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.
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.
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.
The real tragedy of the proposed cuts in the state budget comes when you recognize that some of them would cancel out federal stimulus dollars. A perfect example would be the elimination of the welfare-to-work program Cal Works. In Los Angeles County, the stimulus funds a program through Cal Works that provides jobs. Without Cal Works, the program gets eliminated, and $200 million in federal dollars cease to flow to the state. Funny how the welfare goes but the corporate welfare remains, ay? And that's really just one example.
"Advocates for the elderly in California say recent budget cuts are dramatically affecting the ability of social service programs to keep up with demand" at a time when "the state's elderly population - and the incidents of elder abuse - are exploding," NPR reports. One example is Contra Costa County, where the Aging and Adult Services Program laid off two-thirds of the staff who "investigate abuse complaints of elderly and dependent adults." The county is now "turning over virtually all of its self-neglect cases to some other agency - often, the police." The Contra Costa situation is "so severe that the county grand jury recently concluded that Adult Protective Services no longer has the resources to carry out its legal mandate to investigate physical and financial abuse complaints." This comes at a time when complaints of elder abuse are on the rise. According to "national studies," only "1 in 5 elder abuse cases is reported" (Siler, 6/3).
Needless to say, this threatens the ability for Contra Costa county to qualify for stimulus funds to backfill those cuts, thanks to "maintenance of effort" rules. The Feds giveth, the state taketh away and taketh away what the Feds giveth. And that undermines the goals of the stimulus and damages economic recovery, given that we are the nation's largest state.
Some would say that the state's "runaway spending" brought this on, but Sen. Mark Leno argues persuasively against this, detailing the nature of the spending over the past decade and where that money has actually gone - tax cuts (the vehicle license fee), prisons, debt service, and the rapid cost growth in health care and fire protection. This is familiar to most of us but ought to be shared with those friends who don't know the facts. Same with this.
What truly brought this on is a dysfunctional process that requires serious structural reform.
Arnold Twitters in that he got "permission" to enact the budget cuts on home health care workers and still qualify for all federal stimulus money in the health care sector. Cap Weekly has more.
The state of California has received permission from the federal government to cut wages of home healthcare workers without fear of losing federal stimulus dollars.
The ruling comes as a victory for the Schwarzenegger administration, and a defeat for the Service Employees International Union which had sought federal intervention to stop the cuts.
Cuts in home healthcare worker pay were part of the budget solution passed by Gov. Schwarzenegger and legislative leaders in February. As part of his May budget revision, Schwarzenegger has proposed further cuts for in-home support workers. The Legislature cut IHSS worker pay by $2 per hour, lowering wages from $12.10 to $10.10 per hour. The cuts saved the state an estimated $74 million.
It's important to note that, while these cuts suck and will really hurt IHSS workers, they are relatively minor compared to the cuts in health care and education Schwarzenegger wants to enact, while still qualifying for stimulus money. So the Administration can still wield some power here. But obviously this is a bad sign. The Governor should not be allowed to essentially reverse the effect of the stimulus on his own. In fact, he ought to just resign.
Schwarzenegger said he received the voters' message "loud and clear: an overwhelming majority of people told Sacramento, 'Go and do your work yourself, don't come to us with your problems...."
"The message was clear from the people, go all out and make those cuts and live within your means," he said.
Voters were so worked up, in fact, that they turned out in the lowest numbers in state history, and they voted down the same borrowing gimmicks and spending cuts for successful programs that will now compose the Governor's agenda. Let me suggest that I don't believe in his message-taking ability.
Marc Cooper actually has a decent column on Arnold's total failure.
The CA-32 race to replace Labor Secretary has less than six weeks to go until the primary. We know about the two major candidates; Board of Equalization member Judy Chu (not to be confused with Betty Chu, who will appear directly above her on the ballot and surely cause some errors among voters) and State Senator Gil Cedillo, whose extreme spending of campaign contributions on shopping, meals and lavish hotels made the LA Times this weekend and caused a stir.
Somewhat less remarked-upon has been the candidacy of Emanuel Pleitez, a product of East Los Angeles and Woodrow Wilson High School, who matriculated at Stanford, joined the advisory board of Voto Latino (a group that encourages voter registration and engagement for the Latino community), worked for Democratic lawmakers like Antonio Villaraigosa, Tom Daschle and Hillary Clinton, and worked on the Obama transition team at the Treasury Department. On Friday I had the opportunity to chat with Pleitez about his life experiences, the financial crisis, housing policy and a host of other issues. A paraphrase of that conversation follows.
(As a side note, this story about one of the volunteers on the campaign, who traveled all the way from Santiago, Chile to work on it, is pretty amazing.)
A couple quick updates to stories we've been following:
• The State Senate today approved two bills relating to unemployment insurance on a near-unanimous vote. The bill (AB 23x3) to extend benefits for an additional 20 weeks using federal stimulus money passed 38-0, and the bill (AB 29x3) changing eligibility requirements to allow seasonal workers to benefit from unemployment benefits, also with federal money, passed 37-1. The latter bill needs to go to the Assembly for concurrence; the former will go right to the Governor. Sen. Gil Cedillo remarked in his release:
"Our immediate action on this issue was necessary to help almost half a million unemployed Californians stay afloat. These bills put to use the estimated $3 billion dollars in federal stimulus monies made available by the American Recovery and Reinvestment Act (ARRA)," remarked Cedillo. "We have a tremendous opportunity to turn our economy around and put federal dollars to work for California. The bipartisan leadership today highlights what we are able to accomplish when we focus on results," Cedillo added.
At least 76,000 people whose benefits would run out on April 11 would see immediate relief. It appears the Governor, after hedging, will sign both bills, but we shall see.
• As early as tomorrow, says Marty Omoto, we may have a decision from the Finance Director Mike Genest and Treasurer Bill Lockyer on whether the state will receive enough stimulus funding to "pull the trigger" that would reduce some of the worst cuts in February's budget, and eliminate some of the tax increases.
The determination by the State Treasurer and Department of Finance Director is crucial on whether major permanent cuts happen or not to several critical programs that serve hundreds of thousands of people with disabilities, mental health needs, the blind, seniors and low income families. While there has been no official word on what the State Treasurer or the Finance Director will report, most observers feel that the likely news will not be good.
If you want the details on the cuts at risk, read Marty's post. Given the fact that the Legislative Analyst already foresees an $8 billion dollar hole in the budget, and that the special election poll numbers are tanking, which would add another $5-$6 billion hole, I would expect the bad news as well. Because of the murkiness of what money counts toward the General Fund and what doesn't, there's a fair bit of room for politicking in there.
The New York Times continues its coverage on shantytowns today, highlighting a Bushville in Fresno that has suddenly popped up. First of all, given that Los Angeles County has 70,000 homeless people and that number has remained durable for quite some time, I welcome the national media to the issue about the homeless but don't necessarily think that because this new class puts up tents (they do the same on LA's Skid Row, BTW) that somehow it's novel. The recession clearly has exacerbated this problem and brought it to new areas in the state and the country, but that doesn't mean homelessness didn't exist before.
Gov. Arnold Schwarzenegger said Wednesday that he has teamed up with Sacramento Mayor Kevin Johnson to help the homeless and has lobbied the president to speed the flow of federal dollars to address the problem [...]
U.S. Rep. Doris Matsui, D-Sacramento, in February announced that the city and county of Sacramento each are in line to receive $2.4 million in stimulus money to prevent homelessness.
The money will be managed by the city-county Sacramento Housing and Redevelopment Agency.
In addition, Proposition 63, the ballot measure voters approved in 2004 to provide mental health funding, will provide "a lot of help" for some of those living on the streets, the governor said.
That would be Prop. 63, the fund which the Governor and the legislature are trying to RAID through Prop. 1E, to the tune of $230 million a year diverted to other purposes. You can debate the pluses and minuses of that, but promising Prop. 63 funds to fight homelessness at the same time as running a campaign to take Prop. 63 funds away is either cruel or clueless.
(Assembly Bill 23xxx, the employment benefits extension bill, passed the Assembly. I added the Speaker's video discussing it. - promoted by Brian Leubitz)
There are two bills likely to come up for vote this week that would allow California to receive billions in stimulus funding, both of which have been subject to Yacht Party obstruction thus far of the Mark Sanford, Sarah Palin variety.
First up is the unemployment benefits extension bill which Republicans rejected last week. There are actually two separate measures, one which would extend benefits and one which would increase the pool of people eligible for those benefits, but the extension is the one that will be voted on as soon as today. Kudos to the SacBee for noting that the Governor has taken no position on these bills, despite the bromance rhetoric about the President and the stimulus.
The Assembly is expected to vote this week, probably today, on a bill that would pave the way for California to extend its lifeline for out-of-work residents by five months at federal expense.
The measure would ensure an extra $2.5 billion to $3 billion in federal funds for emergency benefits at a time when California is mired in recession, with an unemployment rate above 10 percent.
Passage would mean $6,140 in additional benefits for an out-of-work person receiving the state's average benefit of $307 per week. Benefits range from $65 to $475, based on previous income earned [...]
Gov. Arnold Schwarzenegger supports both concepts but has not taken a position on specific legislation, aides said.
Schwarzenegger has "no position" because the Chamber of Commerce doesn't like anything that could lead to higher corporate taxes, and they hold the puppet strings on our last action hero. The vote on this has yet to be recorded in the Assembly, so we shall see what the Yacht Party decides.
The second bill, currently in the State Senate, concerns Medi-Cal eligibility requirements that would open up even more federal funding.
Although California is slated to receive more than $31 billion in federal money, a change in eligibility rules for Medi-Cal made as part of this year's budget prevents California from qualifying for more than 25 percent of those federal funds.
In order to do so, the state must have the same Medi-Cal eligibility rules today as those in place July 1, 2008.
The problem was caused by an attempt to save $70 million by changing eligibility rules for children receiving care from Medi-Cal was contained in the 85-day record late budget signed by Gov. Arnold Schwarzenegger last September.
Under the change, children must fill out a report every six months confirming their continuing eligibility along with their parents who were already required to fill out such a report prior to the change in law.
Critics of the requirement say that most of the children who lose eligibility do so because they forget to turn in the paperwork, not because they actually lose eligibility. Sorting out such issues increases Medi-Cal costs to counties, who administer the program locally.
To get the federal money, the state must change the law before July 1, 2009 so that kids don't need to fill out the report. The bill would do that.
Let's be entirely clear - the Administration was banking on oversights from poor families who qualify for Medi-Cal to save the state money. That's borderline immoral and it ought to be addressed. Elaine Alquist is carrying the bill in the Senate, and on this one, Schwarzenegger has seen the error of his ways and promises to sign it. Will the Yacht Party follow suit, or prefer budgeting by forcing bureaucratic red tape on the poor?
Now that you're truly titillated, allow me to explain. Today, Director of Finance Mike Genest and Treasurer Bill Lockyer meet to discuss the amount of money California can expect to receive from the federal stimulus package. The meeting is public and will begin at 10am. Some of our Twittering favorites like Anthony Wright and John Myers will be on hand.
Why is this important? Well, if you've been following things, at issue is the budget "trigger" that would be reached if the state meets a threshold of $10 billion dollars collected from the federal government that can offset General Fund spending. That trigger would reduce tax increases and eliminate some of the worst cuts from the budget deal in February. While there lurks the spectre of a continuing deficit for FY 2010, meaning that any cuts and taxes saved by the trigger would just increase that deficit, the consequences of particularly these cuts are very real as well. They are almost all focused on health care for the very neediest members of society. The aforementioned Anthony Wright explains:
As the chart shows, the list of Medi-Cal benefits to cut share one striking characteristic: elimination of these benefits is not cost-effective and instead is likely to cost the state more to provide care to the same population. For example, the elimination of optometry services means that Medi-Cal beneficiaries will go to ophthalmologists.
The elimination of podiatry means more expensive and less expert care from physicians. The elimination of incontinence creams and washes will lead to Stage 3 and 4 bedsores---bedsores that would be reportable as adverse events or "never events" if they occurred in a hospital. But because they will happen to persons with disabilities trying to live in the community, they will result in the institutionalization of those who could otherwise have remained in the community. Penny-wise and pound-foolish does not begin to describe these cuts.
Those cuts could be entirely offset by the massive corporate tax cut which could go as high as $1.5 billion dollars a year, so I suggest the legislature look elsewhere for their pound of flesh. Not to mention that a failure to get the most out of the stimulus funds would do a disservice to the state. It is unacceptable at this critical time that any money gets left back in Washington. And the tools are in place to cross the $10 billion dollar trigger point, as The California Budget Project has ably shown.
It sets up to be an interesting meeting, as the Treasurer has not made many public comments about the trigger, while Finance Director Genest's reports show the state falling short by $2 billion dollars. Thanks to the poor drafting of this provision, there's no telling the outcome if Lockyer and Genest disagree. Don't expect a resolution today - the participants have two weeks before a final solution.
There's a very pernicious habit in California of turning away from budget issues once a crisis is averted, in a show of relief that we will at least get a small reprieve from having to deal with the contentious battles for a period of time. This false sense of security is bad enough in regular years, when the budget is cobbled together through borrowing against the future and no long-term solutions are implemented. In this dynamic economic crisis, when rosy outlooks can darken in a matter of days, it's downright foolhardy.
Greg Lucas at California's Capitol has been one of the louder voices in insisting that the budget crisis is not at all over. According to Controller John Chiang, revenue in February was $900 million dollars below estimates. Now, if you extrapolate that out, we'll be in a $10-$12 billion dollar budget hole by the end of the year just if things remain at the same level. This is of course unlikely, as the February national job numbers showed. So much of the tax increases passed in the February 19 budget solution are tied to employment - an increase in the income tax, and sales tax increases that of course rely on residents having purchasing power. In addition, these lean economic times will push more people into needing state services, like unemployment and Medi-Cal. Then there are the counter-cyclical increases and cuts that are working against what the economic recovery is attempting at the federal level.
In addition, many of the spending and taxation decisions made in the recent budget cancel out some of the benefits to California of the American Recovery and Reinvestment Act.
The federal package provides an estimated $13.1 billion in refundable income tax credits for middle to low-income Californians at the same time the state budget includes $12.2 billion in tax increases, only some of which are deductible. And only half of taxpayers deduct.
The federal bill includes a one-time $250 payment to the state's aged, blind and disabled poor at the same time the state is reducing the maximum grant for an individual by $37 a month, $444 annually.
"California is roughly an eighth of the nation. The impact of this is sufficiently large that it could affect the prospects of recovery for the nation as a whole," said Jean Ross, director of the California Budget Project, who has been examining how the state's budget interacts with the federal stimulus package.
The biggest short-term issue is cash. Lucas did an interview with John Chiang where he admitted that we will still need to borrow against the anticipation of future revenue as early as April, to the probable tune of $1.5 billion. Because the budget deal was completed too late to include changes to the income tax code, those revenues will not come in until the following tax year. The sales tax will go up April 1, but that will not be enough to cover expenses.
CC: Is February a big month for obligations?
JC: No. April is the real difficult month. If we don't get that RAN, we're $636 million in the red. But then the bigger issue is July. When we walk into the next fiscal year we will need a massive cash infusion.
CC: How come?
JC: We always borrow at the beginning of the year, 25 out of the last 26 anyway and then in April we make up the difference. But this year we walk in with weakness into the next fiscal year. There are less tools in the tool kit. We'll need a massive RAN or RAW (Revenue Anticipation Warrant).
Remember these last budgets borrow $16.5 billion from (state) special funds to backfill the general fund. So if we have any emergency in the state requiring aid from one of those special fund departments, the state is in trouble. Over 1,100 special funds in the state and we borrowed from over 650 of them. Part of this last budget solution gives us the ability to borrow another $2 billion more. The governor's budget has us borrowing $11 billion from special funds over the next 18 months.
So we're going to have to do some outside borrowing for the next fiscal year. Period.
And of course, there's very little anticipation of the worsening economic picture in the budget, meaning that we'll be in unquestionably worse shape by summer. And the cash crisis, forcing short-term borrowing, really impacts selected projects that go out into the bond market, for example infrastructure like the high speed rail project, which will basically have to shut down if there isn't a quick infusion of cash. Keep in mind that California has the worst bond rating in the country and the credit markets are still not that friendly to the state.
Another pressing matter is the determination of how much money from the federal stimulus will be available to the state to fill budget holes. There is a "trigger" in the state budget that would actually reduce some cuts - most of them the worst of the worst, particularly in health care for the needy - as well as reverse increases to the income tax, if at least $10 billion dollars in federal money hits the state budget. It's not just that money comes in, it's that it has to go toward general fund relief in order to contribute to the trigger. And Mike Genest, the Governor's finance director, has a preliminary estimate up showing that the state will come up short. This is insanity. As the California Budget Project noted on a conference call today, there will be many billions above the trigger number available to the state, the legislature need only craft the receipt of that money in such a way to hit the trigger. Otherwise, they are raising taxes and cutting services, and needlessly so. One such bill would change Medi-Cal eligibility requirements to free up as much as $11.23 billion over 27 months. That should happen ASAP. Democrats are trying to write this as a special session bill and ensure that it requires only a majority vote.
The main point here is that we remain in crisis mode with the state budget, and will continue for years upon years until we stop putting off the fundamental, structural solutions the way we constantly do. For example, the prison system remained virtually untouched during the budget crisis, despite being both crippling to the bottom line and unconstitutional in its overcrowding and inability to provide health care. We desperately need structural changes with how the state budgets, and those will only be accomplished by demolishing the conservative veto over the process and repealing the 2/3 rule.
UPDATE: Here's a link to the CBP study of the American Recovery and Reinvestment Act, identifying as much as $50 billion dollars available to the state in funding. Surely the legislature can figure out how to capture 20% of that and set off the budget trigger.
Arnold Schwarzenegger got a lot of good press from going on ABC and saying that he would take the stimulus money of any GOP governor who refused a portion of it.
"Well, Governor Sanford says that he does not want to take the federal stimulus package money. And I'll say to him, I'll take it," Schwarzenegger said. "I'm more than happy to take his money or any other governor in this country that doesn't want to take this money. I'll take it, because we in California need it. I think it's a terrific package. I think if you ask a thousand people for their opinion, what is their ideal stimulus package, you will have a thousand different answers. So everyone's is a little different. I think he's done a great job and I think California benefits tremendously from that $80 billion of tax benefits there, for around $35 billion. There are other advantages: $45 billion of money that go to transportation, to education, to health care, all those different areas. There's even some money that could benefit our revenues or, I should say, our budget itself...."
As you may know, what Sanford and Bobby Jindal and Haley Barbour and these Southern Republican Governors were objecting to is changing their unemployment eligibility statutes so they could accept millions in additional funding through the stimulus to give to the jobless. It's the best kind of stimulus there is and would probably keep some of the retail sector in business, but these Governors feel that once the federal money to fund the new eligibles ran out, it would be too burdensome on business to raise the funds. So they have, rhetorically at least, sided with the corporate community in rejecting the funds.
At a hearing of the Assembly Insurance Committee Wednesday, Republican Governor Arnold Schwarzenegger's representative, Labor and Workforce Development Agency Undersecretary Steffanie Watkins, refused to support AB 3x 23, legislation that makes California eligible for $839 million in one-time federal unemployment insurance funds available at part of the President's economic stimulus package.
This from the same Governor who just last week was all over the national media circuit criticizing Louisiana Gov. Bobby Jindal and other Republican Governors who were spurning economic stimulus funds.
What a difference a week makes.
In the end, the bill made it out of committee by an 8-2 vote with members of the Yacht Party crossing the aisle, suggesting that the legislature would have the 2/3 vote necessary to override Schwarzenegger, if it came to that. But take note of the extreme hypocrisy here. Mr. Governor-by-Magazine-Cover, the media darling, goes on national TV and wags his finger at fellow Republicans who won't take stimulus money. Then he signals that he won't take stimulus money FOR THE EXACT SAME REASON as those governors he criticized.
Anthony Wright of Health Access has a good piece musing about whether or not we'll still need additional spending cuts or revenue increases before the next fiscal year budget in June 2010. It basically hinges on two things: the May 19 special election, where close to $6 billion in budget money is on the line, and the federal stimulus, which if it provides enough money to the state could trigger some reductions in cuts and taxes. First, the trigger:
Although the budget contains a number of spending cuts, it also contains a mechanism to restore some of those cuts using federal funds authorized by the American Recovery and Reinvestment Act of 2009 (ARRA) signed by President Obama on February 17, 2009. The mechanism requires that in order to restore cuts, the state must receive at least $10 billion in federal funds to offset General Fund costs. In other words, $10 billion of federal funds are needed to "trigger off" some of the cuts.
The precise amount of federal stimulus funds for California is still being determined, however, the Director of Finance and the Treasurer must determine by April 1, 2009 whether federal funds meet the $10 billion threshold to trigger off the spending cuts. Specifically with respect to health care cuts discussed above, if there is sufficient federal funding, Medi-Cal benefits would not be eliminated and public hospital payments would not be reduced. If there is insufficient federal funding, those cuts and others--including steep cuts in SSI/SSP, IHSS, and CalWORKS would be implemented July 1, 2009.
Hopefully, these funds will make it to California's shores to stave off the worst cuts. Ultimately the federal government should seek a goal of stopping all cuts in public services and layoffs of staff, and should fill the gap in revenue in the short term. The states are being punished through little fault of their own, and counter-cyclical cuts threaten the success of recovery.
The next element is the May 19th special election. We'll be covering that in the weeks to come, but Wright lays out the most important initiatives that relate to the budget.
* Proposition 1D would amend Proposition 10, which was passed in 1998 and increased the tobacco tax to be used exclusive for services for children up to five years old. This budget, subject to voter approval, would redirect Proposition 10 funds of up to $340 million in the first year and $268 annually for the following five years to be appropriated by the Legislature. As a result, local First Five Commissions would have to cut the programs they fund, such as county "Healthy Kids" coverage initiatives.
* Proposition 1E would amend Proposition 63, which in 2004 raised the income tax for the upper-tax bracket to earmark funding specifically for mental health services. This budget, subject to voter approval, would redirect Proposition 63 funds of up to $226.7 million in the first year and $234 annually for the following year from Proposition 63 mental health services to backfill the existing Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program.
* Proposition 1A would pass a Constitutional amendment to institute a spending cap, to limit the amount of revenue that can be appropriated for the General Fund. It also would extend the temporary taxes to last from two to five years. Under the spending cap, any revenues above a forecasted amount must be put in a "Budget Stabilization Fund," and can only be accessed under certain circumstances. In other words, the spending cap locks up money making the state less able to fund education, health care, and other core state services.
Wright doesn't mention Prop. 1C, which would sell the state lottery to fill a $5 billion dollar hole in the short term, but cost the state money in the aggregate in the long-term from the loss in consistent revenue. I've always thought it was a stupid and shortsighted idea and would be unlikely to support it in May.
But clearly, Prop. 1A is the most dangerous measure in the long-term, locking the state into deep cuts into the distant future, which would ratchet down services regardless of demand or growth. This is the long-sought effort by the far right to drown government in the bathtub. And yet to this point, no opposition has been found to this measure.
The last time Gov. Arnold Schwarzenegger asked California's voters to permanently cap state spending, organized labor dumped millions of dollars into a successful campaign to defeat his proposals.
Four years later, Schwarzenegger and other proponents are hoping the unions will sit out the May 19 special election in which the governor is again asking voters to enact a spending cap. That measure was placed on the ballot by the Legislature as part of last week's deal to resolve the state's cash crisis.
The official ballot arguments have been submitted, and in what administration officials hope is an encouraging sign, the best-funded labor groups opted not to weigh in against the measure. At least not yet.
In addition, the state's major antitax groups have split over the measure, with at least two supporting it even though it would prolong the tax increase that the Legislature passed last week. The California Taxpayers' Assn. signed the ballot measure backing the spending cap, and Lew Uhler of the National Tax-Limitation Committee said he also favors the measure, called Proposition 1A.
The above-mentioned provision that extends the taxes passed by the Legislature makes for approximately the easiest demagoguery in the history of California initiatives. Jon Coupal at the Howard Jarvis Taxpayers Association says his group will try to defeat the measure. The fact that the ballot arguments had to come in so quickly may be driving this perceived silence on the part of slower-moving unions, but they need to make themselves clear. Do they support a spending cap that will unquestionably take the state backwards in the future, or will they oppose it - and back up that talk with action? We shall see.
The final numbers on the stimulus package are trickling out. Some of the baseline investments are here:
* Investments in Infrastructure and Science - $120 billion
* Investments in Health - $14.2 billion
* Investments in Education and Training - $105.9 billion
* Investments in Energy, including over $30 billion in infrastructure - $37.5 billion
* Helping Americans Hit Hardest by the Economic Crisis - $24.3 billion
* Law Enforcement, Oversight, Other Programs - $7.8 billion
It's unquestionable that the conference report is worse than the House bill but better than the Senate. It costs less than the Senate bill while providing more stimulus. Some bad spending like the clean coal "FutureGen" project is out, along with some of the worst corporate tax breaks. Mass transit spending is up, the child tax credit was partially restored to House levels (now kicking in after $3,000 in income), and the state fiscal stabilization fund gets around $54 million (but that includes funding for school construction). You can find the full summary here.
There are some very solid elements to the bill. White House economists estimate that the package will create or save 396,000 jobs in California and 3.5 million nationwide. This is a down payment on a new generation of investment in America.
However, like with most Congressional sausage-making, there may be some rough patches. The worst is the allegation that Dianne Feinstein is trying to include filtering into the stimulus as part of the program to expand broadband capacity across the country.
The Open Internet Coalition - which includes groups like Public Knowledge, Free Press and the Computer and Communications Industry Association (CCIA) - is applauding the more than $2 billion expected to be in the stimulus bill for broadband build-out in rural or underserved areas. They say not only will building out high-speed Internet instantly create jobs, but giving people in those areas more access to the Internet will spur small-business creation and other growth [...]
These groups are also over-the-moon about the fact that the Senate bill has a non-discrimination, interconnection requirement that essentially says any provider receiving stimulus funding has to make sure they provide equal access to everyone over their network (part of the so-called "net neutrality" debate). The House version requires the FCC to define "open access," which essentially calls for carriers to share their networks with competitors.
But they're worried Hollywood is still trying to insert a content filtering provision via Sen. Diane Feinstein, D-Calif., at the last minute. Feinstein has been trying to add language specifying that Internet service provider (ISPs) may engage in "reasonable network management" ... "such as" efforts to combat illegal activity like "child pornography and copyright infringement." In essence, some argue, ISPs would be able to monitor any content coming to and from your computer, just in case there was some copyrighted material violating fair use, or kiddie porn in there.
But groups like the Motion Picture Association of America stress the "network management" angle of the bill ("filtering" is a nasty word around these parts). After all, it's hard to argue against stopping kiddie porn from being sent over one's pipes. I've left a message with Feinstein's press office to see what the status of her amendment is. It doesn't appear to be in there, but I'll let you know if she plans on trying to stick it in at some point.
"Of course we see huge privacy invasions from this sort of thing," said Cathy Sloan of CCIA.
Now, some caveats. There was a hyperventilating story in the UK Register claiming that this would kill net neutrality. As stated earlier, there are open access provisions in the stimulus, and it doesn't appear that this amendment even made it into the final version. This looks to me to be more of a privacy and anti-competition issue.
In another part of that story, Henry Waxman was implicated. His office has assured multiple constituents, including yours truly, that he has had nothing to do with any filtering amendment.
That's not to say that we shouldn't be concerned. DiFi is allegedly trying to pay back a corporate constituent with a highly invasive amendment that would certainly violate the spirit if not the letter of privacy laws. And of course this kind of monitoring is a slippery slope, as are most IP issues. At the root I agree with John Cole:
As baseball season is getting close, I would like to propose a trade. We give the Republicans Dianne Feinstein and a PTBNL and they give us Olympia Snowe. This is a solid trade for us. With Judd Gregg at commerce, we would almost complete the New England rout, and Feinstein, as a newly minted Republican, will go down to certain defeat in California. Additionally, there is nothing in this agreement that says the PTBNL can't be Nelson or Lieberman.
(Welcome L.A. City Council President Eric Garcetti to Calitics. Full disclosure: I'm doing blog outreach for his re-election campaign. - promoted by Todd Beeton)
As I write this, the House and Senate negotiators are preparing to meet with the White House to hammer out a stimulus deal that can be delivered to the President's desk by the end of the week. Unfortunately, by all accounts, the deal they've reached is an even smaller stimulus package than either the Senate or the House version, coming in at under $790 billion.
Watching the negotiations over the past week, I have to say I've been disturbed not only at the fact that at every turn more has been cut from an already inadequate stimulus package but also at where the cuts have been targeted. As the President of the Los Angeles City Council, I've been most concerned about the cuts -- or should I say "adjustments downward?" -- from aid to states and cities, namely the $40 billion that the Senate version cut from the state fiscal stabilization funds. This represented almost a 50% decrease in some of the most stimulative spending in the entire package including $25 billion in state block grants and $15 billion in education funding at the state level.
I was heartened to hear President Obama state during his press conference Monday night that he'd like to see some of the funding for states returned to the bill in conference. Unfortunately, as David writes below, it looks as though only $5 billion of the $40 billion will survive. This is disappointing, to say the least.
To me, these are not just numbers, they are very real. These spending cuts represent very real jobs lost, very real infrastructure projects left undone and very real people unable to stay in their homes. I was glad to hear the President strike the same note on the road in Virginia today:
"What's at stake here is not abstract numbers... We're talking about real families," Obama said. "We're at the doorstep of getting this plan through Congress, but the work is not over."
Precisely, Mr. President, which is why it is my hope that this much needed funding to our cities and states will find its way to us through other means if it does not survive the stimulus compromise today.
There is clearly much more to be said on the subject -- especially as this story is constantly evolving -- and I look forward to engaging with this community over the next month leading up to the Los Angeles municipal elections on March 3 and beyond. To stay in touch with me, please join my campaign and visit my new blog. I look forward to the ongoing conversation about this and other issues in the months and years ahead.
When the cuts to the federal economic recovery bill in the Senate were made public, my back-of-the-envelope calculation was that $5-$8 billion dollars in aid to California would be lost. The San Jose Mercury News did the math and came up with similar numbers.
The $838 billion Senate bill would create about 400,000 jobs in the state by funding infrastructure projects, from schools to roads to broadband. But that's 51,000 to 63,000 fewer jobs for the state than the $820 billion House bill, according to the Center for American Progress. The Senate plan puts a heavier emphasis than the House bill on stimulating the economy through tax cuts, in addition to direct government spending.
Funds for reimbursing state Medicaid costs are about the same in each bill, but the funding formula in the House bill favors states with higher unemployment. California would receive $11 billion in the House bill and $9.6 billion in the Senate measure. The House bill also has funds to help those who are recently unemployed receive health coverage. "On health, the House bill is significantly better for California," said Anthony Wright, executive director of Health Access California, a consumer advocacy group.
The Senate cut in half the House's $79 billion fund to help states pay for education and other services. If the Senate version prevails, California would receive about $4 billion instead of the $7.9 billion in the House bill. In addition, the Senate eliminated $14 billion in funds the House allocated to modernize schools, which drew sharp criticism from Rep. George Miller, a Concord Democrat who chairs the Education and Labor Committee. He said the Senate version would cost 315,000 construction and other jobs nationwide.
"With more Americans losing their jobs by the day, we must make every effort to bring that figure up," Miller said.
The latest from the negotiating table is that only $5 billion of the $40 billion cut from the Fiscal Stabilization Fund will be restored in conference. So that's about $3 billion less, overall, for California from that fund, as well as the cuts to Medicare funding of about $2 billion. The school repair funding will be restored to about $6 billion from $16 billion, which means that California probably loses $1 billion there.
So overall, we're probably $5-$6 billion short from where we were with the House bill. Which will make it that much more difficult to cut a budget deal. In addition, if the formula for getting federal funds is in the form of block grants with a state match, California won't be able to access any of them until the cash crunch is solved.
Both the Washington Post and the LA Times have stories today about the budget crises facing the states, where governors and legislatures have exhausted every gimmick and now must enact painful cuts that will work against the federal program to bring us out of the economic downturn. The personal stories are significant:
Nevada resident Margaret Frye-Jackman, 71, was diagnosed in August with ovarian cancer. She had two rounds of chemotherapy at University Medical Center, the only public hospital in the Las Vegas area.
Soon after, she and her daughter heard the news on TV: The hospital's outpatient oncology services were closing because of state Medicaid cuts. Treatment for Frye-Jackman and hundreds of other cancer patients was eliminated [...]
"If this is what it's like in Nevada, with cancer stuff closing, is it like that everywhere?" said Frye-Jackman's daughter, Margaret Bakes, accompanying her mother to the doctor's recently. "Are all the other states closing stuff too?"
The answer, in at least 39 states, is "yes" -- or "soon." With personal, sales and corporate income tax revenue plummeting, state governments -- which recently trimmed their budgets to cover a cumulative $40.3-billion shortfall for the current fiscal year -- are now watching in horror as a $47.4-billion gap opens for 2009.
And for fiscal year 2010, they will face a $84.3-billion hole, according to the National Conference of State Legislatures. The total shortfall through fiscal 2011 is estimated at $350 billion, according to the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington.
This article frames it as there being "no choice" but tough budget cuts or tax increases for states facing shortfalls, states that cannot print money or run budget deficits. But that's not entirely true. There was a good deal of help being offered by the federal government in the House stimulus bill, which included $79 billion in state fiscal stabilization aid. But among their other cuts, the Axis of Centrism cut that aid in half, by $40 billion dollars, and in so doing guaranteed additional layoffs to teachers and firefighters and cops and nurses and all sorts of other professions which rely on a state paycheck.
California law mandates that layoff notices to teachers be given out by March 15 for the next school year. Arnold Schwarzenegger is proposing $10 billion in education cuts. Republicans, which use our state's rule requiring a 2/3 vote of the legislature to pass a budget, are demanding these cuts as the price of a tax increase to close the remaining $40 billion and ensure that the cuts aren't bigger.
But all of us were hoping and expecting that the US Congress would come through with aid to stabilize state budgets, to help ameliorate the problem and save teacher jobs by providing stimulus money. It must be in the stimulus because, as I just noted, the layoff notices will go out within 5 weeks - there is no time to include it in another bill.
Now we are told that Ben Nelson and Susan Collins, two Republican Senators, have reached a deal to cut that education assistance and that the Senate is likely to accept it.
In short, what they have done is guarantee to my sister and to thousands like her that they will receive a pink slip within five weeks.
To call this fearmongering, as John Ensign did on Meet the Press today, just denies reality, par for the course for both Republicans and bipartisan fetishists like Claire McCaskill, who was at first giddy about cutting 600,000-700,000 jobs in the stimulus, and then passive-aggressively "defended" it by saying the alternative was no bill.
Claire McCaskill is now defending herself against Krugman on Twitter:
Just saw Krugman's comments on reduction in recov act. Question for him. Would no stimulus act be better than one thats 800 B instead of 900.
She follows that up with
Compromise had to happen or we would NOT have 60 votes. Period.
And for further evidence of how much the bill is the same, she claims:
Original Senate bill was 60% appropriationss, 40%tax cuts. Compromise was 58, 42.Senate bill is 90% the same as House bill.
I'm glad that's she expressing herself here, and that we're able to somewhat have a dialogue. But I'm not sure how much in good faith it is. McCaskill began by stating how glad she was that they got a $100 billion cut out of the bill, that the "silly stuff" that Republicans didn't like is now out. She then switches to a passive aggressive mode in defending the cuts - it's basically the same bill and it wouldn't have made it through the Senate - but glosses her own role in making the cuts. From the way she talks about the bill, wouldn't she have been among those voting against the bill if the cuts hadn't been made and new non-stimulative tax cuts hadn't been added in?
McCaskill doesn't want to admit her role in putting 600,000 Americans out of work on Friday, which will harm public safety and increase class sizes and shut down bus and rail lines and send the sick and uninsured looking in vain for treatment and a host of other inadvisable outcomes. And there's no rational economic reason for it, just that the Axis of Centrism choked on the price tag and had to compensate for the non-stimulative tax cuts the Senate tossed into the bill. Massive job loss or increased property tax rates (as states compensate for the loss to education funds) is on McCaskill and Nelson and Collins and Spector's hands.
The big question is what will come out of the House-Senate conference next week, whether the cuts, especially the state government relief, will be restored at the expense of things like the $70 billion dollar patch to the alternative minimum tax. Larry Summers left that an open question on ABC this morning.
One of President Barack Obama's top economic advisers forecast Sunday a difficult struggle with Congress over Senate cuts of $40 billion for state and local governments from the administration's massive spending and tax cut package to stimulate the failing economy.
The $827 billion Senate version of the plan -- designed to bring the economy out of the worst downward spiral since the Great Depression -- was expected to pass the Senate on Tuesday. The House had already passed its $819 billion version of the measure.
And in the opening moments of This Week, an exchange between George Stephanopoulos and Larry Summers went like this:
STEPHANOPOULOS: ...does that mean the President prefers the Senate version to the House version?
SUMMERS: No, the President feels that above all, we need a major program enacted very quickly that would create 3 to 4 million jobs. He believes we need to perfect it in every way we can.
If the cuts are restored, suddenly the sense of urgency works back in the direction of passing a bill more like the House version. The Republican business lobby is urging passage. I don't think the moderates signed on to the bill could break ranks on the final vote if the changes in conference are limited to, say, swapping the state cuts for the AMT patch, combined with an assurance from the President that they will make that fix down the road.
The action needs to be entirely directed at the Speaker, who has spoken out against these cuts and ought to appoint conferees that will get the House version at least partially restored. Being from California, she knows exactly how hard-hit the states are and what the consequences will be.
If Republicans in Washington are offering a united front for neo-Hooverism and against any real effort to save the economy and prevent a Depression, Republicans out in the state who actually have to govern are doing anything but. Arnold Schwarzenegger and 18 other Democratic and Republican governors have come out in support of the recovery package, leading Dan Walters to call him Keynesian. Actually Arnold is just slightly less than insane, recognizing that without massive investment from the public sector, California will never be able to cover its budget deficit and revitalize its economy.
We support the objectives of ARRA and welcome the partnership it offers us as governors. The support for a temporary increase in the federal commitment for public education, health care (including cost control through initiatives such as health records IT), and for rebuilding our public infrastructure will create and preserve jobs today, and represents a sound investment in our long-term economic interests as well. We look forward to working with Congress and your Administration to advance an economic recovery package that puts federal dollars to work in our states in the quickest and most efficient manner as possible.
But this is being threatened in a big way. Yesterday we learned that enough moderates were blanching at the cost of the package to threaten its passage. President Obama met with the ringleaders of this neo-Hooverist movement, Sens. Ben Nelson and Susan Collins, and talked them part of the way off the ledge. They were planning up to $200 billion in cuts, but now have pared that down to closer to $100 billion. And in exchange for meaningless tax cuts and stupid initiatives like tax breaks for home and auto buyers (reinflating the bubble at great danger to the economy), they want to screw the states:
Sens. Ben Nelson (D-NE) and Susan Collins (R-ME) have come up with a list of about $100 billion in programs they want slashed from the stimulus package, according to a working draft of a staff paper outlining the cuts.
Among the biggest cuts under discussion: $24.8 billion in state stabilization money for education, which was intended to plug existing budget holes; $15 billion in state incentive grants for education; and $1.4 billion for the National Science Foundation, which is wracked by a porn-viewership flap. Pell Grants were the biggest program to survive the debate over cuts, with $13.9 billion staying intact.
