What leaped out of last Friday's pathetic jobs report for a lot of people was the significant drop in employment for government workers, particularly at the state and local level:
The latest jobs numbers from the Labor Department are out. In the past, we've noted the protected status of government workers. While private sector payrolls were falling like a stone, government employment at every level was growing. In recent months it had been falling slightly, but still remained above its pre-recession levels.
No more. In September, state and local government payrolls fell below the levels of December 2007, when the recession began. The declines indicate the pain that state and local governments are feeling from severe budget shortfalls, despite the $787 billion stimulus package last winter.
There's a very good reason that the stimulus package failed to avert this drop in state and local government payrolls. During the stimulus debate, Presidents Ben Nelson and Susan Collins decided to drop $40 billion dollars in state-based aid that would have gone directly to saving these jobs. Presumably faced with no choice to clear the 60-vote cloture hurdle, Democrats and the Administration went along, and that state aid vanished. So unsurprisingly, as a result, state worker jobs have vanished right along with it. That translates to hundreds of thousands of jobs all over the country that would have meant hundreds of thousands more consumers with spending money, hundreds of thousands more people off the unemployment insurance rolls and contributing to state budgets rather than taking from them, hundreds of thousands more people providing help and aid to others who have trouble getting it due to scaled-back state workforces.
It was a terrible, terrible idea. Especially because the woes for state budgets are only beginning, and what aid did come with the stimulus will probably run out before state economies recover.
History suggests it could take six or more years for sales and income taxes - which make up roughly two-thirds of states' revenue - to return to pre-recession levels. That augurs deeper cuts to state jobs and services in order to maintain funding for core programs such as public schools and Medicaid.
What's different from the three previous recessions, which took states three to five years to recover from, is that employment and consumer spending aren't expected to bounce back as quickly.
To balance their budgets in the meantime, states are likely to further raise taxes on the money people earn and spend; increase college tuition; reduce funding for the arts and other cultural programs; and push costs into the future by delaying pay raises for employees and repairs of government buildings. Some states, including Massachusetts, Missouri and Arizona, already are making or considering fresh cuts just months after lawmakers agreed on new budgets.
I would say that $40 billion dollars in direct aid could have gone a long way right now and in the future. But instead, we are ruled by neo-Hooverists.
True to the reality of a weak political media and an inattentive public, the chatter over the results of the July budget revision, despite major cuts to the social safety net, has completely subsided. No taxes got increased and nobody "important" got hurt, so it was just time to move on. Politicians just move on to the business of raising corporate money, special interests can move on to the business of writing laws that help their bottom line, and everybody in Sacramento can praise everybody else for "sacrificing" to get things done.
Only, for the people living under the consequences of these budgets, created through a choice not to properly pay for needed services, the budget battle is not forgotten. And it doesn't consist of a group of numbers in a column. It's entirely real and it hits them every single day. Here's just one example.
Six domestic violence shelters in California have been forced to close while dozens more are scaling back services after Gov. Arnold Schwarzenegger eliminated all state funding for the program that supports them.
Shelters in the Central Valley town of Madera, the Sierra foothill town of Grass Valley and in Ventura County in Southern California have closed. Others in the San Francisco Bay area, Los Angeles and Bakersfield are on the verge of closing.
Many centers are laying off staff and closing satellite offices that serve remote areas of the state as they cope with the budget cuts. A national domestic violence group describes California's as the deepest cuts to such programs nationwide, even as other states have reduced funding.
In Madera County, officials have turned away six domestic violence victims and eight children since the county's only shelter closed Aug. 7, said Tina Figueroa, the shelter's director. The Martha Diaz Shelter served about 100 victims a year, many of them low-income and with no place else to turn, she said.
So 100 victims of domestic violence in smallish Madera County now have truly nowhere to turn, and will either suffer under the boot of their abusive partners or, in many cases, be killed by them. The director of domestic violence policy in the LA City Attorney's office pretty clearly calls these programs "homicide prevention." It also saves money relative to what you spend prosecuting the eventual homicides. I've seen "tough on crime" conservatives over the years invoke the name of victims and stir up public support for laws in their name. They go curiously silent when hundreds of domestic violence victims are put at risk of death because they want to save rich people and corporations from having to pay for their fair share of the commons.
These closures are the direct result of line-item cuts by the Governor. So the blood is on his hands. Leland Yee has a bill that attempts to cover the domestic violence shelter budget with cash from a crime victims fund, but under 2/3 rules, it's not likely to pass this week.
Kudos to the AP for doing a story on this; but there need to be many more. There's a human face on the budget cuts that has completely been lost and forgotten. Those suffering are right to suspect that nobody in Sacramento cares about them.
When business groups began to object to various provisions in the Parsky Commission effort to upend the tax structure in California, including anything that even smelled like an increase (even though the plan had to be revenue-neutral to clear the Legislature), I figured the effort was dead and buried. It appeared that the entire effort was a complete waste of time, and the effort to Latvia-ize the state by shifting the tax burden from the upper class to the lower class had been sniffed out and extinguished. However, the recent secrecy on the part of the commission, after a pledge of transparency, has many wondering if the shock doctrine is alive and well.
The plan is that, just about 24 hours from now - or 11 a.m. Thursday, to be precise - a state commission will consider and potentially adopt a proposal for an entirely new tax system for the state of California.
It would be a radical undertaking, slashing some taxes, eliminating others and establishing a new tax about which no one in California is familiar. No one can say with anything approaching certainty how much it would cost businesses and consumers or how much revenue it would generate to finance state services.
Yet, despite the significance of the task, despite all the unanswered questions and despite the imminence of a decision, as of this writing - midafternoon Tuesday - the details of the proposed new tax plan have not been made available for public review.
A spokeswoman told me a little after 3 p.m. there was still hope that the detailed proposal would be posted on the commission's Web site before the day was out.
