Ok, shocking might not be the best word for it, perhaps "completely expected" would work better. The latest bit of data to come out from the good folks at the Field poll is approval data (PDF) on our elected officials. And let's just say it ain't all that pretty. The Legislature is sitting at a sparkling 14% approval rating and the Governator is at 33%.
I included a couple of the breakouts here by region. Interestingly, the San Francisco Bay region seems to be a bit more sympathetic to the elected officials. For both the Governor and the Legislature, approval numbers were highest by the Bay. On the other hand, the LA area pretty much hates Arnold, and the Central Valley feels the same way about the Legislature.
I think one question that wasn't answered here was how Californians feel about their own Legislator. Typically those numbers are far higher, after all it's harder to hate somebody you've met and voted for several times than the nebulous "Legislature." Nobody votes for the "legislature" so there is no ownership of that body by the voters. On the other hand, over 50% of the state voted to re-elect the Governator.
Also interesting, but unsurprising, was that Arnold is now officially more popular with Democrats than Republicans. Congratulations on that Arnold. Your party officially hates you.
It's clear that the elected leaders will not be featured prominently in any commercials in the next three weeks. Well, not if the Yes campaigns want to win. Although, if there was an ad about Prop 1C (lottery), perhaps a wonkish politician might help. I was thinking John Chiang, but I don't know his official position on the issue, and I doubt that he would want to be associated with this stinker of a special election.
• John Chiang has a cool new feature on his website that lets everybody see how much cash is coming into the state day by day.
• Does Arnold Schwarzenegger seriously have nothing better to do than bring back gigantic bear sculptures to put in front of the horseshoe? I mean, I can't think of anything that would occupy his time. But, the Bee's caption contest makes it kinda ok.
• A slap fight on the right, as Steve Poizner and Meg Whitman fight over which one is a more disastrous manager. I say split the difference, chaps - you're BOTH awful!
• This is a truly horrible story about Avenues Pregnancy Clinic in Glendale, where the fundie directors browbeat women into believing they risk eternal damnation for "living in sin." And they get state licensing and accrediting for that! Awesome.
• The business interests who want to shut down LA's Clean Trucks program have failed again, as a US District Court judge rejected the motion to halt the program. There's a lot of money and effort being spent fighting the law when they could just comply with it - and in the process stop thousands of kids from coughing and choking every five seconds from the smoke and soot.
• The CBP had this the other day about the legislature risking turning down federal stimulus money for low-income families. The Legislature needs to get to work on this.
• CalChamber's job creator list is here!!! I can't wait to live in a state where such job creator bills like eliminating meal breaks are law! There actually are a couple bills in there, like flexible work schedules and the research and development credit, which aren't too bad.
• One of the most misleading statistics you will see today: there have been gains in the number of houses sold in Sacramento for 12 straight months. Yay, right? Well, it's good that more houses are being sold, but they are being sold at fire-sale prices after foreclosure. On the other hand, median price of those homes sold has fallen for almost the entire period, with this month being the sole exception. The median now stands at $165,000, up $5,000 from last month, but down over $200,000 from the peak in 2005.
• Speaking of real estate, General Growth, one of the nation's largest owners of malls and commercial property has filed for bankruptcy. It is the largest real estate bankruptcy in the history of the universe. Or well, at least the largest in US history. They run a whole slew of malls in California, from Stonestown Galleria in San Francisco to the Glendale Galleria. They are expected to remain open during the bankruptcy.
• Did you just have a busy hour? Well, the state's fundraisers have. Since 2000, there has been an average of over $14,000 every hour raised for political campaigns.
Abel Maldonado and his toady Brandon Gesicki have been all over the news pushing the frame that Controller John Chiang is wasting a million dollars on office furniture:
The same day the governor vetoed the Democrats' budget proposal, the Controller's office requested $924,500,000 worth of new office furniture from this fiscal year! How is that acceptable? Here is an elected official who is in the press every day talking about cutting services, stopping checks to welfare recipients and issuing IOUs to hardworking Californians. But at the exact same time, he is requesting new office furniture. This disgusting and disingenuous behavior has to end.
This is, quite frankly, bullshit. The money was approved by then-Controller Steve Westly, Governor Arnold Schwarzenegger, and the State Legislature in December 2006 not for "furniture" but to bring the C Street office complex up to code. From a presentation the Controller's office sent out today:
• The current workstations were out of compliance with ADA, OSHA and SAM requirements.
