We are in a painful recession. Too often it seems like DC hears more about the concern of billionaires who don't want to lose their tax cuts, and too little about the parent of two who works long hours and barely is getting by. And yet Congress votes on whether the billionaire will have more, and whether the working class parent will lose his or her job. These are the votes presently occurring, and which are being treated like a drawn out political game.
The proposed Federal budget cuts are turning into another political sideshow. The process of the budget is being treated as a chess game, a battle over politics and procedure, and one that may go on for a long time still, narrated by talking heads throughout.
If you are an American in need of a job, or one afraid that your job will be cut in the budget proposals, it isn't just a DC soap opera. The reverberations of the proposed cuts are drastic and personal. States and cities throughout the country feel the impact of the cuts through the stories of those waiting with every news cycle to hear whether their job, or hope of a job, will be slashed.
The City of Los Angeles is a perfect example of this harm. Los Angeles is already affected by the recession with a whopping 14.5% unemployment.
The proposed federal budget cuts are not abstract to Los Angeles. They would eliminate funding for job creation projects, projects needed to help Vets find work, and they could wipe out training services for youth hoping to find skills, or the homeless, hoping to break the cycle of poverty.
In Los Angeles, the community is not sitting back and letting these proposed cuts happen without a fight. Next Wednesday, March 23rd, Angelinos will rally at the Federal Building in Downtown Los Angeles to say no to such cuts. Cutting jobs is not the answer to recession budgeting. It's time that our government prioritized working people over billionaires.
If democracy is to work, we have to hope that Wisconsin and Los Angeles, and the other communities that have had enough, send messages strong enough to penetrate the walls of Capitol Hill. It's time our government support those struggling to get by, and not just those with the money to access power in private backrooms. It's time we make it know: budget cuts equal job cuts. And America simply can't afford to cut anymore jobs.
Senate Democrats have sent a letter to Governor Schwarzenegger asking him to reconsider his veto of the renewable energy standard and subsequent executive order. The strongly worded letter has about as much currency as the eleventy billion-dollar bill, but it does explain why the Governor's hypocritical action is a bad deal for California.
Respectfully, an Executive Order does not have the force and effect of law. Additionally, such a proclamation will only cause confusion and uncertainty to California's energy markets, jeopardizing California's role as the world leader in renewable energy development and green jobs.
As you noted when you signed AB 32, the landmark "Global Warming Solutions Act of 2006," administrative actions are no substitute for a statute that is permanent and enforceable.
Directing the California Air Resources Board to implement an RPS program is a fundamentally flawed approach. The CARB is not an energy agency; it is an air quality regulatory agency. There are numerous provisions of law which impair the CARB's ability to implement a renewable portfolio standard. Assigning this new responsibility to the CARB will not result in new renewable energy being built soon--it will only lead to litigation, regulatory confusion, and delay.
In our view, it is essential to green businesses and the renewable energy investment community which bring jobs and capital into California, that California's 33% RPS be statutorily established and not subject to the whims of changing administrations.
There's only one reason that Schwarzenegger gave the CARB the ability to implement a renewable energy standard - so he can go on talk shows and crow that he's instituted an environmental achievement. Except, as is explained here, it won't. It will get tied up in court challenges and confusion, without a clear mandate for the standard or penalties thereto.
Schwarzenegger has responded to this by calling the Legislature's bill "protectionist," and saying that if we get water from the Colorado River, we should be able to get renewable energy from other states as well. The difference is that a commodity is not the same as a job. The twin goals of a renewable energy standard are to spur the usage of renewables as a means to lower greenhouse gas emissions, and to build a green-collar economy that will create millions of new jobs. Schwarzenegger would rather give those jobs away. And given the perilous state of the economy here in California, we simply cannot afford that.
Job losses in the public sector will prolong the economic pain in California through 2010 even as a recovery gets under way nationwide, two forecasters predict.
Jeff Michael, a forecaster at the University of the Pacific, said Tuesday that California's recession will be over before the end of the year. But the cutbacks in state and local government, along with the continuing fallout from the mortgage meltdown, will make 2010 feel like another year of recession, Michael said in UOP's latest quarterly forecast.
Similarly, the newest UCLA Anderson Forecast predicts a sluggish recovery because of the weak public sector. UCLA senior economist Jerry Nickelsburg is more optimistic than Michael about the housing market, and says California will outperform the U.S. economy starting in 2011.
Yet both economists say Californians can expect continued high unemployment for a couple more years or so. The unemployment rate is currently 11.9 percent in California and 11.8 percent in greater Sacramento.
And yet here is Arnold Schwarzenegger vetoing the only major bill that would produce any semblance of an economic recovery for California.
The establishment in Sacramento has manned the barricades, battened down the hatches and gone on the offensive to prove their own worth. They sent their best man in the media, George Skelton, out to prove that no, despite your lying eyes, the California Legislature had a real banner year. After all, they managed to bring suffering to the lives of hundreds of thousands of state residents with consensus and bipartisan elan!
The current Legislature, regardless of Duvall and despite ideological polarization, has had a better year than it's getting credit for.
Its main accomplishment was keeping the state afloat amid a flood of red ink, created primarily by the toughest economic times since the Great Depression. OK, so it did use some bailing wire and chewing gum! The bills got paid, even if briefly with IOUs.
With great difficulty and pain -- at least for Democrats -- the Legislature and Gov. Arnold Schwarzenegger slashed programs by roughly $30 billion. They also struck a major blow against "auto-pilot" spending by permanently eliminating all automatic annual cost-of-living adjustments, except for K-12 schools. And they summoned enough courage to temporarily increase taxes by $12.5 billion.
In the end, they found a way to restore health insurance for 660,000 low-income kids.
The tax increases hit the more vulnerable elements of society disproportionately, of course. They actually found that way to restore children's health insurance by lowering industry taxes and increasing the co-pay and deductible burden on the low-income families themselves, while reducing the covered care. And anyone who adds cutting $30 billion in programs and eliminating COLA as an accomplishment is a bit of a social deviant. But there are probably no lengths to which Skelton will go to defend the palace walls from the rabble who think, based on the evidence, that the system is horribly broken.
Steve Maviglio wisely steers clear of the more horrific achievements of this year's Legislature, and offers a slightly more defensible outlook of the '09 Legislative session. Still, there's a lot unsaid:
Looking back, getting the measures on the May ballot was a significant early success that required 2/3 votes. And toward the end of the session, in addition to the renewable energy bill, Speaker Bass pushed through measures on childrens health and domestic violence that won broad bipartisan support. (The Speaker also got a standing ovation, and she appears to have strengthened her support in Caucus. Compare that to the ouster of the two Republican leaders).