The Legislature has made no indication that they would take up whatever plan the Parsky Commission votes out, even after the Governor orders a special session to deal with it. And with both sides of the aisle condemning aspects of the plan, liberals for the tax burden shift, and conservatives for the unknown tax increases that may be part of any deal, I wouldn't call the prospects likely for a Parsky Commission plan to become law. But the secrecy is certainly troubling, as well as the revival of provisions voted down by the people on multiple occasions.
But members of the tax commission are reviving the rainy-day fund idea once again. Most notably, the idea has had some of its strongest support from Democratic-appointed commissioners.
Former Assemblyman Fred Keeley said recently that while many commissioners believe the state can reduce its budget volatility through changes in the tax system, he believes the tax system isn't so much the problem.
"My belief is that volatility of the general fund, to the degree it's a problem, is due to the governor and Legislature with regard to spending," Keeley said. "That can be solved by way of an appropriately designed rainy-day fund or lockbox."
Another Democratic appointee, University of Connecticut law professor Richard D. Pomp, reminded the commission this month that he has long believed the reduction of volatility was a spending issue.
"From the outset, I have argued, and continue to believe, that volatility, which is a feature of every state's tax system, is a spending problem and not a tax problem," Pomp wrote. (That comes awfully close to the oft-used GOP line that California's budget problems are "a spending problem, not a revenue problem.")
I think these Democrats are trying to argue that volatility in the tax structure is a good thing, which it is. But the leap from that to a spending cap doesn't follow. There's a difference between spending wisely in good years and a third-party mechanism that limits the ability to restore chronic budget cuts from bad years, which is what a cap would inevitably do. (A rainy-day fund without a cap would be different, but may end up serving the same purpose.)
I stick with my prediction that the commission is doomed, but it still bears watching.
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.
We've already seen a trend of national columnists using California's budget woes to conveniently push whatever obsession they want. Two more of these land on the nation's most august op-ed pages today, both of them inaccurate and out of touch with the nature of the situation here in the Golden State.
First we have fiscal scold Robert Samuelson trying to use California's budget crisis to make a larger point about a national "fiscal reckoning." He claims that California has "made more promises than its economy can easily support," as has the nation, and only fiscal austerity can remedy the problem.
On paper, the state could solve its budget problems by raising taxes further. But in practice, that might backfire by weakening the economy and tax base. California scores poorly in state ratings of business climate. In a CNBC survey, it ranked 32nd overall but last in "cost of business" and 49th in "business friendliness." Information technology (Intel, Google, Hewlett Packard) and biotechnology remain strengths, but some traditional industries are struggling. High costs, as well as tax breaks from other states, have caused movie studios to shift production from Southern California. In 1996, feature films involved 14,500 production days in the Los Angeles area, says FilmL.A.; in 2008, the figure was half that.
So California is stretched between a precarious economy and a strong popular desire for government. The state's wrenching experience suggests that, as a nation, we should begin to pare back government's future commitments to avoid a similar fate. But California's experience also suggests we'll remain in denial, prisoners of wishful thinking, until the fateful reckoning arrives in the unimagined future.
Ezra Klein does a pretty good job with this column, noting it provides a lesson for the difference between fiscal responsibility and fiscal conservatism. Samuelson, of course, is the latter, wanting a low-tax, low-spending country. Rather than arguing for a balanced solution, Samuelson eschews taxes due to the "business climate," even though many businesses cite the lack of investment in education and infrastructure that Samuelson is CALLING for as a reason for their concern about their future in the state. In addition, the "businesses are leaving California" argument is a myth applied to all states by fiscal scolds as a means for them to race to the bottom and provide as many corporate tax breaks as possible. Which California has done, to the tune of $2 billion a year, at a time when funding for state parks and domestic violence shelters and poison control units gets slashed. Ezra adds:
Samuelson implies otherwise, but California isn't a particularly high-taxing state. Total state and local taxes take up 11.73 percent of the average Californian's income. The national average is 11.23 percent. And it's been like that for many years [...]
Nor is California's spending on education somehow out of the ordinary. The state ranks 29th in the country on education spending (much lower per pupil; try 47th: ed.). And recent tax cuts haven't been helping the Golden State out. This graph from the California Budget Project shows the contribution that decades of tax cuts have made to the state's current fiscal crisis. It's a pretty depressing story [...] The budget deal that Arnold Schwarzenegger just accepted contained $15 billion in spending reductions. Absent the tax cuts of the last few decades, most of those reductions wouldn't be needed (add the vehicle license fee increase and you're talking about a surplus: ed.).
Samuelson is essentially making an argument about the kind of government he likes, using the California situation to illustrate it, the facts be damned.
Next up is Ross Douthat, who uses the California mess and contrasts it with Texas to create some notion of red states faring better in the recession, also at odds with the facts:
Consider Texas and California. In the Bush years, liberal polemicists turned the president's home state - pious, lightly regulated, stingy with public services and mad for sprawl - into a symbol of everything that was barbaric about Republican America. Meanwhile, California, always liberalism's favorite laboratory, was passing global-warming legislation, pouring billions into stem-cell research, and seemed to be negotiating its way toward universal health care.
But flash forward to the current recession, and suddenly Texas looks like a model citizen. The Lone Star kept growing well after the country had dipped into recession. Its unemployment rate and foreclosure rate are both well below the national average. It's one of only six states that didn't run budget deficits in 2009.
Meanwhile, California, long a paradise for regulators and public-sector unions, has become a fiscal disaster area.
Douthat also throws in the "rich businesses and rich people are fleeing California" canard, which as stated above is untrue about businesses and even less true about rich individuals.
Steve Benen deconstructs the argument about Texas being a great economic steward and California a basket case, and the reasons why. As Benen says, Texas is the worst state in America for the uninsured and the second-worst state for poverty rates. To conservatives who judge the progress of a state by the budgetary balance sheet and not the prosperity of the citizenry, I'm sure they are a model citizen.