• Current stations were 10-20 years old (80% were 20+ years old and replacement parts are no longer
manufactured).
• DGS confirms that there was not (and is not) enough used modular furniture available.
•In 2005, wires melted and smoked in one bank of cubicles, causing evacuation of the building, raising health and safety concerns.
So the office remodel isn't being done for vanity, but to reduce a hazard AND the risk that the state of California will face lawsuits that will rack up legal bills. And the whole plan actually saves Californians money:
Bottom Line: $3,982,000 savings from purchasing efficiencies
$1,500,000 savings from less expensive rent, in future years
How did Maldonado vote when this funding came up in summer 2007?
August 21, 2007, Senate approves C Street BCP contained in SB 77 (Budget Act for FY 07/08) [vote was] 27-12, Maldonado votes "aye"
Abel Maldonado is a dishonest and self-interested politician who only wants to cut budget deals that advance his career - even when they cost the state $5.5 million.
Two nominations here. By the way, since it recently came up in comments, the reason we here at Calitics call the California Republican Party the "Yacht Party" can be best explained here and here.
Nominee #1: Sen. Roy Ashburn of Bakersfield, who introduced a bill that would eliminate IOUs for tax refunds.
State Sen. Roy Ashburn, R-Bakersfield, has introduced legislation requiring California's controller to issue state income tax refunds in cash.
Controller John Chiang has announced his office will have to delay refunds for 30 days starting Feb. 1 because of the state's cash-flow problems. He has threatened he may have to issue refunds in the form of IOUs if a budget addressing the $41 billion shortfall the state's projected to have by mid-2010 isn't passed.
Chiang has said refunds will resume when he's sure there's enough state cash on hand.
Ashburn has said tax refund money belongs to the taxpayers, not the government, and taxpayers should get it back in the form it was paid - "cold, hard cash." California's constantly taking in cash, he's said.
Hey Roy, I know a bill you could pass that would get cold hard cash back in the hands of your constituents. It's called the budget, and without it California is out of money, and fiduciary responsibilities (sorry for the $1 word) stipulate that other priorities must be paid first. It's called "how government works," and though you're a State Senator I'm not surprised at your ignorance.
Nominee #2: Faux-moderate Abel Maldonado, angry about the Controller's office "requesting new furniture" even though the current Controller, uh, didn't do that.
"I don't like the fact that hard working people in my district are getting IOUs and he's buying millions of dollars worth of furniture," Maldonado said in an interview. (For the record, taxpayers due refunds from the state and others missing payments aren't getting IOUs just yet. They're simply not receiving anything at all.) [...]
"Had he done any homework, the senator should have realized that the expansion project, including furniture,...began before Controller Chiang took office," his office said.
Further, Chiang's office argued, the controller "demanded that staff cut down the costs, and by changing financing, materials, design, and construction, reduced the overall expense of the project by more than 50 percent" - a $4 million savings.
Next for Maldonado, he'll lambaste Arnold Schwarzenegger for Prop. 187. Wanker.
The situation is getting desperate for counties across the state. Yesterday, the Riverside Board of Supes voted to sue the state for the millions of dollars that are being withheld due to the, well, fact that they don't exist. And, this being Riverside County, if they can't get the money, they'll also just drop the services.
Riverside County supervisors voted Tuesday to sue the state to compel it to pay billions of dollars in funding for county-run social services, payments the state began delaying this week to conserve cash.
Supervisors also voted to take legal action to relieve the county of the responsibility to provide those state-mandated services, such as welfare, assistance for disabled people and mental health services, if the state does not fund them.
"The action was taken despite grave concerns about the effect on the programs that serve the county's most needy and vulnerable residents," county counsel Pamela Walls said at Tuesday's supervisors' meeting in Riverside. "However, the county cannot bear the overwhelming costs of taking on responsibility for programs that the state is obligated to fund." Riverside P-E 2/4/09
Of course, this is the expected outcome of denying the flow of money. Counties simply don't have the money to continue to pay for the programs the state mandates. While counties like San Francisco have a reasonable shot at raising taxes on a special election, it's just not all that practical in Riverside. Even if the Riverside Supes put some sort of revenue measure on the ballot, getting 2/3 to support it seems unlikely.
Welcome to your new state, it's in freefall, and the safety net is gone.
