George Skelton has a punishingly absurd column today.  He has in the past recognized that Prop. 13, and more importantly the Trojan horse of the 2/3 requirement for revenue hikes embedded inside it, has foisted much of the problems upon the state that it now faces.  He recognizes that again here.  But he then goes on to suggest that Arnold Schwarzenegger should take the attitude of “born-again tax cutter” Jerry Brown and treat our current “tax revolt” (which he takes as gospel from the results of last week’s special election) by slashing services for all manner of struggling Californians.  Skelton hints at a tactic of merciless cuts as a means to show the public the painful reality of Howard Jarvisism, but really he just sort of agrees with the conventional wisdom, which he plays a role in setting, that the voters rejected tax increases of any kind and now the Governor must do the serious thing of cutting all manner of state spending.

Let’s take a look back in time and be clear about who’s driving this conventional wisdom.  California’s political observers have been stuck in a post-June 1978 mindset for the past thirty years, scared to death of the terrifying spectre of Howard Jarvis, himself a bundle of contradictions.  He was a Mormon who drank vodka.  An anti-government crank who nonetheless ran for US Senate and Mayor of Los Angeles.  A supposed defender of homeowners when at the time of Prop. 13 he was employed by the Los Angeles Apartment Owners Association.  Jarvis was a liar and a fool.  In the ballot argument for Prop. 13 in 1978, he claimed that school funding would not be affected by the amendment, and responded to the possibility of library services being cut by saying that “63 percent of the graduates are illiterate, anyway.”  He had a disdain for the average Californian, and probably took up the mantle of property tax revenue caps after seeing his home at 515 North Crescent Heights Boulevard in Los Angeles increase in value from $8,000 to $80,000 in 35 years.

Prop. 13 addressed one specific problem – property tax assessments were growing faster than wages.  But grafted onto the measure designed to slow down that growth were a series of proposals – shifting the balance of power from local to state government, capping commercial property with residential, and establishing the 2/3 requirement for revenue – that have gradually but steadily eroded the quality of life that previously made the state the envy of the nation and the world.  In 1978 the state had enough of a surplus to paper over the immediate effects of Prop. 13.  The measure was practically designed to drain that, and put an end to effective governance in the state.  Today, businesses and homeowners benefit from public investment in infrastructure – sewers, roads, electrical lines, freeways, mass transit – without having to contribute to the improvements.  And to get a true sense of how that attitude of, basically, selfishness, can be traced back to Jarvis himself, read this flashback from the 1979 budget crisis, and the anti-tax champion’s march on Sacramento.

Into the volatile political atmosphere parachuted Howard Jarvis, the irascible co-author of Prop. 13 and the cranky embodiment of the tax cut movement. Jarvis and his posse came to Sacramento on June 7, the one-year anniversary of the measure; 30 years later, the episode offers a look back in time at some hints of what was to follow.

Jarvis, a burly and profane spud of a man, had come to deliver 150,000 computer-generated letters sent by tax-cut supporters to warn the Legislature, “We’re not going to let anybody get away with a new plot to circumvent Proposition 13.”

One target of his ire was Assembly Bill 8, which radically restructured California’s system of public finance and sent $5 billion from Sacramento to local jurisdictions. Still in effect in 2009, it cast the framework for many of today’s structural budget problems, by putting the state in the permanent business of financing schools, cities and counties.

Surrounded on the east steps of the Capitol by dozens of boxes containing the letters, Jarvis accused then-Speaker Leo McCarthy of a “plot” to undercut Prop. 13, and got into a beef with a reporter who asked him to be specific about the alleged conspiracy.

As a daily report of the incident had it: “Jarvis snapped angrily: ‘I’m not going to list all of them. I don’t carry the bill numbers around in my pocket.'” […]

As Jarvis spoke, a group of mothers who’d come to Sacramento to lobby for more spending for pre-schools began shouting at him: “What about the schools? They’re ending programs to help,” a woman from Azusa hollered.

“That would be your problem, not mine,” Jarvis yelled back. “It’s absolutely not so. Prop. 13 didn’t have any effect on the schools at all.”

Jarvis then walked into the Capitol, where he and his backers dropped off boxes of letters in legislative offices. All went well until he called on Assemblyman, later Congressman, Doug Bosco, who was meeting with a county supervisor and three fire chiefs from his district.