Meanwhile, calling California a "liberal laboratory" and not recognizing the source of the crisis, namely the conservative veto on the budget process, speaks to Douthat's complete ignorance about the nature of the state. In addition, as Paul Krugman notes, there is no correlation between a state's perceived ideology and their economic performance (two of the highest-unemployed states are South Carolina and Tennessee), nor is there any correlation between the level of taxation and the current unemployment rate.
I know that the dysfunction of what is seen on the national level as a blue state is an inviting target for conservative columnists to spin some wider tale about liberal failure and conservative ascendancy. If only they had any knowledge of the actual facts involved.
You may have heard this by now, but we have a deal. The #cabudget hashtag should get you your fix. The topline stats:
$15 billion in cuts, no new taxes, $11 billion in gimmicks and borrowing
$4-5 billion in local government raids
only an $800 million reserve (initially the talks were for a $4 billion one)
$6 billion in reductions to public schools, but an $11 billion dollar payment somewhere down the road though not in writing
yes, there's new offshore drilling in this deal, going around the Lands Commission, and without an oil severance tax for the producers
$1 billion assumed for the sale of the State Compensation Insurance Fund, which is not only unlikely but would really crush small businesses if sold
no suspension of Prop. 98
basically a reinvention of state government, more austere, and precisely when folks need the opposite.
...three furlough days a month for some state employees still in place for the rest of the year
$500 million in cuts to Cal Works
smiles all around from Dem leg. leaders as they cheer that "we did not eliminate the safety net for California." Poking a big hole in it, apparently, qualifies as A-OK.
...we're also cutting $1.2 billion to corrections without releasing any prisoners, as per the actual politics as usual. The only way you can do that is by cutting every treatment or rehabilitation program in the prisons, or eliminating overtime for corrections officers. In other words, we're turning prisons into Public Storage units.
UPDATE by Robert: The main takeaways here:
• Arnold and the Republicans got everything they wanted - a cuts-only budget that protects their wealthy allies and the big corporations from having to pay their share and that makes everyone else suffer.
• California's government is functioning as intended - producing right-wing outcomes despite large Democratic majorities. I will continue to blame specific legislators for agreeing to this shit, but lasting change will only happen when we press the reset button on state government.
UPDATE by Dave: Just to state the obvious, only the Republican leaders have agreed to this. We still aren't through the process where individual Yacht Party members have to be bribed for their votes.
Of course, we aren't through the process where progressives just say "no we're not voting for that, try again," but I've never seen that process come into play.
• Background checks for IHSS providers
• Fingerprinting of workers and clients (so if you are disabled and cared for at home, you will be treated like a common criminal merely because you need assistance)
• "Some state parks will close" even though parks generate more tax revenue than they cost
• OC Fairgrounds to be sold
• Integrated Waste Management Board to be abolished, despite the fact that its annual cost is statistically negligible
The February deal was bad, but this is far worse.
...CalPERS reports $56 billion loss. Local governments are going to have to make up part of this shortfall - but with what money? The legislature has guaranteed mass bankruptcies for local governments with their raid on local funding, which was probably the point of Arnold's insistence on such raids.
Hopes for a deal on the California budget faded last night as the Big Five could not agree over the big issue of whether and how to suspend Prop. 98, the mandate for education funding.
The education money discussion is not new; much of it dates back to the February budget negotiations, which resulted in a ballot measure asking voters to offer blessings upon a supplemental payment. Voters rejected that measure, Proposition 1B.
And as with most education financing debates, this one lands squarely back at the maze of formulas and calculations that embody the 21-year old funding guarantee enshrined into the state constitution by voters, Proposition 98.
In a nutshell, the current debate focuses on whether schools are owed money in the future to make up for some of the recent spending reductions, and whether that obligation (the so-called "maintenance factor") should be codified in law as part of the current $26.3 billion deficit deal.
"The Prop 98 law is so confusing," said Senate President pro Tem Darrell Streinberg to a throng of reporters outside the governor's office, "that we want to make sure that there is clarity."
My belief is that education leaders will win this money in the courts, no matter how long Arnold and the gang put it off. The lawsuit has already been filed. The Democratic leadership want to just deal with the $11 billion dollars in essentially stolen money from schools inside the budget agreement by promising the money in the out years, while the Republicans and Arnold don't.
So if you wanted a 2010 campaign slogan, you have the source material.
It looks to me like Arnold is holding out simply so he can prove a point. His effort to insert privatizing social services eligibility at the last minute is flawed enough that even the Yacht Party might have trouble stomaching it. The proposed cuts in the deal are really intolerable but not what the Governor promised at the outset. It's unclear whether the Governor will get his anti-fraud provisions, also inserted late into the process. And it's completely unclear, given the deal likely to come out, why we had to wait two weeks for virtually the same deal.
Whatever budget deal ultimately is passed -- and in this economy it'll only be a temporary fix, at best -- virtually the same agreement could have been reached weeks ago [...]
Democrats produced a stop-gap plan supported by Assembly Republicans that would have staved off IOUs. They proposed $3.3 billion in cuts to education and other programs that would have kept the cash flowing, at least for a few weeks. It would give them time to negotiate more cuts. Schwarzenegger rejected the idea and persuaded Senate Republicans to follow.
That's where the governor began bobbling the ball, although his coaches figured he was playing to his fan base, what's left of it.
Issuing IOUs will cost the state roughly $26 million in interest for July, the state controller's office estimates. The IOUs also prompted Wall Street bond rating agencies to lower California's credit to near junk status. That potentially could cost the state $7.5 billion over 30 years, according to the treasurer's office.
Schwarzenegger, aides say, calculated that Democrats wouldn't negotiate seriously without facing a deadline, such as the latest: most banks refusing to accept IOUs. Negotiating piecemeal would get nowhere, the governor believed.
But he might have dodged IOUs completely. Guess it doesn't rankle much that the state he has governed for nearly six years must now pay bills with scrip.
Schwarzenegger's clumsy attempt at the Shock Doctrine, when the deal Democrats were willing to agree to was painful enough, was about as irresponsible as a chief executive could be.
