Five top Democratic governors have called for a larger stimulus package than is presently being called for in Washington, precisely to fill in the gaps created by a loss of tax revenue in the states.
To help offset state budget cuts, a group of Democratic governors urged the federal government Friday to pass a $1 trillion economic stimulus package, significantly larger than the one under discussion in Congress.
The package would help states compensate for cuts to education spending that could cause long-term economic decline, as well as bolster infrastructure projects and benefits programs for the poor, the governors from New York, New Jersey, Massachusetts, Ohio and Wisconsin said in a news conference [...]
The governors recommended that the stimulus plan include $350 billion for infrastructure, including transportation, wastewater and broadband projects; $250 billion for anti-poverty programs such as Medicaid, unemployment insurance, food stamps and child care; $250 billion in flexible education spending to maintain funding for programs from pre-kindergarten to higher education; and middle-class tax cuts.
The money, disbursed over two years, would offset cuts needed to balance state budgets and would serve as a "bridge" until 2011, by which time the governors hope the economy will have recovered, said Massachusetts Gov. Deval L. Patrick.
Predictably, the Republican Governor's Association called it a "bailout" of the general funds of the various states.
Well, yes. The states, by and large, did not have the ability to get out from under the financial meltdown, and the consequent economic downturn that resulted shouldn't disproportionately affect the least of their citizens. Furthermore, given that the road to recovery is massive fiscal stimulus, having states cutting back on spending at this time, be it infrastructure, education or healthcare, is completely counterproductive and will do nothing but prolong the agony.
In the future, it will take more than backfilling state budget cuts in a downturn, but a more structured system, like a "Federal Infrastructure Finance Corporation," to ensure that state assets aren't sold off to private interests during a downturn. The days of creative borrowing and the crossing of fingers are over. We need new structures to manage economic volatility and avoid fiscal traps, PARTICULARLY in California, where the tax system too closely mirrors the boom and bust cycle.
In the near term, I imagine something like this will pass. Barack Obama today put out a call for "strategic investments" to create jobs and improve the long-term economic outlook simultaneously. The question locally is whether California's plans will actually accomplish that. CalPIRG is criticizing the state's wish list, saying that it relies too much on increasing highway and road capacity and not enough on cleaner energy investments:
The California Public Interest Research Group reports that the state plans to spend 31% of road money on creating new capacity instead of addressing long-deferred maintenance and repair projects. By contrast, the group said, Massachusetts would commit 100% of its road funds to repairs.
"We can't afford to waste precious resources on new highways at the expense of ready-to-go projects to repair and maintain existing roads and bridges and expand public transportation," said spokeswoman Erin Steva.
The group also faulted the California Department of Transportation's list, saying that only 37% of the funds would flow to public transportation. The group called for a higher percentage, citing the record ridership on California's mass transit systems, which have been hit by severe cutbacks in recent years. The proposed percentage is less than what is being planned in Tennessee, Wisconsin and Massachusetts, CALPIRG said.
It is elemental that the stimulus spending cannot prop up an unsustainable growth model based on sprawl. Experts up and down the state understand this, and one of the best examples is in this Merced Sun-Star editorial, which nicely explains the tension between speed and smarts:
The problem for the planners is that the stimulus must be geared toward putting people to work as fast as possible. That, many believe, argues for the traditional sort of public works, such as highways.
In many cases, plans are already in place to replace crumbling roads, highways and bridges. By contrast, plans for urban transit systems and intercity high-speed rail are less firm, meaning it may take more time to actually start turning dirt and generating paychecks [...]
We're confident that a solution exists that puts people to work right away and also lays the groundwork for a new approach to the nation's transportation needs.
It won't be easy, but it has to happen. We can't continue to simply build more transportation infrastructure on a model that's now more than a half-century old.
A new model for transportation is part of the change we need.
Read the whole thing. One good idea calls for phased stimulus spending, giving enough for critical highway and road repairs at the start, with the bulk coming later for transit and rail projects.
We know that Arnold holds a grudge against unions, which he believes caused him that stinging defeat in 2005, and much of his goals on the budget lately have taken their aim at those unions. In particular, Arnold is seeking to privatize major infrastructure projects, ostensibly for the sake of "efficiency" but as a practical matter to get the jobs out of union hands. I thought that much of this was just a sop to Arnold's friends on the Chamber of Commerce and just more of the conservative mantras of animosity toward unions and privatization equaling a universal good. But there's also a quid pro quo angle involved here in the form of David Crane, a top economic advisor to the Governor, who would stand to benefit financially from any public-private projects put forward by his current boss.
As Gov. Arnold Schwarzenegger demands that lawmakers allow private interests into California's huge market for public works projects, a company with close personal and financial ties to the governor's economic advisor is positioned to benefit.
The advisor, David Crane, has spent years promoting private-sector involvement in public construction projects -- one of a few issues holding up a deal between Schwarzenegger and legislative Democrats to ease the state's worsening fiscal crisis.
Babcock & Brown, the financial services firm where Crane worked for a quarter of a century, hired a Sacramento lobbyist last year to influence the governor's office on so-called public-private partnerships, records show. Since joining the governor's team in 2004, Crane has received hundreds of thousands of dollars of income from deals he made while at Babcock, a firm founded in San Francisco and based in Australia, according to financial disclosure reports.
Those deals included projects in areas such as telecommunications, in which he served as a financial advisor; personal investments in real estate from Babcock's public-private partnership projects in England; and partnerships he formed with other Babcock executives to invest in oil wells and an Italian restaurant chain.
Crane is claiming that he cannot possibly benefit financially from any future deals, but one wonders whether, even if Crane is telling the truth, it really matters. The network of friends and former business associates to which Crane's advice could directly or indirectly steer business is vast. This is how government-by-profit-taking typically works, rewarding friends and punishing enemies. Whether or not Crane gets his profit now, as an economic adviser, or later, when he returns to Babcock & Brown or some other destination, is in many ways besides the point, just a clever way to avoid violating the letter of the law.