“We were discussing why there isn’t enough money to put out the fires,” Bosco said later. “In walked Howard Jarvis and I said, ‘Good, you can explain it to them.'”

“Jarvis insisted that reduced property tax revenues allowed by Proposition 13 were more than sufficient to finance essential services,” a future Calbuzzer reported. “When the chiefs asked Jarvis what specific cuts he proposed, he told them, ‘that’s up to you,” which set off “a heated exchange that lasted 10 or 15 minutes before Jarvis left…in a bit of a huff.”

“A short time later, Jarvis wandered by Governor Brown’s office, where he received a considerably warmer reception.”

Howard Jarvis had no interest in governing and even less interest in people.  He treated budgeting only in the abstract, without detail and certainly without any projection of a human face on the consequences of his actions.  He was a miserable, selfish old coot.

Only in California can this man be transformed from guy-shouting-at-the-end-of-the-bar status into a figure worthy of any respect, both by politicians like Jerry Brown and the political media.  The assumption is that he led this grand movement that persists to this day, but his stature only remains because so few dared to challenge him on the basic facts.  We have a government with the structural architecture of that selfish old man, but a population that simply doesn’t think that way.  Yet nobody has the courage or the leadership to actually point out that architecture, the main stumbling block to returning California to anything approaching fiscal sanity.  Howard Jarvis, like a headless Ozymandias statue surveying a wrecked land, became a king because of the vacuum of leadership into which he stepped.  His reputation is unassailed, and we are all poorer for it.

Paul Krugman actually understands the nature of the crisis here in California, and he writes about it today.

Despite the economic slump, despite irresponsible policies that have doubled the state’s debt burden since Arnold Schwarzenegger became governor, California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is – and you have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.

It’s a key point.  Without the insanity of Prop. 13, making revenue so unstable and volatile from year to year, and completely inequitable, locking in older homeowners while increasing the tax burden on younger ones, the crisis would be as manageable as other states.  Without the Trojan horse of the 2/3 rule for taxation snuck in through Prop. 13, the tax structure would not become the hideous, mangled beast we see today, where the effective tax rate is higher for the lowest-income Californians than for those with the highest income.  And without the growing extremism of the Yacht Party, where anyone who breaks Grover Norquist’s pledge draws an effort to drum them out of the party, perhaps Sacramento would be populated with public servants who want to fix the problem instead of break it.

Krugman’s point is to sound a warning bell for the nation at large, to view the problems of obstruction and dysfunction at the state level with a wider lens.  He explains that Republicans have “been driven mad by lack of power,” with the extremist rump faction predominant.  But even then, he gets that California’s problems are unique.

So will America follow California into ungovernability? Well, California has some special weaknesses that aren’t shared by the federal government. In particular, tax increases at the federal level don’t require a two-thirds majority, and can in some cases bypass the filibuster. So acting responsibly should be easier in Washington than in Sacramento.

But the California precedent still has me rattled. Who would have thought that America’s largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?

It’s a sad commentary, when the finest liberal columnist in America basically reassures his readers that no government could possibly be as ridiculously constructed as California’s.

The hopes of receiving loan guarantees backed by the federal government to help California secure borrowing to cover short-term cash issues dissipated the moment the media started calling something that wouldn’t cost the government a dime a “bailout.”  With Democrats essentially mimicking their Republican counterparts and the rhetoric of a fiscal reckoning predominant, a solution based on massive program cuts and eliminations appears inevitable to everyone in Sacramento.  Only regular citizens – the same ones demonized by elites for daring to vote against what elites call “their own interests” – hold legitimate interests in stopping the drive to cut our way out of this crisis.  Students in Los Angeles are holding walkouts over proposed firings of teachers.  The families who would be most directly hit by canceling programs like Healthy Families (California’s SCHIP), CalWorks (serving poor families) and Cal Grants (student grants-in-aid for college) are speaking out about the real-world effects of those cuts.  And a growing movement of activists from across the political spectrum are looking to the future by trying to turn this crisis into a tipping point for a Constitutional convention to get the state onto a sounder fiscal course.