Okay, so the grand water deal didn't get done. Big deal. Nothing like that has been done for a generation. Perhaps Senate President pro Tem Steinberg set the bar too high when he said he'd get it done. In any case, all parties agree that they got close and can pick up the pieces and get it finished in short order.
So for all those crying for major reforms, put it all into perspective. Sure, improvements could be made, and things could have been better, but this is not reason for drastic action. Far from it.
Of course, the renewable bill is veto bait, as are many of the other major bills pending the Governor's signature. And the domestic violence bill didn't pass the Senate, so, um, that doesn't count. The prison bill offered decent parole reforms but stopped well short of a real solution. Everyone keeps saying the water bill will happen but the two sides remain far apart, and the fact that they'll have to go into overtime to reconcile it kind of proves the point, no?
But Maviglio tips his hand with the line "this is not reason for drastic action." Of course he would say that. He's profited well from the status quo. Anything that messes with it could hurt him professionally, and what's more, could stop the endless blaming of outside factors to account for stunning failure.
There is no shame in stating that this was a failed legislative session. Just about everyone in California would agree with you, particularly the ones who are suffering the most from the destruction of social insurance caused by the most heartless cuts. Simply put, the Great Recession dominated legislative activity, and the conservative veto from various 2/3 requirements restricts the Legislature from fulfilling the expressed will of the people through their votes (NOTE: This does not only come into play with the budget; late last Friday Republicans blocked over 20 bills that required 2/3 votes for one reason or another, probably because they knew they could get away with it). That's not something to explain away, it's actually something to fight, every single day until the problem is rectified.
Skelton and Maviglio may want to tell themselves all is well, but the public knows better, and they're going to demand major structural change. Those who think that the Legislature can still be a force for good in the state can get aboard and provide the best ideas to break the supermajority gridlock and get the state moving again. Or they can defend their narrow interests. Their defense will fail, and it would be a shame not to see them on the right side of history.
If the Capitol Weekly is going to have a right-wing corporate shill on their editorial pages, the least they could do is get a good one. Because I don't know where anyone, even John Kabateck of the National Federation of Independent Business, gets the cajones, after the legislature just passed a cuts-only budget completely on the backs of poor people, to fret about the plight of possible taxes for the business community.
"Get the monkey off your back and relocate to Las Vegas", barks a new ad trying to lure hard-working small businesses away from California. If legislators don't listen, small businesses that have already been hit hard by the effects of a fragile economy and the billions in taxes that were passed earlier this year will go under.
Um, right, this "rich people and businesses are leaving California" Galt-ism is not true and has never been true. But do go on.
The Legislature is back and up to its old tricks. The budget that was passed in February and revised in July will need to be "fixed" again this fall. If history is our guide, we all know that it will be an uphill battle and an unpleasant environment for small businesses. There are currently $2 billion in tax hikes being proposed, including taxes on everything from gas, internet purchases and vehicle license fees.
Oh noes! Oil companies might have to pay for the natural resources they take out of California's ground for the first time in a century of drilling! Get the smelling salts! The vehicle license fee might return to still-well-below-the-average-percentage relative to every state in the nation! This is terrible!
You'll notice that Kabateck fails to mention the $2.5 billion annually in corporate tax cuts passed in the previous two budget agreements, which miraculously exceed the tax hikes - beaten back by the Yacht Party and the Governor in July - about which he is fretting so. These massive corporate tax cuts do nothing to keep the largest corporations in America doing business in California - they would hardly abandon a market of 38 million people. It's nothing more than a kickback for services rendered. And if that's a transaction of prostitution, then John Kabateck is the guy who cleans up the courtesan's antechamber afterward, eager to grab a buck for himself for the privilege of working for whores.
It's amazing how little the California office of the National Federation of Independent Business speaks for independent business. He could have written a nice little article about how corporate behemoths are screwing small businesses when it comes to state purchasing, which currently favors out-of-state multinationals. Instead, he offers the party line that the structural revenue gap is fine and leaving citizens out on the street to die is a small price to pay for protecting oil and cigarette companies. Kabateck doesn't seem to understand that this mentality is destroying the California economy, and with it all of those small businesses he claims to represent.
Hacktackular job, CapWeekly! With any luck, you'll get Jon Coupal or Joel Fox to offer a rebuttal.
Whether it's the continued foreclosure crisis, the impact of state budget cuts or the cumulative effect of depressed consumer spending, it's now extremely clear that the state's employment picture shows no sign of bottoming out, reaching an all-time high in the post-war period.
California's unemployment rate took an unexpected leap in July, reaching a post-Word War II high of 11.9%. The increase contrasts with the national rate, which declined slightly over the same period, and reflects ongoing weakness in the state's battered construction and financial services industries.
The state lost a net 35,800 jobs last month, more than any other state, the U.S. Labor Department said today. It has lost 760,200 jobs over the last year.
Every category of nonfarm jobs in the state except education and health services experienced year-over-year losses. The construction sector was the hardest hit, shedding 18.6% of its jobs. Manufacturing jobs fell 8.7% from the same time last year.
Job loss did slow relative to the previous two months. But I don't think anybody believes that 11.9% is a floor. Los Angeles, where the jobless rate jumped 0.7% in just a month, is one of the worst big cities to find a job in America. The city has 15,000 homeless veterans. And areas of the Central Valley and the Inland Empire are in far worse shape. It's basically a depression in those parts.
And we are just starting to add a round of painful state budget cuts to increase the economic shortfall. Whether it's closing parks that provide economic benefits, or dropping or cutting aid to 100,000 IHSS recipients, or wiping out the entire domestic violence budget, the cuts will not only force the poor and infirm to slip through the cracks and cause mass suffering and even death, but the economic impact will be profound. Caregivers will lose their jobs. Relatives will shift their schedules to care for their families. Productivity will reduce. It's just a plain fact that lowering public spending during a deep recession will negatively impact the economy. Consumers aren't spending, companies aren't trading and businesses aren't investing. Government is the spender of last resort. And that spending has been slashed.
Via Joe Mathews, here's yet another powerful piece of evidence that the Yacht Party scaremongering over how high taxes force people to leave California is a load of fertilizer.
TALLAHASSEE -- For the first time since the end of World War II, the growth state of Florida lost population, researchers say, in a sign that the economic recession is even worse than many had feared.
In all, the state lost about 58,000 people from April 2008 to April 2009, according to a new estimate from the University of Florida's Bureau of Economic and Business Research.
"It's such a dramatic shift from what we've seen in the past,'' said Stan Smith, the bureau's director.
"Florida's economy is, in a lot of ways, driven by population growth,'' he said. "Perhaps more importantly, population growth is a reflection of how the economy is doing both in Florida and in the nation.''
