The legislative budget committee working on closing the deficit responded to Governor Schwarzenegger’s demands for “efficiency” in state government by cutting his own staff.  This is quite an opening salvo, and basically a giant middle finger in the Governor’s face.  And both sides of the aisle were all too happy to do it.

A legislative budget committee voted unanimously Wednesday to eliminate state agencies altogether, taking dead aim at an administrative layer of gubernatorial bureaucracy that oversees most of the state’s departments.

The 10-member panel — six Democrats and four Republicans — also voted to eliminate the Office of the Secretary of Education, which lawmakers said is unnecessary because the state already has an elected Superintendent of Public Instruction and a State Board of Education.

Gov. Arnold Schwarzenegger recommended last month that lawmakers consolidate more than a dozen boards and commissions to save $50 million. Schwarzenegger also began laying off 5,000 rank-and-file state workers.The Legislature’s move Wednesday appeared to be a sharp retort directed at higher-paid administrative appointees who oversee the departments that provide direct state services.

I really like what they did with respect to the Integrated Waste Management Board, which costs the state no money at all.

Schwarzenegger told lawmakers Tuesday that they should eliminate the Integrated Waste Management Board as a first matter of course before making any other cuts. The board would save the state no general fund dollars, but it has become an easy target because it contains ex-legislators who earn six-figure salaries while serving on the board.

The budget conference committee on Tuesday instead recommended that the state eliminate the Department of Conservation and the Department of Toxics Control while moving their functions to the Integrated Waste Management Board. The committee also recommended that the Integrated Waste Management Board members become part-time and take reduced pay.

The Governor’s spokesman Aaron McLear smiled through gritted teeth in response to all this, saying that he’s “thrilled” the legislature is joining the effort to make government more efficient, but saying he would not support eliminating any of his OWN authority, of course.  He would only support eliminating the Secretary of Education, for example, if the Department of Education (now under the State Superintendent of Public Instruction) were moved into the executive branch.

None of this means that the Legislature will suddenly get religion and reject all of Arnold’s bad cuts.  The Obama Administration okayed $6 billion in education cuts without threatening stimulus funding, and you can bet the Governor will take him up on the offer.  And Democratic leaders, at least, appear in agreement on a number of cuts.

But this is the first example of the Legislature really pushing back at the Governor, and letting him know he doesn’t rule California by fiat, nor does he get to unilaterally decide to run it into the ground.  In addition, the more public disclosure of the billions in corporate tax cuts in recent budget deals while the programs for the poor get slashed brings a disconnect to the process on which perhaps some progressive lawmakers can capitalize.

The tax loopholes made it through the Legislature with no public hearings and little analysis of the effect, said Jean Ross, executive director for the California Budget Project, a research group that studies the effects of policies on the poor.

“The problem with dark-of-night deals is that you never get a chance to get a debate over value choices,” she said. “These three tax breaks represent a reduction of one-third the income taxes paid by California corporations…. They really represent a stark contrast in values and what kind of future we want to see for Californians.”

The tax breaks will cost the state $640 million for the rest of this fiscal year and for the 2010-11 budget year as lawmakers search for ways to close a $24.3 billion deficit, according to Ross’s report, “To Have and Have Not.” By the time they are fully implemented in 2014-15, the tax breaks could cost nearly $2.5 billion a year, she said.

Corporations are LYING, by the way, when they say that this makes the state more competitive.  See this paper or this one showing that state enactments have had little effect on economic development.  Big business simply wants to lighten their tax burden.

The legislative revolt against Schwarzenegger could be directed into sensible options for closing the budget gap, like repealing the corporate tax cuts, restoring the Reagan/Wilson tax brackets in between $47,500 and $1,000,000 imposing an oil severance tax, extending the sales tax to services while lowering the overall percentage, boosting enforcement of tax cheats, and more.  Right now, we have to settle for signals.  And this is a particularly good one.

