At Tuesday's board meeting Superintendent Terry Brace explained the district will lose $3.5 million under Gov. Arnold Schwarzenegger's proposed budget plan.
If that passes, the district's three percent reserve will be pushed to the limit to cover expenses. Brace said the aim will be to maintain educational programs first. After that, "we want to cut things and not people," he said.
Kings County officials implemented a hiring freeze Tuesday as one of several measures to circumvent anticipated funding cuts from the state in the midst of a faltering economy. The county had already been on a limited or "soft" hiring freeze since July 1, the freeze affecting only positions that won't affect the basic level of service. No reduction in staffing levels were being considered.
County Administrative Officer Larry Spikes says it's a necessary measure to protect the county's fiscal health in light of the worsening state budget crisis underscored last week by the governor's call for a special session to close the deficit. Never before in California history has a governor called an "extraordinary session" so late in the year.
Efforts to close an $11.2 billion state budget deficit have shaken up the state's Healthy Families program, which provides health care to about 13,300 children and pregnant women in Stanislaus County.
Next month, the state is preparing to freeze enrollment in the program, which provides medical, dental and vision care to children whose families earn too much to receive Medi-Cal but can't afford private insurance. If the Managed Risk Medical Insurance Board approves the proposal Dec. 17, families trying to enroll children will be placed on a waiting list at least until June 30.
This is what's happening in this state, at precisely the wrong time. During an economic downturn, with the attendant job loss, people need more services, not less. It's the perverse cycle of constrained state budgets with their balanced budget amendments that they need to cut back precisely when they should be expanding. In a downturn, government must be the spender of last resort, yet the state Constitution doesn't allow it. And cutting the budget to get it in balance during this greatest fiscal crisis since the Great Depression would be an absolute disaster. And frankly, the Yacht Party isn't going to agree to anything sensible.
It would be better for all involved if the entire Democratic caucus decamped from Sacramento to Washington and sat outside Nancy Pelosi's office until a stimulus package with aid to state and local governments passed. Otherwise, the local stories are going to get worse and worse.
The Governator has hit a new low and shown an even lower understanding of how to weather a recession. Schwarzenegger followed through on his plans to sign the most asinine and ill fated executive order I've ever seen. Michael Rothfeld of the LA Times has the story and the Governor's plan:
Nearly 200,000 employees could have their pay cut to the federal minimum wage of $6.55 an hour, with full salary reimbursed once a budget is signed. More than 10,000 lost their jobs Thursday. Exceptions were made for those deemed too critical to let go for purposes of law enforcement, public health and safety or other crucial services
Schwarzenegger also limited overtime and imposed a hiring freeze.
Wow AAhnald, that's your answer to a stalled budget process? Taking money out of the pockets of 200,000 hard working state employees and killing student and seasonal jobs just because you're frustrated with lawmakers being unable to reach a budget deal? I'm sure the newly made minimum wage workers are pretty upset as well, unfortunately they don't have people to use as bargaining chips like the Governator in his poker game with the legislature.
Let's take a look at the situation via this story from Juliet Williams of the AP. Democrats have proposed a way to close California's $15.2 billion deficit:
They want to raise $8.2 billion by boosting taxes on the wealthiest Californians and corporations, and say another $1.5 billion can come to the state through an amnesty on tax scofflaws.
Seems reasonable to me. One would think the best thing to do if you disagree with something is to offer an alternative. That doesn't seem to be the case for California republicans:
Republicans oppose any new taxes but have yet to offer their own budget proposal, said Assembly Budget Committee Chairman John Laird, a Democrat. "It's time for the legislative Republicans to tell the public how they would balance the budget," he said.
Exactly right. Instead California Republicans have fallen into line with their leader in the governors mansion; disagree, complain, argue, kick and scream, but refuse to offer any alternative.
The Governor's plan does nothing but hurt even more Californians facing a bad economy and an even worse housing crisis. Playing with the lives of state employees to score cheap political points, its no wonder the Government is having such a difficult time trying to get a budget deal in place. But what should we expect from a Governor who has enjoyed yucking it up in front of the cameras more than being engaged in the budget process.
