Arnold Schwarzenegger's right-wing Director of Finance, Mike Genest, is resigning from his post, after being the governor's point man on the budget since 2005. And after being the governor's point man on gutting the state these last few years, he is leaving with a few parting shots. Not at the current governor, but at one of the hopefuls looking to replace him: Steve Poizner. As Genest tells it to George Skelton, Poizner's 10-10-10 tax cut plan is a political non-starter as well as economically and financially ruinous:
"Tax cuts do tend to improve the economy," Genest says, "but it's very hard historically to find where they result in a revenue increase. You could argue that the best thing for the economy is to have no taxes at all, but people depend on some government services. Without them, we don't have any economy. If you don't believe me, look at Somalia."
Genest continues: "There's no basis to believe that a tax cut now would be affordable given the budget situation the state faces. I know Rush Limbaugh is going to hate me."
As for deeper spending cuts, Genest says: "You can always cut spending by 10%. The question is do you want to. We just tried to close parks, and that didn't work out. We tried to take money away from women's shelters and had to relent on that."
I like Genest's honesty here - he says they wanted to close parks and cause further harm to battered women, but that public outcry prevented this. One wonders if Democratic leaders will get the message: Arnold can be forced to back down if the Dems refuse to go along with his hurtful cuts by mobilizing public outrage. Skelton, for once, helpfully connected the dots and showed that the attack on government itself actually hurts instead of helps businesses and jobs:
There's also a dispute about whether businesses and wealthy Californians really are fleeing the state to escape high taxation. Many think any fleeing has more to do with high property costs, traffic congestion and subpar public schools.
"If high income taxes were chasing away rich Californians, high-income households would be more likely than low-income households to move to states without income taxes, but they aren't," the Public Policy Institute of California reported in July. And two years ago, the institute found that "when California businesses relocate, most stay within -- rather than moving out of -- the state."
This gets to a fundamental truth that most Californians understand, but that Poizner is determined to ignore: without strong public services, California is an undesirable place to live, work, create, and innovate. The best way to chase away businesses and jobs is to destroy our schools, wipe out our health care system, and let our transportation system become paralyzed through gridlock and dependence on oil.
In fact, a coalition of business groups have come together to fight for one of the big government spending programs designed to help California's crisis - high speed rail. I fully expect Poizner to oppose the high speed rail project, so I would like to see him explain that opposition to the corporations that comprise the SF Chamber of Commerce, the Bay Area Council, and the Silicon Valley Leadership Group, who together founded the new HSR coalition.
Skelton also quoted from Lou Cannon, noted biographer of Ronald Reagan, who pointed out that the Republican hero himself supported several tax increases in California, including the largest ever (as a proportion of the budget) to close a budget gap in 1967. At least while he was governor, Reagan understood the role of government in providing for the California Dream.
It's a role Poizner refuses to understand, even when a fellow right-winger like Mike Genest tries to explain it to him. Although I'm sure it will play well with the teabagger base.
"Did you know," Whitman asks radio listeners, "that in the last 10 years, state spending has gone up 80%?"
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It doesn't take much digging to learn that general fund spending "in the last 10 years" has risen just 27%, according to finance department data. Adjusted for inflation and population growth, spending actually has decreased by 16.6%.
(LA Times 10/29/09)
They have some fun with numbers excuse for the 80% number by finishing with the 2007-2008 closed book numbers, but, of course, even that excludes inflation and population growth.
But Meg Whitman has a story for the people of California. A story that bears no resemblance to the more complicated reality, but it's simple: California's state government spends too much. That somehow California is just tossing around money because the numbers are big.
Yet, despite the numbers that Whitman would like to show you, here are the real numbers. California is 26th in per capita state spending with about $5,000 per capita. And that's from FY 2007, the high water mark where eMeg's ads were proclaiming out of control spending. (Data from Kaiser Foundation). Since that time, we've slashed and burned through our budget. We're spending substantially less money, and providing a lot fewer services. But, we can't all keep up with those spend happy states like Oklahoma (#18), Louisiana (#9), Alabama (#7) and Alaska (#1).
So, it's going to be more of the same crap. Lies, deceptions, and half-truths. Yup, a real change candidate, that Meg Whitman.
It's not like the "budget deal" hasn't already accomplished some sort of dark goal of letting a large group of Californians float in the wind. Clearly, the "deal" will result in the untimely deaths of hundreds, but more likely thousands, of Californians.
We'll get more details of the cuts up as soon as we can. But here is what the Bee has for now:
Line items totaled $656 million, including cuts in the Office of Aids Prevention and Treatment. (SacBee 7/28/09)
What does this mean? Well, it means more Californians will get HIV. Some will die young, and others will chronically take HIV meds for the rest of their life. This is just one more profound failure in an administration that has been one big disaster after another.