Looks like Darrell Steinberg is hedging his bets on fixing the broken political structure in Sacramento by going to the ballot to protect children’s health coverage:

Days after Gov. Arnold Schwarzenegger proposed to abolish the Healthy Families Program (which would entail booting more than 900,000 California kids out of health insurance), Steinberg’s Committee for a New Economy on Monday made a $75,000 contribution to Californians for Children’s Health – a sizable cash infusion for a committee that previously had only about $20,000 in its coffers.

The statement of organization for Californians for Children’s Health says the group – for which a Web site is under construction – exists to support “expansion of children’s health coverage,” and its sponsoring organizations include the Children’s Defense Fund Action Council; the Children’s Partnership, a project of the Tides Center; Children Now; and PICO California. Its CFO is PICO California director Jim Keddy; its secretary is Kelly Hardy, Children Now’s associate director for health.

Hardy earlier today told me Californians for Children’s Health aims to develop a ballot measure for November 2010, and although today’s rapidly changing budget environment makes it hard to say exactly what that measure’s specifics will be, “we’re contemplating new revenue sources that would come in, not General Fund sources, that would support children’s coverage programs.”

Steinberg has a history of going outside General Fund revenues to pay for social services projects – see the millionaire’s tax in Prop. 63, which funds mental health programs.

You need to play within the hand dealt, and voters have shown a willingness to use tax increases to fund specific programs.  Losing the Healthy Families Program would mean 900,000 kids without health care in California, and we would be the only state in the country not accessing federal SCHIP funds.  So obviously, you try to get that revenue absolutely any way you can.

At the same time, is this any way to run a government?  Create a system where no revenues can be raised inside the legislature, forcing stakeholders and politicians to go to voters to look for a dedicated stream here and another dedicated stream there?  This is unsustainable to the nth degree.  We will not transform California one dedicated funding stream at a time.  It just won’t work, and we’ll spend hundreds of millions of dollars on consultants in the process.  Steinberg shouldn’t foreclose the option, of course, but his money would be better spent on reform efforts so that he no longer needs to go to the voters for everything, and we can have a representative democracy such that has worked in America for over 220 years.

Moreover, I fear that Steinberg is setting this fallback plan up assuming that Healthy Families will be either eliminated or gutted in the next couple weeks.  Perhaps the donation to a potential ballot committee is a threat to the Governor; but perhaps it’s a signal that the cuts can come down.  Let’s be clear – in the meantime, while we wait for the results of that election, children will die from a lack of health care coverage.  We have other options – Jean Ross describes some of them beautifully here – and the Democratic legislature should be drawing lines in the sand, not giving up on drastic cuts and making contingencies.

Arnold Schwarzenegger’s address to the legislature was notable only for its fatuousness.  He demands the destruction of the social safety net in California and pleads that we have “no choice,” while hiding the decisions he made which brought us to this point. He claims that his budget is not “just about cuts,” then offers the same reforms that the voters have time and again rejected, or half-measures like firing groundskeepers (to privatize school responsibilities to low-wage contractors, incidentally).  Evidently, the May 19 special election, which has been massively over-interpreted and interpreted wrongly by the Governor, was supposedly a call to arms against tax increases, but a spending cap and rainy day fund, which were on the ballot and voted down by 66% of the electorate, are still viable ideas.  He drew a line in the sand by calling for the dissolution of the Integrated Waste Management Board, an organization that IS NOT FUNDED WITH ONE PENNY FROM THE GENERAL FUND but instead with fees on garbage collectors.  He talked about spending less per inmate on the prison population but his budget seeks only to get rid of precisely the services, rehabilitation, drug treatment and vocational training, that would lower recidivism rates, unstuff the prisons, and allow us to spend less on their management.  He admitted that money from the sale of surplus property cannot go toward the General Fund, in a fleeting moment of truth, but claims it would lower our debt payments, which is true, but precisely what Arnold has been increases with borrow and spend policies for the last six years.

