Governor Arnold Schwarzenegger received a gift of nine works of art by local school children yesterday. The artwork was created "to save public education" by children and their parents at the Davis farmer's market and third-graders at Dry Creek elementary in Roseville and included a piece titled, "Evil Money-Grubbing Robot Seeking to Destroy Public School."
Twenty students participated in the presentation and asked for the governor's help to get the framed paintings put on display in the Capitol.
I've just received word that US District Judge Claudia Wilken has issued a preliminary injunction against the IHSS (in-home support services) cuts that were supposed to go into effect on November 1.
The suit was brought by SEIU four disability rights groups, UDW and three SEIU locals in response to the summer budget cuts. The California Disability Community Action Network has more information about the lawsuit. More details coming.
U.S. District Judge Claudia Wilken issued the preliminary injunction. In making the decision, she found that a written notice she stopped the state from sending out last week would have been constitutionally inadequate - too hard to understand, and giving too little time for appeals. She also found that the plaintiffs - advocates for disabled and elderly Californians, along with several labor unions - are likely to be able to prove at trial that the state was using inadequate standards to determine whose services would be cut. (CCT 10/19/09)
This in no way saves these cuts from going forward, it simply says that the methods that the state was going to use to make the cuts was all sorts of screwy. The "functional index" was going to be used to determine who gets what level of services, but many people would be cut off without really understanding what was happening. This is a vulnerable population, and to set them loose without a clear understanding of what is going on is even more unconscionable than the original cuts themselves.
In the aftermath of the May 19 special election Senate President pro Tem Darrell Steinberg claimed a mandate from voters to make cuts - and as he said, "cut we will."
As we've seen, that hasn't worked out so well for California. Our economy has worsened as government has contracted, leading to increased unemployment along with the financial and even physical distress that comes with reduced availability of health care services.
Perhaps Steinberg has learned from these mistakes, because in an article in today's Sac Bee, he says "I'm done cutting":
Steinberg said he's not at all happy he had to cast votes for cuts - and he added, "I'm done cutting."
"I feel very strongly," he said, "that we've gone beyond what is reasonable when it comes to cuts."
But he is, as [Marty] Omoto suggested, proud that he pushed for "surgical" cuts and that California government remains standing despite all the talk about the state being ungovernable.
California's government is like a punch-drunk boxer. Sure, it's standing, but not for much longer. The cuts Steinberg agreed to have weakened the state immensely, leaving us not only deeper in recession but making it unlikely we will see economic recovery anytime soon. Most employers and economists I've spoken to are convinced California will be among the last states in the country to recover from this recession.
That will exacerbate the looming budget crisis in 2011, when the combination of the expiration of the temporary tax increases approved in February and the borrowing gimmicks done in the last three budget deals come together to produce a budget deficit that could be as high as $20 billion - assuming the economy doesn't get any worse between now and then.
I'm glad to see Steinberg realizes we can't make any more cuts. It's time to embrace sensible, populist revenue solutions and become aggressive - even fearless - about selling them to the people of California.
(Welcome Sen. DeSaulnier - promoted by Brian Leubitz)
At the Contra Costa County United Democratic Campaign CD 10 candidates' forum last week, the candidates were asked to list examples of when they had defied Democratic party leadership in order to stand up for progressive values and make real change. I told the audience of Contra Costa Democratic activists that I had a history of doing so, and in fact might have to do so if the leadership put an all-cuts budget up for a vote this week in the Senate. Yesterday, I kept my promise and did not vote for the all-cuts budget that was brought to the floor.
Progressive values and commonsense dictate that we have a budget that combines cuts with increases in revenue. A cuts-only budget is a recipe for disaster in California and severely hurts the most vulnerable of our fellow Californians. In an era of "yes we can," the Governor and Republican legislators are telling Californians "no they can't" have sensible solutions to California's budget crisis. They have pushed Democrats into a "through the looking glass" scenario where Democrats are on the record voting for $11 billion in cuts and Republicans are on the record voting against them, but there is no record that in fact the Republicans want even deeper cuts and refuse to support any tax increases whatsoever. Only in Sacramento could such an Alice in Wonderland scenario unfold.
The truth is that standing up for progressive values sometimes dictates that we go against the decisions of our leadership. I cannot in good conscience vote for a budget that does not include significant revenue increases. In the next few days, we will have votes on raising revenue through an oil severance tax and an increase in the tobacco tax. I will vote for those because proposals to increase revenue to the state must be part of any solution to California's deficit.
In addition, I joined with Senator Lois Wolk in writing the Legislative Analyst's Office seeking advice on the most efficient way to close corporate tax loopholes in California. There are approximately $50 billion - $50 billion! - in tax loopholes that exist right now.
It's time to push back hard against the ideological inflexibility of the Governor and the Republicans in the legislature and make them take responsibility in front of the voters for their efforts to drive California over a fiscal cliff. There is no proposal that will create a budget that is pain free. But an all-cuts budget is the most painful for the people who are the most vulnerable.
We can do better for California. Yes, as progressives, we can stand up to make a bad budget better. That was my promise to the Contra Costa Democrats last Friday and it's my promise to you today.
I've been asking around and it seems that most Californians don't know that the budget deal that fires so many teachers also has a huge tax cut just for big, multi-state and multi-national corporations.
