All posts by David Dayen

Alt-A Meltdown

If you aren’t depressed enough by the coming collapse of social programs for Californians as the budget nightmare drags on, consider that there will soon be more need for social services and less revenue available, as we segue into the rarely-remarked upon second wave of foreclosures in the Alt-A market.

A new wave of foreclosures is building in Sonoma County, one that echoes the subprime crisis that flooded the region’s housing market with distressed properties.

The tide of troubled loans, which first struck high-risk borrowers who did not qualify for conventional mortgages, is now spreading to people with good credit who purchased more expensive homes.

This time, it involves borrowers who took out mortgages known as Alt-A loans. Like the subprime loans that began imploding in 2006, these loans offered seductively low introductory payments that enabled many borrowers to buy or refinance homes that were pricier than they could otherwise afford.

Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.

There are hundreds of thousands of these loans in California just waiting to recast.  In the context of Sonoma County, 18% of all housing loans are Alt-A, most of them purchased between 2004 and 2006.  Two-thirds of them will see rapid jumps in their payments in the next two years.

I spoke with Asm. Ted Lieu this weekend, who didn’t even want to describe these as foreclosure waves.  “It feels like they never stop.”  He hopes that the latest government program to try and fix the foreclosure crisis, which can allow new mortgages to be issued at 96.5% of current value, will actually make an impact, but we’re talking about a whole new class of borrowers getting into trouble because of these rate recasts.  This of course adds to the properties on the market, bringing down prices, adding to a whole new wave of tax reassessments, and on, and on, and on.

You can almost set aside the unemployment crisis, and the feedback loop of decreased government spending leading to reduced consumer spending and more unemployment.  Just this continuing housing crisis is enough to permanently disable any solutions to economic recovery.

…I should note that AB260 passed the Assembly today, forward-looking legislation which would prohibit lenders from steering borrowers into bad loans, prohibit lenders from reaping financial advantages (called yield spread premiums) from that steerage, ban negative amortization loans and regulate subprime lending.  The Governor vetoed similar legislation last year.  This is an impressive reform, but too late.  The crisis has spread into prime loans by now.

Arnold, You’re Like School In The Summertime – No Class

Apologies to Russell from Fat Albert, but in this case I mean that literally.

The Los Angeles Unified School District announced Thursday it is canceling the bulk of its summer school programs, the latest in a statewide wave of cutbacks expected to leave hundreds of thousands of students struggling for classes.

The reductions, which will force many parents to scramble for child care, are the most tangible effect of the multibillion-dollar state financial cuts to education. Community colleges also have announced summer program cancellations.

Bridge learning has a direct throughline to academic achievement, and in the long run, the value of getting an at-risk youth a high school diploma far outweighs short-term spending.  But of course, summer-school programs extend beyond make-up classes for students behind the curve, but also playground and pool programs which keep kids out of trouble and off the streets.  In other words, the very kind of after-school programs that the Governor championed before he took office.

Of course, this is in line with Arnold 3.0’s Hooverist approach to education – cutting grants, raising fees.

Gov. Arnold Schwarzenegger’s plan to dismantle the Cal Grant program would make California the first state in the recession-battered nation to eliminate student financial aid while raising college tuition, experts said this week.

“Other states are cutting back, but not a complete phase-out,” said Haley Chitty, communications director for the National Assn. of Student Financial Aid Administrators.

The governor’s proposal would end all new Cal Grants, eventually eliminating the state’s main financial aid program for college students, and prevent existing awards from increasing. Grants awarded to 118,000 freshmen starting college in the fall would be canceled, as well as hikes in 82,255 continuing awards promised when the University of California and California State University raised fees this month by 10% and 9.3%, respectively.

Cal Grants awards focus on the lower-income population.  That’s on whom this budget is being balanced.

Arnold will deliver a joint address to the legislature this week.  I’d rather that be a joint address to all public school students.  Explain this to them.

