Housing, not taxes, are forcing people out of California
by Brian Leubitz
There is much ado about the "job creators" fleeing California because of the high taxes. These uber wealthy are leaving, so we are told, because the high income taxes just aren't worth it.
Except that isn't true at all. In a new analysis by Trulia.com chief economist Jed Kolko, housing is the culprit:
Here are the basic facts. In 2011, 562,000 people left California, and 468,000 came, according to the Census's American Community Survey. That means 120 people moved out of California for every 100 people who moved in. Out-migration reached its peak in 2005, when 160 people moved out of California for every 100 people who moved in. The California exodus rose with the housing bubble and subsided in the recession. Lower home values in 2008-2011 made California more affordable, encouraging in-migration and discouraging out-migration, as well as pushing some California borrowers underwater, further discouraging out-migration. (Trulia blog)
The graph on the right isn't the only one that makes the case clear. If we are to really continue our growth, we must address the housing crunch that is going on, especially along the coast. That isn't accomplished through slashing services and budgets, but rather working to create new affordable housing solutions and ways for young families to stay here in California, where most would rather stay.
Thus, the slashing the government approach that the Legislative Republicans, far from being the panacea they claim, would make the situation worse as affordable housing money continues to dry up. Housing must continue to be a key focus of both our state and local governments.
If there's one thing that's been particularly consistent to campaigns of the far right in San Diego this fall, it's the unusually desperate attempts to hide the real agenda from voters. It's one that should be cause for optimism as long as voters pay attention, and betrays an almost impressive self-awareness from the top of the GOP that the party's agenda has drifted well outside the mainstream.
From the special exemptions of Prop 32 to Brian Bilbray's teetering re-election bid to Carl DeMaio's bizarre mayoral campaign, extreme conservatives are doing everything they can to hide their record and who they are.
For the backers of Proposition 32, the deception was part of the design from the very beginning. They surveyed the political landscape and found that, unsurprisingly, nobody wants millionaires and corporations to be able to buy off our political process. Rather than abandon a wildly unpopular idea, they came up with a different plan: fake it.
If you are like me, you've given some money in the last few weeks to causes you believe in and you've given generously. Even though my family has faced some tough financial times I know we're lucky to have as much as we do despite a job loss, health issues, etc. I know that there are families out there that are struggling far more and fairing even worse.
The last decade has seen the further decline of the middle class as massive amounts of wealth as transferred to the top 5%. For many the last vestige of hope remained in their homes. That too is crumbling, for many, due to no fault of their own.
All over the media, you can find breathless stories about housing sales being up. It's true, and the sales prices aren't even shockingly low. But there's a Cash For Clunkers Effect here.
Namely, the $8,000 first time homebuyer's tax credit that expires at the end of November is driving sales. It's pushing people who wouldn't be rushing to move into their own home into moving on one of the many foreclosures on the market.
Nationwide sales are up nearly 24 percent from their bottom in January, but are still down 23 percent from four years ago.
Prices, however, continued to be dragged down by foreclosures and short sales, where the mortgage exceeds the sales price. The median price last month was $174,900, down almost 9 percent from $191,200 a year earlier, and slightly lower than August's median of $177,300. (AP)
And then you'll get the breathless quotes about the housing market being back, with somebody saying we're in a mini-boom. Look I'm all for optimism, but let's keep it rational people. The market still has some very strong underlying weakness, especially here in California. Like cvash for clunkers brought forward demand for new cars, so is this program for moderately priced homes. It's even creating a little bit of bidding up on some of the prices in stable markets.
There is a ways to go before this market is anywhere near healthy, but it's good to see some improvement. Hopefully this time around we get a little more common sense in the market.
There's lots of significant news in the Legislature's last week regarding various bills, and it's extremely difficult to keep up with it all, probably by design. I should point out that, while the legislative calendar has an end date, there's no actual reason for some of the forced bottlenecks that result in hundreds of bills being passed at the last minute. It creates a shroud of secrecy in which special interests rule, and saps the public trust. A Democratic leadership actually interested in positioning government as somewhat decent would remove these forced bottlenecks from the internal legislative rules and allow bills to be approved on a rolling basis. That said, this is the system we have now, and here's a bunch of news about various bills:
• A new bill would exempt non-General Fund workers from furloughs. This would reverse one of the dumbest provisions in the budget bill, the practice of forcing furloughs on workers not paid by state government, saving almost no money and depriving people of needed services. Of course, the Governor will probably veto this one, because he hates admitting how wrong he is.