In case you are wondering what exactly the Office of AIDS does, here is the official Office of AIDS website. Because clearly this goal is just a waste of money:
OA is committed to assess, prevent, and interrupt the transmission of HIV, and to provide for the needs of HIV-infected Californians.
No, we need to "live within our means" aka dying without them.
UPDATE: Over $52 million of the cuts were from the Office of AIDS. I wonder how his good buddies in Hollywood feel about this.
$52,133,000 General Fund for various programs administered by the Office of AIDS:
Education and Prevention, Therapeutic Monitoring, Counseling and Testing, Early
Intervention, Home and Community Based Care, and Housing
A while ago, I mentioned the regional centers. The Regional Centers protect California's mentally disabled, both children and adults. However, with the recent budget cuts, there simply aren't the resources to protect everybody. But that's far from it.
In today's California Report, the Contra Costa County Adult protective services tells the tale of a 5'7" adult female who weighed only 90 pounds and had severe physical trauma. While you don't get the visuals, you can understand why an in-person investigation is so important. However, under the new rules, social workers are required to investigate by phone only. While these great social workers are truly miracle workers, it is nearly impossible for them to protect everybody. In fact, the county grand jury now says that APS "no longer has the resources to carry out its legal mandate to investigate physical and financial abuse."
Arnold is talking about "living within our means," but what does that mean if we are letting people simply die? How are we living within our means then? The fallacy of the right in this state that we are simply overspending has somehow been taken to heart by all sorts of moderates and even many progressives. But it is simply not true. As Jon Ortiz pointed out in the State Worker blog yesterday, we have the second lowest number of state employees per capita. We are solidly middle of the road in terms of state spending per capita. In fact, we are 26th in state spending of the 50 states. Take these few examples in the table to the left.
As you can see, California is hardly overspending relative to other states in the union. We aren't some sort of outlier. The only thing that we have that is an outlier is our completely dysfunctional system of government. We are living within our means. We are providing the state with slightly above terrible level of services. Yet, the myth of California "living outside our means" persists. Why? Well, you know why, I know why, everybody knows why. Yet only a few actually say it. It is convenient to believe this myth. It makes scapegoats out of those who dare to use government services.
After all these years of "two santas" tax cuts, we simply have nothing left to give. We are at the point of completely cutting welfare, completely cutting state aid to state parks, completely cutting adult and child protection services.
That's not anything resembling "living within our means." That's just unjustifiable societal manslaughter.
Here at Calitics there is an interesting diary from 'zeroh8' asking "Why Are We Spending So Much More?" zeroh8 looked at the changes over the last ten years in how the state spends money. The result, according to the diary, is a per-capita increase of $1088 as follows:
California Government Department 2007-08 less 1997-98 Per Capita Spending
Criminal Justice $185 General Government $14 Health $265 Higher
Education $109 K-12 Education $399 Resources & Environmental
Protection $27 Social Services $59 Transportation $30 Total $1,088
Robert Cruikshank commented that the appearance of an education spending increase is an illusion, (sadly California still ranks 47th in education spending-per-pupil)
The California Budget is a mess. That is bad news but the really bad news is that this mess is really complicated. And then the Assembly wants us - the voters - to somehow make sense of things and make the hard decisions.
I tend to think that the problem with the California State Budget is spending. But I haven't been able to find out exactly what all of this increased spending is going for. So I worked up some numbers - based on the data from the Legislative Analyst's Office web site (they are reputable aren't they?) and put together the following information so I can understand it better.
Let's take a look at yesterday's tea parties. I am hearing from people who attended tea parties around the country that the people who showed up were by and large good, honest Americans who are upset about the bailouts, deficits and general direction that things have been going for some time. I say good for them for getting involved, speaking up and showing up. We need more of that in this country, after so many decades of apathy.
There is a problem with the tea party events as presented, however, in that the sentiments and concerns of these regular people were largely hijacked by professional manipulators, who wanted to make it appear that the the people at the rallies support an anti-democracy, anti-government, pro-corporate and right wing agenda. These were the FOX News and Rush Limbaugh audience, and the people from militias with racist signs, and paranoid people convinced that President Obama is a "fascist," etc. and who claim that the economic distress we are experiencing is somehow the fault of Obama's and the Democrats' policies even though he only took office less than three months ago
There was a positive response to the idea from last week's post, No Schools For You, that suggested,
"If an Assembly or Senate representative demanded cuts to schools, fire, etc. then the schools, fire, etc. in that representative's district receive the entire cut! This would be an honest application of representative democracy, allowing the citizens of an area to be governed according to their wishes without it affecting all of the citizens in the state."