But it's true. Last month's budget deal that fires teachers, cuts essential government services, and guts the investments that bring future economic benefits also has a huge tax cut for the largest of corporations. While this part of the deal has been kept pretty quiet, the LA Times had a story, Business the big winner in California budget plan. From the story,
In a move telegraphed in their previous meeting, Treasurer Bill Lockyer and Director of Finance Mike Genest decided that the $10 billion federal stimulus "trigger" was not met - that will cause billions in additional cuts and new taxes as part of the February budget deal. Here's the logic used by Genest in not pulling the trigger:
After a legal and fiscal review of recently enacted federal legislation, and in coordination with the State Treasurer and his staff, the Director has determined that the amount of additional federal funds available to offset General Fund expenditures through June of 2010 is $8.17 billion," said Ana Matosantos, Department of Finance chief deputy director. "This amount is below the $10 billion established in (budget language) as the amount required to eliminate a portion of the personal income tax surcharge and specific spending reductions previously enacted by the Legislature.
But is this the right move? Speaker Karen Bass doesn't think so:
I am disappointed with the narrow reading of the trigger and the decision made today by the Director and the Treasurer. But it was the last minute changes to the budget demanded by Republican Senators that put the trigger level out of reach and all but guaranteed the higher taxes and cuts to critical programs. We agree with the Treasurer that a portion of the cuts should be restored, and we will work through the budget process to find alternative solutions to a portion of these cuts.
This is better framing than we've seen from the Sacramento Dems in some time - blaming Republican budget demands for making it difficult to clearly reach the trigger level, and arguing that the cuts should be restored.
However, the DOF's methodology excludes ARRA funds that will support programs and services that suffered deep reductions in the 2008-09 and/or 2009-10 budgets. In many instances, these same programs and services have experienced significant cuts repeatedly in recent years. The CBP believes that the calculation of federal funds that may be counted toward the $10 billion threshold should include ARRA funds that will support programs and services that received funding reductions in the 2008-09 or 2009-10 budgets and/or that are experiencing higher costs due to the economic downturn - costs that would, in the absence of federal funds, fall on the state's General Fund.
The result is devastating. 3 million California parents, seniors, and people with disabilities will lose dental, podiatry, psychology and other Medi-Cal benefits the federal government does not mandate but that are nevertheless necessary to economic recovery and a decent human standard of living. Marty Omoto lays out the full impact, which includes further cuts to education and the courts.
It didn't have to be this way. Even putting aside the "narrow reading" issue, this is a failure of both the state and the federal government. Democrats agreed to a bad deal, and the Yacht Party did their best to make the Great Recession worse by destroying the very governmental services that we need to stop the downward spiral and start a recovery. And the US Senate has blame to share, for stripping out $40 billion of the state stabilization funds and generally not being aggressive enough in dealing with the crisis facing all levels government.
California keeps cutting spending, and the recession keeps getting worse. We at Calitics understand that's no coincidence. When will Sacramento?
Here is an idea for solving California's budget crisis.
What if the California legislature temporarily budgeted for districts according to the wishes of the district's legislators. If an Assembly or Senate representative demanded cuts to schools, fire, etc. then the schools, fire, etc. in that representative's district receive the entire cut! This would be an honest application of representative democracy, allowing the citizens of an area to be governed according to their wishes without it affecting all of the citizens in the state.
"Unfortunately, the state's economic and revenue outlook continues to deteriorate," the Legislative Analyst's Office (LAO) said in a review of the package, which covered the remainder of this fiscal year and all of the next.
"Even in the few weeks since the budget was signed, there have been a series of negative developments. Our updated revenue forecast projects that revenues will fall short of the assumptions in the budget package by $8 billion. Consequently, the Legislature and governor will need to adopt billions of dollars in additional solutions in the coming months to bring the 2009-10 budget back into balance."
Taylor had some more bad news for the state's political leaders. Because so many of the "solutions" adopted last month are temporary, "without corrective actions, the state's huge operating deficits will reappear in future years - growing from $12.6 billion in 2010-11 to $26 billion in 2013-14."
The full LAO report in fact makes some assumptions I would consider rosy, such as a recovery in employment and personal income in 2009, when many economists do not expect this to occur until the second half of 2010 at best.
What this means is that the budget situation is still a total mess, and that improvement is far away. The May 19 election will have little meaningful impact on the state's financial health, although a spending cap would ensure that services will continue to be gutted. Republicans and Arnold Schwarzenegger are likely to use the deficit projections as an argument for Prop 1A, when all that will accomplish is an even worse destruction of core services, such as schools which could face larger cuts than what we're seeing now, a truly frightening thing to consider.
This also means political leaders who deny the need to find tax solutions, like Jerry Brown, are not being realistic. Fundamental change is necessary, and perhaps a constitutional convention alongside the elimination of the 2/3 rule conservative veto can help get us there.
One thing is certain - if anyone thinks California can remain a competitive place to do business and attract jobs and employees with the worst school system in the nation and no ability to address our water, transportation, or health care crises, they are deeply deluded.
In an interview with KGO-TV in San Francisco Republican gubernatorial hopeful Tom Campbell suggested a higher gas tax as a solution to the state budget deficit:
Former State Finance Director Tom Campbell will be offering legislators his idea of a partial solution -- an 18 cent temporary gasoline tax.