Prison Health Care Deal Finally Reached

Prior to yesterday, the buzz around the federal prison health care receiver was that he  spent half a billion more than budgeted in 2008-2009.  As Clark Kelso explained, these were overcharges for out-of-prison hospital care.  Because the facilities are so lax and because the proposed money Kelso has consistently sought hasn’t arrived, prisoners with medical issues often must be sent offsite.  “There’s a lot [of inmate care] that does have to be sent out […] because we don’t maintain that level of care within the prison.”

That was a message statement.  He was essentially saying “and I’ll keep going over budget if you don’t build the facilities needed.”  Interestingly enough, the very next day both sides floated a deal that would cut back the amount of prison hospitals to be built, but finally, actually build them.

State corrections officials and the prison system’s medical care receiver said Thursday they have reached the outlines of an agreement to build two new long-term health care facilities for inmates at a cost of $1.9 billion.

If the two sides can craft the memorandum of understanding that they say is imminent, it would represent a significant step toward ending the federal oversight of prison medical care in California that has created a constitutional crisis over the past year.

“That’s certainly something I believe we can finalize with this deal,” federal receiver J. Clark Kelso said in a joint telephone press conference with the California Department of Corrections and Rehabilitation Secretary Matt Cate […]

The facilities would house 3,400 inmates and be bond financed – possibly without having to be approved by the Legislature, according to Cate.

Originally, Kelso had sought a 10,000-bed set of facilities costing $8 billion, so this is significantly cut back.  However, it makes some sense if it is accompanied by a reduction in the overall prison population, thus requiring less health care infrastructure.  The point that Kelso finally got across is that we can keep delaying and delaying and go massively over budget every year to meet Constitutional responsibilities, or we can build the damn facilities.  This looks like a loss for Kelso, but it’s a win.

Bonds for infrastructure are at least somewhat inoffensive, but they need to be issued.  AB 900 bonds to build more prisons never got issued two years after being approved.

Scott Graves has more, including the data point that our corrections population is much older now than in past years, requiring more health care.  Another legacy of insane ToughOnCrime sentencing policy.

Governor Hoover’s Plan To Weed Out The Sick

I just appeared on KPFA with Eric Klein to talk about the Governor’s proposed budget cuts, along with several experts and stakeholders, including friend of Calitics Anthony Wright of Health Access California.  I agree with him that it’s almost hard to fathom the amount and severity of the cuts proposed for health care, especially at a time with the federal government is moving forward with a “do or die” plan to reform the health care market, increase access and lower costs.  The proposed Governor Hoover cuts would have the exact opposite effect, and the people gravely impacted by this will not have the luxury of waiting around for the Feds to catch up and fill in the gaps.

Two recent CBP fact sheets help break down the Governor’s proposed cuts to Medi-Cal and Healthy Families, in numbers that are easier to grasp. These fact sheets show:

More than 940,000 California children would lose health coverage if the Healthy Families Program is eliminated as the Governor proposes. More than 240,000 children in Los Angeles county alone would be affected. Want to know how many children would be impacted in your county? Check out the fact sheet to see.

In total, more than 1.9 million Californians could lose access to health coverage within three years through proposed reductions to the Medi-Cal Program and elimination of Healthy Families.

As the Governor said himself today, “behind every one of those dollars that we cut there are real faces.”

Kudos to the LA Times, by the way, for allowing the great unmentionable to get printed on their pages – the decisions made in Sacramento will truly be the difference between life and death for many Californians.

Schwarzenegger argues that the state’s declining economy and plummeting tax revenues have boxed California into a corner, forcing deep and historic cuts in the health and welfare programs that form the state’s social safety net. Without those tough measures, he says, California will cartwheel toward insolvency.

But a 10-person legislative budget panel, which is reviewing the governor’s proposals, listened during a long day in a crowded hearing room to scores of people who said their survival depends on programs set to be hit by the budget ax.

They heard from mothers of children with autism, representatives of people on dialysis, poor parents whose children see dentists on the government’s dime, former drug abusers set straight by a state rehab program.

And they heard from a woman named Lynnea Garbutt who has lived with AIDS all of her 24 years.