Today's LA Times contains a "news analysis" by Evan Halper that seeks to explain why taxpayers seem to be getting less for their tax dollars. But the most obvious point goes almost totally ignored - that tax cuts have reduced the ability of government to provide for basic services. Since that isn't part of this article, the effect is to mislead readers into thinking government is misusing tax dollars, and thus winds up reinforcing right-wing frames.
Reporting from Sacramento -- Middle-class Californians have long griped about paying more taxes than they might pay elsewhere, but for decades this state could boast that it gave them quite a bit in return. Now that contract is in doubt.
A modern freeway system, easy access to superior universities and progressive health programs used to be part of the compact. Even local schools plagued with financial problems continued to offer small classes, innovative after-school programs and advanced arts and music curricula.
These opening paragraphs set the tone for a flawed article. That "social compact" has not really functioned as Halper suggests since 1978. Our freeway system was largely in place by that time. Additional freeways were mostly paid for by higher taxes - even Orange County has voted to tax itself twice since 1990 to build and expand freeways. The "innovative after-school programs" were created by ballot-box budgeting. Advanced arts and music curricula have been absent from most districts in the state since the 1980s.
In short, Halper starts from a flawed premise.
But at a time when taxes are about to rise substantially, the services that have long set this state apart are deteriorating. The latest budget cuts hit public programs prized by California's middle class particularly hard -- in some cases at the expense of preserving a tattered safety net for the poor -- following years of what analysts characterize as under-investment....
"Twenty years ago, you could go to Texas, where they had very low taxes, and you would see the difference between there and California," said Joel Kotkin, a presidential fellow in urban futures at Chapman University in Orange. "Today, you go to Texas, the roads are no worse, the public schools are not great but are better than or equal to ours, and their universities are good. The bargain between California's government and the middle class is constantly being renegotiated to the disadvantage of the middle class."
And here you see the right-wing framing - in some cases made explicit, that programs benefiting the middle-class have been cut to "preserve a tattered safety net for the poor." Kotkin, a high-profile conservative think tank figure who has blamed "greens" for the state's current crisis is never going to explain how tax cuts have caused California to fall behind in maintaining its once-great systems of education and health care.
The closest Halper gets to acknowledging the true nature of the problem is here:
The reasons are varied. The cost of services continues to outpace inflation. Programs are being squeezed out by things the government was not providing in the halcyon 1950s and early 1960s, including Medi-Cal and some welfare programs. And the state has been reluctant to embrace new ways of funding services while holding back state money to plug other holes in the budget.
In fact Medi-Cal's earliest origins lie in the 1959 legislative session, as do some welfare programs. Halper gingerly discusses a state "reluctant to embrace new ways of funding services" but this is the closest his article will ever get to the truth, which is that the conservative veto has prevented California from raising taxes to keep the services flowing to the middle class. Even Ronald Reagan did this in 1967 but you would never know it from Halper's article.
Nor does Halper explain, anywhere, the billions in tax cuts that have been made since 1978 - a structural revenue shortfall that costs California at least $12 billion a year. Halper does a good job of showing how our basic services are underfunded but totally fails to explain the reasons why. As a result he closes his article with comments from conservatives like Mitt Romney and Joel Kotkin that not only go unanswered by any progressive voices, but go unanswered by reality:
Former presidential candidate Mitt Romney spoke to the frustrations of many California parents during a speech at last weekend's state GOP convention in Sacramento. Pointing out all the taxes Californians are now paying, he asked, according to the Sacramento Bee: "With all that money, how are your schools?"
The simple answer is: Not what they used to be. And now the state is cutting billions more out of them, including money set aside to keep classes small and to fund arts and music electives.
"The social compact is: I pay taxes and good things happen," Kotkin said. "But I pay a lot of taxes and can't send my kid to our local public schools because they are terrible."
Conservatives broke that social compact by telling Californians "you can pay less taxes and good things will happen." It's wrong for conservatives to turn around and say "oh gee the system's screwed up" when they are responsible for the mess.
And it's inexcusable for the LA Times to reinforce such right-wing sentiments with such an article that refuses to point out what actually went wrong, and who is responsible for it.
(This originally appeared in the SF Chronicle, but it's worth noting as we look forward to another vote in a few minutes. - promoted by Brian Leubitz)
Assembly Minority Leader Mike Villines, R-Clovis, was quoted in reference to Washington's stimulus benefit to California, saying, "It doesn't matter if the federal government gave us $100 billion. We'd spend it and we would be broke next year." One would like to believe that Villines was exaggerating to make a point.