Jessica Levinson, the director of political reform at the nonprofit Center for Governmental Reform in Los Angeles, said Crane appears to be operating within the letter, though perhaps not the spirit, of the law.
"It starts to have the appearance of doing political favors for old friends, and that is not something that I think is illegal, but it still may not be fully ethical," Levinson said. "I think it all comes down to, is he making this decision for public good or is he making it to help his old business friends?"
By the way, Crane is a Democrat, or at least that's what it says on his voter registration card. The issues are the same. He's a free market fundamentalist who probably thinks he's advocating on behalf of a good solution for California. After a while, the theft becomes so commonplace that the thieves don't even see it as stealing anymore.
Paul Krugman has a good column today about how state balanced budget needs lead to perverse outcomes during an economic crisis that demands fiscal stimulus.
But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers - state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation's economic future.
These state-level cutbacks range from small acts of cruelty to giant acts of panic - from cuts in South Carolina's juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six months.
As Krugman notes, it's crazy to cut public spending at the same time that private spending is drying up. It's a recipe for a Hoover-esque depression with no investment or economic activity, and no way to increase consumer spending or create jobs.
Krugman acknowledges that balanced-budget rules are only a part of this problem in the states.
The answer, of course, is that state and local government revenues are plunging along with the economy - and unlike the federal government, lower-level governments can't borrow their way through the crisis. Partly that's because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren't, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.
Are governors responsible for their own predicament? To some extent. Arnold Schwarzenegger, in particular, deserves some jeers. He became governor in the first place because voters were outraged over his predecessor's budget problems, but he did nothing to secure the state's fiscal future - and he now faces a projected budget deficit bigger than the one that did in Gray Davis.
That's absolutely true. And the suffocating 2/3 requirement is most of the problem here. But once we get out of this crisis, hopefully with some assistance from the federal government for Medicaid and public works, we need to think a little more creatively about how to reduce the risk of a state's fiscal trap on the greater economy. One idea is allowing state governments the ability to deficit spend, perhaps through the creation of some federal Stimulus fund that states facing certain deficits can tap. This is the framework behind the National Infrastructure Bank proposed by Sens. Dodd and Hagel last year, but I would broaden it out. There's also the option of federal guarantees for state bond markets to increase investor confidence, or allowing states in a fiscal emergency to borrow at lower federal rates in the short term. These are steps similar to those being used to bail out banks, with the Fed intervening in the commercial paper market, and they should be tools for the states as well.
With structures like this in place, just maybe we can phase out the balanced budget amendments that force these bad choices on the states. Ultimately, California can't ask for help until they help themselves. The bond market will simply not improve until investors are assured that the state can manage its own affairs. But after the failed Schwarzenegger Administration, the next governor should think seriously about giving the state flexibility in an economic downturn, rather than going along with the necessary steps to making things measurably worse.
The national media is starting to pick up on the developments with the California budget, and their potentially devastating impact on the larger economy. Bloomberg has an article on the shutdown of infrastructure projects and the impact statewide:
Just $5 million of work is needed to complete a new California Court of Appeals building in Santa Ana. The state may not have the money, and come July judges may be writing opinions in their living rooms.
"I've been on the bench for 23 years, and I've never seen anything like this," said David G. Sills, the presiding justice for the Fourth District Court of Appeals, Division Three, in a telephone interview.
California's worst budget crisis has held up $3.8 billion in spending on public works, possibly including the courthouse adjacent to Santa Ana City Hall. Sills and his seven fellow jurists had planned to move in before the lease on their temporary offices expires June 30.
"Everyone will have to work from home," said Sills, 70, "and we'll have to rent a place for when we hear arguments."
The story ticks off all of the projects lying unfinished - highway improvements, bridge and levee repairs, a hospital at San Quentin, a middle school in South Gate. The delays are not only a threat to the soaring unemployment rate and the state's economic future, but public safety.
South of downtown Los Angeles, a delay finishing a school building could put children in danger, said German Cerda, principal of South Gate Middle School. About a third of his 2,900 students are scheduled to move into the new building a half-mile away in 2012, relieving overcrowding inside and making nearby streets safer, he said.
On Dec. 2, a 14-year-old South Gate student was killed when a car stuck him a block away, an accident Cerda attributed to congestion.
"The biggest complaint we get from parents is what happens when the bell rings at 2:42 p.m. each day," Cerda said. That's the time that his students are dismissed and 3,000 more are leaving a high school down the street. "They don't want to see another tragedy."
Then there are the expected cuts to state Medicaid programs, at precisely the time when more Californians qualify for services.
Among the states with the gravest financial problems -- and pressures on Medicaid -- is California. In July, Medi-Cal, as the program there is known, slashed by 10 percent the rates it pays hospitals, nursing homes, speech pathologists and other providers of health care. It tried to lower payments to doctors and dentists, too, but they have sued to block the decreases.
Gov. Arnold Schwarzenegger (R) has asked the state legislature to approve other cuts, including an end to dental care for adults, about 1 million of whom use it now, and a sharp reduction in care for recent immigrants.
At two hospitals run by NorthBay Healthcare, midway between San Francisco and Sacramento, about one patient in five is on Medi-Cal. The rate cuts translate into a $4 million loss this year. In September, the health system closed a rehabilitation program for children that provided physical therapy, speech therapy and other help to about 300 young patients at a time -- with 100 more usually on the waiting list.
"It was heart-wrenching to have to go out and announce," said Steve Huddleston, NorthBay's vice president of public affairs.
The Obama campaign is weighing options for both backfilling Medicaid for the states and jump-starting infrastructure spending through cash infusions. However, the biggest thing the federal government could do right now is what John Chiang describes in a letter to the Obama transition team and California's congressional delegation - guarantee the financing for infrastructure projects. The reason they cannot be funded right now is that the market for revenue anticipation notes and bonds is locked. Though California has never defaulted on these securities, investors are nervous that the careening budget crisis will cause them to do so. So putting the full faith and credit of the US government behind the notes, which if California does repay its creditors would cost the feds next to nothing, would immediately allow the infrastructure projects to begin again. That's the short version - here's Chiang with the greater plan, including incentives for banks to lend.