• Democrats on that vaunted water committee have decided against floating a bond to pay for any restoration or overhaul of the Delta. This means Republicans won't vote for it, and very little will come of this very important committee thrown together at the last minute. Some conference committee reports are here, but a deal looks remote, as it would need votes from some of the empty chairs in the Yacht Party.
• One bill that has cleared both chambers would set up "Education Finance Districts", "in which three or more contiguous school districts can band together to try to increase local taxes." This is a small step to make it easier for districts to pass parcel taxes to fund schools, but at this point every little bit helps. The 2/3 rule for approving such taxes would remain.
• With all the talk of health care reform, it's notable that an anti-rescission bill has once again passed the legislature. The bill would also simplify insurance forms. Last session, Arnold Schwarzenegger vetoed it. There's something you don't hear much about from the Democratic leadership - Arnold Schwarzenegger vetoed a bill that would have banned insurance companies from dropping patients after they get sick. He sided with the forces of insurer-assisted suicide. This is your modern Yacht Party on this issue:
"Any of those who have read the various exposés in the Los Angeles Times and others . . . is aware that health insurers have admitted and acknowledged they engaged in a form of post-claims underwriting," said Sen. Mark Wyland (R-Escondido). "It is unethical and, considering what some of these people have endured, it really borders on the immoral."
However, Wyland said he would not vote for the bill because the Department of Insurance has proposed new rules to solve the problem, and he wants to see how they work.
Hey, give 'em a chance to see if the immorality stops! If not, we can think it over.
• The Legislature may extend a homebuyer's tax credit passed in a previous budget agreement that was nothing but a bailout for developers. It only credited new construction, and was structured only to benefit high-income households who could afford new construction. By the way, sales of new units have fell since this was enacted, so it's not even meeting its intended purpose. But it's a giveaway to a special interest, so off the money may go, even though we cannot afford it at this time.
• A bill to ban bisphenol A (BPA) from children's products was delayed after the Assembly couldn't muster 41 votes. The debate in the Assembly last night was pretty fierce.
• Cities and counties reacted angrily to a proposed bill to slow local government bankruptcies until vetted by the California Debt and Investment Advisory Commission. On the merits this looks to be a bill that would install more control on locals from Sacramento, although there are arguments on both sides. But mainly it's about the fate of union contracts in local bankruptcies, I don't think either side would deny that.
• A roundup of other bills passed yesterday can be found here.
You won't get much argument here that the budget "plan" has a few holes. Beyond the fact that the plan hinges on getting $1B+ for a state worker's compensation fund that seems unrealistically optimistic, there is a bunch of borrowing and gimmicks in the deal that will leave us vulnerable in coming budget years. My guess? We'll be back talking about the budget in October or so.
But, a report by the credit rating agency Moody's puts a specific number on it: $15 Billion.
The plan signed by Gov. Arnold Schwarzenegger this week to balance the state's budget could leave California facing shortfalls in future years of more than $15 billion, according to an analysis released Thursday by a major Wall Street credit rating firm.
Moody's also criticized California's plan to take more than $1 billion from counties' redevelopment agencies this year to help close its $24 billion deficit, saying that could jeopardize those agencies' credit ratings.(SF Ch ronicle 7/31/09)
Such a number wouldn't really shock anybody in Sacramento either. After all, there were a slew of stories after the signing of the deal stating this exact notion of the deal not actually closing any big budget gap. Besides the fact that the deal was full of gimmicks, there's also the fact that California's economy is still struggling, and the massive cuts in state spending will only amplify the problems we already have. Problems like the continued busting of the housing bubble.
About 1 in 10 Californians with a home loan is now in default, and there's growing evidence that the mortgage meltdown is spreading to commercial real estate.
The home mortgage delinquency rate -- the percentage of borrowers who have missed several payments and are in the first stage of foreclosure -- climbed in June to 9.5% in California and 9.9% in Los Angeles County, according to First American CoreLogic.(LA Times 7/31/09)
And furthermore, the rate of foreclosures in the region most affected by the state budget cuts, the Sacramento area, is also shooting up. We still have a ways to go before we get through this economic mess. And the Hooverism of the latest budget deal only exacerbates these problems.