Villines has been one of the strongest advocates for a more severe spending cap for state expenditures. Our current cap, which was passed by voters in 1990, was promoted by Republican Gov. George Deukmejian, and was itself a response to a more rigid cap passed at the ballot in 1979, the Gann Limit.
Without getting into the details of our present spending cap or the proposals to tighten it, good sense would dictate that we determine whether our state spending is as profligate as Villines suggests before taking further action.
The plan includes $15.8 billion in spending cuts, $14.3 billion in taxes and $10.9 billion in borrowing, according to a budget outline obtained by The Bee. The state also anticipates billions in federal stimulus money, which would reduce each component of the solution if California receives more than $9.2 billion.
Of course, thanks to the United States Senate, it's not entirely likely that California will receive $9.2 billion, and it's also uncertain whether the state can redirect the stimulus as proposed. The full details from Capitol Alert:
Gives K-12 education $5 billion less than it was otherwise entitled.
Eliminates two paid holidays for state workers, with the final number of furlough days per month through June 2010 still subject to negotiation.
Cuts UC and CSU by 10 percent.
Eliminates cost-of-living increases for recipients of CAL-Works and SSI-SSP.
Cuts the corrections department's medical budget by 10 percent.
Eliminates funding for local public transit agencies.
On the tax side, the plan increases sales tax by 1 cent on the dollar, vehicle license fees from current 0.65 percent of vehicle value to 1.15 percent, and gasoline taxes by 12 cents a gallon with proceeds to pay off transportation bonds. Income taxpayers would pay a 2.5 percent surcharge on tax liability - 5 percent if federal stimulus comes in under $10 billion. Reduces tax credit for dependents from $309 to $99.
Taxes would be increased for two years, and an additional one to three years if the spending restriction measure is approved on the ballot.
Other new "revenues" include taking from voter-approved taxes for mental health and early childhood programs.
The whole thing would have to go before voters in a whopping five-measure package: borrowing from the lottery, changing Proposition 98, approving the spending cap, and taking funds from Proposition 10 (tobacco tax for early childhood programs) and Proposition 63 (tax on millionaires for mental-health programs).
Some of that isn't awful, and some of that is truly insane (eliminating funding for local transit agencies is an act of madness, and cutting the prison medical budget even further is just going to cause more problems and costs for the state down the road when the feds get involved). But the key question now doesn't seem to be "what's the in the deal" but "who will vote for it?" Back to the Yamamura article, Speaker Karen Bass is a bit more cautious in describing the state of things:
"I've been in this position now, it seems like every week for the last five weeks," she said. "And, you know, we get back in the room and something blows up."
So far the uncertain votes are so-called "moderates" like Lou Correa (Dem, SD-34) and Abel Maldonado (Rep, SD-15), and conservatives like Dennis Hollingsworth (Rep, SD-36) (see update below on Hollingsworth). What this axis looks like is the same axis of stupidity that sank the best parts of the federal stimulus - centrist Dems and their allies across the aisle.
The problem of course is that the deal itself isn't really worth defending and it's hard to generate much activism for it. But the individual Senators themselves are a, shall we say, target rich environment for especially in Maldonado's case, putting chairs over children. The goal now is to lean hard and heavy on these recalcitrant Senators, while beginning to ramp up public sentiment in favor of taxes to protect services. (Yes, we should have done that sooner, and I'm as guilty as anyone for not doing so).
Update by Robert: Dennis Hollingsworth's communications director emailed me to clarify there's no "uncertainty" regarding that pillar of the Yacht Party: he opposes the deal. I thought this part of his statement was worth quoting:
If this passes with Republican votes, there will be no reason for any Californian to vote for a Republican in the future. The people sent Republicans to Sacramento to be a blockade against tax increases. Once that wall crumbles, there will be no end to the expansion of taxes and spending. The people will rightly figure they can vote for Democrats and at least stand a fair chance of getting their entitlements and programs along with tax increases. As Republicans, we will only remain as the party that gives them tax increases and no programs.
In other words, Californians want Democrats to give them schools and health care and roads and buses and economic growth - but Republicans are there to make sure none of those horrible things happen!
And they wonder why their party has such a hard time winning statewide elections.
Yesterday's Media News Group papers, including the Monterey Herald, ran an article purporting to provide "the answer to where California's tax dollars went" - why we're in a budget crisis. Their answer: California overspent.