This proposal is simple, straight forward and cost effective:
1) Develop a federal guarantee program of limited duration for state and local debt issued to fund new infrastructure construction and renovation. Each state could designate a state commission or agency to disburse the state's allocation of federal guarantees in accordance with the program guidelines;
2) Allocate these benefits, or guarantees, in the amount of $500 to $1,000 per capita to states. The allocations can be based on unemployment or 2000 census population, with a minimum "baseline" allocation to low-population states; and
3) Furthermore, the proposal would greatly benefit from abolishing the limit on the amount of deductible interest costs for commercial banks related to the purchase of these particular state and local infrastructure bonds during the term of the program. This restriction has been in place since enactment of the Tax Reform Act of 1986.
This would mean the restoration of up to 200,000 jobs in California alone, as well as $16 billion in economic activity. Those are numbers that an incoming Obama Administration cannot afford to lose as they begin implementing a recovery package.
Obviously, the biggest remedy to show confidence to the markets and gets the lending flowing again would be to pass a budget and prove to investors that California is getting its financial house in order. That is up to the Governor to decide, and 200,000 jobs hang in the balance.
You don't have to constantly refresh or check your RSS feeds for the next couple days - budget talks have been called off for Christmas. There is a meeeting between the Big Three tentatively scheduled for Friday.
In my view, just that we're talking about a Big Three instead of a Big Five is progress, suggesting that the Gov will go along with the work-around budget if he can save face on a few "stimulus" items (like, you know, taking people's overtime and meal breaks away. They can eat while working!). The Governor never appeared in a movie about schizophrenia, but that's how he's been acting the past few days, holding press events at key sites where infrastructure improvements are being shuttered (a levee in Sacramento, the 405 Freeway in Karen Bass' district in LA) blasting the legislature, while at the same time claiming that progress is being made toward a budget solution.
During a press conference along Interstate 405 in Los Angeles, the Republican governor said he and Democratic leaders made "some great progress" Sunday and that it may only take two more meetings of the same sort to reach a compromise this week. Schwarzenegger had been calling for a solution by Christmas, though he acknowledged Monday that a legislative vote would not take place until next week at the earliest.
"It could easily be that before Christmas Eve or Christmas Day that we have an agreement, that the legislators can be brought back between Christmas and New Year's to vote on it," Schwarzenegger said.
(UPDATE: Kevin Yamamura reports that the negotiations have come down to three issues: "rollback of environmental review for construction projects, greater use of private investment and contractors, and deeper spending cuts, including those affecting the state work force." These have almost no impact on the budget as a whole - you're talking about cutting two state worker holidays - and are designed only to reward private business interests. Arnold has always been in the pocket of the Chamber of Commerce.)
You'll notice that none of these press events are being held in front of any state employee offices. That's because, in general terms, people don't look kindly on mass layoffs and cutbacks right before Christmas. It gives them the impression that the person making those layoffs is kind of a Scrooge. Of course, the immediate halt to all public works projects, at a time when we should be encouraging stimulus projects of this type, also have an impact on jobs. Not only does every contractor working on those projects get fired, but vendors get stiffed for work that they've already completed, leaving the state open to lawsuits. The Governor should kind of be ashamed to stand in front of any backdrop with cancelled projects behind him, considering his epic mismanagement is partly to blame. This is particularly true when considering that the voter-approved infrastructure work is vital to public safety and the state would undoubtedly be liable in the event of catastrophe.
Communities nationwide have repaired fewer than half of the 122 levees identified by the government almost two years ago as too poorly maintained to be reliable in major floods, according to Army Corps of Engineers data.
State and local governments were given a year to fix levees cited by the corps for "unacceptable" maintenance deficiencies in a February 2007 review that was part of a post-Hurricane Katrina crackdown. Only 45 have had necessary repairs, according to data provided in response to a USA TODAY request. The remaining unrepaired levees are spread across 18 states and Puerto Rico - most in California and Washington.
The Governor is cleverly casting this as a problem of "the legislature" hoping nobody will notice that he performed the veto, he blocked the very plan that could get these projects restarted.
Fortunately, grassroots Californians are noticing, and you can see the contours of a coalition forming, perhaps resembling the 2005 special election coalition only with more staying power. Groups like Courage Campaign and the local blogosphere have the reach to engaged communities starving for information. The California Budget Project provides the statistical heft. Labor and environmental groups have the ear of the legislature. And there's a new member of the coalition - former Obama organizers in California who are moving with unusual speed to support a sane budget solution and slam the Governor for his intransigence. At Schwarzenegger's 405 Freeway presser, you can hear a small band of protesters in the background noise. That was organized by Obama volunteers through their new Facebook-like application, CommunityOrganize.com. Pam Coukos distributed a letter-writing tool urging a budget solution. California for Obama has done the same in an email blast, asking it to be distributed to the various volunteer teams. And there is already talk about veterans of the Obama movement running for state and local office.
This is pretty new and early. But you can see how this network of committed organizers can gradually become a state political force, especially if the coalitions are built and networks made between the groups mentioned above. I have long said that what is missing in California is a popular grassroots movement that can go around the media filter and whip up support for progressive values through direct action. It is said that California is too big for such a movement to catch fire, but in political terms, we all know that the state is very small, and a committed movement can make an outsized difference. This won't happen overnight, but we're moving in the right direction. Now we just need a gubernatorial candidate to ride the grassroots wave...
I appreciate Bob's sentiment that the time is now to fight the Governor and the Yacht Party and bring some sanity into the fiscal process, but my fear is that the time for that was three years ago, when the successful fight against the special election should have been built upon, and at this point, we're already swirling in the bowl.