"The price of gasoline has now fallen in our state. Last June it was about $4.60. If you were to put on a gasoline tax of about 18 cents, so we'd still be well under two dollars a gallon," said Campbell.
It would be nice if KGO explained that the Democrats' budget deal - which Arnold vetoed - would have basically done the same thing, replacing the current gas tax with a "gas fee" that would result in a net 13 cent increase to the taxes paid on gasoline. But it's good to see Campbell proposing an eminently sensible plan like this.
Whenever higher gas taxes - or higher taxes of any sort - are proposed, some progressives react with criticism, pointing out that some of these taxes are regressive. They're not wrong - when you're talking about taxes, progressive income taxes and property taxes are generally a fairer way to obtain revenue than excise and sales taxes.
But if you stop there, you're missing the point.
Because when you include the whole equation - the effect of spending cuts as well as tax increases - it becomes clear that even sales and gas taxes are much better for the economy, and especially for working and poor people, than spending cuts.
The economies of states that substantially increased taxes in recent years performed as well or better than states that did not
The economies of states that enacted large tax cuts in the late 1990s and early 2000s performed worse than other states
Personal income taxes are better than spending cuts as they don't have as harmful an effect on consumption or local economies.
Much of this ought to be common sense. We are facing a recession driven by rising unemployment and folks having less money in their pocket. While the right-wing ideologues would have us believe taxes take money out of that pocket the amounts pale in comparison to the money lost to spending cuts.
In the early 1990s recession both California and the US government raised taxes. It didn't worsen the recession, and it didn't prevent an economic boom from emerging after 1993.
Spending cuts are really just a euphemism for mass layoffs. When you fire tens or hundreds of thousands of public employees that means they are spending less money. Fewer shopping trips, fewer visits to restaurants, fewer people paying their mortgage. That creates a spiral of job losses and business failures, which in turn mean fewer tax revenues. Spending cuts ultimately leave the budget worse off, not better off, than before.
This is true especially for lower-income families. A sales tax or gas tax hike will have some bite. But as much as a school closure? As much as a father being laid off from his job on a state infrastructure project, or a mother being laid off from her job in the county government office? I strongly doubt it.
For example, the cost to a family of a restored VLF, between $150 and $300 a year, is chump change compared to the cost of having to provide health care to an uninsured family kicked off of state assistance. If a school closes or higher education is priced out of reach that is going to have a far larger cost to a family both immediately and over the long-term than any tax increase.
This is common-sense stuff, obvious to anyone willing to give even a cursory glance at reality. But 30 years of anti-tax rhetoric has blinded us to these realities. Spending cuts are the most regressive form of budgeting there are - and while we need as progressive a tax code as possible, we need to keep in mind that this is a continuum of progressivity:
Income and property taxes > sales taxes > spending cuts
While there are differences among kinds of taxes and spending cuts, the above is a good shorthand to keep in mind as we push back against 30 years of ruinous policies and bad priorities that have brought California to the brink of a Depression.
With the latest figures about the state budget deficit - $28 billion over the next 2 years - it seems beyond all doubt that Arnold Schwarzenegger is a failure as governor. The sole justification he gave for replacing Gray Davis in 2003 was that Davis faced a similarly large budget deficit and failed to solve it. Arnold promised to end this, and it is clear he has failed to deliver. Instead the state of California stands on the precipice of bankruptcy and crippling service cuts that will dramatically worsen the economic downturn.
And it is clear this is primarily Arnold's fault. His first act as governor was to roll back the VLF, blowing a $6 billion annual hole in the state budget (roughly half the annual deficit - remember that the $28 billion figure is for two years). That act of irresponsibility was compounded by using borrowing to close the rest of the 2003-04 deficit. As the budget deficit returned in 2007 Arnold stubbornly refused to admit the need for new revenues.
He has also refused to engage in the necessary lobbying to produce a budget solution - instead he wishes and hopes Republicans will see the light despite years of evidence suggesting they instead see a budget crisis as an opportunity to ram through far-right ideas that nobody really wants.
The Legislative Analyst Office, under its new leader Mac Taylor, directly calls for taxes as the solution to the budget deficit. The report is a bit too favorable to Arnold's plan and suggests too many cuts, but it makes this all-important point about spending cuts:
The state's main options for addressing its budget dilemma-cutting expenditures and/or raising revenues-would both have adverse effects on the economy. Either type of option would reduce money held by or received by individuals or businesses that otherwise could be used for consumption or investment purposes. Because the state's economy totals more than $1.7 trillion in economic activity each year, however, spending reductions or tax increases totaling between $20 billion and $30 billion would have a relatively small impact on the overall economy.
Here again I think the new LAO is being too moderate. The report notes that much of the upward pressure on spending is coming from increased usage of Medi-Cal, for example, suggesting that government services are becoming more necessary in a recession. It's the safety net at work - and cutting the safety net is the last thing we ought to be doing.
Republicans like Mike Villines might be peddling books by Arthur Laffer, but as the California Budget Project explains the evidence proves that tax increases are the best way to provide a budget fix that doesn't hurt the economy. Add that to the LAO's point that $20 billion in taxes "would have a relatively small impact on the overall economy" and we have our answer.