Attributing population shifts to taxes is about as rational as attributing student test scores to rain. If you want to correlate populations and the economy, the Occam's razor explanation would be that people go where the jobs are. And I would add that people who cannot find a job probably won't stay around a place long if the social safety net is vaporized.
The lack of political media in the state allows urban legends like this to take hold through the only outlets left, right-wing radio and persistent rumor. You get the falsehoods you pay for listening to such garbage. If we had 100 Peter Schrags in the media and twice that in the Democratic Party leadership forcefully rebutting such misinformation and making the value-based case for the kind of progressive government they'd like to see, at least there would be a counterweight. But it's hard to argue something with nothing.
(I'm putting some of Schrag's article below the fold, because it's brilliant and a great resource for arguing with friends and neighbors. Read the whole thing.)
Arnold Schwarzenegger will sign the FY2010 budget revision quietly tomorrow, with up to $1 billion dollars of line-item cuts that could potentially cause more pain for California citizens. He'll claim that he was acting responsibly and in the best interests of the people. As CalBuzz says today in about as shrill a way as imaginable, it's a load of crap.
"(T)he biggest winner to emerge from our negotiations is California," the governor bragged, "our state's legacy, its priorities, and its budget stability."
Wrong, wrong, wrong!!
Schwarzenegger's triumphalist braying was little more than a one-step-ahead-of-the-posse exercise in spin control, a pathetically transparent bid to establish a positive narrative for the budget disaster over which he's presided, in hopes that voters and his suck-up pals in the national media will buy his story without bothering to check it out.
(NOTE TO NATIONAL POLITICAL WRITERS: Schwarzenegger did NOT solve or stabilize California's budget. Despite his assertion to the contrary, his budget - passed in February and now revised twice - actually RAISED TAXES by $12.5 BILLION. With the latest revision, he threw off enough ballast to keep his hot air balloon afloat but in no particular direction.) [...]
In truth, Arnold's entire tenure has been one continuous failure of leadership. This is just the latest chapter.
From his first days in office (when he sowed the seeds of today's never-ending fiscal crisis by his irresponsible cut in the vehicle license fee) to his ill-considered $15 billion borrowing bond (which helped make interest payments the fastest growing item in the budget) and his current shameful spending plan (which gives the University of California a major push into mediocrity while continuing the slow death of K-12 education and punishing the aged, blind and disabled), he has been little more than a narcissistic, tone-deaf poseur, surrounded by sycophants and devoid of principle or conviction.
Allow me to sit up and take notice at the shrill-ness.
And their points are completely inarguable. It's not just this budget revision, which makes draconian cuts and multiple faulty assumptions of revenue in order to pretend to fill a partially self-created deficit (we're not getting $1 billion from the federal government for Medi-Cal reimbursement, for example, nor will we sell the State Compensation Insurance Fund for $1 billion). It's that his entire tenure has had the goal of enforcing the tax revolt and eroding the New Deal consensus that Californians still by and large support as an electorate, though they lack the governmental structure to carry it out. And in that respect, he was wildly successful. Except Californians have figured out implicitly that this vision of the future is abhorrent, and while they haven't yet put their finger on who to blame, they could do worse than looking at the Governor. It is no accident that Schwarzenegger is viewed unfavorably by both parties, having driven the state completely into a ditch and hastened the near-depression in which we find ourselves. The structure of government resists workable solutions to our fiscal problems. But Schwarzenegger's reckless management has greased the skids and achieved nothing for the citizenry but future pain and suffering.
Tens of billions of dollars are cascading into California from the federal stimulus package, but the economic oomph is being weakened by massive cutbacks in state spending.
The financial crosscurrents show up in places like downtown Sacramento's old railyard, now undergoing a huge facelift. Stimulus money from Washington, D.C., will help move the train tracks, a key element of the plan. Separately, though, the slashing of redevelopment funding by the Legislature might derail a housing project at the site.
This push-pull effect will play out in education, transportation and other sectors. Economists say the likely result will be prolonged pain and a weaker recovery despite the $85 billion coming to California from the stimulus program over the next two years or so. Unemployment stands at 11.6 percent in Sacramento and statewide, and is forecast to exceed 13 percent next year.
The state budget "absolutely ... will blunt the impact of the stimulus," said Chris Thornberg, head of Beacon Economics consulting in Los Angeles.
Remember all this when you see some Twitpic of the Governor brandishing his pen and telling his list of followers tomorrow that he "fixed" the budget. The fix is in, to be sure - and the people will feel the results.
As part of an earlier bill, Congress initiated the modern-day analogue to the Pecora Commission of the 1930s, named after its chief counsel Ferdinand Pecora. That commission detailed the origins of the financial crisis that caused the Great Depression, and led to the passage of several banking reforms, including the Glass-Steagall Act, which separated investment banks and commercial banks. The Pecora Commission was credited for the reforms that stabilized the financial system after a 19th century full of depressions. After decades of neglect and deregulation, we needed a new Pecora Commission to examine the breakdowns in the financial system and recommend best practices to ensure it never happens again. And the man who will head this commission is Phil Angelides.
House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid today announced six appointments to the 10-member Financial Crisis Inquiry Commission, established by Congress to examine the domestic and global causes of the financial crisis.
Speaker Pelosi and Majority Leader Reid appointed Phil Angelides as chairman of the Commission. The statute requires the House Speaker and the Senate Majority Leader to jointly appoint a commission chair. Mr. Angelides, one of Speaker Pelosi's three appointments to the commission, served with distinction as the elected California State Treasurer from 1999 to 2007. He has earned national recognition as an effective public and private sector leader with broad expertise and accomplishments in the fields of investor protection, housing, finance, and corporate and financial market reform.
The Commission will conduct a comprehensive examination of, and hold hearings on, more than 20 specific areas of inquiry related to the financial crisis, including the role of fraud and abuse in the financial sector; state and federal regulatory enforcement; tax treatment of financial products; credit rating agencies; lending practices and securitization; unregulated financial products and practices; and corporate governance and executive compensation. The Commission will also examine the causes of major financial institutions that failed or were likely to fail had they not received exceptional government assistance. The Commission will provide its findings and conclusions in a final report due to Congress on December 15, 2010.
Obviously this takes Angelides out of the running for any political races in the 2010 cycle. But he'll actually have a far more influential position - determining the causes of the financial crisis and how to fully reform the system. I'm pleased that Speaker Pelosi and Senator Reid went outside of Washington for this task, not to any of the typical high priests of bipartisanship. I hope Angelides can get this job done, and it seems to fit with his skills.