"I am a governor that does not believe that the action is in Sacramento and sitting around an office. That is not going to do anyone any good."
This may be true as it relates to dousing wildfires. But unfortunately, that's the Schwarzenegger governing style for virtually every problem -- whether healthcare, education or budgeting: Hit the road, stage the "town halls," perform for the cameras. Showboat.
Now yes, the Dems asked in June that he stay out of it, but he should have known better. Smart Governors know better:
"Getting the legislators to finish the budget without pressure from the corner office is like getting teenagers to come home early without a curfew," says Dan Schnur, former communications director for Gov. Pete Wilson and the new director of the Jesse M. Unruh Institute of Politics at USC.
Fortunately, some are still fighting this preposterous measure:
State Controller John Chiang, a Democrat who was elected to his post, suggested that the governor had overstepped his authority and said he would not cooperate. Chiang made his statements in a letter to Schwarzenegger and at a Los Angeles news conference.
"The state of California, the elected leadership, cannot put the important public servants of California in harm's way," he said. "We put people first, we make sure we protect their interests, and that's why I have to tell the governor, with all due respect, I am not going to comply with this order."
Good, maybe that will finally force the Governor to take a look at real solutions for the budget crisis and California working families.
Pressure from the Governor, or some shred of true leadership probably would have saved California from a lot of the turmoil they find themselves in today. Instead Californians got politicking in front of the camera, a failure to engage in negotiations until the situation was out of control, and now an embarrassing executive order launched as a scare tactic. Governor Schwarzenegger still doesn't understand. George Skelton does though:
All this compromising should have been concluded weeks ago -- at least by the July 1 start of the new fiscal year. No excuses.
Somehow, over the past few months, the recession hadn’t effected me much. Though I don’t make a lot of money, my job at a non-profit is secure - I don’t have to worry about getting laid off or having my employer go out of business. I also don’t have a car so gas prices haven’t really effected me. And though I’ve noticed the increase in food prices, this has mostly been offset by the amount of produce I’m now growing.
I of course was aware of the recession and had heard lots of stories about people not having enough money to fill up their tanks to drive to work and some who were buying less bread or less milk because they could no longer afford the steep prices. I’m acutely aware of the global food shortage and its causes (ethanol production, drought, increased demand, etc.).
But up until yesterday, the recession hadn’t directly touched me and I don’t think I had realized how bad it is.
CQ Politics is reporting on the Democratic leadership's desire for a second package to strengthen the economy that largely lines up with Barack Obama's plans. But are Congressional Dems omitting aid to state governments, one of the key planks of Obama's plan?:
EDIT by Brian: more in the extended.
I wrote last week about the failure of President Bush's economic stimulus package to stimulate anything beyond public opinion polls that prove its worthlessness and longer lines at food banks across California.
And with little of the stimulus package actually making it into the economy, states are still being forced to cut their FY2009 budgets to weather the slow economy.
The plight of states being forced to slash away at their budgets has been well chronicled this year, but on Sunday Louis Uchitelle wrote a piece in the New York Times about the broader implications of state cutbacks on spending. After highlighting the many crises caused by the economic failures of the Bush administration including a housing bust, credit crunch, shrinking level of consumption, rising unemployment and faltering business investment, they discuss one prop that's holding up our failing economy:
State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.
This article goes on to enumerate the kind of impact state budget cuts are really going to have on the economy:
At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles.
In some states like California, the budget cuts and their negative consequences are already set in stone.
“We are looking at a $4 billion cut to public schools and deep cuts that will result in thousands of Californians losing their health care,” said Jean Ross, executive director of the California Budget Project, offering a preview of coming hardships. “But the reality is we have not pulled money off the streets yet.”
But when the current fiscal year ends in 30 days (or in the fall for many municipalities), state and city spending will fall, along with employment — slowly at first and then quite noticeably after the next president takes office.