And of course, spending cuts and tax increases hit different Californians. Spending cuts hit working and middle-class people particularly hard, especially the truly insane proposals to increase student fees for higher ed or to cut back Medi-Cal even further. But a return to the pre-1998 tax levels would hit the wealthy while providing the working and middle classes with the safety net and economic opportunities they need.
Some Democrats are looking to a federal bailout to help solve things. Such a bailout is necessary - for example the feds could help meet our Medi-Cal obligations and help with higher ed, reducing dramatically our overall deficit and making it easier for, say, a reinstatement of the VLF to close the remainder. But a bailout isn't likely to come without state-level solutions.
That we have to face such choices at all is a testament to how epic a failure Arnold Schwarzenegger has been for California. The LAO's report is damning:
The state's revenue collapse is so dramatic and the underlying economic factors are so weak that we forecast huge budget shortfalls through 2013-14 absent corrective action. From 2010-11 through 2013-14, we project annual shortfalls that are consistently in the range of $22 billion, as shown below.
Those are shocking figures, and they should indicate to every progressive and Democrat just how important it is to push out our own fairer, sensible, long-term solutions.
I will be on KRXA 540 AM this morning at 8 to discuss this and other topics in California politics
Regardless of your stance on Proposition 11, the redistricting reform measure, hopefully everyone can agree that it shouldn't be used to distort reality, right? Unfortunately that's exactly what's happening in the media's coverage of both Prop 11 and the budget fight. Today's column from George Skelton is a perfect example of how the media likes to let Republicans off the hook for their failures by blaming Democrats instead - in this case for the long budget delay.
Skelton buys hook, line, and sinker - without the skepticism a journalist should normally display - the bill of goods that Arnold Schwarzenegger sells him on Prop 11 and the budget. Although Skelton acknowledges the 2/3 rule is more important, he still buys into the long discredited notion that legislative redistricting is the cause of Sacramento gridlock:
But I wouldn't argue with Schwarzenegger's thesis: Gerrymandering tends to reward extremism in both parties and punish compromise, locking lawmakers into ideological corners....
Republicans pledge not to raise taxes. Democrats promise a laundry list of social programs the state can't afford.
Then they come to Sacramento and can't compromise.
"With the redistricting the way it is done, Republicans can only win [primaries] if they're way to the right and Democrats can only win if they are way to the left," Schwarzenegger lamented to a Los Angeles news conference Wednesday, pitching for his budget proposal that includes a sales tax increase, billions in spending cuts and budgeting reform.
Neither Arnold nor Skelton are telling the truth, and I leave it up to the reader to determine whether this is a deliberate lie. The Democrats HAVE produced compromise after compromise. They have consistently agreed to spending cuts over the last several years and the joint Assembly-Senate Democratic budget plan this year included several billion in spending cuts, alongside new revenues. That's exactly the solution a new PPIC poll suggests Californians want. Dems even put it to a vote - and Republicans shot it down. Republicans have yet to offer ANY alternative.
It is undeniable that it is the Republicans alone who are responsible for this budget delay. Look at the email Republican Senator Dave Cogdill sent rejecting compromise:
"The Modesto Bee wants me to raise YOUR taxes!
"I just wanted to pass on this morning's editorial from one of our local papers. They are calling on my friend Assembly Leader Mike Villines and me to consider raising your taxes. I don't think that's what you elected me to do. You elected me to represent you and to fight for a commonsense budget that is not balanced on the backs of taxpayers. California is already one of the most over-taxed states in the nation. With an additional tax increase, we'd vie for number one. That is not a distinction this state needs, especially with a slowing economy.
"This state has a spending problem, not a revenue problem. A tax increase would only encourage more irresponsible spending, cause the loss of over 56,000 jobs, smother the economy, and hurt hardworking Californians. Instead of a tax increase, this state desperately needs budget reform, measures to stimulate the economy and fiscal restraint now and into the future.
Both Skelton and Schwarzenegger allude to the reasons for Cogdill's and other Republicans' refusal to compromise - if they do they will be subject to a primary challenge by another wingnut who will say "the incumbent voted for a tax increase," which makes Republican legislators skittish:
Sitting in his conference room, Schwarzenegger told me: "They are saying things in here -- and I never want to repeat it because what we say in this office shouldn't be repeated -- but it's clear that their hearts are sometimes in the right direction. But they're afraid to go back to their districts because they'd get slaughtered.
"They could never win anything again. Their political career is over."
Schwarzenegger was referring to the Republicans he has been trying to lobby for a tax increase. But he added: "Same thing with the Democrats. They have those kind of fears."
With Republicans running so far to the right and Democrats to the left, the governor complained, "they can't meet in the middle."
The first part refers to Republicans and is entirely accurate. But Arnold can't tell Californians the truth, that this budget crisis is entirely the Republicans' fault, so he tacks on at the end "oh yeah the Dems have the same problem."
But they don't. Democrats have been willing to propose spending cuts. It's not fear of the left that has prevented them from compromising but the fact that Republicans refuse tax increases. Arnold and Skelton are not being straight with the public here.