Senate Democratic leaders are likely to bring this package up for a floor vote today, aiming to achieve a filibuster-proof margin in support of these cuts before pushing to pass the entire stimulus by day's end. Hang onto your hats.
Ben Nelson is now backing away from this draft, and it's no wonder. This would cripple states like California facing bug budget deficits. They didn't want to release these cuts until now because states having to fire cops and firefighters and teachers is deeply unpopular. But that's what slashing the stabilization fund would do. Given that budget money is fungible, that wouldn't just affect education but practically everything that states do.
This is typical of an anti-democratic body like the Senate, where the relative power of a state with 400,000 residents like Wyoming and one with 38 million like California is the same. California has a budget deficit bigger than the expenditures of 39 states and has all sorts of needs that could be filled by this package, creating hundreds of thousands of jobs and acting as a backbone for economic recovery. But you have small-state neo-Hooverist idiots like Charles Grassley who think their job is to sink the economy, apparently:
The House bill, written by the committee chaired by Rep. Henry A. Waxman (D-Beverly Hills), gives considerably more money to states whose unemployment rates have increased significantly. That would put California, with a 9.3% jobless rate in December, in the top tier of recipients -- along with New York, Florida and others.
The House "took an approach that recognizes that in the current recession, all states need some help, but some need more help than others," Waxman said. "It is only fair that the hardest-hit states with high unemployment receive more assistance than those with low unemployment."
But senators in some smaller states say the House provision would shortchange their constituents. "The legislation is biased to big states," Sen. Charles E. Grassley (R-Iowa) argued.
That's like saying the legislation is biased to people.
None of these people are explaining WHY the price tag has to shrink; it just does. And if it needs to go down, there are useless, not-multiplier tax cuts for businesses and people that can afford new cars and homes that have little to no stimulative value. They didn't have to insert them in the first place.
It would be absolutely absurd to cut off states - who are not to blame for the financial meltdown, and who cannot deficit spend - in exchange for giving away more tax cuts, with the same failed philosophy that got us into this mess. Now that these cuts are out in the open, there should be outrage.
A $5-million plan to replace 78 wood piles that support the pier is among the hundreds of California projects that stand to benefit from the federal stimulus measure. In fact, the first major initiative of the Obama administration could deliver as much as $63 billion to the state.
Some of the money would help ease California's budget crisis, although officials in Sacramento say it would cover only one-quarter of the nearly $42-billion deficit [...]
The $63-billion projection for California -- provided by the Center for American Progress, a liberal think tank with ties to President Obama -- includes about $44 billion to help pay for things such as infrastructure projects, healthcare for the poor and increased unemployment benefits.
The remaining $19 billion would cover the cost of the individual tax cuts to Californians.
To be fair, the story does make clear that state and local government relief would only directly impact about 1/4 of the budget hole. But I think it's dangerous to throw around $63 billion when there's still going to be a need for tough solutions on revenues and cuts in the budget. That number throws in the kitchen sink - it includes tax cuts to individuals and businesses, unemployment insurance extension, food stamp benefits, everything. The fact that more people have money to spend may positively impact the bottom line if California catches some of that cash in sales taxes, but the story - and really the projection by CAP - makes it sound like California will be handed a $63 billion dollar oversized novelty check. This will only serve to aid the radical Yacht Party agenda, allowing them to say that California just got a bailout so there's no need for tax increases. Every sane person knows that the federal windfall will help but not fix the budget, and talk of $63 billion like it's a sugar plum fairy really hurts the ability to make that fix happen.
For example, when citizens all over the state don't get their tax refunds in the coming months, with taxpayers on the low end of the income scale feeling the greatest effect, and they read stories about $63 billion flowing to the state, who do you think they're going to blame? And I'm sure the Yacht Party will be around to direct that blame, too.
It's fairly irresponsible to headline "$63 BILLION!" when we know only $10 billion of that will directly hit the budget.
The accounting gimmicks and clever tricks have reached their end. Sacramento is out of money.
(John) Chiang, whose office writes the state's checks, says California is about out of stopgap tricks to pay its bills and keep all its programs running.
The controller says California is down to Plan D on its checklist of paying bills. Its cash reserves are piddling; the special funds it borrows from are tapped out, and no one in the private sector is going to lend it any cash at a reasonable interest rate.
That leaves what in state government circles are called "payment deferrals" and what in real life is called "stiffing your creditors."
In this case the creditors include income taxpayers expecting refunds, college students waiting on state aid, counties that operate public assistance programs, and companies that sell goods and services to state agencies.
Chiang has said he won't write $3.7 billion worth of checks for those and other state programs if legislators and the governor haven't reached a deal by next Sunday to close the budget gap.
The overarching problem here is a tax system that is too closely aligned to the boom and bust cycles of the national economy. That is protected by the 2/3 rule. And the result is a state that lurches from one crisis to the next, seemingly without end.
Well, the end is pretty much near. The state may not declare bankruptcy, but that will be functionally the case. And while IOUs may be a couple months down the road, the payment deferrals are going to put a lot more people out of work. The counties and various agencies aren't in the financial position to float by until some revenue floods in.
Of course the fact that IOUs still may be a few months away is of limited consolation to those who will be out of luck if Chiang pulls the no-payment trigger next week.
"For the first time in my career, there are counties facing the reality of just not being able to front the state the money to keep these programs operating," said Frank Mecca, executive director of the County Welfare Directors Association.
Mecca, who has been in the human services field for 20 years, said counties are facing a double whammy: Revenue is withering while needs are blossoming.
This is at a time when we're seeing jobless rates as high as 15% in some counties, and over 10% in 31 of the 58 counties in the state.
That stimulus spending from the federal government, perhaps $21.5 billion over two years, can't come fast enough. But if there's not a solution in the next week, it may not matter. The damage will be done and the pain will spiral out of control.