Let's just get you up to date. All infrastructure projects are currently shut down. Unemployment nudged up to 8.4% in November, the state lost 41,700 jobs last month, and up to 200,000 more jobs are on the chopping block from the public works freeze if it continues. Meanwhile the Governor is ordering up layoffs and furloughs for state workers, so just add those on top of the pile. You're likely to see a 10% cut in state employees, and a 10% reduction in the salaries of those who remain. More job loss means less income tax and probably less sales tax, as well as more need for public assistance.
And that's before a budget which could have further reductions to state employee paychecks, elimination of overtime and meal breaks, etc., is signed. Not to mention the billions more in cuts that the Democrats included in their work-around plan which the Governor threatened to veto. Schools, which were slated for $4 billion in cuts in that budget, have already gotten the jump on the state by cutting back their local budgets. After-school sports, libraries, and new teachers are probably all going to go.
This is a nightmare beyond the ability of many, even myself, to comprehend. It's so big that it'll affect everything, and the idea that a ragtag band of liberals have the power to stop the freight train from coming down the track is precious, but I think wrong. This is the accumulation of 30 years of bad policy and worse government structure, and that's not going to be turned around in the time it needs to be to avoid catastrophe. Even George Skelton, poohbah of all poohbahs, admits that the Yacht Party is so nakedly ideological that they have made the state dysfunctional. This work-around budget is good for the time being, but Schwarzenegger is clearly committed to hijacking that process. It's a large game of chicken that none of us can afford. And as I've noted, even balancing the budget - which the work-around does not do - will not necessarily restart infrastructure spending, and even federal help might not be able to do that.
Changing the constitution with a convention is a nice idea, but not so easy in practice, as we all know.
Talk of calling a constitutional convention has been banging around California for at least the last few decades - maybe since 1851, for all I know - and it's gotten a lot louder recently. Here, however, is the rule for calling a convention:
The Legislature by rollcall vote entered in the journal, two-thirds of the membership of each house concurring, may submit at a general election the question whether to call a convention to revise the Constitution. If the majority vote yes on that question, within 6 months the Legislature shall provide for the convention. Delegates to a constitutional convention shall be voters elected from districts as nearly equal in population as may be practicable.
In plain English: you need a two-thirds vote of the legislature to put an initiative on the ballot and then you have to get it approved by the voters. The problem is that no matter how sweetly liberals might croon about what a convention could do, conservatives all know the truth: the whole point of the thing would be to get rid of our insane two-thirds requirements for passing budgets and raising taxes. Unfortunately, our whole problem is that Republicans control (slightly more than) one-third of the legislature. And if we can't get them to vote for a tax increase in the first place, what are the odds we could get them to vote for a constitutional convention called for the express purpose of making it easier to increase taxes? About zero.
OK, but how about a simple initiative? We could get rid of the two-thirds rule just by collecting signatures and getting a majority vote, right?
Right. And we tried that just a few years ago. Prop 56 was supported by all the usual good government groups and would have reduced the majority needed to pass budget and tax measure from two-thirds to 55%. A bunch of other fluff was added to make it more popular ("rainy day" funds, no pay for legislators if they don't pass a budget, etc.), and in the end.....
....it got whomped 66%-34%. No one was fooled for a second. Everyone knew the whole point was to make it easier to raise taxes, and so it lost in a landslide.
I think a similar proposition to 56 wouldn't crash so hard today, but it would certainly go in as an underdog, because the majority of the state still doesn't understand the consequences of all this failure. It's a "dysfunctional electorate," as K-Drum puts it, as well as a dysfunctional government.
Do we need to fight? Yes. But we need some arms shipments from Washington (metaphorically speaking) before we can do that. A rescue package for the state is desperately needed, and it got a whole lot more so yesterday when the Governor vetoed the work-around.
I urge anyone who cares about California to listen to yesterday's Which Way, LA. It'll make your hair stand up. The program was about the decision by the Pooled Money Investment Board (basically Treasurer Lockyer, Controller Chiang and Schwarzenegger's Finance Secretary Mike Genest) to shut down almost 2,000 public works projects, from schools for the deaf in Riverside to highway improvements along the 405, from hospital construction to transit projects and fire prevention services in heavily forested areas, affecting the entire state and as many as 200,000 jobs over the next several months.
The problem is that California is out of money. But it's bigger than that. The state floats revenue anticipation bonds to cover these kind of public works projects, and indeed the voters approved all kinds of infrastructure bonds in 2006. The issue is that investors simply won't buy them. They believe that California will default on their commitments at some point or another (though it's never happened before) due to the instability of the budget process. Coming up with a work-around to get the budget more balanced (at the expense of hard-won labor rights for public employees, it appears) will go some of the way to fixing that, but NOT all the way. We're at a point of extremely low investor confidence. California has the worst bond rating in the country. So it's not at all clear that the shovels will be picked up again even if the legislature passes and the Governor signs a budget deal. The systemic budget cycle of catastrophe is what's keeping investors away. And of course, if the work-around falls apart or the courts strike it down, the state will be out of money in February and vendors will start receiving IOUs.
What's more, if the Obama Administration offers massive infrastructure spending as part of a recovery package early in his term, EVEN THAT won't necessarily get these projects going. As I understand it, federal grants of this nature often require up-front money from the states, and the opportunity for matching funds if the state kicks in the first 25%. At this time we don't have that money, so we wouldn't be able to access the match. I assume Speaker Pelosi knows this, but it will be difficult to alter the standard practice on this kind of federal spending.
We're talking about 200,000 lost jobs and an infrastructure shutdown at precisely the moment when infrastructure spending is seen as the key to economic recovery, with multiple obstacles to getting them going again. And the state could be liable for whatever rises as a result of the shutdown:
Lockyer and other members of the Pooled Money Investment Board predicted that unless the state balances its budget, the funding shut-off will further harm the economy and expose the state to lawsuits.
"The likelihood of contract breaches is probably 98 percent," Lockyer said [...]
Also at financial risk is a new levee on the lower Feather River in Yuba County and a planned bolstering of Folsom Dam for flood protection.
Assemblyman Dan Logue, R-Linda, said the suspension of state funding for the Feather River levee project, already under construction, would put 40,000 people at risk in an area that has flooded twice in the past 25 years [...]
