes interview is an all too typical example of how the media has enabled his failures. The piece didn't mention his role in the budget crisis or how it makes a mockery of his green jobs goals. And because he gets fawning coverage while bold and inventive Democratic efforts to save the state are dismissed as trickery by the media, Arnold gets away with trying to bankrupt the state while talking a big game on the environment.
In fact, nowhere in the 60 Minutes interview was it explained that among Arnold's recent budget demands was a gutting of CEQA oversight of development. 60 Minutes doesn't tell its viewers that while Arnold plays an environmentalist on TV, back in Sacramento he is doing everything he can to destroy environmental protections.
And yet there is some evidence that, maybe, just maybe, the traditional media is starting to wake up to that fact. More over the flip.
All the way back in March I opined that the biggest threat to the passage of the high speed rail bonds was the state budget. If the budget was still in deficit, folks might vote against HSR bonds even though the two are unrelated.
That may well be happening. We haven't seen new polls on Prop 1A in some time, but when we do I expect it to show a very close race.
The problem is that this thinking is deeply flawed. The state budget's problems do not - at all - mean that Prop 1A is a bad idea. Prop 1A is not the reason why the state is in deficit. It will not worsen that deficit. Instead Prop 1A is absolutely necessary to getting us OUT of deficit. Anyone telling you otherwise is simply demonstrating their ignorance of economics.
Let's look at this more closely. First, the state budget deficit. Deficits are NOT a product of natural forces but instead of bad decisions. California's current deficit stems from two major sources:
$12 billion in tax giveaways since 1993. This includes a $6 billion hole Arnold blew in the budget when he unilaterally cut the vehicle license fee upon coming to office in 2003. That is an annual cost of $6 billion, by the way, since Arnold has since been backfilling the revenues. Restoring that $6 billion would alone close the projected deficit. Prop 1A will create 160,000 infrastructure jobs that will pump income and sales tax revenue into the state's general fund. We badly need that revenue. We cannot afford to leave that money on the table.
(Note: California has also cut nearly $10 billion in spending since early 2007. Those who claim that this is a spending problem clearly have no knowledge of the details of the state budget.)
The weakening economy. As I have been arguing almost every day this month, that is an argument FOR Prop 1A. Infrastructure projects are a tried and true part of stabilizing and growing the economy during rough times. The Golden Gate Bridge, Shasta Dam, and the California Aqueduct were all built with voter-approved bonds during a recession, the first two during the deepest part of the Great Depression. Prop 1A will do the same today. We need jobs. Now. California would be crazy to turn down 160,000 jobs right now.
Further, as a recent PBS documentary explained, it was high gas prices that burst the housing bubble. Yes, gas prices have been falling - but that is only because of demand destruction. In other words, people drive less, so the price falls. The ONLY way that can be sustained over the long-term is by building alternatives to oil. If we don't, demand WILL rise - and so will gas prices.
Those who claim otherwise - that the state budget deficit means we must reject Prop 1A - are lying to you. They're trying to prevent a revival of the New Deal. These groups, like the oil company funded, far-right Reason Foundation, or the anti-government Howard Jarvis Association, are primarily interested in drowning government in a bathtub. Their opposition to HSR is part of a broader ideological agenda designed to prevent California from addressing its economic crisis by providing sustainable, non-oil based transportation that we badly need.
If you want to help ease our budget deficit and grow the economy, vote for Prop 1A. If you want to prolong the pain and do nothing to resolve the deficit, vote against Prop 1A. A no vote on Prop 1A is like punching the wall to cure starvation. It's only going to leave you in more pain and do nothing to solve the immediate problem.
It's a question I find myself asking more often, as evidence mounts of his sheer incompetence at managing the state's finances. Remember that Arnold's very first act as governor was to blow a $6 billion hole in the budget by repealing the reinstatement of the VLF. Since then Arnold has slowly but steadily argued for budget cuts while holding the line on new spending. His solution to the 2003 budget crisis - massive borrowing - has led to annual costs of $3-$4 billion. The entire current budget deficit can be laid at his feet.