Of course, Arnold urged swift passage of all his Shock Doctrine proposals, because that’s how it works.  The goal is to give nobody time to think, only to acquiesce in the face of crisis.  Some, like Assemblywoman Nancy Skinner, will not put her brain on autopilot, mindful of the Depression that would ensue from an all-cuts budget and the drastic consequences for our economy.

“The Governor’s opening statement that the voters in rejecting the special election measures said, “don’t ask us to solve complex budget issues, that’s your job,” is right,” she said. “He was wrong however in his assertion that Californians want an all cuts solution …We have choices. For instance, restoring the top income tax rate on high wealth incomes of $250,000 and above in place under Republican Governors Pete Wilson and Ronald Reagan would allow us to avoid $4 billion of these cuts. Enacting an oil severance fee on oil drilled in California, revenue collected by every state and country in the world that produces significant amounts of oil, could avoid another $1 billion in cuts.

“The Governor talked of us acting courageously. Acting courageously is looking at all alternatives and making smart, rational choices that lessen the cuts with some sensible new revenues,” she said.

Noreen Evans, similarly, has stepped up, at least rhetorically, to offer a counter-weight to the Governor’s Shock Doctrine tactics:

SACRAMENTO – Santa Rosa Assemblywoman Noreen Evans is emerging as one of Gov. Arnold Schwarzenegger’s fiercest critics, a noteworthy development given her prominent role in the high-stakes back-and-forth over the state budget crisis […]

“I don’t know what the point of that exercise was, really,” the Democrat said immediately after the speech as she stood outside the Assembly chambers.

Schwarzenegger told Assembly and Senate lawmakers that he has “faith in our ability to once again come together for the good of the state.”

But Evans said the governor was not helpful “at all” in bridging the divide between Republican and Democrat lawmakers. Rather, she labeled Schwarzenegger’s approach to budget matters as one of “shock and awe.”

“It’s working because it’s shocking, and it’s awesome, and it’s terrible,” she said.

While there are some voices in the Legislature creating pushback, my experience is that the Democrats fall in line with their leadership (same with the Yacht Party, actually; it’s practically a Parliamentary system).  And given the clear signs from Bass and Steinberg to bend over backwards to enable Arnold’s proposals and get it done quickly, I think the only way to halt this forward march would be to mass support inside the Capitol around specific proposals.  For instance, the California Budget Project today released a report about the $2.5 billion corporate tax cuts included in recent budgets in September 2008 and February 2009, cuts we certainly cannot afford in this economic climate.  If everyone must share in the pain, as the Governor said, that must mean something. And so these $2.5 billion in corporate giveaways ought to be repealed.  Period.  Full stop.  Here are some of the gems from these tax breaks:

Nine corporations, dubbed the “lucky nine” in the CBP’s analysis, will receive tax cuts averaging $33.1 million each in 2013-14 due to the adoption of the elective single sales factor apportionment, according to estimates by the Franchise Tax Board.

Eighty percent of the benefits of elective single sales factor apportionment will go to the 0.1 percent of California corporations with gross incomes over $1 billion.

Six corporations will receive tax cuts averaging $23.5 million each in 2013-14 from the adoption of credit sharing.

Eighty-seven percent of the benefits of credit sharing will go to the 0.03 percent of California corporations with gross incomes over $1 billion.

Are there 27 Democrats in the Assembly, or 14 in the Senate, willing to go to the mat to force the repeal of these unnecessary corporate giveaways, providing revenue that can go to the poor, the sick, the infirm, the elderly?  Rank and file Democrats never think to show their power in these negotiations.  In a time of crisis, they should – and force the Governor toward a more equitable solution.  Richard Holober’s post, which I referenced earlier, closes with this:

It’s time to re-unite a fractured progressive movement – based on hope, not fear. We need leadership that can think beyond the imminent crisis, reach out to build a coalition, and organize for budget justice. Labor and community based activist organizations must supply the leadership.