The silence from the political leadership on these fronts is deafening.  And yet, absolutely everyone knows the remedies to perpetual crisis and long-term dysfunction, remedies that too rarely cross the lips of leadership so that such opinions could actually make it to the minds of the electorate.  Evan Halper today provides some relief in this desert with an oasis of an article, explaining in clear language exactly what steps can be taken to transform California into something other than the failed state it is.  I don’t agree with all of it – Halper asserts that the richest 1% of the state contribute half of the income tax, which is simply a function of inequality and frankly irrelevant; he leaves out that the effective tax rate for the top 1% (around 7% of income) is LOWER than that for those with the state’s lowest incomes (around 11%) – but it’s still worth reading.  An excerpt:

The oft-cited waste and abuse is a problem, but the deficit is bigger than the entire state bureaucracy.

California could fire every state employee — including well-paid prison guards and university professors — close every government office, stop all travel and even cease the purchase of paper clips without closing the budget gap. The government would be gone but the deficit wouldn’t […]

The runaway spending is caused largely by an ever growing group of Californians making use of basic state services as the cost of those services escalates. Since Gov. Arnold Schwarzenegger took office, for example, the amount the state spends on Medi-Cal health insurance for the poor has grown more than 40%, from under $10 billion annually to more than $14.4 billion. Spending on community mental health services has nearly tripled, and the state’s program that provides services for the disabled leapt from a $1.6-billion annual expense to nearly $2.4 billion.

This has happened despite efforts by the state to contain costs. Primary care doctors, for example, are paid just $26 for an office visit with a Medi-Cal patient. There is no simple way to seriously limit these healthcare costs short of eliminating the benefits for hundreds of thousands of Californians.

Halper’s five steps – updating the tax structure, eliminating the 2/3 rule, reining in citizen initiatives, building a real rainy day fund and instituting a performance review – are a mixed bag IMO, but they take a legitimate, serious approach to reforming the governmental structure, coming from the position that the current system is exactly how not to run a state.  Regardless of these solutions, a debate on which we can and should have, that viewpoint makes me hopeful.  I believe people are starting to understand the intractable nature of the current process, a thought echoed by Jean Ross in her special election post-mortem:

So why do I believe that the May 19 results can be viewed as a triumph of hope over fear? I spent the better part of the last two and a half months traversing California, talking about the budget, the special election, and California’s future. From San Diego to the North Bay, I spoke before diverse audiences ranging from Orange County PTA activists to Silicon Valley community leaders, from philanthropists to East Bay nonprofit leaders and community organizers in Los Angeles. While California faces tremendous challenges – the worst economic downturn in the post-World War II era and budget crises that show little prospect of abating – I found a new level of interest, concern, and commitment to building a better future for all Californians.

While I am not going to argue that the thousands of individuals that I met are a representative sample, they do represent the best that the state has to offer. Parents who volunteer to improve the quality of their children’s schools and public education more broadly; nonprofit service providers who struggle in the face of tight budgets and rising demand to care for the state’s most vulnerable; and interested voters who got up early or stayed out late to learn the about the state’s finances, how we ended up in the mess we’re in, and how to get out. Almost universally, I met voters deeply dismayed by, but profoundly interested in fundamentally addressing, the state’s budget challenges […]

In the midst of all this doom and gloom, I found an underlying sense of optimism. The afterglow of the November election has brought new activists to the table and rekindled a belief that change is possible. There is also a sense of realism and an understanding that tough choices lie ahead. The ambitious federal efforts to stem the economic downturn, stabilize financial markets, and rein in the excesses of private markets are beginning to help voters see government as a solution to, rather than the cause of, economic malaise.

Our leaders have failed.  Our people have not.  In fact, they’re just getting started.

Nobody likes the road that the budget appears to be going down, but one side benefit, perhaps the only one, is that we might yet have a conversation about the unjust and costly prison crisis that has deeply impacted the current situation.  Here’s Asm. Jim Beall (D-Campbell) yesterday:

We’ve got to reduce spending on our highest cost-drivers, prisons and health care. The prison budget has doubled in the past decade to $10 billion. The state has 173,000 inmates… Yet, California has a 70 percent recidivism rate. We aren’t producing the results for the money we spend… For over half of the prisoners, drugs or alcohol played some role in their crimes. A 2006 UCLA study said 42 percent of our inmates needed alcohol treatment and 56 percent needed drug treatment. It’s clear: The state should emphasize alcohol and drug treatment programs and prevention education.