...just one more thing on this that the LAT article makes clear. Schwarzenegger AGREES that education should be paid the money borrowed from them in the out years. But Democrats suspect that his fingers are crossed and they want it in writing. That's the argument now.
Peter Schrag is one of the few columnists left in this state who consistently makes sense, and today he attacks that silly NYTimes article about California, in particular the elements of conventional wisdom:
In his passing references to California's serious issues, many of which have major implications for the nation as a whole, Leibovich collects pieces of the conventional wisdom, even when, as in his facile summary of the causes of gridlock in Sacramento, it's wrong. Since Democrats have again and again agreed to multi-billion dollar cuts, it is not, as he thinks, just a matter of "'no more taxes' (Republicans) and 'no more cuts' (Democrats)."
And while Jerry Brown, in his prior tenure as governor was indeed labeled "Governor Moonbeam" (by a Chicago columnist) for his space proposals, as Leibovich says, the label applied much more broadly to his inattention to the daily duties of his office and, most particularly to his dithering while the forces that produced Proposition 13 began to roll.
Brown later acknowledged that he didn't have the attention span to focus on the property tax reforms that were then so urgently needed to avert the revolt of 1978. But to this day, almost no one has said much of Brown's role in creating the anti-government climate and resentments that helped fuel the Proposition 13 drive.
It was the Brown, echoing much of the 1970s counter-culture, who, as much as anyone, was poor-mouthing the schools and universities as failing their students and who threatened to cut their funding if they didn't shape up. It is Brown who spent most of his political career savaging politics and politicians, even as he ran for yet another office. Now this is the guy who wants to be governor again. But Leibovich doesn't tell his readers that long history. Maybe he doesn't know it.
The line about how those who fail to learn from history are doomed to repeat it can be inserted here. But Schrag hits on the most important failing of the article, and indeed of a good chunk of the political media here in California - they airbrush out the people who suffer for the failures of the politicians.
Where are California and the people who are feeling the pain - the school kids and teachers in hopelessly underfunded schools, the children who are losing their health care, the minimum-wage working mothers struggling to pay their child care, the students who are losing their university grants? Is all this really about nothing?
To far too many, the answer is yes. It's politics as theater, as a sporting event, where winners and losers are checked on a board, and whether or not a leader will keep their position is made the story rather than the principles he or she represents. And yet it's not Governor Hot Tubs and Stogies who will feel the pain of an economic downturn and massive budget cuts, nor well-heeled consultants or columnists who make up the scorecards. It's people.
People like the students in the Cal State system who may see their fees raised 20%, just months after a 10% hike approved in May. This will effectively block higher education for a non-trivial number of students, as will proposed enrollment reductions of 32,000 students.
People like LA County homeowners who have defaulted at twice the rate in May as they have in the previous month, as a foreclosure backlog builds up due to various moratoriums and an increase in repossessed homes entering the market.
People like IOU holders who may have to turn to check-cashing stores to get less-than-full value for their registered warrants after Friday, when most major banks (who have all been bailed out by the federal government, by the way) stop the exchange of the notes.
And people like the elderly, disabled and blind, who rely on the in-home support services that the Governor is trying to illegally cut in contravention of a contempt-of-court citation, at least in Fresno.
These are the great unmentioned in this California crisis, the people who Dan Walters tries to smear in his column today by turning every Democratic concern for the impacts of policy as a sellout to "public employee unions." Behind those unions are workers, and the people they serve need the help the provide, in many cases, simply to survive. But it would be too dangerous to Walters' beautiful mind to consider those faces, so he chooses to make political hay out of the violation of people.
Mr. Schrag's latest screed is a good example of why politics in Sacramento is so dis-functional. Instead of trying to find the truth in the Leibovich article, he mocks both the writer and each of the subjects. In recent years, Schrag has become increasingly bitter. That's very sad because he once was an open-minded person with real insight into the predicaments of modern society. Finally, his memory is not serving him well regarding Propistion 13 and the factors that constituted the ethos of that period. In fact, there was a long and hard fought battle to get property tax relief that got all the way to the state Senate but foundered just short of the necessary two thirds vote. There is much to say about government, schools and taxation in California. But to get anywhere it requires a degree of empathy and engagement with opposing perspectives that no longer seems congenial to Mr. Schrag.
You can almost set your watch by it. The state budget picture is a mess, Democrats ask for a balanced solution, Republicans hold their ground and say no, Democrats don't have the vote so they let it go. It happens practically every single year, and it's happening again, according to CapAlert:
Gov. Arnold Schwarzenegger and Senate President Pro Tem Darrell Steinberg said separately Thursday that they are optimistic a budget deal can be struck within several days.
The tone of their comments marked a stark contrast to Capitol fighting over the last few weeks between Democrats and Republicans over bridging the state's $26.3 billion budget gap.
Steinberg also said Democrats had given up any attempt to increase taxes on tobacco or establish an oil severance tax [...]
The Senate president said that Democrats no longer are pushing for a 9.9 percent tax on oil extraction or for hiking the state's tobacco tax by $1.50 per pack.
"We would like to see an increase in the tobacco tax and the oil severance tax as a solution, but in this chapter that's not realistic and it's not what we're holding out for," Steinberg said.
It's never going to be realistic in ANY CHAPTER. Republicans know exactly how to play this game. Their votes are needed for tax increases, so if they hang together they cannot lose. The Democrats haven't figured out how to shame the Yacht Party or make them pay for their votes, giving them no reason to do anything but hijack the process. You'll notice that as a result of this horrific experiment in governance, California is operating worse than practically every other state in the union.
We've seen this kind of "it's almost over" trial balloon on many occasions, so I wouldn't put on the party hats just yet. But somehow at the end of this process, somebody will step up to a microphone and claim how reaching agreement is a sign of success. No. It's a sign of failure. A failure to responsibly manage the state's finances, reflected by the worst economy in 70 years. The only lesson that can be learned from this process is that it's fundamentally broken.