She has survived with the help of a state program that provides the expensive antiviral drugs she takes. Now, with that program facing elimination, she pleaded with lawmakers to save it — and her life.

“If these cuts take place, you’re not just cutting money from the program — you’re cutting my life,” she told the panel, her voice shaking and tears falling. “I choose to live. Please don’t make me die. My choice is life.”

This is how Yacht Partier Chuck DeVore responded – move out of the state.  Love it or leave it!

The cuts made to programs like Healthy Families (California’s SCHIP) would eliminate federal matching funds and double or triple the scope of the cuts.  And it would be one thing, by the way, if the Yacht Party simply held the line and said “we can’t afford it.”  But no, they want to spend billions of dollars, only on their own projects instead of saving human lives.

In this article in the San Diego Union Tribune, the same Republicans (and Republican governor) who would eliminate children’s health care and basic services for the neediest Californians, actually want the state to pony up the money for a water bond.

Schwarzenegger, says the article, is still fixated on a whopping $10 billion bond. And Senate Republicans are right there with him:

“Sen. Dave Cogdill of Modesto, the lead Republican on water issues, agreed. “It’s obviously a tough time to bring it forward, but we can’t wait,” the article notes.

We can’t wait? According to my calculator, If the entire $10 billion was sold together, the interest payment could be in the neighborhood of $660 million annually. That’s $660 million more that would have to come out of  schools, health care, and other items on the chopping block.

Similarly, the Yacht Party cried poor about programs that help people, but made room in the February budget for a huge corporate tax cut.

Everyone who has spent 10 seconds on this recognizes that there’s no good way to use current revenues to provide the basic level of services Californians deserve.  To the extent that I have hope that we will overcome the selfishness of the cruel and the impossibility of navigating a broken system, it comes from people, who are fed up and starving for leadership and change from a government that no longer serves their interests.  To turn the figurative starvation literal, Los Angeles teachers are going on a hunger strike to protest budget cuts.  We’re all hungry, and we’ll be a lot hungrier if Governor Hoover has his way.

Myths and Falsehoods About The Backstop

When the traditional media followed the lead of the Hooverists on the right and started calling California’s desire for federal loan guarantees to secure short-term borrowing a “bailout,” which it isn’t, support for the measure collapsed.  But not only was California seeking a solution to being gouged by bankers and investors, but other localities would like the option as well, putting the lie to the notion that California seeks “preferential treatment.”  In fact, other localities want a simple payback to cover losses to their municipal bonds from the Lehman Brothers meltdown, which would cost far more to the Feds than a loan guarantee program.  Moody’s has downgraded the ENTIRE muni bond sector, not just California, so the costs have gone up across the board.  Overall, there is an acknowledgement that the recession has made borrowing costs too exorbitant, and backing from the Feds could save municipalities billions at no cost to the government.

All of the proposals are meant to help struggling state and local governments that are facing a cash-flow squeeze. The economic downturn has eaten into their tax bases as local businesses shut, houses are lost to foreclosure and there is a resistance to raising taxes. The risk to the federal government is that it could lose money if things get worse for municipalities and states. Although backing debt with a guarantee does not require an immediate outlay of funds, the federal government could have to cover losses if there are defaults – which could be substantial if the economy weakens or states and municipalities cannot bring their budget deficits under control. Nonetheless, these overtures by state and local officials reflect a sense – perhaps just a hope – that municipalities suffering from a downturn in revenues and creditworthiness may find some relief in Washington beyond the stimulus money the federal government already is spending.

Emphasis there on “could.”  Those who know the market and understand it admit that California, and all the other states, would certainly repay the bondholders.  The state has never missed a payment in its history, and bond repayment has a stronger priority in the California constitution than most other states.  All the bond analysts I’ve seen say uniformly “California’s not going to default.”  Not to mention the fact that the savings from being rescued from out-of-control interest rates would leave more money available to aovid cuts.