More fundamentally, their views on Prop 11 and the budget defy logic. As has been explained countless times - apparently falling on deaf ears - "gerrymandering" is NOT the cause of Republican extremism. Most of California is politically self-segregated. There's no way to draw competitive districts in San Francisco, Fresno, and south Orange County.
The Republican Party nationwide is characterized by a far-right anti-government zealotry that pervades the voter base and the funding sources. Prop 11 won't change that.
Finally, Skelton again repeats the discredited canard that California has a spending problem. Instead we have a structural revenue shortfall - we don't raise enough money to pay for basic services. Republicans know this but don't have the guts to implement revenue solutions because they're scared of their fellow far-right freaks. Republicans and Republicans alone are responsible for the budget delay.
But instead of placing the blame squarely on their shoulders, look how Skelton ends his column:
Good people working in a bad system -- some of it, the gerrymandering, self-perpetuated by Democrats.
He winds up blaming Democrats for Republican failures. And we wonder why the budget is so late. If I knew that I could screw around and not do my job and someone else would get the blame, I'd do it too.
One of the most important but so far overlooked narratives of this election cycle is the return of taxes as a major political issue. The recession is hitting government budgets just as that same downturn, combined with soaring gas prices and global warming is creating demand for new spending.
Against this backdrop conservatives are now convinced that their way out of an ugly election cycle is to rally the public behind their rabid anti-tax politics. Constant attacks on Obama as a tax-raiser are partly to blame for McCain's recent rise in the polls.
And here in the states Republicans are again turning to the tax revolt, their bread and butter for 30 years. Republican intransigence on the California budget is best seen as part of this national strategy to break Democrats on the tax rack.
The Wall Street Journal has a great overview of tax politics in the states, including a lunatic proposal to eliminate Massachusetts' income tax and a equally nutty plan to allow Oregon residents to deduct an unlimited amount of federal tax on their state returns.
Here in California conservatives are already circling the wagons on taxes. John and Ken, the reliable bellwethers of SoCal conservatism, raked Arnold over the coals yesterday over taxes:
Schwarzenegger tried to defend new taxes as necessary because the state was still paying off debts incurred by predecessor Gov. Gray Davis. But the hosts pressed further and suggested that Schwarzenegger abandoned his original mission of fixing the state's fiscal situation in order to pursue environmental goals.
That seemed to upset the governor, who maintained that his environmental policies had nothing to do with the state budget.
"This is absolutely absurd what you're saying right now," Schwarzenegger said. "....You're living in the Stone Age if you think that the environmental issue has anything to do with the budget or the declining economy worldwide."
"Don't lie to the people," Schwarzenegger added. "That's all I can tell you, don't lie to the people. Don't pull wool over their eyes. It's nonsense Republican right-wing talk."
To which John and Ken then asked whether Arnold was under anesthesia. Stay classy, Los Angeles.
What this shows is that the conservatives are in no mood whatsoever to give ground on taxes. The drubbing John and Ken gave Arnold is a taste of what many Sacramento Republicans might face from within their own party. Their fear is that by voting for a tax increase, they're going to face primary challengers who will simply tell the wingnut base "my opponent voted for a tax increase" and their ambitious political careers will be over.
So it seems very unlikely that Republicans will give in this time. That leaves it up to Democrats to force the issue. The only thing that should scare Republicans more than a primary fight is losing the general election. That means Dems have to go after Republicans hard - and that in turn means Dems have to finally stop avoiding the issue and for the first time in 30 years make a case for taxes.
The problem is that, with reporters like Lisa Vorderbrueggen repeating conservative tax framing, Dems have an uphill battle. Way too many Californians assume taxes are taken out of their own pocket and never returned to them, even though Californians derive great and real economic value from government spending.
One angle would be to, as Anthony Wright suggests over on the left-hand column, make the budget about the economy. Explain the value of the services Californians receive from government and show how, in a recession, the loss of those services will hurt their bottom line.
Dems would also do well to explain to voters how Republican tax cuts are behind this crisis - from the 1998 McClintock tax cuts to Arnold's $6 billion VLF cut to the repeated borrowing that Republicans have demanded, this budget crisis would be quite manageable were it not for reckless tax cuts.
Further, explain how tax cuts are also responsible for our economic downturn. With more government spending on higher education, health care, and mass transit, many of the costs that currently cripple households would be eased.
It's not about the "budget" and never has been. This about taxes. With their backs up against the wall conservatives have returned to the strategies that brought them to power in the first place, and in California that means stoking a tax revolt. Unless Dems are able to defang that argument this budget crisis, and perhaps even the 2008 election, are not going have a happy ending.
Those who believe in investing in health care, education, and other vital services appropriately focus in the budget debate on the devastating impact of the specific budget cuts.
Those who oppose the revenues and taxes that are needed to find those programs generally make a broad anti-tax argument, often with an economic case. Witness many of the Republican Assemblymembers who spoke during the five hour+ debate on Sunday.
In a recent study "Significant Side Effects: The Economic Impacts of Health Care Cuts in California Communities," Health Access California (my organization) looked at just the health care cuts: and the comparison is stark. It finds that, due to federal tax deductions and matching Medicaid dollars, preserving California's health care budget would have three times the positive economic impact as preventing an equivalent amount of increased taxes for upper income Californians.