As much as some people cling to the idea that the United States has always been a land of anti-government, laissez-faire bustling capitalists, the fact is that the specters of democratic statism haunt the chronicles of American history, all the way from the beginning. One of the oldest and most powerful phantoms is the Bank of the United States that died and was reborn, again and again through the history of American politics like the immortal monsters of slasher horror films.
Because the Bank was there from the beginning – Hamilton drafted it, Washington signed it, and Adams maintained it. Even when the anti-central government Democrats took possession of the Presidency in 1800, Jefferson maintained the Bank and Madison actively promoted it (due to the support of Albert Gallatin (the Secretary of the Treasury and a Democratic-Republican who had begun to learn the virtues of Federal activism in such matters as the Bank and Federally-funded public works). The Second Bank of the United States was established in an era of Democratic-Republican dominance, suggesting that the Bank of the United States had a rough political consensus between 1800-1832. Now, two caveats should be made – first, that the original bank was a public/private venture, and second, that the Bank was highly politically controversial, leading to thirty years of Jacksonian decentralized state banks – but the larger point remains that the Federal government of the Revolutionary Generation was not some libertarian paradise of limited government that left the economy to laissez faire.
The second half of the 19th century saw an enormous explosion of central banking. The Civil War gave us the Second Banking System, whereby the Republican Party, strong nationalists that they were, created for the first time a single, national, paper currency, a system of national banks with reserve requirements (held in Treasury securities), regulated by the Comptroller of the Currency. When this system began to fail (largely due to the requirement to back all notes with Treasuries and the lack of a lender of last resort, as well as the restrictive monetary policy of the era), the Federal Reserve was called into being. However, what few people realize is that the public-private nature of the Fed was the result of a political bargain struck between conservative Republicans like Nelson Aldrich (who wanted a 100% private Fed), Progressives (who wanted a 100% public Fed), and conservative Democrats (who wanted a decentralized and private Fed).
This was not a single grand vision, but a messy compromise, and there remains in the history books, the vision of a Fed that might (and should) have been, a People’s Bank exercising political authority over the economy.
In the spirit of the best 4th of July speeches, which like Frederick Douglass' peerless effort seek not to satiate with platitudes but rather to challenge and provoke, today I offer a reflection on America's past and its future.
At the end of "Resurrecting Henry George," I argued that a national housing assistance program would "help to make one more of FDR’s Second Bill of Rights, "the right of every family to a decent home," a legal reality. I would argue, and I will argue in future posts, that the longer-term mission of the progressive movement in America is (and has unconsciously been) the realization of the Second Bill of Rights." So today I intend to explain what I meant.
Note: This is a cross post from my group blog, The Reaklignment Project, and a followup to the previous post on housing policy.
The savage beasts in Italy have their particular dens, they have their places of repose and refuge; but the men who bear arms, and expose their lives for the safety of their country, enjoy in the meantime nothing more in it but the air and the light.They fought indeed and were slain, but it was to maintain the luxury and wealth of other men.They were styled the masters of the world, but in the meantime had not one foot of ground which they could call their own.” (Tiberius Sempronius Gracchus, 133 BCE)
“The equal right of all men to the use of land is as clear as their equal right to breathe the air–it is a right proclaimed by the fact of their existence. For we cannot suppose that some men have a right to be in this world, and others no right.” (Henry George, 1879)
One of the truisms of studying social policy is the phrase “programs for poor people make poor programs.” Programs targeted at poor people (Aid to Families with Dependent Children (AFDC) or “welfare” being the best example) tend to be underfunded, provide inadequate levels of benefits, have onerous application requirements, are socially stigmatizing, and are politically vulnerable to assault from the right. By contrast, programs that are universal in nature, including both the poor, the working class, the middle class, and maybe even the affluent, (here, the best examples are Social Security and Medicare) tend to well-funded, provide decent benefits, where eligibility is on the basis of tights, are socially approved of, and are politically inviolate from the right.