A MediaNews analysis of state spending since Republican Gov. Arnold Schwarzenegger took office in late 2003 found that he and the Democratic-controlled Legislature have spent money well beyond the rate of inflation and California's population growth - $10.2 billion more.
Yet the programs that received most of that money are priorities that Californians broadly support or have demanded at the ballot box: tougher prison sentences for criminals, health care for uninsured children and an aging population, and a cut in the "car tax" that they pay every year to register their vehicles.
The problem, according to a report last week from the state auditor, is that Republican and Democratic politicians in Sacramento have shirked their responsibility for the past decade, papering over shortfalls that started after the dot-com bubble popped in 2001.
Like homeowners paying off one credit card with another, they used accounting gimmicks and more debt, rather than raising taxes or cutting spending, to balance the books.
It's a classic case of journalistic truthiness - some facts and accurate analysis wrapped inside a totally misleading frame. But in making this analysis, and emphasizing that the growth in state spending came from core programs - education, health care, and prisons - they have actually reinforced the argument I made nearly a year ago that we have a structural revenue shortfall. As I explained it:
The real problem is that since 1978 this state has cut nearly $12 billion in taxes. This was done during economically prosperous periods, particularly the 1990s. And that lack of revenue has piled up over the years - the state has fallen further and further behind to the point now that our state's governor is seriously proposing ending public education as we know it.
The MNG story is framed as one of "foolish politicians recklessly overspent our money! if only they'd been more careful!" But within the story itself the truth does emerge:
Schwarzenegger's first act as governor, signing an executive order to cut the vehicle license fee by two-thirds, blew a large hole in the state budget. It saved the average motorist about $200 a year but would have devastated the cities and counties that had been receiving the money. So Schwarzenegger agreed to repay them every year with state funds. That promise now costs the state $6 billion a year, or $2 billion more than the rate of inflation and population growth since early 2003.
MNG claims there was $10.6 billion in "overspending" - but $6 billion of it, or more than half, was Arnold's idiotic VLF cut. The article, which conveniently stops its history at November 2003, doesn't include the other $6 billion in tax cuts that have been implemented since 1993 - cuts that would have allowed state services to be funded at the bare-bones levels we've seen during Arnold's reign.
Dear Senator,
Neither you nor I have a Nobel Prize in economics. But Paul Krugman does. And he says you are wrong about the stimulus. Not just wrong, but dangerously wrong.
You may think both Krugman and I are dangerous commie pinkos. But both of us have been right about the economy. You have not.
If you had been right that tax cuts and the free market can cure all ills, we would not be in the situation we're in right now. You got your chance to prove your ideas. And they failed. We have all paid for their failure.
Now we are poised to pay again for your stubbornness and stupidity.
It's a pretty brazen suggestion even for the Yacht Party, which has already made clear that it wants to force California into an economic depression - Sacramento Republicans want to divert the federal stimulus into a "rainy day fund." This would accomplish two of their goals - one, preventing California from protecting such vital services as schools and health care; and two, preventing a stabilization of the state budget that might frustrate their goal of using this crisis to impose far-right policies for good.
While many of the funds pegged for California would immediately help children, the poor and commuters, some Republican state lawmakers argue that the state should sock away some of the money for hard times in the future.
Democratic lawmakers say the federal funds should be spent sooner rather than later for whatever purposes the federal government requires.
Matthew Yi's article is biased in favor of the Republicans - we're already in hard times and the stimulus money is intended to be spent right now to reverse those hard times - but he does convey the core point, which is that the Yacht Party wants to destroy California's ability to help ease the pain:
Villines agreed that avoiding costly borrowing would be prudent. But he had other ideas about using federal funds. Any federal money that "we might get should basically be put away into a ... rainy-day fund for any potential future deficits if the economy continues to get worse," he said, "as opposed to any budget factoring now."
What Villines is saying here is that "we should hijack the stimulus money for our own radical agenda, instead of using it to help people who need help right now." Chuck DeVore makes the point explicit:
"This is why the park service doesn't want you to feed the bears in Yosemite," said Assemblyman Chuck DeVore, R-Irvine. "All it's going to do is to prevent them from being able to fend for themselves in the wilderness. This money is not the sort of tough love that we need ... for us to have serious reforms that we need."
To people like Chuck DeVore, Californians are the equivalent of Yogi Bear - people who don't deserve help in an economic crisis, and who certainly shouldn't be allowed to stand in the way of long-held wingnut dreams like a hard spending cap.