The rest of the Democrats on the commission, including Clinton-era official Brooksley Born (who wanted to regulate derivates in the late 1990s) and former Florida Sen. Bob Graham, can be found at the release.
...The Republicans added a vice-chairman with a California connection: former House Ways and Means Chairman Bill Thomas.
Bloomberg reports that people are lining up for those souvenir Arnoldbucks.
Controller Chiang said the warrants can be transferred between individuals, setting up the possibility that a secondary market for the IOUs may develop. Already ads are appearing on Web sites such as Craigslist offering cash for the IOUs at below face value.
In such a transaction, the person who gets the IOU would get most of the cash they were due the state, while the person buying the IOU might then hold onto it until maturity and earn the face value plus the 3.75 percent interest.
At least one person offered to buy an IOU at more than face value as a keepsake.
"I am interested in purchasing a 'State of California IOU' as a souvenir," the ad reads. "I figure it would be an interesting thing to have around when my grandchildren are fighting over my stuff after I'm dead and gone. I will pay two times face value (up to $100, or $50 face value) for a warrant/IOU."
Of course, after July 10, the deadline that banks like BofA and Wells have given for exchanging these IOUs for cash, souvenirs may be the only value for these IOUs for a few months. Maybe Arnold will go to a baseball card convention and sign them himself!
Here's another FAQ about who receives IOUs and who does not. The unemployed, SSI/SSP recipients, state employees and retirees, IHSS and Medi-Cal providers will NOT receive IOUs. Welfare recipients, contractors with the state, local governments, and income tax refund recipients WILL get them. Felix Salmon made a handy chart that suggest the haves will keep getting paid and the have-nots won't, and that's somewhat true, but some have-nots who have the benefit of their services being partially provided by the Feds will get paid as well. In general, where you stand does depend on where you sit, in this crisis. This again makes clear that the idea of California debtholders, who get priority of payment in the state constitution over everything but education, getting stiffed by the state is a ridiculous one that pretty much cannot happen, and lowering bond ratings should be rightly seen as Wall Street gouging.
Small businesses, students, seniors, and taxpayers will all start receiving IOUS. This shameful day didn't have to arrive. In fact, Governor Schwarzenegger had several opportunities to prevent it.
On June 12 Governor Schwarzenegger unilaterally blocked the Controller's authority to secure short-term loans to avoid the cash crisis. He said, "let them have a taste of what it is like when the state comes to a shutdown -- grinding halt."
On June 25 after the governor called Senate Republicans to his office for private meetings, $4 billion in immediate cash solutions that had been passed on an overwhelming bipartisan majority in the Assembly were killed in the Senate.
Most recently, the governor vetoed a comprehensive package of budget solutions supported by majorities in both houses of the legislature that would have resolved the $19.5 billion deficit, left a $4.0 billion reserve, avoided the cash crisis and prevented IOUs [...]
We did offer, as a sign of good faith, to begin work immediately on reforms regarding restructuring Medi-Cal and eliminating fraud in the IHSS program. We also committed to working with the governor on other reform legislation for him to sign. But the governor wouldn't take "yes" for an answer. So California businesses, taxpayers and students will be receiving IOUs simply because Governor Schwarzenegger thought it was more important to immediately force last minute changes such as reducing future employee pensions, fingerprinting elderly and disabled Californians who receive services, and denying kids food stamps if their families can't access a computer to sign them up for the program.
The budget gap grows by $25 million a day and we have wasted billions of taxpayer dollars because the Governor wants to teach everyone a lesson. I hope that IOU secondary market is bigger than eBay, because those suffering with the consequences of dysfunction are going to need the help.
The IOUs are on the verge of being distributed. The Pooled Money Investment Board met today to hash out the terms for the IOUs, and surprise, there were some differences. The Governor wants a paltry 1.5% interest rate for the IOUs, and flexibility on repayment until as late as June 2010. That would be worse than a 1-year CD. Controller Chiang supports the staff recommendation of 3.75% interest rates and repayment in October. Chiang won. The board approved his terms.
The reason to offer a more attractive interest rate is to ensure that banks will actually cash them. Wells Fargo and Bank of America announced they will accept them, but only until July 10; after that, it's anybody's guess. Golden 1 Credit Union and Tri Counties bank of Chico also agreed to accept the warrants. This article gives a good rundown of how the IOUs will work. If your bank won't cash them, you're basically stuck with a piece of paper until October.
The most important question, of course, is why we're going down this costly route at all, when the Assembly and Senate Democrats fashioned a solution to avoid this. The answer is that the Governor wanted some leverage, the people be damned.
If the stigma of issuing IOUs triggers a budget deal in the coming days, Gov. Arnold Schwarzenegger might find redemption in his strategy of quashing a stopgap solution that would have avoided those non-cash payments.
But if no budget deal emerges soon, Schwarzenegger will have helped saddle the state with a lower credit rating and have nothing to show for it.
As a negotiating strategy, Schwarzenegger is counting on public pressure to mount against the Legislature as California issues IOUs today for only the second time since the Great Depression. The Republican governor could have backed legislation to avert IOUs this week, but he demanded that lawmakers solve the entire budget problem, which grew Wednesday to $26.3 billion [...]
Schwarzenegger wanted a full budget deal, and part of his calculation was likely that IOUs ramp up the stakes and force lawmakers to reach that goal sooner. Without IOUs, he figured lawmakers might have delayed compromise on the rest of the package, costing the state in a different way.
"If he had signed the stopgap measures, the Legislature would have gone home for Fourth of July weekend and come back when the threat of IOUs came up again," said Tim Hodson, executive director of the Center for California Studies at California State University, Sacramento. "I'm sure the governor went over this and thought: Are the consequences of the delay worse, and would he have lost the leverage that he has now?"
Well, this is a game played with people's lives. If banks won't cash IOUs, you can be sure Rite-Aid won't accept them. Or landlords. Or health care providers. In addition, this little power play cost taxpayers between $2 and $7 billion dollars, which I don't see Schwarzenegger going into his wallet to cover.
Rather than shock doctrine the legislature into making major policy changes as a condition of passing a budget, a more likely scenario is that this train wreck will spark reform efforts to finally get off this perpetual track of hijacking and stubbornness.
If California has become ungovernable, and teeters now on the brink of bankruptcy, it is due less to excessive spending than a deficit in democracy - the very essence of which is majority rule. A simply worded, one-paragraph initiative to restore majority rule in the Legislature might well prove resoundingly successful with a crisis-weary electorate. And while it may not be sufficient in itself to repair the state's balance sheet and fix its broken governance, restoring majority rule is the necessary first step toward ending gridlock, renewing public confidence, and preventing extremists of whatever stripe from holding future legislatures hostage to their own narrow agendas.