“There’s simply no better stimulus than guaranteeing state and local bonds, particularly those that are being used to get through the crisis and avoid layoffs,” said Rep. Brad Sherman, one of 15 Democrats in California’s House delegation who signed a letter earlier this month asking for the federal loan guarantee.

Plus, supporters of the idea note that Washington stands to make a profit from loan fees as it did after bailing out New York City in 1975, a move that brought the city back from the brink of ruin […]

“We are not asking for a bailout,” said state Assembly Speaker Karen Bass, a Los Angeles Democrat. “We’re asking for the federal government to step in where commercial banks can’t this year because of the crisis within the financial industry.”

In other words, the state didn’t create the economic crisis, they didn’t create the financial crisis, and they shouldn’t be unable to secure normal short-term borrowing because of either.

Also contrary to the myths in the media, the federal government has NOT foreclosed this option whatsoever.  The Treasury has been somewhat noncommital on the specifics, but agreed in broad terms that the municipal bond market needs to work better than it does today.  In addition, Tim Geithner had this warning for the wordsmiths on the right and in the media:

But, according to a Bloomberg News account of the speech, Mr. Geithner cautioned: “I wouldn’t use the word bailout.”

Can Don Perata Return The Money Meant For Party Efforts Now?

Don Perata has been cleared of wrongdoing in an ongoing corruption probe that lasted throughout the Bush Administration and was seen by many as politically motivated.

We have had many problems with Perata, mostly that his terrible leadership contributed to scaring Democrats out of challenging Abel Maldonado and botching the Jeff Denham recall.  If we had a real leader who actually sought to win elections instead of making friends or idle threats, and who was successful on both of those fronts, we would have a 2/3 majority in the State Senate today.  I’m very glad to have him out of the state legislature.  But by and large, corruption issues never made their way into our critique of Perata, and I for one am pleased he has been cleared.  You can read the extremely brief letter from the Acting US Attorney here and Perata’s statement here.

What we did have a problem with was Perata transferring $1.5 million dollars from a campaign account intended to help elect Democrats and push party issues to his own legal defense fund, one day after the election.  The move was not illegal but certainly unethical – if he needed legal defense money he could have raised it for that purpose, and instead he raised money for one ostensible purpose and then used it for himself. (NOTE: Perata also took $450,000 from the California Democratic Party for his legal defense fund as well.)  I was quoted at the time:

David Dayen, an elected Democratic State Central Committee member from Santa Monica, blogged angrily this summer about his party’s contribution to Perata’s legal defense fund, contending the money would’ve been better spent on legislative races. The same goes for Leadership California’s money, he said Wednesday; despite a Democratic presidential candidate carrying California by the largest margin since 1936, Democrats netted only three more Assembly seats and none in the state Senate.

“Every time I asked the California Democratic Party about getting more active and involved in local elections, they said the state Senate and the Assembly control those races … and we don’t have a lot of flexibility. So Perata, at that time, and Nunez or Bass had the authority to run those elections,” Dayen said. “Now we see what happens when you vest power in these closed loops – suddenly self-interest becomes more important than the good of the party.”

He believes this is why Perata didn’t step aside as Pro Tem earlier, as Assembly Speaker Fabian Nunez relinquished his post to Karen Bass in May: “Darrell Steinberg was sitting there ready to go … and we were all like, ‘What the hell is going on?’

“We speculated it had to be that he still needed the leverage to make the calls to raise money for himself.”

So, now that this legal case has wrapped up, let me pose the question – Will Don Perata return the money left in his legal defense fund to accounts intended to elect Democrats?  Both the membership of the California Democratic Party and scores of anonymous donors to Leadership California unwittingly seeded his legal campaign.  If Perata used all $1.5 million between November and today, I’d like to see the receipts; no court case was ever filed, no depositions taken in the intervening 7 months, no movement whatsoever.  Either some lawyers got rich on having donuts or there’s a lot of money left over.  What’s more likely, of course is that Perata will now siphon that money from the legal defense fund into his campaign account for his run to be Oakland’s next mayor.  In the end, it’s all about Don Perata.