The results of this slow down in spending could end up leaving little doubt as to whether or not the United States is in a full fledged recession:
Sometime next year, the decline will reach an annual rate of $50 billion, Goldman Sachs estimates. “It is a big reason to expect a weak economy in 2009,” said Jan Hatzius, chief domestic economist at the firm.
The $90 billion swing — from more spending to less — could be enough to push down a weak economy to zero growth or less, because state and city spending has accounted for as much as half of total economic growth since last fall.
Yet despite all of this there is a glimmer of hope if the federal government takes the proper course of action, which is hardly a given with the Bush administration. The answer is actually very simple:
...the next president, struggling to revive a weak economy, will almost certainly have to consider a second stimulus package.
But what should it be? Should it be a reprise of the checks, relying again on private-sector spending for rejuvenation? Or should Washington channel extra federal money to city and state governments so they can sustain their outlays for the numerous programs that otherwise would be shrunk? The answer, even on Wall Street, is often: subsidize the states and cities.
In creating the first economic stimulus package the government erred in assuming that the general public would spend most if not all of their rebate check and thus a significant portion of the stimulus package did not make its way back into the economy. In reality there is only one way to make sure that aid from the federal government gets spent. On giving money to the states:
“If you want to make sure that federal money gets spent, and jobs are created, you give it to them,” said Nigel Gault, chief domestic economist at Global Insight, a forecasting firm.
Like many others, Mr. Gault contends that more than 50 percent of the $107 billion in stimulus checks now going to households is likely to produce no stimulus at all. Instead, it will be used to pay down debt or buy imported goods and services. Imports bolster production in other countries; not in the United States.
Government has to step in, Keynesians argue, when private spending is not enough to lift the economy, despite the nudge from tax cuts or lower interest rates or rebate checks. This downturn might be one of those moments, involving as it does the bursting of a huge housing bubble. That has precipitated sharp declines in various tax revenues on which the states and cities depend, forcing them into extraordinary spending cuts.
The GOP propaganda machine would have you believe that the federal government stepping in with aid to the states would lead to nothing more than radical, out of control spending sprees on various projects that are not needed. Any rational person however would understand that this money would go towards ensuring states don't have to dramatically slash their budgets in a way that could wreck the economy, not starting new projects.
And for anyone who may be wondering which programs could use a little help, here is a great place to start.
Stateline.org wrote today about another potential crisis; unemployment benefits:
More than a dozen states would be hard-pressed to provide unemployment benefits if the economy tailspins into a full-blown recession and more workers get pink slips.
What happens if the unemployment trust funds run out of money? People will still get their benefits, it would just put an even heavier burden on the states:
If a state unemployment insurance trust fund runs out of money, unemployed workers would still get their benefits, but the state would have to borrow the money from the federal government and pay it back with interest. Such a scenario would burden those states that are already cash-strapped and borrowing heavily to balance their budgets without having to raise taxes.
This is not a small problem either, there are already four states in seriously trouble, and 14 more that could join them:
Michigan, Missouri, New York and Ohio could face the biggest problems since the amount of money in their unemployment insurance reserves already are far below recommended levels...
States that are also well below the recommended level with only about six months of money in their reserves are: Arkansas, California, Illinois, Indiana, Kentucky, Minnesota, North Carolina, New Jersey, Pennsylvania, South Dakota, South Carolina, Tennessee, Texas and Wisconsin.
Suggesting that the federal government do something to help the states with potential unemployment benefit crises is not outlandish. The program is already a joint federal-state program with joint funding by federal and state employer payroll taxes and the states administering the program. This also wouldn't be the first time that the federal government has stepped in to help the program. It was done in 2002 with considerable success
Most states’ UI trust funds weathered the 2001 recession, first because they went into the recession with more reserves than they have now. But Congress also helped in 2002 by transferring $8 billion from the federal UI trust fund to the individual state UI accounts.
If states are more strapped for funds now than they were in 2001, then it would seem that federal aid would be even more necessary today than it was 6 years ago. Especially if you factor in the slower economic growth rate and the number of people who are considered "long-term unemployed." Naturally this fact is lost on the Bush Administration. In today's episode of "inexplicable Bush administration economic policies that are destroying the country as we know it:"
Congress is once again considering helping states cover UI claims, but the measure has drawn a veto threat from President Bush, who has said such a move is too costly and premature.