I suppose the only good news to come out of last night, and indeed this entire cycle of budget nightmares, is that we are not alone. Several other states missed their fiscal year deadlines. Illinois has no budget and no plans to enact one; Pennsylvania may not be able to pay state employees due to a failure to reach agreement; Arizona got a budget in under the wire, but the Governor has not indicated whether or not she'll sign it, because it doesn't include a sales tax increase she sought; Ohio approved a temporary 7-day budget as legislators continued to wrangle; Mississippi left their utility regulatory agency unfunded; Connecticut's Governor signed an executive order to keep the government running despite no budget. We can take little solace in these difficulties other than to note that the national erosion of tax revenues combined with balanced budget agreements make the situation almost impossible for many states, particularly the large ones, and because of the threat to any economic recovery that would result from massive reductions in state spending and services, the door may crack open for a second federal stimulus package that specifically targets state budgets. I don't think we're quite there yet, but the crisis reaches a whole new level starting today.
First of all, this is the first day that budget cuts from the previous agreement in February take effect for fiscal year 2009-2010. These include major reductions in health and human services:
SSI/SSP grants for low-income seniors and people with disabilities will drop by 2.3 percent, cutting the maximum grant for an individual from $870 to $850 per month. A previous SSI/SSP grant cut took effect in May, reducing maximum monthly grants for individuals from $907 to the current $870.
CalWORKs grants for low-income families with children will be cut by 4 percent, reducing the maximum grant from $723 to $694 per month (the same amount as in 1989) for a family of three in high-cost counties. CalWORKs grants have been frozen since 2004-05.
Dental services for most adults in the Medi-Cal Program will be eliminated along with seven other benefits, including eye exams and incontinence creams and washes. (Last week, a trial court judge in Sacramento County ruled against a group that sued to stop the cuts from taking effect.)
Grants on those who make the least are the most stimulative to an economy, because that money gets spent quickly. Now it's drying up.
Of course, there's also the matter of the still-yawning budget gap here in California, which just got $7 or $8 billion dollars larger, depending on your math. This means that even more damaging cuts, likely to the most vulnerable elements of society, will ensue, leading to another wave of job loss, foreclosures, and pain. The Governor and Senate Republicans are completely responsible for that addition to the deficit - consider that $7 billion is MORE than the money at stake to the near-term budget in the May 19 special election - and for the issuance of IOUs, which will add billions in unnecessary interest obligations.
In a nutshell, under the governor's IOU plan the state pays vendors and others it owes with the equivalent of a post-dated check that is good for the face value of the amount owed plus interest. IOU recipients, for the most part, "sell" their IOUs to a bank for the face value of the check for quick cash. The bank holds onto and then redeems the IOU at a later date, earning millions of dollars in interest.
This type of borrowing is nothing like pulling out the state's credit card to pay the bills. Rather, this is more like the state going down the street and getting an expensive payday loan.
The Governor's payday scheme not only makes California the laughingstock of the credit markets, but it unnecessarily puts a black eye on the state's long-term credit rating.
This means that, for years to come, millions of taxpayer dollars get shoved into the pockets of Wall Street bankers every time we issue long-term debt to build schools or roads, or other needed public projects.
Somewhere in the neighborhood of $6 billion dollars in additional interest alone will be added to the cost of selling bonds that voters have already approved.
Of course, by that time, Schwarzenegger will be out of office, so what does he care?
Harold Meyerson has the must-read of the day about this disaster, pinning the blame where it needs to go - on shock-doctrinaires like the Governor who demand to use this crisis to destroy the public sector. Read the entire thing, but here's an excerpt:
Right-wing ideologues see the crisis as an opportunity to shrink government regardless of the consequences. Schwarzenegger is proposing to end welfare, not just as we know it but altogether, and to throw 1 million children off the rolls of the state's healthy families program. But the consequences of closing the deficit simply through cutbacks will be felt by more than the poor. Already reeling from $15 billion in cutbacks that the state put through in February, many school districts, including that of Los Angeles, have canceled summer school this year. Scholarships that enable students of modest means to attend California's fabled university system have been slashed. Most of the state's parks may have to be closed as well.
The terrible irony in decimating the public sector to save the state is that the California that was the epicenter of the postwar American dream was fundamentally a creation of government. Fighting a Pacific war during World War II compelled the federal government to spend billions on California industry and infrastructure, and the state was the leading beneficiary of Pentagon dollars during the Cold War. As Kevin Starr, California's leading historian, points out in "Golden Dreams," his brilliant new history of the state in the 1950s and early '60s, fully 40 percent of all defense dollars for manufacturing and research in 1959 went to California, anchoring the state's booming economy in a well-paid workforce that was either unionized or professionalized, and seeding an electronics and high-tech sector that was to blossom in the following decades. Building on that prosperity to create more prosperity, Earl Warren, Goodwin Knight and Pat Brown -- two Republicans, one Democrat -- invested state dollars in schools, universities, freeways and aqueducts that were the best in the world. The Golden State was never more golden.
Today, its governor seems determined to turn that gold to dross. On Monday, the Democrats in the legislature passed a budget that included cuts of $11 billion, levied a tax on oil companies and tobacco, and raised auto registration fees by $15 per car to keep the state parks from closing. Schwarzenegger reiterated his refusal to raise any taxes or fees and said he would veto the budget.
There's still a chance to avoid IOUs, though I wouldn't call it likely. There is no chance to avoid the devastating impact of a broken political process and irresponsible legislating which at this point can only slide California into depression.
If no deal is reached between the Governor and the Legislature in the next 14 hours, California will start to issue IOUs to companies that do business with the state (mostly small businesses), taxpayers expecting refunds, and agencies delivering assistance to the most vulnerable members of society - welfare recipients, the elderly, disabled and blind, and college students expecting aid grants.
The biggest variable with these IOUs is whether or not banks will honor them, a decision that they have yet to reach.
The deciding factor could be California's banks. If they're willing to honor the registered warrants, or IOUs, then the problem becomes manageable for the scores of small businesses and local governments that rely on dollars flowing from Sacramento. They'll be able to cash the IOUs.
But if the banks resist, billions in state payments will be effectively delayed - putting renewed stress on a state and region already suffering from a deep recession. One Rocklin company, a temp firm that relies heavily on state business, has already laid off five workers in anticipation of a cash squeeze.
So far, no banks have committed to honoring the IOUs, said Hallye Jordan, spokeswoman for state Controller John Chiang.
She said banks are probably waiting to see how much interest the state will pay on the IOUs - a figure that won't be decided until Thursday, the same day Chiang is scheduled to issue IOUs. The notes will total $3.36 billion, with about $500 million targeted for the private sector.