That would be a betrayal, and a disservice to those who donated, expecting to help Hannah-Beth Jackson win in SD-19, or to help defeat Proposition 11, the redistricting measure.  There’s not much of a way to contact Don Perata anymore, though I’m assuming his Oakland Mayor campaign will ramp up soon.  He needs to be asked about this pot of money, and why it cannot now be used toward its intended purpose.

UPDATE: Thanks to Josh Richman for updating this:

UPDATE @ 5:25 P.M.: David Dayen at Calitics wants to know if The Don will give back the $1.9 million he diverted from his Leadership California committee – ostensibly created to support Democratic campaigns and causes – into his legal defense fund late last year. (And hey, what about the $450,000 he got from the California Democratic Party?) Fat chance, David… looks as if it’s all gone into lawyers’ pockets by now. At least the Fair Political Practices Commission has now cracked down on these smelly transfers.

I can’t believe he blew through all that money.  Look out, City of Oakland Treasury!  Clearly he was paying off years’ worth of debts with that fund.  Wow.

On The Legal And The Personal In The Prop. 8 Case

The Sacramento Bee will host a live webcast discussion with legal experts about the implications of the California Supreme Court’s ruling on Prop. 8, on minority rights, the First Amendment, equal protection and even religious freedom.  It promises to be a good discussion, and it starts at noon.

But considering that the Court has, for now, given up on its ability to protect the civil rights of the minority in the face of mob rule, the logical arguments must also incorporate the emotional ones, and what must be now taken into account are the personal stories, highlighted here by state lawmakers.

Assemblywoman Nancy Skinner, D-Berkeley, confided in a Capitol press conference that her daughter is lesbian.

“This is a decision that affects all Californians in a very personal way,” Skinner said of the ruling on Proposition 8.

“It impacts my family in saying that somehow my daughter’s love for the woman who is her partner is not as valid as the love others have for the opposite sex.”

Skinner appeared at a news conference with the Legislature’s four openly gay members, all Democrats – Sen. Mark Leno, San Francisco; Sen. Christine Kehoe, San Diego; Assemblyman John Perez, Los Angeles; and Assemblyman Tom Ammiano, San Francisco.

San Diego Mayor Jerry Sanders, a Republican, spoke briefly at the event, noting that he has one daughter who is lesbian and the other “straight.”

“They don’t have the same rights today,” Sanders said.

I want to add my voice to that personalization by highlighting this section of an LA Times piece on some of the 18,000 married couples, now granted separate rights than their fellow gays and lesbians.

Julie Nice, a University of San Francisco law professor specializing in constitutional and sexuality law, sees the emergence of the legally married gay class as yet another inconsistency in the nation’s laws governing same-sex marriage.

“This kind of chaotic patchwork is not sustainable,” Nice said of laws recognizing the right of gays to marry in five states, granting recognition to legal marriages conducted elsewhere in a few others and now California’s validation of the pre-Proposition 8 marriages while denying the status to other gays […]

Several gay couples were in attendance as West Hollywood officials sought to chart a path forward in the fight for same-sex marriage rights after the high court’s decision. Although Mark Katz, 58, and Robert Goodman, 48, continue to be recognized in the state as legally married, they deemed the ruling “tragic.”

“This is as if we were freed slaves living in a slave state,” said Goodman, a career counselor. “We were able to keep our marriage, but none of our brothers will be able to marry.”

Mark Katz is my cousin.  The rhetorical bomb-throwing must run in the family.  But they are wonderful people, with an adopted son, and while yesterday’s ruling secured some of their civil rights, they are not satisfied with being put on a kind of island, where their friends and fellow citizens must live under a separate system.

The legal ramifications of this are truly troubling, and ought to be examined thoroughly.  But my first thought turns to my cousin.  And those familial connections, and the new connections forged through organizing, will eventually be how these rights are achieved for everyone.