Now Arnold has gone and made it worse. As Matier and Ross explain in today's column, Arnold's high-profile "omg we need $7 billion to live" stunt has backfired dramatically. Arnold's dire warnings have apparently convinced Wall Street that California isn't a good credit risk:
What began with the governor's call to arms over the national credit crunch - and fears about whether California would be able to secure a normally routine, $7 billion short-term loan so it could pay its bills - quickly escalated into something even bigger.
That happened when Schwarzenegger went public with California's dismal money picture, followed by state Senate President Pro Tem Don Perata's projection that the state's finances could be more than $5 billion out of whack by the end of the year.
Suddenly, the state's troubles got played up in the national press, and lenders got the jitters.
Although it's worth asking why on earth Don Perata still has any role to play in the budget, the real blame here lies again with Arnold. His reckless disregard for California's budget has now brought us to the brink of serious, crippling budget cuts. The specter of mid-year cuts, which will be especially devastating to education, is growing thanks to his incompetence.
Much of the California media still tries to let Arnold off the hook by painting the budget crisis as somehow the product of natural forces, or the economic downturn. Economic weakness doesn't help matters, but the fact remains that Arnold's polices are the direct cause of our state's financial crisis.
Overrides of any bills are humiliating and extremely rare -- the last one was 29 years ago when Jerry Brown was governor -- and generally are regarded as symptoms of gubernatorial weakness.
Schwarzenegger has vowed to retaliate by vetoing "hundreds of bills" passed by the Legislature in the closing days of its session, measures close to many lawmakers' hearts.
At that point, the Capitol would be heading into nuclear winter.
But rather than write the easy column - blaming everyone for the crisis and calling for some moderate solution - Skelton digs deeper and takes Arnold to task for his posturing and particularly his tendency to increase his demands once the Legislature has given him what he wants:
And what's this all about? Besides the governor trying to escape any blame for a bad budget and position himself standing up to an unpopular Legislature?
The state already has a rainy day fund. The Legislature agreed to increase it significantly and to transfer into the pot unexpected "April surprise" revenue exceeding 5%. The dispute is over when and how the money can be extracted from the fund. At least, that was the dispute.
Democrats agreed Wednesday to Schwarzenegger's demand that the fund be tapped only when the state is collecting insufficient money to pay for current services, according to one source familiar with the negotiations. But then Schwarzenegger -- seemingly itching for a fight -- asked for more.
It's clear to me what's happening here. Arnold took one look at the Field Poll that showed 15% approval for the Legislature and decided now was the time to play hardball. Knowing that legislators would not be interested in prolonging budget fight that causes Californians suffering so close to an election, he is pushing hard, shock doctrine style, for his right-wing reforms.
The Legislature has its share of blame for this crisis - Republicans who used the 2/3 rule to hold the state hostage are the prime culprits here - but Skelton is right to refocus our attention on the role Arnold has played in helping break California's government at a time when strong, decisive government action is needed to save us from the economic abyss.
Of course, the problems with our government are structural. Perhaps it's time for more fundamental forms of change - changes to the way our state's government operates. We can't keep doing this any longer.
Sacramento Democrats have unveiled their core tax proposals, and they involve raising $9.7 billion in taxes from the wealthy and from corporations, according to the LA Times:
Most of the new revenue would come from an income tax hike.
A dependent-care credit currently available to all Californians also would be eliminated for families with an income of more than $150,000....
Income taxes on families earning more than $321,000 would go up by 7.5%. Joint filers earning more than $642,000 would see an 18% hike.
The proposal also includes an amnesty intended to entice tax cheats to pay up, the suspension of various tax breaks for corporations and the restoration of a franchise tax on businesses.
These are good moves to deal with the structural revenue shortfall, especially the closure of tax giveaways that the wealthy do not deserve and do not need. Progressive taxation is exactly what Democrats must stand for and so this is a welcome proposal.