In 1992, banks generally honored the IOUs by cashing them on demand. If you haven't heard, banks are in a slightly worse financial picture now than then, and might not be willing to float bridge loans for the state, even with generous interest, this time. And of course, if the banks agree to honor the IOUs, the state will be paying out hundreds of millions of dollars to them in short-term interest.
If the banks fail to honor the IOUs, you can just add that to the severe pain being felt by California residents at this time. The personal bankruptcy filings which soared in Southern California in the first quarter will only increase. The foreclosures, which have not only continued for residences but commercial property like hotels, will expand. With small businesses forced to cut back due to cash flow cutoffs from the state, expect more unemployment and a continued erosion of the tax base, leading to even larger budget shortfalls. This is a death spiral from which we will find it hard to extricate ourselves. California's role as the biggest of the "50 Herbert Hoovers" truly can threaten national economic recovery.
In the crisis mode that the state has been operating under for the last few years, we haven't really done a great job of trying to create solutions for big, long term problems. And many of these big problems have only gotten bigger while we dithered.
Yet, despite all the stories of the homelessness problems, the Governor has done relatively little to combat the growing plague upon our state. And his proposed budget cuts, which are as CA Democratic Party Chair John Burton called "beyond cruel", will only make things worse. Waay back in 2005, Arnold promised to create a program to address the issue, or at least the substantial portion caused by mental illness in his so-called Homelessness Initiative.
Another aspect of that Initiative was an intent to create an interagency council on homelessness. Despite that pledge, Arnold hasn't convened such a council since 2005. So, Asm. Paul Fong (D-Cupertino) decided to push the issue. His AB 1177 creates an Interagency Council on Homelessness. By promoting communication through the multiple agencies that serve the homeless population in the state, hopefully the council will find ways to efficiently use resources and reduce duplication of efforts, and create greater accountability in state government.
It is particularly important now that every possible resource is perfectly targeted to address this massive issue. This is a good idea to work on just that problem. However, all the communication in the world won't help if we destroy the social safety net.
If you aren't depressed enough by the coming collapse of social programs for Californians as the budget nightmare drags on, consider that there will soon be more need for social services and less revenue available, as we segue into the rarely-remarked upon second wave of foreclosures in the Alt-A market.
A new wave of foreclosures is building in Sonoma County, one that echoes the subprime crisis that flooded the region's housing market with distressed properties.
The tide of troubled loans, which first struck high-risk borrowers who did not qualify for conventional mortgages, is now spreading to people with good credit who purchased more expensive homes.
This time, it involves borrowers who took out mortgages known as Alt-A loans. Like the subprime loans that began imploding in 2006, these loans offered seductively low introductory payments that enabled many borrowers to buy or refinance homes that were pricier than they could otherwise afford.
Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.
There are hundreds of thousands of these loans in California just waiting to recast. In the context of Sonoma County, 18% of all housing loans are Alt-A, most of them purchased between 2004 and 2006. Two-thirds of them will see rapid jumps in their payments in the next two years.
I spoke with Asm. Ted Lieu this weekend, who didn't even want to describe these as foreclosure waves. "It feels like they never stop." He hopes that the latest government program to try and fix the foreclosure crisis, which can allow new mortgages to be issued at 96.5% of current value, will actually make an impact, but we're talking about a whole new class of borrowers getting into trouble because of these rate recasts. This of course adds to the properties on the market, bringing down prices, adding to a whole new wave of tax reassessments, and on, and on, and on.
You can almost set aside the unemployment crisis, and the feedback loop of decreased government spending leading to reduced consumer spending and more unemployment. Just this continuing housing crisis is enough to permanently disable any solutions to economic recovery.
...I should note that AB260 passed the Assembly today, forward-looking legislation which would prohibit lenders from steering borrowers into bad loans, prohibit lenders from reaping financial advantages (called yield spread premiums) from that steerage, ban negative amortization loans and regulate subprime lending. The Governor vetoed similar legislation last year. This is an impressive reform, but too late. The crisis has spread into prime loans by now.
(Say Hi to Asm. Lieu. NPR's Planet Money podcast did a good report on this subject as well. - promoted by Brian Leubitz)
Two weeks ago, Bank of America surprised Wall Street by posting an alleged 'strong' profit of $4.2 billion the first quarter of this year. Now we know how they arrived at those numbers: funny math. Today we learned that Bank of America actually needs another $34 billion injection of capital in order to survive.
Bank of America is not the only firm using funny numbers. Goldman Sachs posted an alleged profit of $1.8 billion for the first quarter of 2009. The company had previously followed a calendar quarter that ran from December to February. However, Goldman Sachs conveniently and suddenly decided to change its accounting to a calendar year schedule, and changed their fiscal year to start in January, effectively eliminating December's results. The company had suffered large losses in December. So the 'profit' Goldman Sachs posted doesn't account for the entire missing month of December.
There's a very pernicious habit in California of turning away from budget issues once a crisis is averted, in a show of relief that we will at least get a small reprieve from having to deal with the contentious battles for a period of time. This false sense of security is bad enough in regular years, when the budget is cobbled together through borrowing against the future and no long-term solutions are implemented. In this dynamic economic crisis, when rosy outlooks can darken in a matter of days, it's downright foolhardy.
Greg Lucas at California's Capitol has been one of the louder voices in insisting that the budget crisis is not at all over. According to Controller John Chiang, revenue in February was $900 million dollars below estimates. Now, if you extrapolate that out, we'll be in a $10-$12 billion dollar budget hole by the end of the year just if things remain at the same level. This is of course unlikely, as the February national job numbers showed. So much of the tax increases passed in the February 19 budget solution are tied to employment - an increase in the income tax, and sales tax increases that of course rely on residents having purchasing power. In addition, these lean economic times will push more people into needing state services, like unemployment and Medi-Cal. Then there are the counter-cyclical increases and cuts that are working against what the economic recovery is attempting at the federal level.
In addition, many of the spending and taxation decisions made in the recent budget cancel out some of the benefits to California of the American Recovery and Reinvestment Act.
The federal package provides an estimated $13.1 billion in refundable income tax credits for middle to low-income Californians at the same time the state budget includes $12.2 billion in tax increases, only some of which are deductible. And only half of taxpayers deduct.
The federal bill includes a one-time $250 payment to the state's aged, blind and disabled poor at the same time the state is reducing the maximum grant for an individual by $37 a month, $444 annually.
"California is roughly an eighth of the nation. The impact of this is sufficiently large that it could affect the prospects of recovery for the nation as a whole," said Jean Ross, director of the California Budget Project, who has been examining how the state's budget interacts with the federal stimulus package.