"This (could) put tens of thousands of people's lives at risk, and I believe the state will be liable if there is any damage," Logue said. "The state is responsible for those levees in the first place."
This looks to me like an unending nightmare. If I were Hilda Solis or any California politician, I would want to get the hell out of this state too. It looks like it'll fall into the ocean. But hiding from the problem is a mistake. This has the potential to take down whatever economic recovery we may see come January. The federal government needs to provide direct relief, not grants, to the state, or at the very least guarantee the bond issues so that we can restart the issuance of revenue anticipation notes. You can run, but you can't hide from California.
Democrats in the state Assembly on Tuesday countered the plan by Republican lawmakers for deep cuts to help bridge California's gaping budget hole, putting up for a floor vote a new $19 billion plan through mid-2010 that would adopt Gov. Arnold Schwarzenegger's tax ideas.
But the Democrats' latest plan failed to garner the required two-thirds majority support as partisan bickering over tax increases continued and Republicans refused to approve taxes [...]
Late Tuesday, Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County) ordered lawmakers to remain in the chambers until the Republican proposal could be written in bill form, with hopes to vote on it. But the night ended without a vote because the bill wasn't ready, Bass said. She plans to bring the GOP proposal to the Assembly floor for a vote today [...]
After more than two hours of debate, Assembly members initially voted 46-27, along party lines, on the Democrats' tax bill, missing the two-thirds majority threshold by eight votes. A separate budget bill that contained spending cuts also failed to gain the required support, receiving a 48-27 party-line vote in early evening.
But rather than end the floor session, Bass announced that lawmakers were locked in, preventing them from leaving the Assembly floor and nearby meeting rooms.
At nearly 11 p.m., Bass reopened the vote for the two bills, and all Democrats but one who voted "yes" earlier decided to abstain instead, making the final tally 0-26 for the budget bill and 1-27 for the tax bill.
One interesting sidelight - there are 29 Assembly Republicans, yet the "No" vote on the budget never got more than 27 votes. So two cowards must have taken a walk. I'd find the bill to note exactly which cowards took a walk, but LegInfo is labyrinthine (UPDATE: Randy Bayne helpfully informs that the culprits are Paul Cook, Cameron Smyth and Sam Blakeslee. Cook and Smyth in particular were in somewhat tough re-election fights in November, so that's interesting). We do have abstentions on the budget and tax votes on the Democratic side as well, including all four of the new lawmakers (Huber, Block, Perez and Buchanan) and Charles Calderon on the tax plan. Huber and Calderon abstained on the budget cuts, and Mariko Yamada voted against it because of specific agricultural cuts. The bill was fated to fail, but I'd want to know more about the freshman abstentions.
What this means is that $5 billion in public works projects will likely be shut down, at precisely the time when fiscal spending is needed to jump-start the economy. It will lead to thousands of layoffs (thanks, pro-growth Republicans!). This is really not that hard. State budgets with balanced budget amendments have very little maneuverability. They can cut spending or raise taxes. Counter-cyclical spending is CLEARLY preferable.
Almost every single economist agrees, the last thing we want to do in a recession is slash government spending. We want, in fact, to increase that spending so that it is a counter-cyclical force to a deteriorating economy. So the question, then, is how to most safely generate the revenue to maintain or increase that spending. By "most safely" I mean how to raise the revenue in a way that will minimize any negative economic impact. And the answer comes from Joseph Stiglitz:
"[T]ax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families."
So, first and foremost, you don't want dramatic spending cuts (beyond the usual rooting out of waste/fraud) and you don't want to raise taxes on middle- and lower-income citizens who both need the money for necessities, and are the demographics that will most quickly spend money in a stimulative way. That leaves taxes on the super-rich, and Stiglitz - unlike anti-tax ideologues - has actual data to make his case. We know Bill Clinton raised top marginal tax rates in a hobbled economy in 1993, and the economy then boomed. We also know the results of a recent Princeton University study, which looked at states that had raised taxes on the very wealthy during the post-9/11 recession. The analysis found that the tax increases were both the most reliable revenue generator and the safest in terms of minimizing any negative economic impact. Indeed, the states that pursued this course of action saw a net job growth, and almost no tax flight (ie. people fleeing the state because of the tax increase).
It's a no-brainer. It's sad to say that David Paterson is making the wrong choice in New York State, and that most of the tax hokes in the Democratic package are regressive, and impact low- and middle-income citizens. It's far sadder that we're now going to shut down infrastructure projects passed by voters at a time when we need nothing BUT infrastructure spending, and fling ourselves into something approaching bankruptcy, solely because of ideology.
A remarkable little report appeared over the weekend, one that should have been on the desks of every member in the Legislature come Monday morning, but one which I suspect wasn't. In fact, I don't think it even made any of the papers, relegated to a sidebar on CapAlert.
California has more men and women locked up in prison than any other state, a new federal report finds, and unlike any other state, the vast majority of those placed behind bars are parole violators.
The report bolsters contentions by critics of the much-overcrowded prison system that state parole officers, who belong to the same union as prison guards, are extraordinarily willing to slap a parole inmate back behind bars, thereby exacerbating a prison overcrowding problem [...]
On average, the nation's state and federal prisons took in almost two new offenders for every parole violator, but in California, the reverse is true. In 2007, California prisons took in 139,608 inmates and 92,628 of them were parole violators, almost a 2-1 ratio. In only one other state, Washington, did parole violators outnumber those being jailed by the courts, and that was only by 126 inmates.
It is a financial and moral disaster that we are throwing men and women back in jail for parole violations at such an accelerated rate, far beyond any other state in the country. This is clearly a factor of the state's parole policy, which is too constrictive and too quick to return people to prison. It surely leads to the high recidivism rate for those who commit crimes multiple times - if they feel they can't escape the system once they're in it, they simply have no incentive to rehabilitate themselves.