SEIU Addresses Schwarzenegger, Obama In New Ads

Barack Obama visits California for a couple DNC fundraisers today.  I doubt he’ll have time to turn on the teevee.  But if he does, he will be greeted with a new ad featuring Pauline Beck, the woman who Obama worked with in the SEIU’s “Walk A Day In My Shoes” campaign during the Presidential primaries.

The ad is aimed mostly at Arnold Schwarzenegger, who mandated cuts to home health care worker pay, and got the federal government to sign off on them without impacting the flow of stimulus dollars.  Basically, Schwarzenegger used the technicality that counties would not be responsible for backfilling worker pay, and therefore burdened with dealing with state cuts, because they always have the option of just cutting the workers completely.  It’s just another example of the Governor thinking that the message of “the people” is to place the entire burden of the budget deficit on the backs of the most vulnerable members of society.

But a new print ad running in today’s LA Times actually addresses Obama directly over the issue.

Dear Mr. President,

I am Pauline Beck – the California home care worker you spent a day on the job with in August 2007. You helped me provide care to Mr. John Thornton, an 86-year old man in a wheelchair who is able to stay in his home because of the care I provide.

I know you are very busy, but Mr. John and I, and my fellow home care workers and their clients, need your help.

You see, Governor Schwarzenegger wants to cut my pay back to $8 an hour. These are tough times, but if my pay gets cut to minimum wage I won’t be able to support my family. It’s just wrong to pay us so little for taking care of people who have given our communities and our country so much…

I know you are a good man and I am proud of the job you are doing. I hope you and the Governor can work together to help Mr. John, me and the 750,000 of Californians just like us. It would make such a difference in our lives. Thank you.

Sincerely,

Pauline Beck

SEIU is right to personalize this crisis and take on the Governor and the political leadership.  The President ought to know about how California is seeking to reverse his stimulus package by slashing the salaries and services of those most able to contribute quickly to the economy, forestalling recovery.

…incidentally, at this link you can write a message to the Governor about these home health care worker cuts.

UPDATE by Brian: I was going to write about the 48-hour vigil that SEIU workers are engaging in right now, but it fits with Dave’s post quite well. Beginning yesterday at around noon, homecare workers have been set up at Capitol Park to protest wage and service cuts. They’ll be testifying about the very real pain these proposed cuts will cause.

SEIU has been focusing on the fact that there was a billion dollar plus corporate tax cut despite the budget mess, and they’ll be hitting that note in a number of protests tomorrow.

Massive Cuts While A Permanent Corporate Tax Break Stands?

Despite his admission that California is ungovernable, the Governor soldiered on today, announcing the full slate of revised budget cuts to replace his proposed borrowing, since scrapped, and to fill the even larger deficit estimated by the Legislative Analyst.  As expected, the Governor called for eliminating the CalWORKS program for the poor, eliminating Healthy Families to provide health insurance to poor children, and phasing out the Cal Grants program which provides financial aid to California students.  But that’s not all. As Noreen Evans says, the Governor’s cuts “dismantle the New Deal.”  Here are some of the lowlights in these 25 distinct cuts:

• Add another furlough day to an already-negotiated contract between the Governor and SEIU Local 1000.

• Cuts $1 billion dollars over 3 years to UC and CSU budgets.

• Eliminates CalFIRE equipment repair and replacement for one year.

• Eliminates all General Fund support for state parks, forcing them to become self-sustaining to survive.

• Cuts Medi-Cal coverage for breast and cervical cancer treatment and dialysis.

• Eliminates funding for Indian Health Services, Rural Health Services, and Seasonal Agricultural Workers.

• Reduces funding for the AIDS Drug Assistance Program.

All in all, we’re talking about $6 billion or so in further cuts, most of them, as you can see, to the most vulnerable members of society.  More than 1.9 million Californians could lose health coverage as a result.  About the only positive here is that the Governor follows through in commuting the sentences of nonviolent, non-serious, non-sex offenders, for one year only, in 2009-10.  Of course, he won’t invest the time or money in treatment and rehabilitation that would save the state billions in the long run by completely revamping our corrections system.