UPDATE by Dave: It gets worse. The Board of Supervisors in Los Angeles County, which houses over 1/4 of the state's residents and collects substantial tax revenue, is threatening to withhold it to pay for health care and social services. This is the opposite of Riverside County's gambit - instead of suing the state for money, they're just threatening to keep it for themselves. This is in reaction to the state delaying health and human services payments to the counties. The treasuries of counties and local governments are routinely illegally raided every year as part of budget deals, but this is the first time I've seen the reverse.
"We're declaring our own Boston Tea Party," Supervisor Gloria Molina said during Tuesday's board meeting, adding that refusing to turn over the money to state lawmakers "will make their pain more acute."
But it may not be legal, or, for that matter, practical.
"It's a delicious idea," said Supervisor Zev Yaroslavsky. "It may be deliciously illegal, but I think the state's action may also be illegal."
Two wrongs making a right - welcome to California 2009.
Perhaps I was a bit esoteric there, but the Republicans have literally got Controller John Chiang in a box, with the money flow turning off. He cannot possibly pay tax refunds (which aren't legally due until May 30) unless he has money to do so. Yet the Yacht Party and the corpse of Howard Jarvis still scream.
A taxpayer group blasted state Controller John Chiang's decision to hold up income tax refunds this month, saying Monday that putting refunds into taxpayers' hands would help stimulate the economy.
* * *
Added Assemblyman Roger Niello, R-Fair Oaks (Sacramento County): "This is the ultimate injustice. ... This is taxpayers' money." (SF Chron 2/3/09)
Yes, wouldn't it be great if the state had the money to pay its bills. Wouldn't it be nice if we hadn't spent it all on the stupid axeing of the "car tax" so that Arnold has his (then) band of followers in the GOP could crow of a victory over common sense. Well, folks, the vehicle license fee chicken has come home to roost. If you want to pay out the tax refunds so promptly, perhaps you could get back to the terrain where 60%+ of the state currently resides. You know, the land of sanity where people want decent K12 education and are willing to pay for it.
Niello, you may get your chicks for free, but the money's got to come from somewhere.
The accounting gimmicks and clever tricks have reached their end. Sacramento is out of money.
(John) Chiang, whose office writes the state's checks, says California is about out of stopgap tricks to pay its bills and keep all its programs running.
The controller says California is down to Plan D on its checklist of paying bills. Its cash reserves are piddling; the special funds it borrows from are tapped out, and no one in the private sector is going to lend it any cash at a reasonable interest rate.
That leaves what in state government circles are called "payment deferrals" and what in real life is called "stiffing your creditors."
In this case the creditors include income taxpayers expecting refunds, college students waiting on state aid, counties that operate public assistance programs, and companies that sell goods and services to state agencies.
Chiang has said he won't write $3.7 billion worth of checks for those and other state programs if legislators and the governor haven't reached a deal by next Sunday to close the budget gap.
The overarching problem here is a tax system that is too closely aligned to the boom and bust cycles of the national economy. That is protected by the 2/3 rule. And the result is a state that lurches from one crisis to the next, seemingly without end.
Well, the end is pretty much near. The state may not declare bankruptcy, but that will be functionally the case. And while IOUs may be a couple months down the road, the payment deferrals are going to put a lot more people out of work. The counties and various agencies aren't in the financial position to float by until some revenue floods in.
Of course the fact that IOUs still may be a few months away is of limited consolation to those who will be out of luck if Chiang pulls the no-payment trigger next week.
"For the first time in my career, there are counties facing the reality of just not being able to front the state the money to keep these programs operating," said Frank Mecca, executive director of the County Welfare Directors Association.
Mecca, who has been in the human services field for 20 years, said counties are facing a double whammy: Revenue is withering while needs are blossoming.
This is at a time when we're seeing jobless rates as high as 15% in some counties, and over 10% in 31 of the 58 counties in the state.
That stimulus spending from the federal government, perhaps $21.5 billion over two years, can't come fast enough. But if there's not a solution in the next week, it may not matter. The damage will be done and the pain will spiral out of control.
In a missive sent out today, Arnold Schwarzenegger's press team sent out an email for those of you who don't regularly read the Flash Report. In it they point to the recent article calling John Chiang "The Union Tool" by none other than John Fleischman himself. I don't know if Arnold is trying to promote John Chiang for higher office, because saying that Chiang stands up for the unions is a pretty sure way to win a Democratic primary. But that's neither here nor there, as it is becoming quite clear that Chiang isn't one of Arnold's favorite political chums.