That’s one of the reasons why I’ve argued that the premium subsidy is actually one of the most politically important parts of the current health care reform legislation. By creating a national and universal benefit that everyone shares in by right, the current legislation would create a “community of interest” that includes the poor, the working class, and the middle class – which would no doubt approve of the bill, and in the future vote for people who promise to improve and extend universal health care and vote against people who want to decrease or eliminate their premium subsidy.
“O reason not the need! Our basest beggars Are in the poorest thing superfluous. Allow not nature more than nature needs, Man’s life is as cheap as beast’s.” (Lear, II iv)
If there is any one area of American life that best expresses the adage “poverty in the midst of prosperity,” it must be housing. Even as thousands upon thousands of homes now stand empty, vast swathes of speculative suburban developments along the highways and hills of California turned into ghost towns, homelessness has increased. In Washington D.C, the number of homeless families has increased in the last year by 15%, with similar figures being reported in New York City and other metropolitan centers. Even when the sub-prime boom was spreading home-ownership wide and far and actually beginning to make headway against the unequal distribution of housing in America, in 2006, 8.8 million households were paying more than half their income in rent (I was probably one of them). Major systemic problems (the lack of affordable housing and workforce housing near where people work, the need to in-fill versus sprawl, racial and class discrimination) were not being addressed, even when the market was flush.
It isn’t flush now. If ever there was a need for proof that “spatial mismatch” and “credit discrimination” exist, we can find it in the fact that at a time when thousands of houses are empty rotting shells, that people who want and need housing are being turned away by banks who have suddenly become paragons of fiscal rectitude.
At the same time, the national unemployment rate currently stands at 9.4%. Within the construction industry, unemployment stands at 21%. Within California, the situation is even worse, with an overall unemployment rate of 11.5%, and a construction industry that’s down 150,000 jobs from last year. While I fully expect that the stimulative effect of the American Recovery and Reinvestment Act of 2009 will begin to ameliorate this situation within the next six months, I personally was calling for an even larger jobs bill at the time.
I think we can tackle both problems at the same time.
If you aren't depressed enough by the coming collapse of social programs for Californians as the budget nightmare drags on, consider that there will soon be more need for social services and less revenue available, as we segue into the rarely-remarked upon second wave of foreclosures in the Alt-A market.
A new wave of foreclosures is building in Sonoma County, one that echoes the subprime crisis that flooded the region's housing market with distressed properties.
The tide of troubled loans, which first struck high-risk borrowers who did not qualify for conventional mortgages, is now spreading to people with good credit who purchased more expensive homes.
This time, it involves borrowers who took out mortgages known as Alt-A loans. Like the subprime loans that began imploding in 2006, these loans offered seductively low introductory payments that enabled many borrowers to buy or refinance homes that were pricier than they could otherwise afford.
Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.
There are hundreds of thousands of these loans in California just waiting to recast. In the context of Sonoma County, 18% of all housing loans are Alt-A, most of them purchased between 2004 and 2006. Two-thirds of them will see rapid jumps in their payments in the next two years.
I spoke with Asm. Ted Lieu this weekend, who didn't even want to describe these as foreclosure waves. "It feels like they never stop." He hopes that the latest government program to try and fix the foreclosure crisis, which can allow new mortgages to be issued at 96.5% of current value, will actually make an impact, but we're talking about a whole new class of borrowers getting into trouble because of these rate recasts. This of course adds to the properties on the market, bringing down prices, adding to a whole new wave of tax reassessments, and on, and on, and on.
You can almost set aside the unemployment crisis, and the feedback loop of decreased government spending leading to reduced consumer spending and more unemployment. Just this continuing housing crisis is enough to permanently disable any solutions to economic recovery.
...I should note that AB260 passed the Assembly today, forward-looking legislation which would prohibit lenders from steering borrowers into bad loans, prohibit lenders from reaping financial advantages (called yield spread premiums) from that steerage, ban negative amortization loans and regulate subprime lending. The Governor vetoed similar legislation last year. This is an impressive reform, but too late. The crisis has spread into prime loans by now.