Of course the Yacht Party plans to fight this to death:
Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks) said Republicans are "categorically opposed" to the broad-based tax hikes and predicted they would be defeated in floor votes....
Schwarzenegger spokesman Aaron McLear said that although the governor is opposed to tax increases, he is pleased to see the budget process moving forward.
But this is very smart politics from Democrats. It matches the proposals of Barack Obama and Congressional Democrats, who both plan to raise taxes on the wealthy to pay for new spending and budget balancing, presenting a united front. It puts the Republicans back on their heels here in CA, especially in advance of the fall elections, where Democrats ought to beat Republicans over the head on the budget. "Republicans want to close schools to give the wealthy a tax break" - that is excellent framing given the public mood.
There are signs that Dems are beginning to be smarter about how they defend these proposals:
Democrats defended the tax increases as consistent with action the state has taken in the past.
They noted that raising the tax paid by high earners from the current top rate of 9.3% of income to as much as 11% is exactly what the state did during the budget crisis of the mid-1990s, when Pete Wilson was governor.
"These are really just rolling back tax cuts that have been made," said Senate Budget Committee Chairwoman Denise Moreno Ducheny (D-San Diego).
Both points are right on. The tax solutions of the early 1990s not only helped close the budget deficit but helped California become poised for the broad economic growth we experienced in the 1990s. Contrary to Republican claims those taxes didn't induce a flight of the wealthy or of jobs.
Ducheny is also smart to point out that these were tax giveaways - many of them made during the dot com boom when Republicans recklessly demanded wasteful spending, in the form of tax cuts, during a temporary spike in tax receipts.
It's not clear where this plan is headed. Personally I think it took Dems a little too long to come out with these proposals, and I always worry that they'll quickly abandon them in order to cut a bad deal with Republicans.
Democrats need to understand they are in the driver's seat on the budget this year - the 2/3 rule certainly makes things extremely difficult, but on the politics alone, Democrats should have the edge. If they aggressively pursue this tax plan in public, as part of a broad strategy to undermine Republicans, they should reap the rewards.
Given all the buildup that came before Arnold Schwarzenegger's May Revise, it may seem surprising that we have heard relatively little about the budget from the state's media and politicians over the last few weeks. The June primary is partly responsible for this, as Sacramento's attention is on the various primary contests in legislative districts around the state.
But an even bigger factor is that there does not actually seem to be any budget solution being actively discussed, and certainly none that would realistically solve the budget deficit. Arnold's May Revise used as its cornerstone a questionable lottery borrowing plan, but as Evan Halper explains in today's LA Timesit is becoming difficult to take the plan seriously:
Californians find the governor's lottery strategy so distasteful, a recent state poll suggests, that they would rather have their taxes raised. Meanwhile, lawmakers are denouncing the plan as a gimmick, and analysts say it could prove far costlier to the state than Schwarzenegger is letting on.
Voters would have to approve the governor's proposal. But Mark Baldassare, president of the Public Policy Institute of California, said they meant it when they approved the lottery by ballot measure two decades ago to raise funds solely for schools.
"They don't see it as money to move around and use for other purposes," he said.
Administration officials are adamant that schools, the beneficiary of the lottery, would not lose money. Still, the institute released a poll Wednesday showing that only 30% of likely voters support the lottery borrowing (with 8% undecided), while 57% back the 1-cent sales tax increase that Schwarzenegger is grudgingly proposing as a backup if the lottery plan falters.
Although it's not clear to me whether the 1-cent sales tax increase requires a 2/3 vote, Democrats should take note of that poll result. 57% is a pretty clear majority of Californians, suggesting that concerns voters won't support higher taxes are overblown at best.
Halper wants to argue this is a sign that voters love their lottery, but the stats suggest otherwise:
California's lottery is one of the more outdated in the country. And last month lottery officials reported that sales were $275 million below projections for the fiscal year ending this month.