Yet instead of reforming parole policy and getting some much-needed sanity into our sentencing laws, the bipartisan Tough on Crime machine squashes an independent sentencing commission and allows the passage of Prop. 9, which would implement an even MORE restrictive parole system, so much so that it violates the state constitution.
A federal judge has blocked enforcement of portions of a ballot measure approved last month by California voters that modify the state's parole revocation system.
The so-called Victims' Bill of Rights of 2008, passed on Nov. 4 as Proposition 9, amends the Penal Code to restrict or eliminate rights gained in a 14-year-old class action lawsuit in Sacramento federal court, parolees' attorneys argue.
Parolees and the state agreed in March 2004 to a permanent injunction issued by U.S. District Judge Lawrence K. Karlton mandating an overhaul of parole revocation procedures and guaranteeing due process for ex-convicts accused of parole violations.
Ten days after the election, attorneys for the parolees filed a motion seeking to enforce the 2004 injunction, saying Proposition 9 "purports to eliminate nearly all due process rights of parolees and directly conflicts with the protections put in place by the injunction and established constitutional law."
We are diseased by the prison-industrial complex. Prison construction is good for the CCPOA and supposedly good for the economy but it's based on a flawed notion that all construction spending is valuable. In fact, prison construction, especially of the type so needless that bringing parole policy in line with the other 49 states in the union would practically eliminate the overcrowding crisis and rendering the need for more beds moot, crowds out other, more valuable building projects that have a tangible value to people's lives. We are violating the human rights of inmates and the Constitutional provision against cruel and unusual punishment, as well as stifling innovative public investment, because the parole officers have a powerful lobby and the Tough on Crime dementia has infested the minds of practically every legislator in the state for 30 years.
Fixing parole policy and putting up-front money into drug treatment and prevention programs would save the state billions. It requires leadership. That's a limited resource right now in Sacramento.
I want to publicly thank Jordan Rau and Patrick McGreevey for ripping off my "Scared Straight" moniker to describe yesterday's joint legislative session. This is par for the course with the traditional media creatively borrowing the work of bloggers without attribution. Hey, at least our site didn't send us into bankruptcy.
UPDATE: Mr. Rau, in a somewhat snippy but professional email, tells me he doesn't read the site and the "Scared Straight" idea was independently his. Fair enough.
As for the effectiveness of the "Scared Straight" session, which posited that all state infrastructure projects would be shuttered by the end of the year without a new budget, and that the state would be essentially out of money by February or March, and that doing nothing will make the problem substantially worse... well, let's just say it could have gone better.
The Republicans, who attended reluctantly, refused to accept tax increases, instead emphasizing the importance of limiting state spending and ferreting out waste and bloat in existing programs.
"I didn't see a lot of productive work there today," said Senate minority leader Dave Cogdill (R-Modesto). "I think it was more about trying to heighten the intensity around this thing and push people to a place that they have been trying to push us to for a long time, and I don't think it's going to work."
Sen. Dave Cox (R-Fair Oaks) held aloft two weighty yellow tomes produced by the last effort to trim state government -- Schwarzenegger's 2004 California Performance Review, which suggested 279 ways to save money by reorganizing the state bureaucracy. Almost none were adopted.
Look! The answer is just holding up the performance review and shuffling around the bureaucracy!!! Ahem...
In his comments, Mac Taylor, the Legislature's nonpartisan fiscal analyst, described the folly of trying to close the gap either by taxes or through spending cuts alone. A tax-only solution would require increasing the sales tax by 2 cents, adding a 15% surcharge to the personal income tax and hiking corporate taxes by 2% -- making all of those taxes the highest in the nation, he said.
Taylor said erasing the budget gap by cuts would require lawmakers to end all funding for the University of California and state universities, welfare grants, developmental health services, mental health and in-home supportive services.
It's of course a red herring that Democrats are seeking a "tax-only" solution, one that Karen Bass sadly saw fit to perpetuate yesterday by stating "I think some of my colleagues on both sides of the aisle are living in denial, frankly." Um, every Democrat in the Legislature voted for a shared responsibility budget that raised revenue and implemented painful cuts. If Bass doesn't want to make the fight at all, she ought to let everyone know. It's not helpful to try and spread the blame equally. We have a Yacht Party that has no intention of lifting a finger in the face of crisis. In fact, they see it as their opportunity to drown government in the bathtub and eliminate the social safety net permanently.
This is why the state GOP is bordering on irrelevancy throughout the state (BTW, if you want to laugh, read Ron Nehring's prescription for Republicans. Clueless and pathetic). Californians have thoroughly repudiated the Yacht Party vision. However, this is true everywhere but in the legislative chamber in Sacramento, where the 2/3 budget and tax rule allows them to hijack the legislature. In the long term, there is nothing to do but to capture a 2/3 majority and finish the irrelevancy project. In the interim, California's Democratic lawmakers are better off flying to Washington, DC, where at least they'll have a chance of getting money for state and local governments in the new stimulus package, then staying in Sacramento, where they have no shot at breaking the stalemate. That's just reality.
Scared Straight didn't work. On to DC.
UPDATE: This is better from Karen Bass. I'll put the whole release on the flip, but she is, as she has been doing repeatedly throughout the crisis, calling for specific aid from DC. A taste:
Meeting with California Congressional leaders and President-elect Obama's transition staff, Assembly Speaker Karen Bass today outlined specific steps the federal government can take to boost California's economy and ensure that the state can actually benefit from stimulus packages currently under discussion.
"Infrastructure investment is critical to getting the national and state economies back on track," Bass said. "But the major spending cuts and tax increases that California and other states will need to balance our budgets could undermine the success of any infrastructure stimulus efforts. Today, I shared with Representative Barbara Lee from the Appropriations Committee and President-elect Obama's transition office California's firm belief that direct federal assistance has to be part of an economic stimulus plan."
Dan Walters and Jon Ortiz from the Sacramento Bee are going to liveblog the joint session of the legislature helmed by Treasurer Lockyer and Controller Chiang today, coming up at around 3:00 PT. Today we got a sense of what will be said in that session.