Anyway, Fleischman's article goes on to point out that Chiang has a bunch of * gasp* union endorsements. Oooh, that must make him a bad man and totally incapable of opposing a union. Maybe Chiang thought about signing a pledge to make sure his recalcitrance was complete.
A note to all you right-wingers intent on demonizing the (somewhat factionalized) union movement. Democratic leaders support California's workers, and that is not going to change. But unlike Republicans who swear an oath to recalcitrance over sound public policy, Democrats aren't mindless vote zombies. There can be no greater sellout to the state than signng an oath which puts itself over sound policy. You want to see a special interest tool, just check the Republican Legislative Roster. We don't need to name a long string of names to indicate their allegiance. Special interest, thy name is Howard Jarvis.
And as for you, Gov. InPocket DeCalChamber, those in glass houses and all that.
For the last week or so, all of the elected officials have declined to follow the Governor's lead on the two day/month furlough program. One by one the legislative leaders and then all of the constitutional leaders said they would not be forcing their staff to take two unpaid days off.
Well, you can go ahead and mark this down as another hollow threat from Governor Hollow Threat. Today Controller John Chiang called the governor on his furloughs:
"California law is clear that only the Legislature has ultimate authority over setting state employee salaries," Chiang said. "While I agree with the Governor that State employees - like all Californians - must tighten their belts, it must be done so in a manner that is consistent with the rule of law." (Sac Bee 1/21/09)
Of course, Arnold could go to court over this, and who knows maybe he will. But by the time any of this actually gets litigated, he'll be off to his next gimmick. Perhaps one of these days he'll cut out the gimmicks and get to getting a Republican vote (or 5) for some revenue increases.
I just heard Will.I.Am on NPR talking about education cuts in California. The budget crisis has gone mainstream. And once everyone gets the news that tax refunds, welfare checks and student grants will be suspended because the state is out of cash, a whole lot of other people might get some awareness as well. The dirty little secret about "liberal bastion" California is that we are not a civically engaged people, generally speaking. The budget has been in "crisis" for decades but not enough Californians have mustered up the interest in it. We have right-wing astroturf movements that play to base emotion, but not really citizen's movements that ask for basic fairness. Californians are 45th in the country in volunteering, 44th in attending community meetings and 45th in working on community problems. Chalk it up to traffic or self-absorption or what have you, but the general take is that Californians don't see much beyond what is in front of them. IOUs would change that. Well, maybe. It depends on if the banks will accept them, which is still being negotiated.
The payments to be frozen include nearly $2 billion in tax refunds; $300 million in cash grants for needy families and the elderly, blind and disabled; and $13 million in grants for college students.
Even if a budget agreement is reached by the end of this month, tax refunds and other payments could remain temporarily frozen. Chiang said a budget deal may not generate cash quickly enough to resume them immediately [...]
State officials have already designed an IOU template, Chiang said, and have been negotiating with banks over whether taxpayers could cash or deposit them if they are issued. The state could be forced to pay as much as 5% interest on delayed tax refunds if they are not paid by the end of May, Chiang said.
The last time the state issued such IOUs -- the only time since the Great Depression -- was in 1992.
In other words, the only way this delayed tax refund is going to work is if it causes MORE debt for the state. But let's go back to 1992. This was the last big recession in the country, and California again found itself unable to pay its bills. Tell me again how the budget problems aren't structural. Anyway, the state issued about $350 million in IOUs that year, about 15% of what is being prepared today. The process was not smooth:
IOUs have caused headaches for the state in the past. California issued $350 million worth of IOUs to 100,000 recipients in 1992 during a budget impasse between then Gov. Pete Wilson and the Legislature.
A four-year legal battle ensued after some workers had trouble cashing them. The dispute was settled in 1996 with some state workers getting paid time off for the inconvenience they experienced.
Beth Mills, a spokeswoman for the California Bankers Association, said individual banks statewide haven't decided yet whether they will accept the state IOUs this time.
Banks are barely willing to lend money, I just don't think they're going to be interested in accepting $2.3 billion in IOUs when the process was so difficult last time, and there is more uncertainty in the financial markets now. And even if they do, it will not be uniform across all banks, and customers are going to have varying experiences.
The State of the State speech that nobody watched proved the need for fundamental reform, but it generated barely a blip among non-elites. Having trouble cashing your disabled mom's assistance payment, that's a whole different story. Not to mention the fact that the continued erosion of jobs and the 5,300 public works projects that have been delayed by the state will create a lot of angry and idle minds. Of course, the cautionary part of this is that the 1992 IOUs did not lead to structural reform. However, we all can agree that this is a much bigger problem.