So I don't think it's that voters have a strong connection to the lottery. What this instead suggests to me is that voters can see right through gimmicky proposals to provide yet another short-term budget fix, and are instead demanding long-term, permanent solutions.
Combine the lottery bonds' low poll numbers, the dim prospects that the lottery would ever attain the sales levels necessary for the bond plan to succeed (as the article notes, lotteries need video terminals to achieve high sales figured and the tribal casinos would surely never let that happen), and the lack of enthusiasm around Sacramento for the plan and it seems that Arnold's budget is DOA.
Unfortunately nobody has yet stepped up in Sacramento to offer an alternative plan. Arnold Schwarzenegger's administration is a clear failure, but that doesn't absolve Democrats of their responsibility to provide a coherent alternative. Californians are seeking real solutions, permanent budget fixes that will solve the structural revenue shortfall, protect core services, and position California for success in the 21st century economy. If we don't solve this now, this state is going to fall permanently behind the rest of the globe, and more and more Californians are beginning to grasp this.
Now would be a good time for Democrats to step up and offer a coherent, long-term budget solution. Propose it before July 1 and start mobilizing public support for it as soon as possible. We know that Republicans will maintain a ridiculous "no new taxes" stance, but that seems to be politically untenable in this climate and is setting them up for big losses in the 2008 elections. Californians deserve a clear choice, and they deserve a budget that is sound, stable, and structurally secure.
Last fall I took the LA Times to task for framing the state budget crisis as a problem of "automatic" spending, and not being sufficiently attentive to the structural revenue shortfall that is the true cause of the budget problem.
Take, for example, Sunday's SacBee column from Daniel Weintraub, California Budget 101: What went wrong, when. Weintraub's column purports to be a "a fuller explanation of the dimensions of the problem" - but winds up repeating the same discredited arguments, namely that this is primarily a spending problem:
But the economic issues only worsened a basic, structural problem in the state budget: Spending is programmed by law to grow each year at a rate that is generally faster than tax revenues can match. Current state law would push general fund spending to $113 billion next year if nothing is done to slow it, according to the Schwarzenegger administration. Revenues, meanwhile, are projected to decline further, to about $95 billion. The budget Schwarzenegger celebrated last summer would have bridged the gap for one year at best.
Weintraub then goes on to detail the education, health care, prisons and transportation spending that makes up that growth. But nowhere in his column would you see the following:
Tom McClintock and Arnold Schwarzenegger's $6 billion VLF cut
And of course, the start of the state's budget problem: Prop 13.
In other words, Weintraub makes it sound like the state is in a budget crisis because it is overspending, instead of because it is undertaxing. This is especially important when we consider what the state has been spending on - education, health care, and transportation - the very things California needs to remain competitive in a globalized 21st century economy.
The aforementioned George Skelton column provides an excellent contrast, showing what a more accurate explanation of our budget problem would look like:
People, one place it [additional spending under Arnold's administration] went was for Schwarzenegger's car tax cut. Yes, that tax cut counts as spending -- about $6 billion annually. It's because revenue from the car tax -- the vehicle license fee -- had gone to local governments, not the state. The governor generously agreed to replace the locals' lost revenue with money from the state general fund. But he never replaced the tax he grandiosely whacked. Big hole. Big mistake.
The 2000 decision to spend most of a one-time, $12 billion tax windfall on permanent spending and tax cuts that could not be sustained, leading to the state's chronic budget deficits, is another [wrongheaded move].
And to his credit, Walters has argued for higher taxes, although as part of a holistic budget reform package that contains some problematic ideas.
The fact is that if we are to finally end 30 years of budget crisis, we have to find new revenues. The notion that any new taxes cripple economic growth is absurd - both California and the federal government hiked taxes between 1990 and 1993 and it didn't prevent the 1990s economic boom. The investment in education and mass transit helps create more investment while saving commuters, students, and workers money; and universal health care (or even a modest expansion of government-provided care) creates significant savings for businesses and employees.