The fact is that the Republicans are way out on a limb here. If California progressives can move beyond the single-issue silos and unite, they will have a very good chance at turning the public against this kind of insanity. Even the LA Times is starting to get it - that the Yacht Party isn't trying to help the budget or the economy, but merely wants to settle old scores. Unfortunately, too many people are not willing to actually listen to what Republicans are saying and still want to see this as some sort of bipartisan crisis:
[Sac State poli sci prof Barbara] O'Connor said all sides in the talks "are going to have to give up stuff they don't want to give up." Meanwhile, she said, the general public is finding it hard to understand why Republicans and Democrats can't sit down, hash it out and "come up with the best bad solution."
The general public is "finding it hard to understand" because that's NOT what's actually happening. The Yacht Party is hellbent on destroying California's ability to recover from this economic crisis. It is that simple, and anyone who even listens to what Republicans are saying can understand that.
The only thing standing between the Yacht Party and total oblivion is the 2/3 rule and a public that, until now, has been resigned to fatalism regarding state politics. But when those Republicans start monkeying around with the core economic policy of the president over 60% of Californians supported, they are proving to us all that they are overexposed and overreaching. It's time for progressives to unite to take them down.
In an interview with KGO-TV in San Francisco Republican gubernatorial hopeful Tom Campbell suggested a higher gas tax as a solution to the state budget deficit:
Former State Finance Director Tom Campbell will be offering legislators his idea of a partial solution -- an 18 cent temporary gasoline tax.
"The price of gasoline has now fallen in our state. Last June it was about $4.60. If you were to put on a gasoline tax of about 18 cents, so we'd still be well under two dollars a gallon," said Campbell.
It would be nice if KGO explained that the Democrats' budget deal - which Arnold vetoed - would have basically done the same thing, replacing the current gas tax with a "gas fee" that would result in a net 13 cent increase to the taxes paid on gasoline. But it's good to see Campbell proposing an eminently sensible plan like this.
Whenever higher gas taxes - or higher taxes of any sort - are proposed, some progressives react with criticism, pointing out that some of these taxes are regressive. They're not wrong - when you're talking about taxes, progressive income taxes and property taxes are generally a fairer way to obtain revenue than excise and sales taxes.
But if you stop there, you're missing the point.
Because when you include the whole equation - the effect of spending cuts as well as tax increases - it becomes clear that even sales and gas taxes are much better for the economy, and especially for working and poor people, than spending cuts.
The economies of states that substantially increased taxes in recent years performed as well or better than states that did not
The economies of states that enacted large tax cuts in the late 1990s and early 2000s performed worse than other states
Personal income taxes are better than spending cuts as they don't have as harmful an effect on consumption or local economies.
Much of this ought to be common sense. We are facing a recession driven by rising unemployment and folks having less money in their pocket. While the right-wing ideologues would have us believe taxes take money out of that pocket the amounts pale in comparison to the money lost to spending cuts.
In the early 1990s recession both California and the US government raised taxes. It didn't worsen the recession, and it didn't prevent an economic boom from emerging after 1993.
Spending cuts are really just a euphemism for mass layoffs. When you fire tens or hundreds of thousands of public employees that means they are spending less money. Fewer shopping trips, fewer visits to restaurants, fewer people paying their mortgage. That creates a spiral of job losses and business failures, which in turn mean fewer tax revenues. Spending cuts ultimately leave the budget worse off, not better off, than before.
This is true especially for lower-income families. A sales tax or gas tax hike will have some bite. But as much as a school closure? As much as a father being laid off from his job on a state infrastructure project, or a mother being laid off from her job in the county government office? I strongly doubt it.
For example, the cost to a family of a restored VLF, between $150 and $300 a year, is chump change compared to the cost of having to provide health care to an uninsured family kicked off of state assistance. If a school closes or higher education is priced out of reach that is going to have a far larger cost to a family both immediately and over the long-term than any tax increase.
This is common-sense stuff, obvious to anyone willing to give even a cursory glance at reality. But 30 years of anti-tax rhetoric has blinded us to these realities. Spending cuts are the most regressive form of budgeting there are - and while we need as progressive a tax code as possible, we need to keep in mind that this is a continuum of progressivity:
Income and property taxes > sales taxes > spending cuts
While there are differences among kinds of taxes and spending cuts, the above is a good shorthand to keep in mind as we push back against 30 years of ruinous policies and bad priorities that have brought California to the brink of a Depression.
The California figures are even worse. The US unemployment rate is at 6.7% but we blew past that long ago - 8.2% as of October 31 and likely to be significantly higher after November's numbers are in.
Those figures don't paint a picture of the true distress in California. The California Budget Project reported that 2.3 million Californians are underemployed or outright unemployed - many who have jobs are working part-time when they'd rather work full-time, or have begun to give up their job search.