Treasurer Bill Lockyer, for instance, will tell lawmakers that unless a budget is adopted the state will stop financing construction projects for roads and other infrastructure. That's not just bond sales for future projects -- those will stop, too. It means projects that are underway will no longer be able to draw down cash from the treasurer's pooled account as the state's general fund moves toward insolvency. Thousands of jobs could be lost.
"No budget, no state financing," said Lockyer spokesman Tom Dresslar. "The spigot is completely off. We're talking about a complete shut-off of state infrastructure financing unless we get a budget fast."
This is the exact opposite of what we should be doing, of course, and the exact opposite of what the President-elect wants to use as a means to kick-start the economy - massive spending on shovel-ready infrastructure projects. But California does not, in the current context, have the money to support it. In fact, we could be out of cash by February:
California is on track to run out of cash in February or March and faces a $15 billion cash shortage by the end of its fiscal year in June unless officials plug an $11.2 billion budget gap, according to the state's budget director.
Additionally, if Gov. Arnold Schwarzenegger and lawmakers fail to close the current fiscal year's budget shortfall soon, California, the most populous U.S. state, may in March delay payments to its vendors or hand them notes promising payment, according to a Dec. 1 letter to top lawmakers from the director of the Department of Finance, Michael Genest.
A copy of the letter was obtained on Friday by Reuters.
"Specifically, it now appears certain that available cash reserves from all sources will fall below the cash cushion target of $2.5 billion in February and that the state will begin delaying payments or paying in registered warrants in March," Genest said in his letter.
That would be IOUs. From the 8th-largest economy in the world.
Like I said last Friday, this should be a "Scared Straight" kind of presentation, only I don't see how the Yacht Party members would be scared. What's being offered, a government shutdown, is basically their greatest dream realized. And it's not like there's leadership at the top of their party to force any compliance - Arnold Schwarzenegger is too busy pretending he's the world's go-to source on global warming and trying to buddy up to Darrell Steinberg instead of making any effort to get members of his own party to stop hijacking the state.
If you're a masochist, check out the liveblog at 3.
Scott Gold at the LA Times reports today on a massive solar project that may alleviate some of the pain felt in the Antelope Valley:
The buzz in the Antelope Valley these days is about a company called eSolar, which is putting the finishing touches on a thermal solar energy facility here -- 24,000 mirrors that glitter like diamonds when you approach on Avenue G. There are plans for several more facilities in the area, all larger, the company says.
Local officials are atwitter at the possibilities. Visitors and investors are expected from Saudi Arabia and Kuwait. A slew of jobs would be created; there were 225 people working last week on the Avenue G facility alone, most of them locals. Lancaster Mayor R. Rex Parris said the solar plants could be the catalyst to restoring the sort of "intellectual excitement" that existed when aerospace, still a vital industry here, was the only game in town -- when "if it went up, it came out of here," he said.
"Now, we're going to go a long way toward saving this world," the mayor said. "Right here in Lancaster."
I think it's important to classify projects like this as what they are - INFRASTRUCTURE projects. Too often we confine ourselves to thinking about infrastructure as solely referring to fixing roads or building physical structures like bridges. A 21st-century energy creation system is the most important infrastructure improvement we can make, one that will not only create jobs but save billions in public health and environmental degradation costs. Any stimulus from the federal government that includes infrastructure improvements should help incentivize companies like eSolar, as well as laying down high-speed broadband lines throughout the country, building a transferable energy grid, etc.
In the recent past in California, the way a depressed city could revitalize their economy was to bring a prison into town. Now, the potential of green jobs is being realized, making the future (pardon the pun) sunnier:
It's heady talk, and people are listening. Lancaster and the surrounding valley are suffering, even by the standards of a community that long ago acclimated to a boom-and-bust cycle. Many here are living on the edge, and some beyond, with tens of thousands more expected to arrive in coming years.
There is a sense that development cannot come fast enough, not with shops closing, one in five people living in poverty, high unemployment and the highest mortality rate in Los Angeles County. Not with so many houses falling into foreclosure that the city of Lancaster has gone into real estate -- buying and renovating empty homes to slow the decline of neighborhoods.
"It's bad," said William Turner, 21, who got a job installing eSolar mirrors through a temp agency. He is among those vying for one of the full-time positions the company will offer soon; competition will be fierce and many of those hired will be overqualified for their jobs, officials said.
"People around here are really hurting," Turner said. "We need a change."
The new energy economy is California's way out of the economic crisis. Whether it's building solar and wind plants or transferable energy grids or carbon capture and sequestration retrofitting or green building add-ons or the next generation of green cars, the potential for bringing hope to downtrodden communities, creating millions of jobs and protecting the planet is great.
California's unemployment rate has soared to 8.2% -- third highest in the United States! We need to stimulate California's economy. We need a massive jobs and infrastructure investment program, rebuilding our roads and bridges and schools and making our buildings energy-efficient, and hiring more teachers and police and firefighters. We can do this, while balancing the budget at the same time.
How can we do this? We can raise taxes on big corporations and the wealthy and use the money to stimulate the economy and balance the budget and get things moving again.
Not content with denying to Californians the numerous tangible benefits of high speed rail, Prop 1A opponents have retreated into a revival of Herbert Hoover's economic policy in order to try and defeat the most important project Californians have considered in nearly 50 years. Their argument is that in an economic crisis, we should turn to austerity instead of following the tried and true path of deficit spending on infrastructure that provides short-term job relief and long-term economic value.
Today we have numerous articles and media outlets starting to push back against the New Hoovers. From newspaper editorial pages to leading economists there is a growing consensus that we must use deficit spending - in our case, bonds - to spur economic growth through infrastructure projects.
Conservative Financial Times columnist Samuel Brittan said the fears that short-term stimulus spending by governments will raise deficits miss the point. Even the $700 billion Wall Street rescue plan approved by the U.S. government - part of a more than $2 trillion international bailout of banks by governments around the world - does not change the equation.