Pitchforks and torches may be at a premium. And while it's hard to write a new Constitution in a riot, something needs to shake up this decayed and dysfunctional system.
Look around you and you probably know somebody who had been affected by the economic slowdown, particularly here in California. Maybe it's someone you know in the construction industry:
State Controller John Chiang refused to make payments Thursday to contractors for work done on more than three-dozen public-works transportation projects. The action, the first of what are likely to be a series of blocked payments, was prompted by the state's unprecedented budget shortage.
The move was required by the Pooled Money Investment Board, which on Dec. 17 ordered a halt to the payments to projects financed with a mix of voter-approved bond funds pending a resolution of the state's fiscal dilemma [...]
The projects are all being handled by Caltrans, which has objected to cutting off the money to the contracts. Some $33 million and 39 public projects are affected.
(It's hilarious that the Governor objected to this after his own Finance Director voted to shutter all infrastructure projects a few weeks ago. Did he not know that this would be the result? Another Santa Claus Republican.)
Or maybe it's that friend of yours who doesn't have any health care or the ability to pay for treatment, or that other lady you know who works at the hospital:
California hospitals are threatened. With only 1.9 hospital beds per 1,000 population,3 the state's residents are being placed at risk by the negative impact caused by inadequate Medi-Cal payments and California's faltering economy. Currently ranked 49th nationally, hospital bed availability is likely to contract further in this environment, diminishing access to health care services even more. As a result of low Medi-Cal payments, the majority of california hospitals have already made cutbacks or anticipate reducing services, including closing subacute units and psychiatric units; eliminating skilled nursing beds and ER beds; reducing cardiology, obstetrics and other clinical services; and laying off staff or reducing pay.
The impact of the economic downturn is evident. Hospitals report a 73 percent increase in consumers having difficulty paying out-of-pocket health care costs, and 33 percent report an increase in ER visits for uninsured
patients. With the growth in unemployment, hospitals are experiencing the effects of more californians without job-based insurance. in fact, hospitals report a 30 percent decrease in volume for elective procedures - one of the few areas that provide hospitals an opportunity for revenue growth. In addition, the capital markets are providing a significant hurdle for many california hospitals. More than 25 percent report the inability to access financing for construction, remodeling, equipment purchases or working capital. This has resulted in 41 percent of hospitals halting construction projects or equipment purchases. This has a significant impact on the state's economy and jobs.
The University of California system may cut the number of in-state first-year students by 2,300, or 6 percent, as the recession squeezes the budget.
The proposal to reduce enrollment for the 2009-2010 school year, as well as a plan to freeze 285 salaries of administrators, will be presented Jan. 14 to the Board of Regents by President Mark Yudof, the Office of the President said today in an e-mailed statement. The system, based in Oakland, has 220,000 students on 10 campuses.
As an aside, health care and education were the only two industries to INCREASE jobs in today's dismal employment report. Here in the Golden State, we are going in the opposite direction.
The failure of leadership over the last decade at all levels of government is now coming due. We are not prepared - nor are we taking seriously enough - the magnitude of this meltdown on the state of California. We are about 3-4 weeks away from the state sending out IOUs. That's functionally bankruptcy, and the trickle down of that will be fast and painful. Everyone in the state will either be affected or know someone close who is.
California's dysfunctional government has finally caught up to itself. The general lack of urgency about this is stunning to me.
Good thing an old-politics hack like John Burton will lead us out of the abyss!
California will close most state offices on the first and third Fridays each month starting in February, padlocking DMV outlets and other services while reducing state worker pay to help survive a massive budget problem, according to a state Department of Personnel Administration memo.
Only offices deemed critical, such as state hospitals and prisons, will remain open under Gov. Arnold Schwarzenegger's twice monthly furlough plan.
Because the state simply doesn't have the money to give it back to you. But you will get a shiny new IOU note from Controller John Chiang. And you'll be in good company, the Legislators will be the first to get the IOU notes from the state. From the Bee:
State Controller John Chiang warned Tuesday that the first group to get hit in the wallet by California's budget debacle is likely to include legislators - and it could happen as early as Feb. 1.
The bad news is that next in line to get IOUs instead of cash would be state income taxpayers awaiting refunds and companies that do business with the state.