Government programs in place [during the last major recession, 1981-82] to cushion and counter recessions have been scaled back sharply, raising questions about whether they are up to the task as the economic outlook darkens today.
Unemployment insurance is not as generous now. Yet the unemployment rate is at 6.5 percent and some forecasters say it could top 8 percent next year. It hit 10.8 percent in the early 1980s.
This is also the first severe economic slump since President Bill Clinton overhauled the welfare system and made it tougher to qualify for, and keep receiving, benefits. Many people who lose their jobs now and fall into poverty may not qualify for public assistance. Other programs designed in part to counter hard times - like job training and housing subsidies - have also been cut back.
Here in California the erosion of that safety net has been severe. Unemployment benefits have been cut. Health care subsidies are being cut. Education, which is necessary to provide workers with job retraining and to producing entrepreneurs, creators, and inventors, is being cut. Senior citizens are seeing their drug and even housing benefits cut, which places the burden on their families.
And the Republicans' demand for massive spending cuts threatens to dramatically increase the ranks of the unemployed in California. If the budget deficit is solved by spending cuts, in whole or even in part, the result is likely to be an outright Depression in California.
Government's job is to provide counter-cyclical economic stimulus. Spending cuts are what's known as pro-cyclical - they exacerbate a slide into recession rather than counter it. Spending needs to be increased right now to bolster the safety net and ease the worsening recession.
As the California Budget Project explained, citing leading economists like Joseph Stiglitz, "tax increases on higher income families are the least damaging mechanism for closing state fiscal deficits."
That kind of framing needs to be placed at the center of the state budget discussion - a discussion that itself is really about the economic future of this state.
The legislature voted yesterday on the Democratic budget plan and, predictably, Republicans refused to vote for it, unwilling to support a tax increase. Closing a $17 billion hole in the budget with cuts alone would pretty much destroy government, which is of course their goal. In turn that would send California from a recession into an outright Depression, as the safety net would crumble and job losses would skyrocket.
The media's coverage of the budget debate is equally predictable. The Sacramento Bee framed yesterday's vote as a "last ditch effort" and the article opened with phrases like "debated, complained and pointed fingers of blame Tuesday." Arnold compared the legislature to a kindergarten, which I am hoping is not a set-up for some 1990 movie flashback.
The result of such coverage is to further depress public interest in and engagement with the budget process. Reporters make it sound like the Legislature is dysfunctional or doesn't care, conveniently sliding past the fact that the budget delays are solely the product of Republican obstructionism.
That means we need to look beyond what the media says to the actual plan the Democrats put forth:
$8.1 billion in new revenues, from a tripling of the VLF and from freezing the current income tax tables
$8.1 billion in cuts, including $4 billion to schools and $100 million to community colleges
$800 million in fund transfers and other gimmicks
It's not a great plan, and the Democrats' united opposition to education cuts from the spring seems to have melted away. That's not a good sign, as the budget fight that began in 2007 seems to move inexorably toward the Republicans.
At the same time, this plan needs to be seen as a first step toward a budget solution. Legislative support for a restored VLF is a big step in the right direction, reversing 10 years of supporting that flawed tax giveaway. Action on the income tax is also a good move, although I would like to see Democrats return to their summer budget plan that called for a restoration of the 1990s tax brackets for higher income Californians.
That dovetails with the winning tax platform Obama used in his campaign. Note the word campaign. Sacramento Democrats need to start campaigning on the budget. Too often they have been focused on deal-making inside the Capitol and failed to aggressively sell their plans and their framing to Californians.
Next week dozens of new members will be sworn into the legislature. Their new energy can help take this plan, improve it, and build the public support necessary to implement it by breaking Republican resistance.
Let's hope that the new members bring a fresh attitude to the budget - one that recognizes this thing will NOT be solved inside the Capitol with a vote or a backroom deal.
With the latest figures about the state budget deficit - $28 billion over the next 2 years - it seems beyond all doubt that Arnold Schwarzenegger is a failure as governor. The sole justification he gave for replacing Gray Davis in 2003 was that Davis faced a similarly large budget deficit and failed to solve it. Arnold promised to end this, and it is clear he has failed to deliver. Instead the state of California stands on the precipice of bankruptcy and crippling service cuts that will dramatically worsen the economic downturn.
And it is clear this is primarily Arnold's fault. His first act as governor was to roll back the VLF, blowing a $6 billion annual hole in the state budget (roughly half the annual deficit - remember that the $28 billion figure is for two years). That act of irresponsibility was compounded by using borrowing to close the rest of the 2003-04 deficit. As the budget deficit returned in 2007 Arnold stubbornly refused to admit the need for new revenues.