The biggest short-term issue is cash. Lucas did an interview with John Chiang where he admitted that we will still need to borrow against the anticipation of future revenue as early as April, to the probable tune of $1.5 billion. Because the budget deal was completed too late to include changes to the income tax code, those revenues will not come in until the following tax year. The sales tax will go up April 1, but that will not be enough to cover expenses.
CC: Is February a big month for obligations?
JC: No. April is the real difficult month. If we don't get that RAN, we're $636 million in the red. But then the bigger issue is July. When we walk into the next fiscal year we will need a massive cash infusion.
CC: How come?
JC: We always borrow at the beginning of the year, 25 out of the last 26 anyway and then in April we make up the difference. But this year we walk in with weakness into the next fiscal year. There are less tools in the tool kit. We'll need a massive RAN or RAW (Revenue Anticipation Warrant).
Remember these last budgets borrow $16.5 billion from (state) special funds to backfill the general fund. So if we have any emergency in the state requiring aid from one of those special fund departments, the state is in trouble. Over 1,100 special funds in the state and we borrowed from over 650 of them. Part of this last budget solution gives us the ability to borrow another $2 billion more. The governor's budget has us borrowing $11 billion from special funds over the next 18 months.
So we're going to have to do some outside borrowing for the next fiscal year. Period.
And of course, there's very little anticipation of the worsening economic picture in the budget, meaning that we'll be in unquestionably worse shape by summer. And the cash crisis, forcing short-term borrowing, really impacts selected projects that go out into the bond market, for example infrastructure like the high speed rail project, which will basically have to shut down if there isn't a quick infusion of cash. Keep in mind that California has the worst bond rating in the country and the credit markets are still not that friendly to the state.
Another pressing matter is the determination of how much money from the federal stimulus will be available to the state to fill budget holes. There is a "trigger" in the state budget that would actually reduce some cuts - most of them the worst of the worst, particularly in health care for the needy - as well as reverse increases to the income tax, if at least $10 billion dollars in federal money hits the state budget. It's not just that money comes in, it's that it has to go toward general fund relief in order to contribute to the trigger. And Mike Genest, the Governor's finance director, has a preliminary estimate up showing that the state will come up short. This is insanity. As the California Budget Project noted on a conference call today, there will be many billions above the trigger number available to the state, the legislature need only craft the receipt of that money in such a way to hit the trigger. Otherwise, they are raising taxes and cutting services, and needlessly so. One such bill would change Medi-Cal eligibility requirements to free up as much as $11.23 billion over 27 months. That should happen ASAP. Democrats are trying to write this as a special session bill and ensure that it requires only a majority vote.
The main point here is that we remain in crisis mode with the state budget, and will continue for years upon years until we stop putting off the fundamental, structural solutions the way we constantly do. For example, the prison system remained virtually untouched during the budget crisis, despite being both crippling to the bottom line and unconstitutional in its overcrowding and inability to provide health care. We desperately need structural changes with how the state budgets, and those will only be accomplished by demolishing the conservative veto over the process and repealing the 2/3 rule.
UPDATE: Here's a link to the CBP study of the American Recovery and Reinvestment Act, identifying as much as $50 billion dollars available to the state in funding. Surely the legislature can figure out how to capture 20% of that and set off the budget trigger.
Check out the new video by AFSCME as part of their Make America Happen campaign. The video reminds us that we have overcome financial crisis before, and we can do it again. It compared FDR's solutions to the Great Depression with Obama's plans to tackle our current economic crisis.
As AFSCME President Gerald McEntee pointed out in his Huffington Post piece yesterday,
"President-elect Barack Obama's call for bold action and civic engagement in response to our present crisis echoes FDR's inspiring call to pull the nation out of the Great Depression and forge the New Deal. The video shows how our nation triumphed over economic crisis once before and can do so again by reinvesting in public service, providing health care for all Americans and growing the middle class."
With a severe economic recession, an unemployment rate that reached 7.2 percent in December and continues to grow, and with more Americans falling into poverty, Americans are demanding action. Please sign our petition and make your voice heard.
The Make America Happen Campaign is dedicated to helping President-elect Obama revitalize our economy, provide health care for all, and strengthen the middle class. Our best days are still ahead of us.
I urge anyone who cares about California to listen to yesterday's Which Way, LA. It'll make your hair stand up. The program was about the decision by the Pooled Money Investment Board (basically Treasurer Lockyer, Controller Chiang and Schwarzenegger's Finance Secretary Mike Genest) to shut down almost 2,000 public works projects, from schools for the deaf in Riverside to highway improvements along the 405, from hospital construction to transit projects and fire prevention services in heavily forested areas, affecting the entire state and as many as 200,000 jobs over the next several months.
The problem is that California is out of money. But it's bigger than that. The state floats revenue anticipation bonds to cover these kind of public works projects, and indeed the voters approved all kinds of infrastructure bonds in 2006. The issue is that investors simply won't buy them. They believe that California will default on their commitments at some point or another (though it's never happened before) due to the instability of the budget process. Coming up with a work-around to get the budget more balanced (at the expense of hard-won labor rights for public employees, it appears) will go some of the way to fixing that, but NOT all the way. We're at a point of extremely low investor confidence. California has the worst bond rating in the country. So it's not at all clear that the shovels will be picked up again even if the legislature passes and the Governor signs a budget deal. The systemic budget cycle of catastrophe is what's keeping investors away. And of course, if the work-around falls apart or the courts strike it down, the state will be out of money in February and vendors will start receiving IOUs.
What's more, if the Obama Administration offers massive infrastructure spending as part of a recovery package early in his term, EVEN THAT won't necessarily get these projects going. As I understand it, federal grants of this nature often require up-front money from the states, and the opportunity for matching funds if the state kicks in the first 25%. At this time we don't have that money, so we wouldn't be able to access the match. I assume Speaker Pelosi knows this, but it will be difficult to alter the standard practice on this kind of federal spending.
We're talking about 200,000 lost jobs and an infrastructure shutdown at precisely the moment when infrastructure spending is seen as the key to economic recovery, with multiple obstacles to getting them going again. And the state could be liable for whatever rises as a result of the shutdown:
Lockyer and other members of the Pooled Money Investment Board predicted that unless the state balances its budget, the funding shut-off will further harm the economy and expose the state to lawsuits.
"The likelihood of contract breaches is probably 98 percent," Lockyer said [...]
Also at financial risk is a new levee on the lower Feather River in Yuba County and a planned bolstering of Folsom Dam for flood protection.
Assemblyman Dan Logue, R-Linda, said the suspension of state funding for the Feather River levee project, already under construction, would put 40,000 people at risk in an area that has flooded twice in the past 25 years [...]