"Maxims about debt that might be prudent for families can be the height of folly for government," he wrote.
British economist John Maynard Keynes is credited with the basic insight, arguing that the Great Depression was prolonged because Western governments insisted on balancing budgets, raising taxes and cutting spending at a time when private economic activity had ground to a halt.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan research group, said both candidates must put together a credible long-term plan to deal with the exploding deficit, but that the government should be priming the pump in the short term.
And to provide that help, we're going to have to put some prejudices aside. It's politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold....
All signs point to an economic slump that will be nasty, brutish - and long....
And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn't needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let's get those projects rolling.
The growing unanimity of opinion on the need for deficit spending for infrastructure projects is striking. Krugman, MacGuineas and Brittan join leading economic figures like Nouriel Roubini and Lawrence Summers in calling for bold action to mitigate the deepening economic crisis.
California's elected Republicans continue to block any and all efforts to pass a budget, because any honest budget must ask the wealthy and big corporations to pay their fair share. Even the Governor's extremely modest one cent sales tax increase was too much for them.
So let's talk about paying a fair share. David Sirota has a good column today at the Campaign for America's Future blog, The Aristocrats, Part II - Starring George Will. In the column Sirota writes about wealthy Republicans who complain when regular people get decent pay for performing services that benefit ... guess who ... wealthy Republicans. Sirota writes,
Sara Robinson, one of my favorite bloggers, had a really fantastic post at the CAF blog about why we have responsible government to thank for the relative lack of damage to the 5.4 earthquake that hit Southern California yesterday.
The fact that Los Angeles returned to normal (as if anything in Los Angeles can ever be considered normal) within just a few hours is one of those invisible but important lessons in the collective power of a functioning government -- the kind of non-controvertible, essential fact that conservatives tend to gloss right over when they talk about shrinking government until they can drown it in a bathtub.
California's seismic codes are serious, strict, and effective. The state has been working on them for 80 years now, refining them through the years after every major quake to incorporate new knowledge and engineering practices. (A major revision this year has recently sent all the state's architects, engineers, and contractors back to school yet again.) To see the results of this ongoing effort, consider the 1931 Long Beach quake, a 6.4 shaker that damn near flattened Long Beach, killed 120 people, and caused over $40 million (in 1931 dollars) in property damage. And then reflect on the fact that in 1989, it took a quake eleven times bigger -- the 7.1 Loma Prieta quake -- to create a comparable amount of damage.
That's how effective the improvements have been. These days, most new structures are hardened to the point that you'd need at least a 7.0 (well over 10 times the size of today's quake) before things seriously started shaking apart. In many parts of the planet, a 5.8 quake would be enough to level towns, collapse bridges, and take out decades' worth of infrastructure. In LA and SF, all that happens is a few people lose their phones and power for a few hours.
It really is remarkable what serious attention to building codes has done. Not too long ago yesterday's earthquake would have been a disaster - today it's a blip. California has recognized the problem, taken steps to constantly improve and innovate, and made sure that the regulations stayed stringent, so that developers would just have to find other means to reduce costs. The fact that the epicenter was around Chino Hills and Diamond Bar, relatively new areas with new buildings that were constructed according to the strictest building codes, was only a further testament to that. The after-action reports from the 1989 San Francisco quake and the 1994 Northridge quake were taken seriously and applied in this case.
California High-Speed Rail Authority Executive Director Mehdi Morshed, joined Governor Schwarzenegger Tuesday in participating in a roundtable discussion at the State Capitol regarding the importance of investing in California's infrastructure and maintaining the state's economic growth through public private partnerships.
Mr. Morshed noted the California proposed system of high-speed trains offers a unique opportunity to develop a new model for "P3" or public private partnership financing....
Mr. Morshed noted that high-speed trains are attractive to private investors because California's proposed system will bring a $1 billion annual profit or surplus, once built.
Now it's not as if this is totally new. The 2002 Implementation Plan always envisioned that private financing would play some sort of role in the HSR project, although at the time it was expected to be limited to the bonds.
But what exactly is meant by "private financing" - and how bad might this really be for HSR?
The Authority's finance team anticipates public-private partnership opportunities will include project debt financing, vendor financing, system operations and private ownership.
I can live with private involvement in debt and vendor financing, even though government can always borrow more cheaply. System operations is iffy at best - government runs the French, Spanish, German, and Japanese lines quite well, and when system operations were privatized in Britain, the results were deadly. Private ownership, however, is a line we must not cross - public ownership of infrastructure is key to an effective, safe, and affordable transportation system for Californians. High speed rail is an economic catalyst and an environmental and sustainablity necessity. It needs to be held in public hands for public uses, and not hollowed out for private profit.
Gov. Arnold Schwarzenegger signaled a major push today to engage private companies in the construction and management of state and local infrastructure, adopting a strategy employed in Canada, Britain and elsewhere...
The Schwarzenegger administration is contemplating a plan, probably requiring state legislation, to create a California agency to oversee state and local public-private partnerships, aides said. Modeled after one in British Columbia, it would be staffed by professional financiers and other experts who could oversee the structuring of deals by both state and local governments.
As Brian explained in his excellent Pat Brown is Rolling Over In His Grave post last month, this push is part of a broader assault on the public ownership and operation of our basic infrastructure. The LA Times does not quote a single opponent of privatization, instead casting opponents as merely greedy special interests wanting to protect their fief:
opposition from labor unions and from legislators reluctant to give up too much control over big spending projects.
One of Arnold's financial advisors, David Crane, is allowed to declare that this is about innovation and progress:
Whereas we're a very innovative state in many ways, when it comes to infrastructure we are less innovative, and the governor intends to bring public-private partnerships into our portfolio.
Orange County, California is a seat of hypocrisy. Recently I spent the weekend in Orange County, long-time stronghold of conservatism. The local newspaper, Orange County Register, features regular condemnations of "socialism" and government generally. Despite their disdain for government spending, in actuality the county's residents are are dependent on two enormous government projects. The first is the highway system, and the second is the California State Water Project.