Schwarzenegger and I then repaired to a tent that he had put up in a courtyard next to his office, which allows him to smoke cigars legally at work (no smoking is allowed inside the Capitol). The tent is about 15 square feet, carpeted with artificial turf and outfitted with stylish furniture, an iPod, a video-conferencing terminal, trays of almonds, a chess table, a refrigerator and a large photo of the governor. Schwarzenegger reclined deeply in his chair, lighted an eight-inch cigar and declared himself "perfectly fine," despite the fiscal debacle and personal heartsickness all around him. "Someone else might walk out of here every day depressed, but I don't walk out of here depressed," Schwarzenegger said. Whatever happens, "I will sit down in my Jacuzzi tonight," he said. "I'm going to lay back with a stogie."
This is the guy who dares to chide others for not doing their job.
According to Mike Genest, the Governor's Director of Finance, the $24.3 billion dollar problem expanded by $2 billion dollars last night. He's not taking into account the interest on IOUs, of course, or the expanded borrowing costs. But he's factoring in the education spending that now cannot be cut below a certain level because of "maintenance of effort laws." Genest said that higher education has agreed to keep their books open an extra month, until July 31, meaning that the $1 billion in higher education cuts to the 2008-09 budget year could still be enacted. This is basically fuzzy math, since the additional expenditures due to the Governor's stubbornness do not get addressed.
What the Governor wants to do now, to recoup those cuts under Prop. 98, is to suspend the law. Once again, the reckless lawlessness of the Governor and his allies, out of an unwillingness to deal with budget reality, exposes itself. In addition, the Governor has backed off on the outsized budget reserve as well as eliminating vital programs like welfare, state park closures, children's health care and student grants. Of course, this has been replaced by unrelated items like cutting public employee pensions and social services fraud inspections, both of which would do nothing to the deficit in the near term.
The Governor has declared a state of emergency, under Prop. 58 rules. This means that the legislature has 45 days to come up with a solution on the budget, and if they fail to do so, they cannot adjourn or act on other bills. This is a moot point, since the Governor has vowed already to veto any non budget-related bill until a solution is reached. This just brings the legislature into special session (the fourth since December, I believe).
In addition, the Governor announced three furlough days a month for state employees to save cash, which amounts to a 15% pay cut. And IOUs will get issued tomorrow. They will have an interest rate for the banks which accept them of between 2-5%.
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.
It has been truly depressing to watch the Twitter feeds of John Myers and Scott Lay tonight, as the mood shifted from guardedly hopeful to despairing. The Senate keeps voting on things and not coming up with any solutions. They tried to pass the stop-gap solution again, and came up short of the votes needed. They passed the majority-vote budget with some fee increases, and the Governor vetoed them. Let's all please remember that. With a stroke of the pen, the Governor could have ended this.
If SB 64 and SB 80 (the stop-gap) don't pass by midnight (and actually, in an hour or so, because it takes a couple hours to prepare the necessary paperwork), the state will forfeit $3 billion in cuts to the 2008-09 budget year, which they will have to find in the following year, and a total of around $7 billion in total costs, when you add in the costs of additional borrowing, etc.
At some point, a large majority-vote budget (which wouldn't take effect for 90 days), absent the tax increases, passed the Senate and moved on to the Assembly, where it will be voted on tonight. According to Scott Lay, it covers all but $1 billion of the target, which is probably enough for the Governor to veto it. Why, it's almost as if he doesn't want a solution but instead an opportunity to push through a bunch of long-sought goals shock-doctrine style!
The Senate just tried again to get the necessary votes for the stop-gap, and fell short by the exact same amount. They're in recess until 9:30 and will probably get only one more shot.
...we're past 10pm at this point, the Senate has yet to reconvene, and by most calculations the die has been cast. Enjoy your scrip! Zed Hollingsworth has been spotted in the Governor's smoking tent, for whatever that's worth. But the Governor remains intransigent and apparently determined to bring the state to complete failure.
...counting down the minutes until the end of the fiscal year is kind of like waiting for New Year's, only it involves budgets and trailer bills and at the end people die.
...So the Senate is going back into session. John Myers tweets: "Senate pro Tem Steinberg calls senators back..we've watched a lot of "shuttle diplomacy" betwn Dems, GOP, and Guv's ofc. Still, long odds." We're at T-minus 43 minutes.
...the way this is going from the Twitter feeds, Steinberg looks like he's desperately trying to pass the stop-gap measures again. The odds are long. He pleads to the Yacht Party not to be party to irresponsibility. I wonder what the response will be?... this: "Reeps still refuse to put up votes." Maldonado, in fact, won't vote at all. He's just walking away. Abstaining his way into oblivion.
...Democrats are spending a lot of time lobbying Leland Yee (who has been consistently voting against this stop-gap solution because it hurts schools too much) and Abel Maldonado (who isn't voting), but of course even if they switched their votes that would leave the Senate one vote short of being able to override Arnold and put the stop-gap into effect.
...Republicans are playing their usual game of holding back all their votes until all the Democrats vote for something, so they're waiting on Yee to flip. But assuming he does in the next 20 minutes, who joins him? Two GOP votes are needed. Beyond Maldonado, who would change their vote?
...Yee just came back to the floor, I'd bet he'll vote with the majority this time around, but time is running out... indeed, Yee votes aye. Will there be a second Republican? Or even a first?
...Maldonado still not voting on the three-bill stop-gap package. 10 minutes and counting...
...This is pretty much over. At midnight, the state loses the equivalent of $7 billion in savings. I will remind everyone that Senate Democrats, in the end, voted 25-0 for this deal; Republicans, 0-14 with 1 cowardly abstention (Maldo)... and Steinberg shuts it down. It's over. IOUs will go out on Thursday, $7 billion wasted by the so-called fiscal conservatives.
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.
Something's a-stirring for the second straight night in Sacramento. Scott Lay @ccleague and the indefatigable John Myers @KQED_CapNotes will have the best play-by-play. The Senate has scheduled a session but immediately went into party caucuses for meetings. If they do hit the floor, CalChannel will have it.