In fact, the worst thing you could do for an economy is make health care cuts, which means twice the impact just from the lost federal matching funds denied to our economy. There are also economic ripple effects, from lost jobs and wages, increased private health premiums, and more.
Money spent on health care immediately goes into circulation, through wages and vendors, which then gets recycled and multiplied in the economy. In contrast, an upper-income bracket tax impacts money that may be in the economy, or may simply be in the bank. Also, state income taxes are deductible on federal returns, which means that translates to be 35% less to the upper-income family, and in effect, more money in the California economy, courtesy of DC.
We need to forcefully rebut arguments that make economic claims about taxes without considering the economic repercussions of the cuts. Preventing the cuts is not just good for our health, but the health of the economy as well.
The Assembly Republicans have been practically begging for a vote. They really, really want to show the Club for Growth that they love them and put their anti-tax pledge over what's best for the people of California. We get the point, you oppose services to the elderly, you oppose school funding, you oppose state parks, you oppose services to the mentally impaired, you oppose law enforcement funding, etc.
Of course, they won't admit the last one, but to what other conclusion does the Party of IncarcerexTM want us to come? They don't support funding counties and municipalities, thus they don't support local law enforcement. Ipso facto and all.
So, Speaker Bass and the Assembly Democrats have decided to give the Republicans their greatest wish: a vote. They'll get to vote it down, and they can once again bow at the feet of the Club for Growth:
Assembly Speaker Karen Bass, D-Los Angeles, said lawmakers plan to vote Sunday on a modified version of the Democratic conference committee plan, which relied on tax increases on the wealthy.
"It will be on a compromise version from the conference committee to where we are now, and reflect a variety of areas where we've compromised," Bass said. "And it is critical that we take action before Monday because the Democrats have taken budget reform very seriously."
For his part, Senate President Pro Tem Perata has said that the Senate is on-call for a vote on Sunday, but nothing definite has been scheduled. As every day passes, it becomes more clear that the Republicans lack the faintest notion of how to address the budget crisis. Any vote just emphasizes that all they have to say is one simple word.
No.
UPDATE by Robert: There's going to be a rally at the Capitol in Sacramento at 12:30 today to protest the concept of a spending cap. It's being put on be the SEIU California Council, AARP, CA Alliance for Retired Americans, and many others who understand the catastrophic damage a spending cap would mean for our state, especially for health care. It's a good way to start pushing back against the Republicans, but it's overdue, and needs to be the beginning of a much bigger effort to educate the public about what the Republicans want to do to this state.
Not one to offer a solution without strings, Arnold insists that this would only happen in exchange for "long-term budget fixes" such as a rainy-day fund. A rainy day fund is a good idea but that needs to come AFTER we fix the structural revenue shortfall.
The problem with Arnold's proposal is that as most people recognize, sales taxes are a very regressive form of taxation. The Democrats' tax plan would have relied on income and corporate taxes and would have generated nearly $10 billion in revenue, greatly easing the current crisis.
Instead Arnold, in typical fashion, thinks the poor and working Californians should suffer for the budget to be fixed. A smaller sales tax increase might not be a bad idea, but income and corporate taxes are the better solution, as those kind of tax increases promote more economic growth and provide more stability for state revenues. Another solution would be sales tax modernization, where goods and services currently exempt would be included to reflect a 21st century economy. That would provide more stable revenues while also spreading the burden out more fairly.
Democrats are in a stronger position than they realize on this. The public wants smart, effective solutions on the budget, and they want their services to be protected. Let's hope they stick to those values.
PS: John Chiang tears yet another hole in Arnold's ridiculous wage and jobs cut: the state does NOT actually face a cash crisis, Chiang told a Senate committee. Chiang is emerging as a hero on this, and Arnold's attack on the workers is being revealed for the shock doctrine-style assault on wages and jobs that many of us always suspected it to be.
The increase of one cent per dollar would take effect soon after a budget is signed and last three to four years; after that, the tax rate would gradually drop. It would ultimately settle at a level lower than the current statewide rate of 7.25%.
That last part is troubling. I'd love to see a more progressive tax structure in California, and more reliance on income, corporate, and property taxes as opposed to the sales tax. But to turn this into yet another tax cut, outside of an overall and comprehensive revenue solution, is only going to make matters worse.
The Times also has more on the budget reforms Arnold is demanding:
The proposal, floated in meetings with the Legislature's leaders and their staff, hinges on lawmakers agreeing to automatic spending restraints and new powers for governors to cut programs whenever the state falls into the red.
I wonder if those new powers would even be constitutional. In any case they're very unwise. Separation of powers seems unfashionable these days, but it matters. The Legislature, as the most direct representatives of the people, must never cede this power to the executive branch. A line-item veto is bad enough. No governor should have unilateral power to make cuts.
Ultimately all of this shows that Arnold isn't really interested in budget solutions, but instead wants to use the crisis to ram through far-right solutions that would otherwise never be accepted. Arnold is a textbook example of the shock doctrine that Naomi Klein so ably described in her recent book. Perhaps every Democrat in the Capitol needs a copy?
Yesterday's SacBee has a Q&A with Darrell Steinberg on the budget. His answers are brief but brilliant - along with Speaker Karen Bass it is clear we now have leadership in Sacramento that finally understands not just what is wrong with the budget but how to properly frame it:
Q: Why would the Democrats roll out a tax plan that they knew ahead of time the Republicans wouldn't vote for?