Absolutely.  Now, the way that the Governor is going about this, by just trying to dump undocumented immigrants in prison on the ICE and mass release without restructuring and treatment and rehab, is of course dicey.  He will be helped by the Administration’s effort to identify every undocumented immigrant and ready them for deportation, but that’s a years-long process.

However, there are signals that the powerful prison guard’s union knows exactly what could be coming – and they’re trying to get out in front of it by voluntarily offering well over $6 billion in cuts.  Most of it goes to capping prison health care, which has already been found to be Constitutionally inadequate, and halting prison expansion through AB900, which I think is spent through bond issues and not the General Fund.  But there are other interesting recommendations in there:

2. Save up to $500 million by trimming CDCR administrative staff, which has ballooned by 400 new positions in recent months and more than doubled two of the department’s administrative divisions […]

7. Save potentially hundreds of millions of dollars ($20,000 per parolee) by embracing our past recommendation to expand Drug Court, Mental Health Court, Reentry Court and Revocation Court.

9. Save millions by no longer providing CDCR managers and headquarters staff with state vehicles and mileage allowances for commuting to work.

10. Conduct annual performance audits to determine which parole and rehabilitation programs are achieving their goals.

Remember, these are the prison guard’s union’s recommendations.  They have an interest in keeping jails packed and ensuring overtime for their employees to manage the overcrowding.  And even they understand both the need for cost-cutting and the need to expand the role of drug treatment and mental health rather than defaulting to incarceration.  They’re behind the curve and still modest in their goals,  but significantly, the ball is moving in the direction of reducing prison costs for the first time in a long while.  Obviously, jumping from this to reforming sentencing and keeping nonviolent offenders out of prison and into treatment won’t be easy, and the residual “tough on crime” stance still predominates among the political class.  But finally, we’re having the conversation as a crisis forces the issue.  Democrats ought to take this and run with it, and demand the kind of sane prison policies here that we see in Kansas and Texas.

…incidentally, buried within the Legislative Analyst’s cost-cutting proposals was one recommending “altering California’s three-strikes law.”  We’re starting to get serious.

Robert makes quick work of the new and not improved Gov. Schwarzenegger prescriptions for disaster, trying to fill an entire $21 billion dollar deficit (which is now more like $24 billion according to the Legislative Analyst) with cuts.  I cannot completely argue with the decision to cancel the RAW (revenue anticipation warrants), because bad borrow and spend policies, as Noreen Evans explained, part of the problem in Sacramento, not the solution (“Like paying your bills with your credit card when you don’t have the money to afford it.”)

But to replace that entirely with cuts to things like CalWorks, Cal Grants and Healthy Families would place a massive hole in the social safety net.  This would, for example, roll back children’s health coverage at the moment that the federal government would expand it.  And nobody ought to look forward to being the only state without emergency poison control services.

This is going to get worse, by the way.  The offshore drilling plan Arnold proposed lost a key environmental supporter this week, threatening that $1.8 billion solution.  And Tim Geithner’s apparent suggestion that loan guarantees require an act of Congress, while immaterial to the budget at this point, really hinders the ability to solve the short-term cash crunch.  Basically the entire budget would have to get passed before one dime of borrowing could take place, otherwise the borrowing is unlikely to even happen, and even when it does it will be prohibitively expensive.

So, what to do?  I think Greg Lucas is on to something.  It’s time to embarrass Governor Hoover.  Put his bill on the floor and watch it get a half-dozen votes.

Bringing the GOP governor’s plan to a vote accomplishes several things.

It establishes how many initial votes exist for the plan. Not many, presumably. Will Republicans vote for it or are the cuts too deep even for them? Or should they choose to dismiss the action as a “drill” and not participate, an opportunity is presented for Democrats to score some coup on their political opponents.

A somewhat simplistic example: “All we hear from Republicans is that they want to cut state spending. Well, here’s a chance to do so and yet they sit on their hands.”

Bringing the proposal to a vote also attracts the media spotlight. Parents might be interested to know about the $6.3 billion in payments to public schools the governor would defer for one year, a figure that doesn’t include the $8 billion the state already owes schools.

What the plan does to immigrants, the developmentally disabled, the elderly who receive in-home care also might be of interest to the public which so recently decided to make the fiscal problem worse.