In a letter to state agencies, Chiang said his office was projecting the state would run out of cash around the beginning of March. (SacBee 12/30/08)
At this point the situation is so precarious, that it isn't even clear that if the Democratic Legislative Leaders and the Governor come to some sort of agreement, that we'll even be able to implement it in time. Perhaps we'll be in a better position to borrow money, but that depends a lot on the credit markets. And at this point, our position at the mercy of the credit markets is not an enviable one.
You know, it's really getting hard to think of new ways to describe this mess. I mean, FUBAR is putting it quite mildly. The state of California, the seventh largest economy in the world, will literally be out of cash in March. Such a collapse would make the collapse of Lehman Brothers or Bear Stearns look laughable.
Paul Krugman advocates for the obvious solution, aid to states in paying for social services such as unemployment and medicaid. California will need a very large chunk of change, but the stimulus package appears to be growing by the day. Right now, it looks to be at least $850 Billion. With any luck, that will come down sooner rather than later.
In the interim, perhaps we should have a naming contest for this mess. My Entry: Minerva's Moola Mess.
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.
With the Governor and the legislature still no closer on a special session solution on the budget, Controller John Chiang issued a strong warning about the very near future, finally bringing public the possibility of IOUs for state vendors:
"Specifically, my office will be forced to pursue the deferral of potentially billions of dollars
in payments and/or the issuance of individual registered warrants, commonly referred to as IOUs," Chiang said in a letter to the governor and other officials.
"In order to ensure that the State can meet its constitutionally required obligation to schools and debt service, the Capitol's budget paralysis may leave me no choice but to, in full or in part, withhold payments or to issue IOUs to other individuals and entities entitled to state payments. Given the current financial instability of the banking industry, it is highly unlikely that the banks, if they accept the IOUs at all, will be able to do so for any sustained period of time. Consequently, the recipients of the registered warrants may have no apparent options but to hold them until redemption."
Chiang said his office is also pursuing the issuance of "revenue-anticipation warrants," a form of short-term borrowing that carries high interest and heavy fees because it's believed that the state cannot issue "revenue anticipation notes" that would have to be repaid by June.
If it was impossible to sell revenue anticipation notes to lenders, I don't see why they'd accept revenue anticipation warrants, even if they offered the promise of higher interest rates.
It goes without saying that this stalemate, and the prospect of eliminating vital services, comes at the worst possible time, when California's most at-risk citizens need a social safety net the most. The California Budget Project detailed this today in a paper, appropriately titled Proposed Budget Cuts Come at a Time of Growing Need.
More Californians are turning to income support and related programs, such as Food Stamps, WIC, Healthy Families, Medi-Cal, and CalWORKsfor assistance.
Increased demand for public programs comes at a time when policymakers have proposed deep cuts to health and human services programs to close the state's budget gap.
However, prominent economists argue that carefully chosen tax increases are preferable to spending cuts during a recession because "steep budget cuts will exacerbate the economic downturn and harm vulnerable low-and moderate-income"families.
With unemployment rising to the third-highest rate in the nation, with one in five Californians out of work for longer than 27 weeks, with projections of the unemployment rate rising over 9.3% by 2010, with almost a million Californians underemployed (working less than they'd like), with applications for food stamps up 33% over the past year, and with every county in the Central Valley experiencing double-digit unemployment, including an incredible, depression-era 23.4% unemployment in Imperial County in Southern California, the prospect of losing vital services to those affected would be absolutely devastating. And yet that's where we are. County governments are already expecting the worst, to have their funds raided by the state to eventually fill the budget hole, so they're cutting back. The self-sustaining cycle of cutbacks creating job loss creating less revenue creating more cutbacks has already begun. And that's why it's not just bad politics but horrible policy for Schwarzenegger to hold the state hostage for extremely marginal rewards that will almost certainly be overturned once he's out of office anyway. His intransigence, perhaps based on his inability to get anyone in state government to listen to him, is puerile nonsense. But it also really hurts people.
As I've said continuously, the budget mess in California cannot be solved under the current broken system without serious help from Washington. Fortunately federal lawmakers are fighting for state and local government relief for California, done in such a way that we can actually access it without having to put money up front (which is impossible given the current cash-flow crisis).
(As a side note, I want to on behalf of the editorial board thank our friends in the blogosphere for driving attention to our ongoing Calitics budget coverage, in particular paradox at The Left Coaster. I think I speak for everyone in saying we appreciate the links and support.)