A focus on spending, however, blinds us to the structural revenue shortfall and leads Californians and their politicians to assume the only way out is to slash spending - which would make the cost of doing business in California, and the cost of living here, significantly higher.
Without solving the revenue problem, we will never cure this chronic budget crisis.
The ongoing state budget deficit is but one aspect of the crisis facing public services in California. Local governments in particular are still very dependent on property taxes, and when those revenues decline, it affects libraries, local parks, roads, and puts added pressure on local schools.
The tumbling housing market has prompted county tax officials around Southern California to begin reducing the assessed value of many houses, resulting in lower tax bills for homeowners but less-than-expected revenue for already cash-strapped governments.
The values of more than 41,000 homes have been reassessed downward so far in Los Angeles County, resulting in an average tax saving of $660. Other counties have barely begun the reassessment process but promise to get the job done before property tax bills are mailed in October....
In Los Angeles County, the assessment rolls include 2.3 million parcels and about 300,000 pieces of business equipment, boats and airplanes. The county receives about a third of property tax revenue, cities get a quarter, school districts take 20% and community redevelopment areas and special districts combined receive 20%.
The process by which reassessment takes place is somewhat complicated, but the overall point is that as property values decline, so too will revenues.
And this is going to be a long decline. The "bottom" may not be reached for another 4 years. And as this recession is likely to be long and deep, it suggests that government finances in California, on the state and local level, are going to be stressed for the next few years.
In such a situation the previous approach of "gut and run" - slash the state budget and hope a quick recovery prevents further damage to services - will accomplish little more than creating more suffering.
Give him credit: Gov. Arnold Schwarzenegger is the first Republican in California's Capitol to begin taking off the budget blinders.
He's actually advocating tax increases, give or take some semantics....
It was clear to Schwarzenegger that, for political and practical reasons, the deficit hole could not be filled with spending cuts alone. He decided to support loophole closings. But advisors were surprised when the governor spontaneously popped out with the idea the next morning during an audience Q&A after addressing Town Hall Los Angeles.
"I'm a big believer," he said, "that when we have a financial crisis like this that we all should chip in. And this is why I totally agree with the legislative analyst's office when she says that we should look at tax loopholes....
Democratic leaders should consider it an invitation to offer Schwarzenegger a tax proposal. The governor finally agrees with them, it seems, that the state does have a revenue problem -- not simply a spending problem.
This is a productive development, as it is becoming obvious that catastrophic education cuts are not the answer to our budget crisis. But even this welcome news has to be tempered by some political and fiscal realities.
In my post on Sunday I argued that the cuts, if allowed to happen, would have a reckless and destructive impact on California's economy. The LA Times article points out that there is another potential catastrophe that these cuts might cause. If teachers are fired and class sizes increase, it is going to be more difficult than ever to meet the unreasonable mandates of the odious No Child Left Behind law.
Rialto Unified has made some recent academic gains, and its superintendent worries that deep cuts could stall progress. The district scored a 661 on California's latest Academic Performance Index, below the state's target of 800; the API measures schools and districts on student scores in math, English and other subjects.
While the state API is a different metric than NCLB, if a district is having trouble meeting the API target, it is likely to have trouble meeting the much more onerous NCLB targets. As most educators - and anyone who has been a student - knows, the larger the classes, the more difficult it becomes to learn and achieve.
Among the penalties for missing NCLB targets include "replacing staff" or a takeover by "a private education firm." Either outcome involves less schools, less local control, less parental involvement, and an even deeper economic hit to thousands of working Californians.
Arnold's proposed budget cuts could therefore touch off a cascade of events that delivers a crippling blow to our public education system. The always excellent California Budget Project has put together a detailed list of the impact of those cuts, including a district-by-district list of cuts. Most district will lose at minimum $500 per student, with some rural districts going well above $1,000 per student. Those are staggering numbers.
This was supposed to be the year of education. Perhaps it still can be - it can either be the year we saved education, or the year we destroyed it. Sometimes our choices really are that stark.
If every Californian paid an extra $150 a year in vehicle license fees, $6.1 billion would be raised eliminating the proposed budget cuts to health care, parks, and education. If we closed the tax loopholes that LAO Elizabeth Hill identified - as Arnold kinda sorta agreed we should - we would raise $2.5 billion, over half of the $4.4 billion cuts proposed in Arnold's budget.
Class sizes in hundreds of classrooms might increase from 20 to 30 students.
And one district may shutter a campus altogether.
The county's 28 school districts are deep in efforts to develop plans to cut about $204 million, or 5 percent, from their operating budgets in the face of a mounting state budget crisis.
They're preparing for the worst because school districts, which receive about 70 percent of their funding from the state, often have to approve staffing and much of their spending for the next school year long before Sacramento lawmakers finish wrangling over the state budget.
"These could be the most devastating cuts our schools have ever seen," county Superintendent William Habermehl said. "I don't know how some of our school districts will be able to survive this and provide the same quality of education."
This being the OC Register we should not be surprised that the piece claims "locked-in teacher pay raises, restricted state and federal funds and other fixed expenditures" are a big part of the problem, but let's look at the bigger picture here.
Restoring the VLF would cost an average of $150 per person per year. But the proposed teacher firings would cost nearly 40,000 Californians around $50,000 a year in income, health care, and other important benefits. That's money that isn't going to pay mortgages or rents. Money that isn't keeping a small business afloat, or a big box store's sales high enough to prevent mass layoffs. As California slides into recession, and with zero job growth to show for 2007, how on earth does it make any sense to deliver such a crippling blow to the state's economy through firing all these teachers?
Surely it is more sensible to ask Californians to pay an extra $150 a year for the privilege of driving, and to keep the state's economy afloat and its schools in session, than to privilege a wasteful and reckless tax cut at the expense of the economy.
Of course, there is also the long-term damage to the state through these crippling education cuts. Larger class sizes and fewer classrooms mean fewer students will learn. Fewer students will attend college, fewer will get good jobs or create new businesses and technologies. The state will be set back even further - California will become Mississippi.
All so that people can save $150 a year on their car registration. All so that a handful of wealthy yacht owners can get a tax break. We are constantly told that tax cuts are necessary to keep the state in business - but as the looming collapse of public education should suggest, this is just not so. California's economy is still living off of the investments made in education in the 1960s and 1970s - but that is beginning to run out.
Even in Republican Orange County, in cities like San Juan Capistrano and Mission Viejo, voters want to ensure that their kids will get a decent education. Parents know full well that firing teachers means their children will not learn. Republicans are talking a hard line, claiming they're not going to compromise an inch on the budget.
But I think we should ask the parents in south Orange County whether they agree with their Republican representatives that their child's future is really worth $150 a year.
If you tuned into my appearance on Wednesday's "Which Way LA?" show, you heard me discuss a "structural revenue shortfall" - that since 1978 California has simply not generated enough money to pay for its basic services, from public education to transportation to water. I thought I would expand on that concept this morning, and explain in more detail exactly what I mean by it.
Arnold and the Republicans would have us believe that our budget deficit is caused by overspending in the "good times" that leaves us with huge shortfalls when the economy turns sour. But there isn't $16 billion in "overspending" and Arnold knows it, as proved by his $4 billion cut for California public schools. Others claim that the problem is locked in and/or frivolous spending - but here again, that only accounts for a tiny fraction of the massive deficit total.
No, the real problem is that since 1978 this state has cut nearly $12 billion in taxes. This was done during economically prosperous periods, particularly the 1990s. And that lack of revenue has piled up over the years - the state has fallen further and further behind to the point now that our state's governor is seriously proposing ending public education as we know it.
UPDATE by Brian: You can listen live to Which Way LA live here and then get the archives here or at iTunes. Robert's going to be on iTunes! I'm excited to hear what Robert has to say.