Now, we’re told that, since the citizens won’t accept any new taxes (the truth, of course, is that the special interests won’t accept them), because they supposedly let their voices be heard (in record-low numbers) in the special election, this is the best we can do.  Let’s set aside the fact that public opinions on this front are contradictory at best and the very opposite of what the Governor suggests at worst.  The truth is that anyone who tells you we must cut, cut, cut because there’s no other option is lying to you.  

The only permanent tax measure in the entire February 2009 budget was a giant tax cut for the largest corporations in America.  At a time when revenues are scarce and no money can be found for poor children or student grants-in-aid, every large corporation will be allowed to decide for themselves how they choose to be taxed by the state of California.

At issue is the new “elective sales factor,” a system for determining how much tax a company should pay in the state. Up to now, California’s tax system taxed corporations using a formula based on employment, property and sales in the state, sometimes know as a “triple factor” system.

Many companies have long argued that this traditional way of calculating taxes punishes companies that invest in the state and create jobs, but critics disagree. Under the new elective system, set to go into place for the 2011 tax year, companies can choose to pay under either the triple factor formula or via the  “single sales factor” system, based entirely on their sales in California.

“The policy behind a single sales factor formula is you reward the companies that heavily invest property and payroll in the state,” said lobbyist Chris Micheli, who represents numerous corporate clients with his firm, Aprea & Micheli. He said he did not personally lobby on the elective sales factor provisions.

The most vocal critic of these changes is Lenny Goldberg, executive director of the California Tax Reform Association. He said he is opposed to single sales in the first place-but that allowing companies to choose which system they use is even worse. He said companies will now be able to report more revenue to the state in good years and move losses into the state in bad ones.

“Tax policy should be consistently applied,” Goldberg said. “But we’ve given this elective that provides for infinite manipulation.”

The changes were part of a budget trailer bill, ABX3 15, authored by Assemblyman Paul Krekorian, D-Burbank, and a related bill from the Senate, SBX3 15 by Senator Ron Calderon, D-Montabello. Goldberg said these bills negotiated behind closed doors, without hearings, during rushed budget negotiations-leading to a very bad deal for the state.

“This is the gutting of the state corporate tax,” said “In fact, they did it so badly that lawyers are chuckling about the opportunities for tax avoidance.”

This would make California the only state in the nation to give corporations a choice on how they would like to be taxed.  It will make the state’s finances more volatile forever, because as Lenny Goldberg says companies can use California as almost a kind of tax haven.

By the way, such a tax evasion was pushed as much as anyone by Democrats in areas with high-tech sectors.  They have been clamoring for this shift in corporate tax policy for a generation, and they slid this into the budget at the last minute.  And… wait for it… reversing it will require a 2/3 vote.

You can argue about whether or not this would spur local investment or just provide a giveaway – although the facts point to the latter.  You cannot argue at all that, in the midst of an historic recession and a dearth of revenue, now was the best possible time to hand out what could be $1.5 billion dollars a year in a huge corporate tax break.  Supposedly, we’re told by the Governor and political leaders that now is a time for sacrifice and to “live within our means.”  Surely the corporations ought to be held to that same standard.  We are in a situation where we have no money for parks, no money for the poorest in society, but enough to give a huge corporate tax cut.  Surely they feel the civic responsibility to contribute their fair share.  Surely they understand the dangers of a less-educated, less-healthy workforce on their personal bottom lines.  Surely they aren’t all about the MONEY.

It shouldn’t stand.  The Democratic leaders in the legislature, who allowed this to go forward with nary a peep in February, should not be allowed to get away with such complete double-talk this time.  That $1.5 billion would save almost every program I bullet-pointed above.  If they want to cut their way to glory, at the very least they can repeal this massive, unjustified corporate tax cut.  The reason the next Governor will inherit a mess is mostly process, but also the failure of the Democrats in the leadership to look out for the best interests of the state and allow far more hijacking than is reasonable.  15 Democrats in the Senate and 27 in the Assembly could actually DEFY that leadership and demand a repeal to this tax giveaway.