Basically, here's the latest: The Senate and Assembly have already passed majority-vote budget revisions that would fill the current deficit, but the Governor has vowed to veto them. The Assembly, with bipartisan support, passed three bills in a stop-gap measure, which would at least provide savings for $3 billion in fiscal year 08-09, which ends tomorrow, and would keep money flowing in state coffers for another few weeks, avoiding IOUs. The stop-gap consists entirely of cuts and gimmicky delays in funding, by the way. The Governor has no plan whatsoever to recoup that $3 billion if passage of the stop-gap fails by the deadline.
What the Governor has done is create a completely new budget plan with a day to go before the deadline. Some would call that deliberate. This "Plan B" budget would not eliminate Healthy Families, CalWORKS or Cal Grants, nor would it cut all funding for state parks, which was apparently a bridge too far. It would accept the one-day delay in state employee paychecks from June 30, 2010 to July 1, "saving" the state $1.2 billion. However, the new plan would borrow $2 billion from local governments, the maximum allowable under the old Prop. 1A; reduce state worker salaries, benefits and pensions; and make broader cuts over various different programs to make up the gap.
Schwarzenegger has appeared to back off from the worst cuts he proposed initially, a win for the grassroots and legislative Dems, but the steady stream of changes to his proposals, along with an insistence on the June 30 deadline for a full solution, have conspired to virtually assure that the deadline will be missed. This is the backdrop for tonight's Senate action. If they can get two GOP votes for the stop-gap solution, they can actually override a gubernatorial veto and set into law something to at least extend the process by a few weeks. I don't know about the likelihood of that, but the choices have become limited.
Meanwhile, the Yacht Party made a tiny ad buy on the budget to try and get people to notice they exist.
I'll monitor if anything interesting happens...
...from Myers: "One more night...to search our souls." -Senate pro Tem Steinberg on Senate floor. No agreement tonite. New fiscal year about 26 hrs away.
...and it looks like nothing interesting happened. They took a vote on the stop-gap, didn't get the 2/3 required to override Arnold's veto, and adjourned until tomorrow morning. Looks like we'll have late night with the legisature Day 3 tomorrow, as the midnight deadline looms.
The Senate followed the Assembly today by passing a majority-vote budget, mostly along party lines, that solves the entire current deficit and includes a large reserve. The Governor has vowed to veto the package. CDP Chair John Burton is asking for grassroots action to force the Governor into compliance, which I consider unlikely, but it's worth reposting some of the letter for the perspective of Burton:
Late last night, Assembly Democrats passed a spending plan that minimizes the cruel cuts advocated by the governor by raising $2 billion in new revenue. Just a few minutes ago, Senate Democrats followed suit, passing a plan that requires Big Tobacco and Big Oil to share in the state budget sacrifice.
Speaker Karen Bass, President Pro Tem Darrell Steinberg and their caucuses should be commended for standing firm against the governor's Draconian cuts.
In order to pass the plan, legislative leaders structured it to require a majority vote. That's because Republicans have repeatedly refused to provide the handful of votes necessary to pass the plan with two-thirds support.
Disappointingly, Gov. Arnold Schwarzenegger has vowed to veto the Democrats' budget plan, preferring to play a game of chicken with the budget. He and Legislative Republicans would rather strip health care from nearly one million children and close 220 state parks than ask corporate special interests to pay their fair share.
Now, the onus is on the governor and Republican lawmakers to explain to Californians why they would rather drive the state over a cliff than agree to a budget with a mix of cuts and new revenue.
Please, call Governor Schwarzenegger's office today at (916) 445-2841 or (213) 897-0322. Ask the governor to sign this budget plan, which minimizes the cuts by sharing the sacrifice.
Echoing the theme, Sen. Steinberg said today, "Shutting down the govt is not the answer to solving CA's problems." He also called on the Governor to "release the Senate GOP" and allow for a bipartisan vote on stop-gap measures, the same that passed the Assembly, to allow for continued negotiations after the June 30 deadline.
What is now at risk, in addition to the distribution of IOUs, are $3 billion in savings from the current fiscal year, savings that will essentially be lost with no deal by midnight tomorrow.
In a nutshell: the deficit solutions pitched by both Governor Schwarzenegger and Democratic legislators rely on a spending reduction of about $3.3 billion in the 2008-2009 fiscal year that ends on June 30.
That's tomorrow at midnight. Once the new fiscal year begins, those savings are effectively gone.
$3 billion of those savings would come from K-12 and higher education. They are not popular spending cutbacks in education circles, but reflect the larger 'all options are bad' narrative that you've heard in all circles for the past several weeks. The final $300 million or so of current year savings come from a plan to transfer money away from local redevlopment agencies.
Budget staffers say it matters which budget year to which these spending reductions are attributed (2008-09 vs. 2009-10) -- in large part because additional cutbacks in 2009-10 could complicate the already delicate issue of eligibility for federal stimulus dollars.
Immediate savings are important for another reason: they provide some breathing room for the cash-depleted state coffers and might lower or eliminate the need for Controller John Chiang to issue IOUs by week's end.
With no stopgap, essentially lawmakers will have to find an additional $3.3 billion in the 2009-10 FY budget, on top of everything they're already doing. So the Governor not only threatens a government shutdown with his intransigence, he wastes the state an additional $3 billion dollars, in effect.
In case you weren't following along in the middle of the night, Assembly Democrats passed a majority vote budget that solves the entire $24 billion dollar deficit, as the Governor requested. Through a maneuver found legal and Constitutional by the nonpartisan Legislative Analyst, the Assembly added a $1.50 per pack cigarette tax, a 9.9% oil severance tax on producers, and a $15 surcharge in the vehicle license fee to fund state parks, in addition to the homeowner insurance fee to fund emergency response systems, which was included in the Governor's initial budget revision. The new taxes amount to $2 billion of the $24 billion solution. The majority of actions in this alternative budget remain cuts. And according to Noreen Evans, the Senate will take up this majority-vote budget later today.
The majority approach was not our first choice. We spent weeks in Conference Committee pursuing a bipartisan budget solution. But we have hit a wall. And, we cannot afford to wait any longer. We are 48 hours away from the state plunging into financial ruin. The Legislature has a duty to act with or without Republicans for the good of California [...]
As the old saying goes: lead, follow, or get out of the way. By voting against cuts and revenues tonight, the basis of any budget, Republicans ran from their responsibility to govern.
We gave legislative Republicans a chance to lead with us through a month of public hearings in the Conference Committee. That was the opportunity to present alternative budget proposals. Republicans squandered this opportunity.
If the Senate passes this and puts it on the Governor's desk within 24 hours of the deadline to stop the state from issuing IOUs, he will have a simple choice to make. Will he shut down the government because he failed to get everything he wanted from the legislature? I suspect he will, actually. And indeed, he has issued a statement to this effect, saying that he wants a "budget that solves our entire deficit without raising taxes."
That's the short-term state of affairs. Going forward, the process itself is fundamentally broken, a fact that the state's political media class has decided to notice in a boomlet of "How to fix California" articles over the past week. I look forward to those debates. If the Governor vetoes this budget, he will be shutting down the government and forestalling the effort to finally reform the process.
...more from the Governor, as he vows to veto this bill, calling it "illegal," which is pretty far. It is worth noting that, since most of this budget revision would not take effect for 90 days because none of them received a 2/3 vote, it is true that such a solution would not completely impact the immediate cash-flow problem. Although, you could argue that putting such a solution in place would allow the state to borrow from investors.
The Department of Health and Human Services released a report on the current state of health care in California, and the numbers are striking. It also can help us understand a bit about our budget woes.
19% of all Californians are uninsured, and of those, 71% are in families with at least one full-time worker. Employer-based coverage has dipped to just 54%, meaning the rest have to either go to the individual insurance market, qualify for a public coverage plan like Medicare or Medicaid, or go without. The top two insurance providers in California account for 44% of the health insurance market, and such a duopoly make it easy to just jack up rates year over year. The average family premium has increased 114 percent since 2000. And this causes families to drop coverage due to a lack of affordability. This nugget appears in the report:
"California businesses and families shoulder a hidden health tax of roughly $1,400 per year on premiums as a direct result of subsidizing the costs of the uninsured."
But one other entity suffers from that hidden tax: the state budget. Health care spending by the state has increased well above the CPI, and Medicare and Medi-Cal spending have ballooned because the cost of health care has ballooned. Growing ranks of the uninsured and unemployed increase the numbers eligible for coverage under state programs, and one political party, at least, would rather offer those services instead of watching people die in the street. We hear at the federal level that health reform is entitlement reform; that's just as true at the state level, as bending the cost curve will put state budgets in a better position for the future.
All of this adds up to create a sense of urgency in doing something about overhauling the broken health care system this year. This could have been the narrative that Dianne Feinstein brought forward in public statements, not hand-wringing about the difficulty of getting something done in Washington.
In the upside-down world of the California budget mess, the Senate President Pro Tem is now criticizing Republicans for their refusal to vote for cuts.
Senate Leader Darrell Steinberg wants to put Republicans on record today on two political questions: whether they can accept $11.4 billion in cuts that Democrats are proposing, and whether they will vote on $2 billion in new taxes.
On taxes, Steinberg conceded he is unlikely to win a single Republican vote when the Senate takes up the Democrats' $23.3 billion deficit reduction plan. But that, he said, shouldn't stop them from supporting his package of cuts, which will be voted on separately.
"If they're going to stand on the argument that cuts are not deep enough and thereby not vote for $11 billion in cuts, then we have some issues," Steinberg said at a news briefing next to his Capitol office. "It's interesting. I'm getting a sense that Republicans are getting shy about voting for cuts. That would be an odd headline: Democrats urging Republicans to vote for cuts."
Actually, it's not an odd headline. It's the inevitable consequence of a broken political system where you need a simple majority to make cuts and a 2/3 majority to raise taxes. Period.
In this case, Steinberg can pass the whole budget, save $2 billion in oil and cigarette taxes, by majority vote, because this is not a budget enactment, but a revision. If he doesn't muster 2/3 for the cuts, however, the revision will be delayed 90 days, reducing the effectiveness of the cuts by roughly 1/4, and forcing additional solutions to fill the deficit later. Even when mostly cuts are on the table, Republicans are using the leverage of undemocratic supermajorities to force more cuts.
Here's Zed Hollingsworth playing dumb that all he wants is a comprehensive solution.
"We're willing to vote for the cuts that provide for a complete solution," said Republican leader Dennis Hollingsworth, R-Temecula. "We're not willing to vote for a partial solution that has us coming back in the spring having to find more revenues when another calamity hits. We're not interested in political gamesmanship."
No, the Yacht Party would NEVER be interested in political gamesmanship, perish the thought. They'd never want to try to send the state into bankruptcy to make a political point or anything. By the way, Zed, news flash: you'll be back in the spring. The projections from the Legislative Analyst have consistently fallen short of reality, and no matter how big a budget reserve gets baked into this new budget, you can bet dollars to donuts it won't be enough, especially considering the potentially accelerated Depression that additional cuts to the social services net will force. The Anderson Forecast estimates 64,000 government jobs lost from this round of budget cuts. Even in Dan Walters' world, that's a significant chunk.
My problem with the Democrats on this is mainly their insistence on working within a broken system. They miss every opportunity to put the failed governmental structure on trial. Something as absurd as Republicans voting against program cuts - to ensure MORE program cuts - defies belief without an explanation of how it's a symbol for a bad process that must be fixed. The goal of this budget, which was never going to be pretty regardless of the May 19 election, should have been to heighten that reality.
Dan Walters had a funny column a few days back, excoriating anyone who use "numbers" and "projections" to theorize about the impacts of budget cuts. As if it's some kind of novel idea that an economy dominated by government spending would rise or fall based on the amount of that spending. Mr. Walters, 1937 called and wants a word with you.