Yesterday, the California Assembly and Senate held a rare joint legislative session to hear from California's economic experts on the state of California's economy. Treasurer Bill Lockyer, Controller John Chiang, Department of Finance Director Mike Genest, and Legislative Analyst Mac Taylor gave a remarkably uniform presentation that urged immediate action and politically tough compromise.
"If you act now, the cash situation is manageable, unless it gets worse, and I've already said it will," Genest explained with a slight slip of the tongue that was perhaps even more accurate than intended.
"The faster you act the easier it will be for you to fix your problem," Taylor added.
Over the next two years, current estimates project that California faces a $28 billion budget hole, and all sides are willing to acknowledge that's likely an underestimate. Moreover, the Legislative Analyst's Office anticipates huge operating deficits above $20 billion per year through 2014. Lobbying in Washington, D.C. will hopefully reduce our federal tax dollar imbalance, but the complete solution requires bold action in Sacramento as well.
You know this whole mini-Depression/Mega-Recession that we're going through right now? Well, it's hit our revenue coming into the state coffers. Hard:
Senate President Pro Tem Don Perata estimated Tuesday the state will face a $3 billion to $5 billion deficit this fiscal year without corrective action, a significant gap that increases the possibility lawmakers will have to consider new spending cuts or tax increases in a special midyear budget session.
State Controller John Chiang, meanwhile, announced California has taken in $1.1 billion less through the first quarter than state officials projected earlier this year.(SacBee 10/8/08)
So, there you have it. This is where we are. Broke, and slashing at the very heart of our government. Perata and other state leaders are further estimating that next year's budget deficit could be another $15-20 Billion. There is nothing left to cut. We've already cut services that shouldn't have been cut. We already on the hook for about $8 Billion in prison building thanks to "ToughOnCrime".
Of course, the Republicans continue to fiddle while the walls of our government come crashing down in flames. There is no more choice, there is no more chance to hedge. We either raise taxes or our government will end up like Lehman Brothers. Well, you can call Dave Cogdill the new Richard Fuld.
"As this continues to get more serious, it's going to take even more drastic action on the part of the state to rein in spending," said Senate Republican leader Dave Cogdill of Modesto. "We're not supporting any additional tax increases. It makes less sense today than it did the day we put the budget out."
Besides raising taxes, Perata suggested the state could save money by releasing low-level prisoners who committed nonviolent crimes. But Cogdill said the state could find other ways, such as selling off excess state-owned land.
We need capital, ie cash, just like some of these big banks. Unlike Lehman, however, we have a means of getting it. It's called taxation. All of Cogdill's little techniques are merely tricks that won't bring in anywhere near the amount of money that we need.
Perhaps it is time to start gathering signatures for a progressive budget reform measure on the special election ballot? The outlines of such a plan are still hazy in my mind, but the general concept of going to the ballot to avoid the legislature might end up, unfortunately, being the only way to save the state from Dick Fuld the legislative Republicans.
You may remember that Arnold Schwarzenegger sued John Chiang in state court to follow his order, and his dream, of cutting all state worker salaries to the minimum wage while we wait for a budget. The court date was set for September 12, which salvaged the salaries for the month of August. Chiang's next move was to partner with some labor allies and move the lawsuit into the federal courts. This not only would delay the question of whether or not Chiang needs to follow the order, but removes a serious liability problem for the state, because if they slashed salaries per a state court order and then had it overturned by the feds, they would be on the hook for expensive penalties and payments.
This afternoon, controller spokesman Jacob Roper delivered this bit of news via e-mail to the State Worker:
Since the case has moved to the Federal court, the Sept 12th superior court hearing will not be held. A group of labor organizations has filed a motion to move the case from the Eastern Federal district to the Northern district, and a hearing on that motion is scheduled for October 31.
Roper also restated the controller's position that cutting salaries to minimum wage would be a massive, time-consuming reprogramming task, "so there is no reason to believe that minimum wage checks would be issued anytime soon."
While the lingering budget crisis is still incredibly painful for all manner of Californians, with missed payments sure to come if nothing is settled by the end of the month, at least the state workers have John Chiang in their corner, fighting for their interests. And this is mirrored by the stirring testimony of everyday workers who are losing their benefits and the control of their lives as the Yacht Party turns up its nose and turns its back on the people. John Chiang is doing his part, and Republican rank and file citizens are putting on the pressure in selected districts; the only way to ultimately win this fight is at the ballot box.