Otherwise, they have absolutely no standing to argue that the cuts-only nightmare we will soon face represented “the best they can do.”

Schwarzenegger Admits That California Is Broken

As David Atkins discusses today, the decision on Prop. 8 by the State Supreme Court basically elevates the people as a Fourth Branch of government that cannot be countermanded by the judicial branch, no matter what their whims decide.  The Court said, “the system may be broken – depending on your perspective – but that’s the system we have, and we’re powerless to do anything about it.”

Thoughts at this point turn to the need for a transformation of this Constitution, to restore the balance of representative democracy, with a judiciary enabled to determine Constitutionality, with a legislative branch given their mandate by the people to reflect the popular will, with an executive secure in his or her role. While I do not believe that “the people” should be endlessly demonized for the options they have been given by a flawed process, I do believe that the verdict has been delivered on this form of government, and delivered as a failure.  In an extraordinary discussion unrelated to the Prop. 8 case, the Governor today basically admits California is ungovernable even while vowing to follow the “will of the people,” a will which he fails to properly define.  Most of the rant Arnold made today involves him whining that he’s not allowed to be a dictator.  But some of it is brutally revealing.

Gov. Arnold Schwarzenegger considers himself a glass-half-full guy, and he ended his California Small Business Day speech in Sacramento with a dose of optimism. But it seemed clear the governor has just about had it with California’s governance system, especially after last week’s special election was a colossal failure. Though he blamed many of the state’s budget problems on the current economic collapse, he said part of our woes are “self-inflicted.”

“California hasn’t had a responsible fiscal system since Earl Warren in the late ’40s and early ’50s,” he said.

The governor ticked off a number of complaints about the system this morning:

• The state relies too much on personal-income and capital gains taxes.

• The state doesn’t have a spending cap, nor a “rainy-day fund” (the latter point is questionable given that Schwarzenegger asked voters to establish a “rainy-day” reserve in 2004, albeit one with weak restrictions).

• Federal judges tell California how to run its prison health-care system.

• Federal stimulus rules restrict how California can cut from its budget.

• California requires a two-thirds vote to approve the budget.

• An “endless list” of ballot-box budgeting requirements, including Propositions 13, 42, 49 and 1A, all of which he has championed in the past.

“Until we fix our system, nothing will ever change,” Schwarzenegger said. “This is no way, of course, to run a state.”

He’s crying about “federal judges” who merely enforce the Constitutional right of prisoners not to be allowed to die as a cause of their incarceration.  And the federal stimulus rules don’t restrict a damn thing, they merely require a certain threshold of service to qualify for federal funds.  Waah waah waah.  But the last two are truly amazing.  Schwarzenegger ADMITS the two-thirds rule has completely hamstrung government, and that “an endless list” of ballot-box budgeting have distorted the balance of power in California.  Prop. 49 is the after-school program initiative that SCHWARZENEGGER HIMSELF put on the ballot prior to his tenure in office.

Arnold’s press people tried to walk this back today, but this was a Kinsleyan gaffe where he made the mistake of telling the truth.  Schwarzenegger has always wanted to claim to know the will of the people, and he pretty much got it right when he let his guard down today – Californians want a functional government with a basic level of services funded equitably, and they want lawmakers to do the job they were elected to do.  “The people” are a Fourth Branch who want no part of being elected or serving.

The next batch of gubernatorial wannabes have a mixed record on Constitutional reform.  Some reports claim that they are more interested with the rhetoric of change than offering anything specific and incurring the wrath of the unelected Fourth Branch.    If in fact candidates run in this fashion, they will discover an electorate actually more interested in solutions than mantras, more interested in fundamental reform than careening along this unsustainable path.  And 19 months later, when one of them sits in the office in Sacramento and actually looks deeply at the situation in which they find themselves, they’ll have wished longingly for a whole raft of specific reforms they could implement right away.  Because otherwise, they will sink under the weight of a top-heavy, broken governmental system.