Let’s mobilize behind broadly supported values: require corporations to pay their fair share of taxes; increase the progressivity of our tax system; and eliminate undemocratic super-majority budget and tax rules that give a handful of reactionary politicians a stranglehold over funding our schools, health and public safety services. The campaign may take years. We can win, but first we need to get out of the budget crisis bunker.

Which politicians will enable us to escape that bunker?

As Brian noted, in the full list of the Governor’s slash and burn budget, the offshore drilling proposal in Tranquillon Ridge off the Santa Barbara coast remains.  After a key environmental group backed away from the plan, which originally was structured as a compromise proposal to allow an additional rig in exchange for ending all drilling in the channel by 2022 (which the Lands Commission determined was unenforceable), many expected the plan to be scrapped.  But it remains, despite the fact that the California Lands Commission spoke out yesterday, calling on the legislature to put a stop to this power grab.

The State Lands Commission on Monday lashed out at an attempt by Gov. Arnold Schwarzenegger to allow the first new oil drilling in California waters since 1969.

Lt. Gov. John Garamendi, chairman of the three-member panel, called the governor’s effort “a naked power grab.” At a contentious hearing in Santa Monica, the commission passed a resolution urging legislators not to go along with the plan, which would revive a drilling proposal off the Santa Barbara County coast that the commission killed in January.

The Commission doesn’t out-and-out call this illegal.  But they hold jurisdiction over oil drilling, and the Governor is simply trying to go over their heads.  You can basically shut down the California Lands Commission if this goes through, because they will be rendered impotent.

And of course, while the Administration foregrounds the $2 billion dollars to be gained from allowing the leases in Tranquillon, he does not make a peep about charging an oil severance tax, to actually make the oil companies pay to take California’s natural resources out of the ground.

You can actually see the full list of proposed cuts by the Governor here (Note by Brian: I’ve posted that PDF over the flip).  He has engaged in several tricks to actually slow down the dispersal of the cuts, priming himself for the moment when the Legislature must hurry up and approve everything he proposes immediately.  It’s a neat trick.  He released the cuts in stages, with multiple changes, so the relevant committees could not get a full picture.  Finally, the full release comes with a little more than a week to go.  Noreen Evans, for one, is pissed, and Aaron McLear responds with a healthy dose of sexism.

At the budget conference committee Monday, Assembly Budget Committeee Chairwoman Noreen Evans, D-Santa Rosa, vented some of her frustrations at chief deputy finance director Ana Matosantos.

Noting that the governor had made three separate revisions to his May budget, Evans curtly asked Matosantos “Are we done now?”

Evans’ cross-examination of Matosantos garnered an angry reply from the administration. “We will continue to revise our budget numbers as the situation deteriorates,” Schwarzenegger spokesman Aaron McLear said. “It is our sincere hope that Assemblywoman Evans will be able to keep up.”

McLear is an ass, and his point is ridiculous – nothing’s changed in the three days between new documents of cuts.  This is a deliberate attempt to keep everything fuzzy and not permanent right up until the moment when it all must pass.  It’s a typical shell game.

As to the document, among some of the goodies not already announced:

• The state will increase withholding by 10%, essentially getting an interest-free loan from the citizens.  Employees can opt out, and I’m sure everyone will know to do that.

• The proposal to borrow $2 billion from local governments remains.  This at the same time when Arnold proposes budget “solutions” like moving inmates to county jails, INCREASING their budget burden.

• Eliminating general fund money to stop domestic violence.

• Like everything else, the savings in corrections are vague and potentially unworkable, and almost all the savings in the corrections budget are in precisely the kind of programs we need to expand, like rehabilitation, vocational training, and substance abuse programs.

• I’ve also heard about eliminating the state’s funding of vote by mail ballots, but that’s not in this document (and sounds patently illegal, if the ballots couldn’t go out).

It’s all good, though, because we can just get volunteers to monitor all the state parks.  Sounds like a perfect plan.