I just chatted a bit with John Chiang about the ongoing budget stalemate. He was unaware that Gov. Schwarzenegger remarked yesterday to the SacBee that he would be fine with a budget in November or December. Chiang's reaction was that it would cost the state hundreds of millions of taxpayer dollars to wait that long. Basically, there are two types of borrowing systems - one that assumes an imminent budget, with a discount rate, and one that does not, which has the normal rate. If we keep delaying the budget, we will be funneling hundreds of millions of dollars to the financial services industry, and in the words of Chiang, "put Wall Street above Main Street."
This is another aspect of the Yacht Party's holding hostage of the budget process - enriching a key constituency.
On the coming lawsuit over the slashing of state employee pay to the minimum wage, the hearing is scheduled for September 12. Chiang has asked for the case to be moved to federal court, which would delay it a couple months, but the main reason is because California would have no immunity if the state upholds the wage cut, and the federal courts overturn it.
About speaking at the convention yesterday, Chiang felt pretty good about it, and he offered a little secret that may explain why a lot of people are speaking over their applause lines. Apparently the speakers get a very strict set of time at the podium. After they go over, they start beeping and flashing lights at the podium speaker to get them to wrap up.
One of the few bright spots of this 8-week budget roller coaster has been the leadership of State Controller John Chiang, who stood up and simply said "no" to the shock doctrine tactics of the Governor and his attempts to slash state worker salaries to the minimum wage and eliminate the jobs of thousands of others. Schwarzenegger's talk of compromise among the legislature and right-wing Republicans didn't extend to state workers, and he took Chiang to court to force him to uphold his executive order. As a result of Chiang at least offering resistance, the workers have a reprieve for August.
State workers targeted by a gubernatorial order to cut their pay to federal minimum wage have dodged that bullet - at least for August.
A Sacramento Superior Court judge Wednesday set a hearing to decide the pay dispute for Sept. 12, too late to affect this month's state payroll.
Judge Timothy Frawley's timetable ensures that 145,000 state employees and an additional 30,000 managers and supervisors will receive full pay for August.
This doesn't happen unless Chiang goes to back for those employees. And the grassroots in California is grateful. Frank Russo reports on a meeting in Oakland:
California Controller John Chiang spoke to the Alameda County Democratic Lawyer's Club yesterday at a small restaurant in Oakland and had a lot to say about the state employee pay order. But he had a lot more to say, about his approach to government, helping average Californians, and his values and philosophy about government while speaking for over a half hour without notes and then taking questions.
From the beginning, he was treated as a rock star-introduced by club President Meredith Brown, as "the man who stood up to the man." He covered a lot of territory-and was paid rapt attention as he challenged this body of lawyers to continue their good work for the betterment of society. He even worked in themes from the Obama campaign, as he prepares to speak at the Democratic National Convention in Denver and appear on the national stage. Josh Richman, a reporter and "blogger" for the Oakland Tribune attended this meeting and you can see his write up for a feel of what transpired as well.
Read the whole thing for Chiang's comments, which are great. Hopefully he'll repeat them at the DNC this week. Amazing what can happen to Democrats if they stand up for themselves, isn't it?
UPDATE: The big issue, as Russo details in a separate post, is making sure this case is decided in federal court and not state court. Otherwise, California could be on the hook for billions in fines. Read the post at the link.
Just a quick update on the latest on Gov. Schwarzenegger's slashing of state worker salaries. After John Chiang refused to carry out the executive order, today Arnold sued him.
Schwarzenegger's Department of Personnel Administration filed a lawsuit against Chiang late Monday in Sacramento County Superior Court. The suit says the state Constitution and several sections of law prohibit the state from paying full wages without approval of a budget.
"Except where payments are self-executing under the California Constitution, the state has no authority to pay state employees their full salaries where it does not have an appropriation such as in this case, where there is no budget for fiscal year 2008-2009," the lawsuit says.
Chiang, a Democrat, has balked at making the pay cuts, saying the state has enough money to cover its needs into October.
"The governor has created a solution to a problem that does not exist...," Chiang said in a statement after the lawsuit was filed.
This has become less about fiscal responsibility during a budget crisis and more about an authoritarian demanding his way. As for the original intention of the order, to force a compromise on the budget, that's, er, not happening.
Schwarzenegger met Monday with the Legislature's Democratic leaders to try to reach a budget compromise.
"We're still talking. We haven't thrown anything at each other," Senate President Pro Tem Don Perata, D-Oakland, said after emerging from the governor's office.
Nominee #1: 
Nominee #2: