Arnold Schwarzenegger thinks he’s got a “hook” for the budget crisis.  It’s so stupid it’ll probably work.

In between vetoing acceptable solutions for the budget crisis, Schwarzenegger directed his staff to create a YouTube video of a Senate hearing held today on SB 135, which would ban animal cruelty and the practice of tail docking of dairy cows.  Simply because it’s mildly annoying to have a tail in their faces while working, farmers chop them off of cows, for no material benefit to hygeine or anything else, and to the potential detriment of milk production by increasing stress.  It’s illegal in much of Europe and opposed by the American Veterinary Medical Association.  There’s an article here.  

Apparently the 63% of the voters who passed Prop. 2 last November were wrong – animal cruelty is a secondary issue to the very important work of wasting billions of dollars through stubbornness.  

So in the YouTube video Schwarzenegger cuts back and forth from the hearing to his schoolmarmish denunciation in his press conference to create the impression that “in the midst of the budget crisis, the Senate is debating cow tails.”

Hey Arnold, this is something called “governing.”  I know you know nothing about it, since you spent a month dithering with different budget solutions while the legislature was holding a month’s worth of public sessions on the budget.  But lawmakers actually can do more than one thing at a time.  Some have standing committees, while others, in the leadership, can run into the brick wall that is the California budget process over and over, a brick wall you just applied with a new coat of paint by vetoing real solutions that would have stopped $7 billion dollars in additional cuts and the issuance of IOUs.  For anyone who has been this much of a failure to say one word about how OTHER people govern is absurd.

By the way, Darrell Steinberg has already cancelled all future policy committee hearings to focus on the budget, which I think is a silly and unnecessary reaction to the rantings of a dullard Governor.  But as long as we’re going down this road, here are a few tweets I contributed exposing the Governor’s horrible inattention in the midst of a budget crisis:

Right now, in the midst of a budget crisis @Schwarzenegger actually slept for EIGHT HOURS! That’s not leadership #cabudget

19 minutes ago from web

Right now, in the midst of a budget crisis @Schwarzenegger had dinner… at a restaurant! That’s not leadership #cabudget

19 minutes ago from web

Right now, in the midst of a budget crisis @Schwarzenegger excused himself to go to the bathroom! That’s not leadership #cabudget

19 minutes ago from web

Right now, in the midst of a budget crisis @Schwarzenegger breathed both in and out! That’s not leadership #cabudget

18 minutes ago from web

Join in with your own if you want.

This is just idiotic grandstanding from the Governor, who appears to know nothing about public policy or the American system of government.  Any reporter who runs with this should be ashamed of themselves.

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%.

Here was my favorite part of his press conference:

Guv gets booed by some who watch him leave press conf and walk back to his office.

By the way, there’s a new hashtag to find all budget news on Twitter: #cabudget.

UPDATE: John Myers has a story up about this, and he includes the Governor’s latest revise, the centerpiece of which is the suspension of Prop. 98.

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.