I think the general consensus on the economy from the grand poohbahs of the establishment is that we're contracting less slowly, that we're easing toward the bottom and will be able to improve as the year goes on. This optimism depends on no further "unforeseen" downturns in key economic sectors. But that just doesn't seem plausible. Zillow.com's estimates show that over 20% of all homeowners owe more on their mortgages than their homes are worth, as prices continue to decline. Considering that 24,000 homes and apartments are vacant in Sacramento, for example, up 40% year over year, the glut of supply suggests that those prices have further to fall. And thus we will not see much of a rebound in equity in the short term. Keep in mind that many of these homeowners who are underwater will experience recasts to their mortgage rates in the coming year, further straining their ability to make payments.
Now we have compelling evidence that a second foreclousre wave is starting to rumble through California once again, which could trigger the very same spiral that brought the nation's economy to its knees last year.
Here's another sign that California's foreclosures could jump in 2009: Delinquencies on dues owed to homeowner associations have risen sharply.
The homeowner association delinquency rate can serve as a leading indicator of sorts because homeowners usually stop paying dues before they stop paying their mortgage. The 90-day delinquency rate on dues for the 260 homeowner associations in California managed by Merit Property Management jumped to 5.3% in March from 2.8% last June. Delinquencies first spiked to 2.6% in December 2007 from 0.8% in March 2007.
The Journal looked at how banks were beginning to ramp up foreclosures after holding off for several months. Pre-foreclosure notices in California spiked in March after a state law had suppressed foreclosures at the beginning of the year.
Pre-foreclosure notices are where this begins, and those notices rose by 80% in the first quarter of 2009 from the previous quarter. As the article notes, the moratorium on foreclosures has been lifted, which will put more pressure on homeowners. We all understand that bad loans caused this crisis in the first place, right? Well, a lot of bad loans are still out there. At particular risk are those mortgages purchased at the height of the bubble in 2005 and 2006. Loans made in 2006 have an 8.5% default rate statewide. These are the worst liar loans, NINJA loans, many of them due to recast to higher interest rates. And this includes jumbo loans.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
If you think this is over, particularly in California, duck.
When the Obama Administration's plan to mitigate foreclosures came out, it was clear that it would be insufficient to deal with the particular challenges faced in California. Initially, the plan would only modify loans where the amount owed was 105% of the home's true value. Given that home prices have collapsed here, this would have helped almost nobody in California. State lawmakers, in particular the Democratic point person on mortgages and foreclosures Asm. Ted Lieu, went to Washington to lobby for changes. And today, faced with a sluggish mortgage rescue program attracting few lenders or homeowners, the Administration expanded the plan.
The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor [...]
Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home's current value.
Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
Loan servicers get a fair bit of cash incentives for participating in the program, which I don't totally support, but if we have to bribe lenders in order to keep people in their homes, that makes more sense than spending the same amount of money on the fallout from a foreclosure. And lenders do take a haircut in the Hope for Homeowners program, the first loss to my knowledge that lenders have been forced to take.
The CA-32 race to replace Labor Secretary has less than six weeks to go until the primary. We know about the two major candidates; Board of Equalization member Judy Chu (not to be confused with Betty Chu, who will appear directly above her on the ballot and surely cause some errors among voters) and State Senator Gil Cedillo, whose extreme spending of campaign contributions on shopping, meals and lavish hotels made the LA Times this weekend and caused a stir.
Somewhat less remarked-upon has been the candidacy of Emanuel Pleitez, a product of East Los Angeles and Woodrow Wilson High School, who matriculated at Stanford, joined the advisory board of Voto Latino (a group that encourages voter registration and engagement for the Latino community), worked for Democratic lawmakers like Antonio Villaraigosa, Tom Daschle and Hillary Clinton, and worked on the Obama transition team at the Treasury Department. On Friday I had the opportunity to chat with Pleitez about his life experiences, the financial crisis, housing policy and a host of other issues. A paraphrase of that conversation follows.
(As a side note, this story about one of the volunteers on the campaign, who traveled all the way from Santiago, Chile to work on it, is pretty amazing.)
The customer seemed interested in a black blouse offered for $1 at the thrift store. But instead of buying it, she set it on the front counter.
Maybe tomorrow, she told the cashier, she would have the money. Or the next day. But not now.
"That is the way people are now," said the cashier, Alicia Reyes, as she watched the middle-aged woman walk out of the store. "They just come in here and look. They just come in here to kill the time. And then they take off."
Welcome to life in Mendota - the unemployment capital of California. With a 41 percent jobless rate, the town's social fabric is tearing at the seams. Alcoholism and crime are on the rise. To save money, some mothers wash and re-use disposable diapers. Unemployed men with nothing to do wander the streets and sit on benches.
The irony is obvious: In a large swath of the nation's most productive farming region, many struggle to fill their own cupboards.
There are many factors here - the economic meltdown and struggling economy, of course. But the third year of drought conditions have devastated harvests, leading to less workers needed to pick crops. This is the sad future of a dry California. With housing cratered throughout the state, the fallback option of construction is closed off as well. And as seasonal workers stay home, the businesses that support the economy have less consumers and suffer as well.
This is a disaster area, and the signs are it will only get worse. The state jobless rate is projected to grow as high as 15% before subsiding, and will remain in double digits until the beginning of 2012. The FDIC has issued warnings to at least six state banks, telling them to increase capital levels. "Two-thirds of the state's banks will be operating under cease-and-desist orders" by the end of 2009, according to one analyst. And housing prices continue to fall off the cliff.
The Central Valley is in a Depression. The rest of the state may not be as far behind as you think.
Next Tuesday morning, Asm. Ted Lieu (D-Torrance) will be dropping by to take some of your questions. In addition to being a friend of Calitics, Lieu has been focusing on fighting the housing and banking crisis. You can find his assembly site here to get more information on his legislative agenda.
Obviously, as ground zero for the foreclosure boom, this is a very important issue to California, one where there has been spirited debate. Asm. Lieu, who is also one of the many candidates for California Attorney General, will be here on Tuesday morning at 11:30 to answer your questions about the housing crisis and anything else you have on your mind. Feel free to post your questions here or just ask them on Tuesday.
For several months, I have noticed a lack of context from the press when discussing California's housing situation. Sales of new and existing homes were rising, yes, but for a very good reason - all the bargains created by a spate of foreclosures. In fact, the correlation matches up perfectly - the regions with the highest sales also have the lowest prices. An example is the High Desert region, with a 203.1% increase in sales year-over-year, but a median price of $121,970, the lowest in the state. The latest data on home sales shows a 41% decline in price year-over-year. Bloomberg's story reinforces the theory that only foreclosures are selling. Does this mean that property values have decreased by a concurrent amount? Not necessarily. But it does mean that a non-foreclosed home in this distressed market has virtually no chance of selling, making it impossible to find the bottom of the market. The price of foreclosures does affect the price of all homes, which is why stopping foreclosures is so important.
California unemployment will peak at just over 12 percent late this year, setting a modern record, according to the latest forecast from the University of the Pacific.
Recovery will come slowly. Unemployment won't sink back into single digits until late 2011, or some two years after the recession is expected to officially end, according to a forecast released Tuesday by UOP.
There's typically a considerable lag between the beginning of an economic recovery and a drop in the unemployment rate, as companies are slow to re-hire even after business perks up.
We're talking about two more years, at least, of significantly reduced revenue collection rates. All the homes selling for pennies reduce the overall property tax revenue. No projection of future revenues can reasonably be believed in this environment. And so we'll continue to see yawning gaps, with a governmental structure woefully equipped to deal with them. The so-called "reform" of Prop. 1A, to hoard revenue in positive economic years to use in down years, will be inoperative for the foreseeable future, and even when the economy retains balance, the revenue forecasts for any spending cap will be increasingly based on these horrible years, leading to a disaster without end.
In years when revenues fall short, the state could use the reserve to cover spending up to the prior year's level, plus an adjustment for growth in population and the Consumer Price Index.
But increases in the state's senior population and health care costs have been outpacing both those measures, said Jean Ross, executive director of the California Budget Project, a nonprofit organization that focuses on the effect of budget policies on low-and middle-income Californians.
Moreover, Ross noted that under Proposition 58, the 2004 ballot measure, the state will continue to send 3 percent of revenues to the reserve, which would be subject to the tighter controls of Proposition 1A.
"It takes 3 percent off the top of the budget, and we don't have that," Ross said.
Ross and Michael Cohen, a deputy legislative analyst who studied the measure in depth, both said Proposition 1A could force revenue into the reserve even in years in which the state faced deficits.
My guess is that this is why the AFSCME local 2620 voted to support the measure and others on the ballot, while the overall union called for rejection. The lure of easy money might sound nice for the locals, but unions with experience with spending caps in other states know that they accompany disaster.
Simply put, the state's in an enormous amount of trouble and has no structures to deal with it. This argues strongly for blowing up the boxes, for real this time, and starting over, by repealing the rules that subject the budget to tyranny and building a new vehicle for reform.
Last week I took a look at the growing Bushville on the American River in Sacramento, which has been garnering national attention as a powerful symbol for these troubled economic times. It was clear at that time that the city government led by Mayor Kevin Johnson needed to do something to ameliorate the situation. The decision has been made.
Sacramento Mayor Kevin Johnson promised to first make alternative shelter space available for the estimated 150 men and women who inhabit the squalid encampment near the American River, at the edge of the city's downtown.
Johnson, who toured the area with California Governor Arnold Schwarzenegger a day earlier, said he hoped to have the ramshackle settlement cleared of tents and debris in the next two to three weeks.
"We want to move as quickly as we can," he told a news conference, insisting the city was determined to treat the tent dwellers with compassion.
"They are people out there. We have to do whatever we can do," he said. "We as a city are not going to shy away from it. We're going to tackle it head-on."
Advocates for the homeless applauded the mayor's action. Municipal authorities in Sacramento have been debating the fate of the tent city for weeks.
150 seems like a very low number, when news outlets have reported as many as 1,200 homeless staying in the encampment. Of course, that could simply be a matter of media overhype (local shelter organizers apparently fed this as well). However, even if the numbers are correct, finding shelter space for 150 deals with those made homeless as of today. With unemployment skyrocketing, there will be more left homeless tomorrow. And next week. And next month. While most in the encampment did not fit the profile of the "recession homeless" (a closer look reveals that the tent city grew out of multiple closures of other shelters, which is probably because of the recession anyway, so we can go around and around on this), such a group does exist and will need help over the next year as the state struggles. The fact that so many homes lie vacant and are owned by Fannie Mae and Freddie Mac, i.e. the US taxpayer, suggests there are solutions to this problem beyond the short term if creative solutions are made.
I first wrote about an Ontario-area Bushville, a tent city of foreclosed Americans, almost a year ago. At that time, it became too big to sustain itself, as people from across the country moved to the tent city to live. The city required that only residents of Ontario be allowed to stay.
A tent city is burgeoning in Sacramento, Calif., prompting local officials to consider whether such an encampment should be made permanent, with plumbing and all.
The primitive settlement sits in the shadow of the state capitol and is home to about 300 people who have no toilets or running water, creating unsanitary conditions that advocacy groups worry could promote diseases like cholera. With the downturn in the economy and more working-class people losing their jobs and their homes, the tent city is expanding [...]
This tent city is in a place of great natural beauty, between two rivers, with birds and open sky and a relatively mild climate. Homeless people have lived there for years, largely unseen, but as more working class people move in, the tents are multiplying and becoming harder to ignore.
The official count of homeless people in Sacramento is 1,226 people, and they are spilling out to the tent city because the housing shelters are full; one of the shelters is turning away more than 200 women and children a day.
Perhaps the most unbelievable part of this is that 10% of rental housing units in Sacramento, and almost 5% of owned units, are VACANT. We have nobody in the houses and people living in the tents by the river. And yet the housing owned by the Sacramento Housing and Redevelopment Agency is maxed out. It's very upside-down.
I agree with Charles Lemos that this is a test of our humanity and values as a people. Fortunately, the generosity of ordinary people is extending beyond the policymakers. Since a story on the tent city appeared on Oprah and the Today show, donations have been pouring in. Portable toilets and a dumpster have been installed.
But that's a temporary solution. While $2.3 million is coming into Sacramento to deal with homelessness through the federal stimulus package, that's not going to be enough if foreclosures continue to rise. In February, the number of homes threatened went up 30% year-over-year and up 6% since January, despite several large banks agreeing to a temporary moratorium. Five of the top seven areas for foreclosures are in California - Stockton, Modesto, Merced, Riverside-San Bernardino and Bakersfield. While the first wave of subprime failures has already occurred, with unemployment still soaring we are starting to see unemployment-based foreclosures as a second wave. So I don't see any letup anytime soon, and Sacramento is going to have to meet this challenge of dealing with the wreckage of the Bush regime.