I will be on Warren Olney's show on KCRW 89.9 at 7pm tonight to discuss the latest news from the state budget front. The California Legislative Analyst, Elizabeth Hill, has announced that California now faces a $16 billion budget deficit. In her press conference, as reported by the Sacramento Bee, she sharply criticized Arnold Schwarzenegger's approach to the budget:
In a critical look at Schwarzenegger's spending proposal, Hill called his administration's budget-balancing approach "flawed" because it fails to prioritize state programs.
"We recommend the Legislature reject the administration's across-the-board (cutting) approach," the report said.
The report lays out an alternative budget that proposes to eliminate nonessential state programs, shift programs to local control and reduce school funding by less than the $4.3 billion the governor suggested. It also recommends closing tax loopholes to add revenue in a "reasonable manner."
As an impartial analyst, Hill cannot say what is obvious to us all - the bill for 30 years of frivolous tax cuts, such as giving wealthy yacht owners a tax break while threatening to close parks and fire teachers, has come due. Republicans insist on cutting core services of our government, preferring to make it difficult to get a decent education, kicking sick children off of health care coverage, and abandoning our natural heritage instead of making sure all Californians are paying their fair share.
As we enter what is likely to be a nasty recession, the last thing this state should be doing is destroying the kinds of public services essential to a modern society and a developed, robust economy. It is long past time for us to end the structural revenue deficit that has produced this recurring crisis, from the wasteful elimination of $5 billion in VLF revenue at the beginning of Arnold's term to the various tax loopholes and favoritisms that have plagued us since 1978. California is at a crossroads - will we rise to the occasion, or stand by while Republicans destroy what remains of the California dream?
The projected deficit for the state budget in 2008 is $10 billion and growing quickly. As the scope of the crisis becomes clearer, the state's media is beginning to take notice and, as always, trying to spin the situation according to their own preconceived notions.
In that vein comes today's article by Evan Halper in the LA Times. While the article would seem to boost us by laying the blame at Arnold's feet, its primary argument is actually that the budget crisis is due to "voter-imposed budget constraints" that limit the legislature's ability to slash spending when needed, and limiting the effectiveness of government.
It's not a new claim, of course, and the article quotes Don Perata's complaint about this that he made earlier in the year. But the politics of the budget crisis are shaped by the media coverage of it, and in that sense it's not just significant how much the LA Times is playing up the locked-in spending, but how much they're downplaying the lack of tax revenue.
If we're going to prevent this budget crisis from seeing the death blow to the liberal state that Pat Brown helped build in the 1960s as well as from crippling our ability to respond to our own ecological and urban crises, we need to aggressively push back against the idea that spending cuts are the answer. California's budget is in crisis not because we spend too much, but because we tax too little.
Arnold Schwarzenegger has an agenda! Well, it's really not that specific. Basically, he wants to continue being a Republican Democrat or a Democratic Republican or one of the two. He plans on focusing on Healthcare, Redistricting, and the Deficit, although not particularly in that order. How he plans to pay for any service improvements is beyond me. Here's more:
Energized by this month's landslide victory, Gov. Arnold Schwarzenegger is assembling a wide-ranging 2007 agenda - hoping to help millions of Californians without health care, trying again to redraw the state's legislative districts and fixing the dysfunctional prison system.
Some proposals could emerge soon after the new two-year legislative session begins Dec. 4. Others may come into focus in early January when Schwarzenegger delivers his State of the State address. Many details of the governor's plans - particularly health care - are still in flux.
But the style in which he will pursue them appears clear.
{snip}
The dynamics this year, however, could make achieving his goals more difficult. Windfall revenue won't be sufficient to close a looming $5.5 billion budget gap, let alone create more programs. And with no statewide election scheduled next year, Schwarzenegger has no motivation to notch accomplishments fast, and Democrats have no incentive to extract policy wins while the governor is amenable. (LA Daily News 11/25)
Well, I guess we shouldn't actually expect anything out of our government for another 15 months.