The sneakiest part of this whole budget deal, the capper, is that Arnold is proposing a LARGER budget reserve than in previous years, essentially mandating Prop. 1A despite its loss.  He’s actually capping spending.

In recent days, the governor has introduced new budget cuts, including plans to eliminate popular state programs like CalWORKS and Healthy Families, eliminate millions in funding for state parks, and to lay off up to 5,000 state employees.

But in Monday’s conference committee hearing, Evans pointed out that the governor’s latest proposal had a budget reserve of more than $4 billion, even while proposing cuts to popular programs that would not have to be eliminated if the reserve were smaller.

McLear defended the governor’s numbers. “There’s a need to have a reserve,” he said. “The swings in revenue are so dramatic, and we have to make sure we’re able to pay the bills.”

Times like these are what the budget reserve was invented for.

What will happen over the next two weeks is that the Governor will keep tweaking and tweaking, right up until the day where he says “Pass this now or else.”  And given the state of the Democrats in the legislature, I’m not sanguine about the reaction.

All Budget Cuts –

Harold Meyerson had a nice piece last week similar in tone and scope to my piece on Jarvisism – arguing that Prop. 13 really was the original sin that sent the state on an almost continuous downward spiral, as much a reflection of the Age of Reagan as the financial deregulation that presaged a crisis at the federal level.

By passing Howard Jarvis’ malign initiative, California voters reduced the Golden State to baser metal. Under Republican Gov. Earl Warren and Democratic Gov. Pat Brown, California epitomized the postwar American dream. Its public schools, from kindergarten through Berkeley and UCLA, were the nation’s finest; its roads and aqueducts the most efficient at moving cars and water – the state’s lifeblood – to their destinations. All this was funded by some of the nation’s highest taxes, which fell in good measure on the state’s flourishing banks and corporations.

Amid the inflation of the late 1970s, however, the California model began to crumple. As incomes and property values rose, Sacramento’s tax revenue soared – but the parsimonious Democratic governor, Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians grumped to the polls and passed Proposition 13, which rolled back and limited property taxes – effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and ’60s, California sank to Mississippi-like levels – the mid-40s in rank – by the 1990s.

Meyerson puts together all the malign elements of Prop. 13 – the defunding of local government, where people gain their impressions of government as a whole (so defunding it serves conservative frames of government as useless); the 2/3 majority requirement for raising a tax, giving over the state to a conservative veto; the regressive nature of the tax structure that became an outgrowth of that super-majority, since the only taxes allowed by the Yacht Party affect the poor disproportionately, leading to the lower class spending a higher percentage of their incomes on taxes than the upper class; the tax-cutting troglodytes emboldened by their ability to hijack.  He closes by explaining how Washington should not ignores the dysfunction of the nation’s largest state.

Because California is so much larger than any other state, and its unemployment rate is among the nation’s highest, the collapse of its capacity to spend will counteract some of the effect of the federal stimulus and retard the nation’s recovery – much as its aerospace slump retarded the recovery of the mid-1990s. The Obama administration ignores California’s plight at its own – and the nation’s – peril.

The nation’s banks are stuck with so much bad paper from California mortgages gone awry that a huge contraction in state spending would make their assets even more toxic. In the short term, the only way to avoid a further downturn may be a federal loan to the state.

A more permanent, homegrown solution to California’s woes (and it may take a state constitutional convention to get it) would require the state to eliminate the two-thirds threshold for enacting taxes, to repeal Proposition 13’s freeze on the value of commercial properties (some of which are still assessed at their 1978 levels) and to end the process of ballot-box budgeting through the initiative process, which is now more dominated by monied interests than the Legislature ever was.

Harold Meyerson showed the way forward, to such a degree that the SacBee editorial board called today for a fresh look at Prop. 13.  The news peg may be San Francisco County Assessor Phillip Ting’s activism in support of a split-roll solution, assessing commercial property taxes at similar levels.  But the intellectual underpinnings are all in Meyerson’s piece, which out to be memorized by progressive activists.  

People generally respond to leadership.  Legislature, take note.

Dan Walters is touting a UC Riverside poll on budget issues that interviewed 276 respondents, 63% male, with a 42-38-11 split among Democrats, Republicans and independents.  He does this with a straight face.

It barely matters what such a flawed poll shows, but I’ll mention it anyway.  According to 276 people, 57% support the 2/3 requirement for passing a budget, 24% preferred a simple majority, 6% in between, 4% other (?), and 6% don’t know.  Given the bad methodology, these numbers mean nothing.

But I’ll tell you who has historically taken numbers like these as the gospel’s truth and used them to mute themselves about any reform efforts for thirty years.  That would be the leaders of the California Democratic Party.  And they latch on to any poll numbers showing a view like this as a blunt instrument to kick hippies, not a starting point for the political advocacy and opinion leadership that can and should be done to change perspectives.

Here’s the problem, in a nutshell.  In 1978 California passed Prop. 13, and Democrats have run for cover ever since.  They should have put up a fight immediately.  But instead, Democrats cowered in fear of losing power, despite the demographic shifts in the state since the mid-1990s, so they lay low and never advocate for the necessary reforms, and buy completely into the myth that the 70’s-era tax revolt remains alive and well, and they take public opinion polls like this as static and unchangeable through anything resembling leadership.  Obviously Republicans are insane in this state, but they can barely manage 1/3 of the legislature (and if we had a half-decent campaign apparatus among California Democrats they’d lose that too) and shouldn’t be feared in any respect.  Yet our Democratic leadership exists in a post-1978 fog, a kind of “Sacramento Syndrome,” where they’ve come to love their captors on the right, and have bought into their claims.

Meanwhile, the David Binder memo, with ten times the poll respondents and a clear majority favoring a broad swath of tax increases over spending cuts to deal with the deficit, goes unmentioned by virtually everyone in this state.  And in that desert, voters go vainly on a futile search for leadership.  They find nothing but shell-shocked politicians.

…As if on cue, view for yourself the craptastic “Post-Budget Reform Push” press release Assembly Speaker Bass just dropped.  You’ll be thrilled to know that your state government will be more “user-friendly” when leaving AIDS patients and the poor to die on the streets.  You can almost smell the fear coming off this press release (on the flip):

BASS LOOKS TOWARD POST-BUDGET REFORM PUSH

SACRAMENTO-Assembly Speaker Karen Bass (D-Los Angeles) today announced the California Assembly will begin preparing information and analyses on ways state government can better serve Californians.  The move is in advance of a joint Assembly-Senate government reform effort expected to begin in July following passage of solutions to the state’s budget deficit.

Bass released the following statement regarding the effort:

“As the Budget Conference Committee continues to meet and we work to resolve the state’s budget deficit, Senator Steinberg and I are also looking ahead to developing a bicameral, bipartisan, back-to-basics approach to reform what is wrong with California’s system of government.

The following are examples of goals this effort could include:

Making government more customer-friendly.

Giving Californians more value for their tax dollars by making government more efficient and accountable.

Cutting through the gridlock caused by outmoded rules and undue partisanship-gridlock that only leads to late budgets and last minute decision making.

Consolidating agencies and functions so they make sense and save money.  Not just blowing up boxes, but also folding, stacking and storing others more efficiently so the ones we need fit the room we have for them.

Building on the upcoming recommendations of the bipartisan Commission for a 21st Century Economy so our revenue system makes more sense.

Making government more transparent and accessible from around the state.

The Assembly will immediately begin compiling a wide variety of ideas, information and input on these areas.  This way the bicameral reform effort will have the resources and data they need to move forward quickly and effectively with a lot of the necessary groundwork already out of the way.

We will also be looking at ways to involve outside experts and stakeholders, as well as increase public participation in the reform process.

Senator Steinberg and I have been talking frequently about this, and I know he and his team are making similar headway in the Senate. I look forward to sharing our collective information and working together to help give Californians the government they deserve.”