A: There's actually some consensus that has developed over the past several years. It's clear from even the way the Republicans are acting in the budget negotiations, there is a common recognition that we cannot cut our way out of this problem. The Republicans aren't putting $15 billion of cuts on the table, for good reason. ... That would implicate the department of corrections and law enforcement, public education, transportation, a whole host of other policy areas that are not necessarily partisan in nature, so now the debate is framed very clearly.
This is very good framing. He's pointing out that Republicans tacitly accept that spending cuts are not a realistic option - that even Republican programs like prisons would be crippled. California voters need to hear more of this - that spending cuts are just not possible.
Q: Are the Democrats concerned that the increase in taxes would have a negative effect on business retention in California?
A: I think the Democrats are approaching the tax question in an intelligent way. Look at the upper-income tax. This was a tax that (Pete) Wilson, a Republican governor, pushed through. I know the claim is made that wealthy earners would leave California, but that belies the facts. I did Proposition 63, the mental health initiative, which was just a surtax on earnings over $1 million, and there hasn't been some great flight out of the state. ... People choose to live in California for a lot of good reasons, and ensuring that we have the resources to properly invest in education and health care and an infrastructure, I think, is more important to the business community.
These are excellent evidence-based arguments and build off of what Speaker Bass and John Laird have been saying - that California has previously turned to taxing the wealthy without cost to our economy. The lie that taxing the wealthy hurts the overall economy has been the cornerstone of conservative anti-tax sentiment for decades, and it is long past time for Democrats to be rejecting it.
Further, Steinberg touches on a point that should be made more explicit. It's not just the business community that finds more value in good government services over low taxes - it's working Californians. Most of us understand that Californians get far more in value from affordable, quality schools; affordable, quality education; affordable, quality mass transit, etc - but that message hasn't been truly embraced by Democrats ever since Jerry Brown's notorious "born again tax cutter" emerged the day after Prop 13 passed in 1978.
California owes its current economic prosperity - such as it is - to the legacy of Pat Brown. We've been living off of earlier government spending. Even Ronald Reagan increased taxes when faced with a similar crisis (in 1967). If Democrats can make that argument loudly and as often as possible they will undermine the Republicans.
Q: Does the state of California have a revenue problem or a spending problem?
A: That's a question that is always asked in the political context, and I believe we have a revenue problem. ... The governor went through the stage of blowing up the boxes ... he didn't find a lot of the waste, fraud and abuse. We have a very complex state, with a growing population and with significant unmet need, and so I think we have both a revenue problem, and we have a major structural problem. ... We're misaligned, for example. Local government has significant responsibility to provide services and little authority over the revenue side of the equation.
This is pure gold. Steinberg points out that Arnold's own performance review failed to find the "waste, fraud and abuse" that we were told we'd find in the budget. It no longer exists, if it ever did. You cannot cut something that isn't in the budget. Plus it's nice to see him using the structural revenue shortfall framing I've been using for months.
Q: Why is it that the state always seems each year to spend more money than it takes in?
A: The system of public finance that we have in California is not keeping up with the public demand for public education, for more and better quality transportation, for improved access to health care, and for first-rate local government public safety and other services.
Steinberg refuses to be baited by the Bee's leading question here, and insists that the problem is a government that cannot play the central role it needs to play in guaranteeing economic stability to all Californians.
Overall Steinberg is pushing out some great frames that attack the heart of the Republican nonsense that we can cut wasteful spending that does not actually exist. The Republicans are left to propose massive cuts to core services which they are of course unwilling to make. All they have left is a dogmatic stance that everyone now sees right through. If Niello is an emperor then he's clearly got no clothes.
Yesterday's news that Democrats were considering borrowing to balance the budget, specifically the plan to raid transportation and local government funds, brought a vigorous response from Democratic leaders in the legislature. Don Perata, Karen Bass, and John Laird all issued statements claiming to not support budget borrowing, although the parsing of the words matters.
Today's Los Angeles Times story about state budget negotiations is inaccurate and misleading. Democrats have never entertained massive borrowing as a solution to this year's budget problem. In particular, Democrats have never advocated nor believed in taking money from Propositions 1A, 42 and 10."...
"Doing another get-out-of-town-alive budget would do nothing to help this state but rather would endanger Californians' standard of living and economic future."
Denise Ducheny chimed in with her own statement along these lines, and later in the day Bass and Laird added their stance. Karen Bass:
"Major borrowing is not part of the Democratic budget plan, and we don't believe it should be part of the final solution. Our proposal balances the budget with a mix of billions of dollars in difficult spending cuts and new revenues, similar to those proposed by a previous Republican governor. It's gimmick-free and honest. It closes our budget gap in a straight-forward manner, and eliminates out-year deficits."
John Laird:
Any proposal to borrow from voter-approved propositions is not coming from those of us who want to balance the budget without borrowing or gimmicks.
Strong words - but nowhere in them did anyone explicitly rule out borrowing from the transportation and local government funds. It's comforting to know that Democrats did not propose these plans and that they do not wish to use budget gimmicks - but a firm rejection of the plans is what we really needed to hear.