He has also refused to engage in the necessary lobbying to produce a budget solution - instead he wishes and hopes Republicans will see the light despite years of evidence suggesting they instead see a budget crisis as an opportunity to ram through far-right ideas that nobody really wants.
The Legislative Analyst Office, under its new leader Mac Taylor, directly calls for taxes as the solution to the budget deficit. The report is a bit too favorable to Arnold's plan and suggests too many cuts, but it makes this all-important point about spending cuts:
The state's main options for addressing its budget dilemma-cutting expenditures and/or raising revenues-would both have adverse effects on the economy. Either type of option would reduce money held by or received by individuals or businesses that otherwise could be used for consumption or investment purposes. Because the state's economy totals more than $1.7 trillion in economic activity each year, however, spending reductions or tax increases totaling between $20 billion and $30 billion would have a relatively small impact on the overall economy.
Here again I think the new LAO is being too moderate. The report notes that much of the upward pressure on spending is coming from increased usage of Medi-Cal, for example, suggesting that government services are becoming more necessary in a recession. It's the safety net at work - and cutting the safety net is the last thing we ought to be doing.
Republicans like Mike Villines might be peddling books by Arthur Laffer, but as the California Budget Project explains the evidence proves that tax increases are the best way to provide a budget fix that doesn't hurt the economy. Add that to the LAO's point that $20 billion in taxes "would have a relatively small impact on the overall economy" and we have our answer.
And of course, spending cuts and tax increases hit different Californians. Spending cuts hit working and middle-class people particularly hard, especially the truly insane proposals to increase student fees for higher ed or to cut back Medi-Cal even further. But a return to the pre-1998 tax levels would hit the wealthy while providing the working and middle classes with the safety net and economic opportunities they need.
Some Democrats are looking to a federal bailout to help solve things. Such a bailout is necessary - for example the feds could help meet our Medi-Cal obligations and help with higher ed, reducing dramatically our overall deficit and making it easier for, say, a reinstatement of the VLF to close the remainder. But a bailout isn't likely to come without state-level solutions.
That we have to face such choices at all is a testament to how epic a failure Arnold Schwarzenegger has been for California. The LAO's report is damning:
The state's revenue collapse is so dramatic and the underlying economic factors are so weak that we forecast huge budget shortfalls through 2013-14 absent corrective action. From 2010-11 through 2013-14, we project annual shortfalls that are consistently in the range of $22 billion, as shown below.
Those are shocking figures, and they should indicate to every progressive and Democrat just how important it is to push out our own fairer, sensible, long-term solutions.
I will be on KRXA 540 AM this morning at 8 to discuss this, as well as to recap the California election results
There's been a consensus among California progressives that as far as our state was concerned, the 2008 election was either a disappointment or a disaster. Silver linings are few. But there was a significant development that should not only give us hope for the future - but MUST give us direction and focus over the next few weeks as the budget battle resumes in Sacramento.
These anti-tax politics were part of a larger effort to revive the policies of Herbert Hoover and prevent a New Deal from coming to California (little known fact: California never had a New Deal the first time around either). Their argument is that instead of using government to provide a safety net and stimulate economic growth, we should cut back government in a time of crisis, no matter the social or economic cost.
On Tuesday Californians resoundingly rejected these arguments. The Reason Foundation and the Howard Jarvis Association threw everything they had at Proposition 1A but it passed anyway and we're gonna build that SUPERTRAIN.
Voters also approved a number of tax increases, which is all the more stunning because of the absurd 66.7% requirement. In addition to LA's Measure R, Sonoma and Marin counties approved Measure Q, a tax increase to build a passenger rail line near the Highway 101 corridor. Santa Clara County voters may have approved a BART sales tax. Voters in Imperial and Stanislaus counties renewed transit taxes. Here in Monterey County we fell just short of approving a transit tax - 62% is a significant show of support.
This should not actually surprise us. Polls have shown that Californians DO support higher taxes including as a solution to our budget crisis. They understand the value of taxes for government services. Mass transit, schools, libraries, police and fire departments - all those things create economic value, jobs, and save people money. Californians get that.
It also helps when a specific tax is connected to a specific service. State legislators are loath to do this, wanting more control over the general fund and the revenues going into it. I do not think that is the right approach to take, at least not until the structural revenue shortfall is ended.
Democrats should ignore his concern trolling (and that of journalists like Kathleen Pender, who doesn't know what she's talking about). Conservative anti-tax neo-Hoover whining is the mouse that never roared in the election. It doesn't move the electorate the way they claim it does. Californians understand that during this economic crisis taxes for services are the right way to grow the economy.