Anyway, let's look at the heart of Walters' complaint. First he says that we must have a hefty budget reserve because the economy is likely to go south, and because it will signal to bankers that "we're solvent so they'll buy our short-term notes." As I noted earlier, this is nonsense given the clear Constitutional duty to repay debt before practically everything else. Then he says this:
Democrats and Republicans are equally guilty, meanwhile, of emitting self-important nonsense about the impacts of their actions on the state's recession-wracked economy. While Democrats claim that cutting "safety net" programs and/or public payrolls will worsen the recession by taking money out of circulation, Republicans claim that raising taxes will retard recovery by discouraging investment and/or consumer spending.
Both practice voodoo economics. The entire deficit on which they are working, $24.3 billion including Schwarzenegger's desired reserve, is well under 2 percent of the state's economy. The lesser cuts and taxes they are debating would merely shift relatively small amounts of money from one form of spending to another, all within the state's economy, so the macro economic impact would probably be nil, no matter what they do.
That's a strange opinion, especially because in the next sentence, he argued that a budget filled with gimmicks would threaten our economic future, even though such gimmickry would effect the same small amount of cash, from a macroeconomic perspective. But to his main point - cutting spending for state services, cutting jobs, cutting salaries for public employees and their related vendors, has a multiplier effect that in fact does weaken the prospects for economic recovery. You don't have to take my word for it. John Myers ran a story on this just today.
"It's hard to see how the country recovers if California does not," says U.S. Rep. Zoe Lofgren (D-San Jose). Lofgren says she thinks congressional authorization of loan guarantees for any state will happen. But no one thinks it'll happen in time for California, which needs to go to market -- assuming a budget deficit deal is agreed to in the state Capitol -- early next month.
Lofgren says she's particularly troubled that the national stimulus and recovery programs... which are expected to benefit California by as much as $80 billion... could be drained of their help by the cuts needed to balance the state budget. "It is contrary to the efforts that we're making," she says.
This is a fact neglected by Walters, the very real possibility that certain spending cuts would result in the forfeiture of stimulus funds as well as regular funding, multiplying the effect of the cuts. Many of the programs that Schwarzenegger wants to eliminate, like Healthy Families, CalWorks and Medi-Cal, have their funding matched by the federal government. Clearly any dollar cut there would mean $2 in practical cuts to Californians. And losing out on stimulus dollars could number in the tens of billions.
This UCLA Anderson Report also speaks to the impact of state spending on California and the nation at large.
According to UCLA Anderson Forecast senior economist Jerry Nickelsburg, there is nothing happening in California that will help pull the state out of recession in advance of the nation.
"California," Nickelsburg writes, "is in for a continued rough ride for the balance of 2009 and is not going to see economic growth return until the end of the year, shortly after the U.S. economy begins to grow."
The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report.
In his essay, Nickelsburg notes that Gov. Arnold Schwarzenegger is attempting to close the state's $24 billion budget gap with a combination of fee increases, forced borrowing from local government, the sale of state assets and, primarily, budget cuts.
Yet that the real risk for California, Nickelsburg writes, is the possibility that there will be no budget agreement at all and that the chaotic and inefficient spending cuts that would likely follow would have an even more severe impact on the ability of California to stem the downturn in economic activity this year.
The rhetoric has risen to the extent where a prolonged stalemate, like every year given our broken governmental structure, is possible. But clearly, Nickelsburg is demonstrating that state spending does have an impact on the economic picture at large, especially at a time when there's 11.5% unemployment and a growing dependence on state services.
That one of the top political reporters in the state would deny this economic reality is just baffling.
With Juan Arambula apparently leaving the Democratic Party, a day before both chambers were scheduled to vote on the Democratic alternative budget, it's striking how little difference this will make. Because the legislature will not vote to enact a budget but to revise it, on everything but tax increases they need only a majority vote. And the way that the Democrats structured their version, less than 10% of the bill include solutions requiring a 2/3 vote. And Assembly Democrats still hold a 49-29-1 advantage even if Arambula becomes an independent. What's more, the leadership structured a fallback option should those oil and tobacco taxes go down, along with a couple repeals of corporate tax breaks passed in February. Presumably they would simply shrink the budget reserve and pass the same budget, and that could also be done on a majority-vote basis - actually they could pass the oil and cigarette taxes through a majority-vote fee swap, if they really wanted to, although I reluctantly agree with this article that Democrats are probably posturing, knowing they don't have the votes and hoping to at least fork some Republicans on "voting with Big Tobacco and Big Oil. It's simply good politics to do so, but that's a small consolation to those who may see their services cut as a result.
There is a cost to passing these revisions by majority vote, however, because anything done in this fashion will take effect 90 days out, while a 2/3 vote for any revision would take effect immediately. Obviously, with a 90-day lag the savings will not be as robust on the cuts, requiring yet another go-round of this at the end of the year, which was probably inevitable anyway given the lack of revenue filling state coffers. And of course, that will be on the heads of those Republicans who don't vote for these solutions, those "fiscally responsible" types who will cost the state money by failing to fast-track these revisions. Let's hope, beyond hope, that actually reaches the headlines.
The point to all this is that the Democrats' budget will provide a significant amount of pain, which is why they don't have to put up too much of a fight to get it passed. The side-by-side comparison of the two budgets shows pretty clearly that Democrats accepted a substantial amount of the cuts, and also some of the gimmicks that the Governor had in his plan. They added a couple tax increases but not the broad restructuring of government necessary to protect the most vulnerable. They repealed a couple corporate tax breaks for CEOs but not as many as they could have. If you're going to engage in what George Skelton calls Kabuki theater, since you're delivered a fallback plan, don't compromise the Kabuki and instead create the real vision for the state that you desire, something that the grassroots, just getting their feet wet in this fight, can rally behind. Or maybe, the Democratic caucus DID, a somewhat terrifying thought.