Sure, some might say we should not be negotiating in public. But if Republicans get to say "no new taxes" then surely Democrats are able to say "no new raids." As I argued yesterday raiding these funds would not only cause the state serious economic harm, but it would severely weaken the Democrats' political fortunes in the process.
Californians' opinion of the Legislature is low, and many don't trust their politicians. That gives the right wing a major opening to push through damaging things in the guise of populism. Democrats need to stand up to Republicans and protect working Californians. Refusing to even consider raiding the Prop 1A, 10, and 42 funds is a small but necessary place to start.
Wouldn't that make an excellent headline? Instead the SacBee offers Schwarzenegger criticizes lawmakers for not reaching budget deal - Arnold kicks it in his smoking tent, or idly speculating about a post in the Obama administration on national TV while the Legislature remains divided on the budget. Here are the damning grafs from the article:
Schwarzenegger ramped up criticism of lawmakers this week, but he so far has refrained from using harsh tactics such as visiting lawmakers' districts and cajoling them, as he did during a late budget in 2004.
The Republican governor has been meeting with leaders individually, though he said he "didn't really want to interfere with their process." The parties remain divided over whether the state should use tax increases to bridge the gap, as majority Democrats have proposed.
In other words, Arnold is reluctant to himself exercise the leadership that he claims is lacking in the Legislature.
His statements on specific proposals have been vague to the point of uselessness:
The governor attacked tax proposals in previous years, but he did not do so Wednesday. "I think this is their way of looking at it, and I'm sure they have their reasons," he said of Democratic tax proposals. "And I think this is what makes the world go around. People have different ideas for how to solve a problem."
The contrast with previous governors is stark. In 1991-92 Pete Wilson proposed tax increases and budget cuts himself and took a very active role in getting legislators on board with a plan to close the deficit without destroying state government. Whatever we think of Wilson's governorship overall, he did not hesitate from exercising leadership to solve a much worse budget crisis.
Instead Arnold continues the trend that has defined his failed terms as our governor: playing to the media while ignoring the basic work of government.
But to leave it there would be letting him off lightly. We must not forget that much of this budget deficit is Arnold's own fault. He came to power in the 2003 recall by promising a long-term budget solution. Instead he made matters worse by cutting $6 billion in revenue from the vehicle license fee, which is actually a $12 billion swing since the state spends $6 billion a year to pay local governments what they would have received with a restored VLF. He then insisted on borrowing to close the last big budget gap, causing ongoing budget costs of $3-$4 billion a year.
It seems more and more likely that when we historians assess the seven years Arnold was our governor, the ultimate conclusion will be that he made the rest of the state cover up for his failures so he could play a governor on TV.
(I added the Speaker's Web report on the budget. There's some good information in there. - promoted by Brian Leubitz)
I will be on KRXA 540 at 8 tomorrow morning to discuss this and other California political topics
I've been looking over the Democrats' budget proposal and the more I see it, the more I really like it. It's a testament to the leadership of Speaker Karen Bass and of Assembly budget wizard John Laird (not his official title but it might as well be) that they put together such a good plan. Of course it will be a starting point for future negotiations, but Californians should rally behind this plan, which provides for the public services this state needs to survive a tough economy without hurting working Californians with a tax increase.
The plan is smart, fair, and above all progressive. It would reverse the trend toward regressive taxation in California by finally making the wealthy pay their fair share. Just as Bush's tax cuts have blown a hole in the federal budget, so too have the McClintock Republican tax cuts done the same to ours.
The first thing to understand is that, as Speaker Bass explained on a conference call earlier today, that we already have cut the budget. Over the last 3 years some $15 billion in cuts have been made, particularly back in February. We will hear the usual "more cuts!!!" from Republicans - but there really is nothing left to cut. We've cut fat, we've cut muscle, we've cut bone. We're reduced to sucking out the marrow and leaving a bare rickety skeleton.
Second, the tax increases - some of which are temporary, some of which are permanent - are not designed to be the final solution to the structural revenue shortfall. Speaker Bass made a good point that while the income tax increase is permanent, it can and perhaps should be changed when the tax reform commission unveils its proposals next year.
Third, the increases will hardly hurt the economy. Many of these tools were used in 1991-92 with the severe budget crisis at that time and they did not prevent the state economy from going into recovery by 1993-94. Of course we need to get away from the notion that tax increases by themselves hurt economic growth - firing teachers, cutting public transportation, and closing hospitals are really what produce severe and lasting damage.
That all in mind I discuss the specific plans over the flip.
Earlier this week, Governor Schwarzenegger called the number of uninsured in California a "moral crisis"--and he was right, both about that and the need for concerted action on health reform.
Unfortunately, the Governor's cuts-only budget goes in completely the opposite direction, making our health care system even more broken, and leaving more people uninsured. Today, Health Access California is releasing a report that reveals the full magnitude of the cuts the Governor proposes--with over one million more Californians uninsured. While the Legislature has adopted some of these cuts and rejeced others, all of these proposals are on the table until a budget solution is agreed to.
Governor Arnold Schwarzenegger received a gift of nine works of art by local school children yesterday. The artwork was created "to save public education" by children and their parents at the Davis farmer's market and third-graders at Dry Creek elementary in Roseville and included a piece titled, "Evil Money-Grubbing Robot Seeking to Destroy Public School."