Really? A move that would prevent the states from having to borrow money from the federal government at astronomical levels to balance the budget is too premature? The federal government can bail out Bear Stearns for $30 billion, but it can't provide states with the money they need to maintain unemployment benefits? Fortunately Congress doesn't have the same failed conservative talking points blinders on as the Bush Administration:
Before recessing for the Memorial Day holiday, the U.S. Senate passed, by a veto-proof margin, a measure that would extend unemployment benefits by 13 weeks for all workers and provide an additional 13 weeks for workers in high unemployment states. Unlike traditional UI benefits that are financed through federal and state payroll taxes, the federal government would pay for all of the extended UI benefits, estimated to cost $11 billion.
Thankfully there are some out there who understand the true role of the federal government is to step in when the states need it to the most, and right now state and local governments are cash strapped and desperately trying to avoid slashing essential services and programs out of their budgets. Let's hope more bills like this become the prevailing wisdom on Capitol Hill.
I posted yesterday about the painful irony of the Fed bailing out egregious greedheads Bear Sterns but refusing to lift a finger to help the majority of states that are falling into the red.
As part of the deal, J.P. Morgan Chase, a major Wall Street bank, will buy Bear Stearns for a bargain-basement price, paying $2 a share for an institution that still plays a central role in executing financial transactions. Bear Stearns stock closed at $57 on Thursday and $30 on Friday. J.P. Morgan was unwilling to assume the risk of many of Bear Stearns's mortgage and other complicated assets, so the Federal Reserve agreed to take on the risk of about $30 billion worth of those investments.
The Fed "is working to promote liquid, well-functioning financial markets, which are essential for economic growth," Chairman Ben S. Bernanke said in a conference call with reporters last night. Treasury Secretary Henry M. Paulson Jr., who was deeply involved in the talks though not a formal party to them, indicated support for the actions.
The Fed's moves were meant to reverse a rising tide of panic that has buffeted Wall Street as banks and other institutions have found it increasingly difficult to get credit.
At least twenty-seven states, including several of the nation's largest, face budget shortfalls in fiscal year 2009. Of these 27 states, specific estimates are available for 22 states and the District of Columbia; the combined deficits of these 22 states plus the District of Columbia are expected to total at least $39 billion for fiscal 2009 -- which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected.
...
The 22 states in which revenues are expected to fall short of the amount needed to support current services in fiscal year 2009 are Alabama, Arizona, California, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Vermont, Virginia, and Wisconsin. In addition, the District of Columbia is expecting a shortfall in fiscal year 2009. The budget gaps total $39.1 to $40.8 billion, averaging 8.9 - 9.3 percent of these states' general fund budgets.
Two things jump out at me:
The amount of U.S. taxpayer money risked to bailout Bear Sterns -- $30 billion -- is almost as much as what it would take to bail out the 22 states that are experiencing shortfalls this year.
Bear Sterns is considered "too big to fail" because its failing threatens other big Wall Street entities. The 22 states who are sinking under mountains of debt will have to cut their spending and that will hurt millions of Americans.
As the Center on Budget & Policy report points out, those consequences will be severe:
In states facing budget gaps, the consequences could be severe -- for residents as well as the economy. Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets. Even if the economy does not fall into a recession as it did in the earlier part of this decade, actions will have to be taken to close the budget gaps states are now identifying. The experience of the last recession is instructive as to what kinds of actions states may take.
Cuts in services like health and education. In the last recession, some 34 states cut eligibility for public health programs, causing well over 1 million people to lose health coverage, and at least 23 states cut eligibility for child care subsidies or otherwise limited access to child care. In addition, 34 states cut real per-pupil aid to school districts for K-12 education between 2002 and 2004, resulting in higher fees for textbooks and courses, shorter school days, fewer personnel, and reduced transportation.