"This (could) put tens of thousands of people's lives at risk, and I believe the state will be liable if there is any damage," Logue said. "The state is responsible for those levees in the first place."
This looks to me like an unending nightmare. If I were Hilda Solis or any California politician, I would want to get the hell out of this state too. It looks like it'll fall into the ocean. But hiding from the problem is a mistake. This has the potential to take down whatever economic recovery we may see come January. The federal government needs to provide direct relief, not grants, to the state, or at the very least guarantee the bond issues so that we can restart the issuance of revenue anticipation notes. You can run, but you can't hide from California.
I want to publicly thank Jordan Rau and Patrick McGreevey for ripping off my "Scared Straight" moniker to describe yesterday's joint legislative session. This is par for the course with the traditional media creatively borrowing the work of bloggers without attribution. Hey, at least our site didn't send us into bankruptcy.
UPDATE: Mr. Rau, in a somewhat snippy but professional email, tells me he doesn't read the site and the "Scared Straight" idea was independently his. Fair enough.
As for the effectiveness of the "Scared Straight" session, which posited that all state infrastructure projects would be shuttered by the end of the year without a new budget, and that the state would be essentially out of money by February or March, and that doing nothing will make the problem substantially worse... well, let's just say it could have gone better.
The Republicans, who attended reluctantly, refused to accept tax increases, instead emphasizing the importance of limiting state spending and ferreting out waste and bloat in existing programs.
"I didn't see a lot of productive work there today," said Senate minority leader Dave Cogdill (R-Modesto). "I think it was more about trying to heighten the intensity around this thing and push people to a place that they have been trying to push us to for a long time, and I don't think it's going to work."
Sen. Dave Cox (R-Fair Oaks) held aloft two weighty yellow tomes produced by the last effort to trim state government -- Schwarzenegger's 2004 California Performance Review, which suggested 279 ways to save money by reorganizing the state bureaucracy. Almost none were adopted.
Look! The answer is just holding up the performance review and shuffling around the bureaucracy!!! Ahem...
In his comments, Mac Taylor, the Legislature's nonpartisan fiscal analyst, described the folly of trying to close the gap either by taxes or through spending cuts alone. A tax-only solution would require increasing the sales tax by 2 cents, adding a 15% surcharge to the personal income tax and hiking corporate taxes by 2% -- making all of those taxes the highest in the nation, he said.
Taylor said erasing the budget gap by cuts would require lawmakers to end all funding for the University of California and state universities, welfare grants, developmental health services, mental health and in-home supportive services.
It's of course a red herring that Democrats are seeking a "tax-only" solution, one that Karen Bass sadly saw fit to perpetuate yesterday by stating "I think some of my colleagues on both sides of the aisle are living in denial, frankly." Um, every Democrat in the Legislature voted for a shared responsibility budget that raised revenue and implemented painful cuts. If Bass doesn't want to make the fight at all, she ought to let everyone know. It's not helpful to try and spread the blame equally. We have a Yacht Party that has no intention of lifting a finger in the face of crisis. In fact, they see it as their opportunity to drown government in the bathtub and eliminate the social safety net permanently.
This is why the state GOP is bordering on irrelevancy throughout the state (BTW, if you want to laugh, read Ron Nehring's prescription for Republicans. Clueless and pathetic). Californians have thoroughly repudiated the Yacht Party vision. However, this is true everywhere but in the legislative chamber in Sacramento, where the 2/3 budget and tax rule allows them to hijack the legislature. In the long term, there is nothing to do but to capture a 2/3 majority and finish the irrelevancy project. In the interim, California's Democratic lawmakers are better off flying to Washington, DC, where at least they'll have a chance of getting money for state and local governments in the new stimulus package, then staying in Sacramento, where they have no shot at breaking the stalemate. That's just reality.
Scared Straight didn't work. On to DC.
UPDATE: This is better from Karen Bass. I'll put the whole release on the flip, but she is, as she has been doing repeatedly throughout the crisis, calling for specific aid from DC. A taste:
Meeting with California Congressional leaders and President-elect Obama's transition staff, Assembly Speaker Karen Bass today outlined specific steps the federal government can take to boost California's economy and ensure that the state can actually benefit from stimulus packages currently under discussion.
"Infrastructure investment is critical to getting the national and state economies back on track," Bass said. "But the major spending cuts and tax increases that California and other states will need to balance our budgets could undermine the success of any infrastructure stimulus efforts. Today, I shared with Representative Barbara Lee from the Appropriations Committee and President-elect Obama's transition office California's firm belief that direct federal assistance has to be part of an economic stimulus plan."
This could be just to get the freshman members of the legislature up to speed, but it sounds rather... serious.
The entire Legislature will meet in a joint session Monday in the Assembly chambers to discuss the state's cash situation and overall budget dynamics with state fiscal leaders, according to Jim Evans, spokesman for Senate President Pro Tem Darrell Steinberg.
In a rare Budget 101 session, Treasurer Bill Lockyer, Controller John Chiang, Department of Finance Director Mike Genest and Legislative Analyst Mac Taylor will describe the consequences of delaying a compromise over the budget. They're likely to discuss the possibility of issuing IOUs to state vendors and state workers, as well as layoff scenarios and other consequences.
If I had to guess, this will be one of those meetings where everyone is sat down and told that this is what they have to do or the state will fall into the ocean. They should get some veterans from Scared Straight to run it. Put the fear of God into these lawmakers.
Although, I can't say whether or not it'll be successful. I mean, the Governor has already called a state of emergency and that didn't shake anybody up. Mike Villines is still sounding like a Yacht Party regular on budget issues:
Republican Assembly Leader Mike Villines (R-Clovis) took a dim view of a Democratic proposal to take reducing the threshold to pass a state budget to the voters.
Calling the proposed bill, which would ask voters to make a simple majority all that's necessary for passing a budget, a Democratic power grab, Villines said doing so was a duck on responsibly addressing the state's budget woes.
"Shutting Republicans out of the budget process will just make it easier for Democrats to pass more of the same reckless spending measures that have resulted in our current fiscal crisis." Villines said in a statement released late Wednesday."This will do nothing to improve our long-term budget picture, and will actually make things much worse."
He still wants a spending cap, of course.
But Lockyer and Chiang have plenty of ammunition to throw around. Failing a bailout from the Feds (which I think is a better bet at this point), state workers are about to be laid off or have their salaries frozen, and cuts to popular professions like teachers and nurses and cops and firefighters would be on the horizon in a protracted delay. Whether or not this threat of potentially hundreds of thousands of angry Californians and their families marching in the streets (Lockyer and Chiang need to have a flair for DRAMA in this speech) is enough to overrule the Iron Law of Institutions remains to be seen.