Tax increases. Tax increases may be needed to prevent the types of service cuts described above. However, the taxes states often raise during economic downturns are regressive -- that is, they fall most heavily on lower-income residents.
Cuts in local services or increases in local taxes. While the property tax is usually the most stable revenue source during an economic downturn, that is not the case now. If property tax revenues decline because of the bursting of the housing bubble, localities and schools will either have to get more aid from the state -- a difficult proposition when states themselves are running deficits -- or reduce expenditures on schools, public safety, and other services.
I don't think we have a full appreciation of what's really happening in these exurbs. This is a crime.
By the way, the most lucid explanation I've seen about how this housing crisis happened is in this Web comic, of all places. Basically the investment banks tried to put together a pyramid scheme, knowing that it was fated to fail but hoping that they were more clever than everyone and nobody would find out, and the housing market would hold out at the historically anomalous levels it was headed in 2004-2005. I remember being told in 2005 when I was looking for a house that "nobody gets a fixed mortgage anymore." That was the mentality from the banks, the lenders, the investors. The goal was to shovel more and more people into mortgages, no matter their credit history. Everybody benefited; government, industry, financial institutions. There was no check on this forward motion, the regulation that was needed. Unregulated capitalism will always step in the "Shitpile" this way. And the banks and the lawmakers will all get bailed out, at the expense of these people in the Hoovervilles Bushvilles.
• According to Dan Walters, all his serious economist friends are telling him there's no recession yet, theoreticaly speaking. He might want to read his own paper, about how the Employment Development Department can't keep up with the demand for unemployment benefits and everyone calling in is getting a busy signal. Tip to those who apparently aren't feeling a recession: use the EDD website.
• In a reversal to the Bush Administration, a judge has ruled that George Bush cannot exempt the Navy from environmental laws regarding the use of sonar within 12 miles of the California coast. Not that Bush followed the ruling of the judiciary the first time, but...
• There are still high hopes for an end to the WGA strike, and meetings in Los Angeles and New York have been scheduled for the weekend (ostensibly to present the contract), but caution lies ahead, as more foreign imports and reality television are likely to wind up on schedules, and less pilots are likely to be shot. Of course, this was my point all along, and why I underscored the need to grow the union for the benefit of everyone involved and give everything on television the opportunity to unionize. But jurisdiction for reality and animation was dropped in the most recent round of talks, and there will be consequences to that.
• Our friends at the SEIU are going to start a $75 million dollar, year-long, national campaign in support of universal health care. I have to think that this is a positive by-product of the coalition built in California around the ultimately unsuccessful effort on health care reform. If so, then there was nothing unsuccessful about it. It's very exciting to see a full media and ground effort to draw the policy distinctions on health care between the parties, and to advocate for a system that makes sense for working families.
Use this as a repository for everything but the election.
The nation actually had a good employment month in October. The economy added 166,000 jobs, mainly in the professional and business services, health care, and leisure and hospitality sectors, and even construction was largely unchanged.
On the other hand, California lost 15,800 jobs, and year-over-year unemployment is up a full point to 5.6% (and that of course doesn't include those who have stopped looking for work). That's also a full point over the national average. The apologists that call themselves economists in this article are trying to spin the numbers but it won't wash.
October's decline in employment, the biggest since the loss of 14,000 jobs in July, confirms that the state's economy is slowing, said Stephen Levy, who directs the Center for the Continuing Study of the California Economy in Palo Alto.
But "this is a slowdown that the nation is participating in," Levy said. (Then why did the US add 166,000 jobs in the same month? -ed.) [...]
Levy cautioned against making "a big deal" of the overall job loss figures.
"None of this is like when we lost our aerospace industry -- that was permanent -- or when the Internet bubble burst," he said.
The current job losses do not signify any loss of strength in the state's key economic sectors, he said. "It's not like our economy is threatened from this."
Really? You mean the construction sector isn't losing strength due to the housing meltdown? And that isn't driving economic trouble in all other sectors, as the end of refinancing and redecorating new homes depresses consumer spending?
"An old wooden house along Genevieve Street in San Bernardino was the scene recently of a trash pickup for tenants who lost their home to a bank foreclosure."
"On Thursday morning, the driveway was piled up with appliances, furniture and clothes that were littered everywhere - a telltale sign of a family that recently lived there. An old gas stove with a skillet full of dust was found. In the back yard, there were mattresses, a microwave, two mangled couches and a bulky refrigerator."
"Foreclosed homes all over the Inland Empire are turning into what Lisa Carvalho calls 'trash-outs' - wooden and stucco carcasses with piles of junk left behind by former tenants."
"The High Desert offers even more interesting tales. The area is full of tract homes in subdivisions that have stacks of furniture piled inside every room, she said."
"'These typically look like they're occupied, but they're not trashed,' she said about these homes. '(The owners) just walk away and wash their hands of it.'"
Distressed properties (which are usually foreclosures or short sales) made up one out of every five homes listed for sale in Orange County last week. And it's hard to even say who's in worse shape, homeowners, realtors, or financial institutions stuck with mortgages that will be defaulted without delay.
This is a crisis, and economists who keep their heads in the sand aren't serving whoever it is they're supposed to serve. The legislation that would have at least helped to address this was blocked by Senate Republicans last week. Where California is able to go in the next decade relies on stabilizing this housing situation.
Continuing my "sky is falling" rhetoric when it comes to the California economy, we now have over a million unemployed citizens, and even the positive job news is fleeting.
Despite a boost from the Hollywood job machine, the state unemployment rate ticked up in September, when more than 1 million Californians were looking for work, the first time that benchmark had been breached in nearly three years.
Jobs were added to the economy during the month but nearly half were in Los Angeles in the entertainment sector, according to figures released by the government Friday. Producers have been racing to get movies and television shows in the can in anticipation of a writers strike.
And Hollywood probably won't deliver a happy ending. Strike or no, when the shows and movies are finished, many of those jobs will evaporate.
And it looks more like strike than no, as the WGA overwhelmingly voted to authorize a strike, by a 90%-10% margin. That could happen as soon as Halloween. Most studios aren't signing writers to any future deals right now, in anticipation of a strike. And the contracts of the Screen Actors Guild and the Director's Guild are up next summer.
Besides meaning a lot of crappy reality shows coming to a TV screen near you, this means a great deal of production personnel out of work. And that just adds to the strain on the economy right now.
Esmael Adibi, an economist at Chapman University, said it was important to note that payroll job growth had slowed to 1.1% in September from 1.6% in January and that beyond construction and financial services, the professional business services sector jettisoned jobs in September.
"Every indication is the weakness is becoming more broad-based," he said. "Retailers are getting nervous about consumer spending, and clearly they are not adding to the employment base. The job machine is getting tired."
There's a certain irrelevancy to all of the back-slapping out of Sacramento for their presiding over a "fiscally sound budget" when you read stories like this:
Sales of houses and condominiums in the most populous Southern California counties fell 29.9 percent from the previous month and 48.5 percent from a year earlier, DataQuick Information Systems said on Tuesday.
The report covers the counties of Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura and showed a total of 12,455 new and existing homes and condos sold in September, the lowest since the company began recording the data in 1988.
Without being alarmist... aw, hell, I'm going to be alarmist. The real estate market was the only thing propping up the state's economy. There's an attempt to try and trade one bubble for another and re-create the dot-com speculation circa 1998, but that'll only go so far, too, and that crash will be just as vicious as the first one. And looming strikes in almost every aspect of the entertainment industry in LA will make life difficult as well. It's through little fault of state government, but you can see a pretty clear path to recession now.
The CBP analysis estimates that in order to pay basic bills in California:
A single-parent family needs an annual income of $59,732, equivalent to an hourly wage of $28.72.
A two-parent family with one employed parent needs an annual income of $50,383, equivalent to an hourly wage of $24.22.
A family with two working parents needs an annual income of $72,343, equivalent to each parent working full-time for an hourly wage of $17.39.
A single adult needs an annual income of $28,336, equivalent to an hourly wage of $13.62.