The public might also like to know that $12 billion of the governor’s $21 billion worth of actions are one-time and that embracing them makes it harder to solve future budget messes.  

Essentially, it’s time to build a set of facts and put people on the record.  There has to be some long-term thinking here, and some public explanation of the implications of a Hoover-like budget.  Like there was no reason for Democrats to play nice with George Bush when he was at 28% in the polls, there similarly is no reason to play nice with Arnold Schwarzenegger.  He is basically despised.  

Time to kick sand in the face of the bully.

Commenter seanp mentioned this in my Calitics diary about the Obama Administration waiver for the Governor to cut In-Home Support Services salaries for health care workers:

When Obama was running as a Presidential candidate in 2007 he spent a few hours working with a home health care worker in Alameda, 61 year old Pauline Beck. Remember, this woman had a union contract:

While Beck’s life – struggling to make ends meet with two jobs and regular visits to the food bank – couldn’t be more different than the 46-year-old Democratic presidential candidate’s, she came away feeling “he just cares about people. … He wanted to know about me, yes, he did. He really wanted to feel what I did.”

I wonder how Pauline Beck feels about the Obama administration helping cut her wage from $12.10 an hour to $10.10 an hour. I guess she can get a third job.

Actually, according to Andy Stern, Pauline and IHSS workers like her will get cut back to $8 an hour.  Several bigger bloggers and national groups are picking up on this story today.  As Greg Sargent notes, Pauline Beck even spoke at the 2008 DNC.  There’s video of the then-candidate’s visit with Pauline Beck.

Sargent confirms with SEIU that Beck would be hit by this reduction in wages, just two years after Barack Obama walked a day in her shoes.  The Administration could have used the power of the purse – and the threat of pulling stimulus money away from California – to get the Governor to back off on these wage reductions.  Instead, they acquiesced, and Pauline Beck, Obama’s former work buddy, will pay the price.

Brian Beutler of TPMDC has more on this, and Andy Stern has sent a message to his supporters asking them to call the Governor and stop the cuts, although the President is implicated in his message as well.

Two years ago, President Barack Obama walked a day in the shoes of SEIU home care worker Pauline Beck.

Today, Pauline and home care workers across California face pay cuts of up to 33% — from $12.10 an hour down to $8.

Governor Schwarzenegger’s belief that solving the state’s fiscal problems on the backs of those who take care of the most fragile among us is an absolute disgrace.

Please call the Governor’s office and tell him you strongly disagree with his misguided priorities:

916-445-2841

Earlier this week, Californians sent a clear message of no confidence in Governor Schwarzenegger — soundly rejecting his proposed budget reforms.

He proposed four ballot initiatives, and all four went down to overwhelming defeats.

The L.A. Times noted that some are beginning to write his “political obituary.”

It’s no wonder why.

Stern intimates that he will “file a challenge” against the Govenror’s decision.  Maybe Schwarzenegger needs to walk a day in the shoes of these home health care workers- oh, wait, that didn’t work either.

Virtually the entire political leadership in Sacramento took without questioning the view that the overwhelming loss of the special election is somehow a mandate for “living within our means” and deep, drastic cuts to the budget.  The Washington Post, the Los Angeles Times (in multiple venues) and most other publications provided uncritical coverage of the Governor and even leading Democrats, parroting this theory that “the voters spoke” and the message was that only cuts would be allowable from this point forward.

Beware of any sentence that starts with the words “What the voters told us was…”  Far too often in our politics, dishonest lawmakers decide that voters mandate their particular ideologies and preferred policy decisions regardless of the facts.  Perhaps the only real message delivered from the voters to lawmakers was that the former doesn’t particularly like or trust the latter.  But there are other possibilities.  A new polling memo by David Binder Research details why Prop. 1A in particular failed, and the results do not match the Governor’s ramblings.

Contrary to what the Governor is saying after the defeat of his proposals, Prop 1A did not fail because voters delivered a message to “go all out” in cutting government spending. The all-time record low turnout for a statewide special election clearly demonstrates the lack of depth to that argument. Prop 1A did not

generate a spike in turnout and taxes were not cited as the main reason why voters overwhelmingly rejected Prop 1A.  Support for a state budget that relies solely on spending cuts is very limited – even among those voting no on Prop 1a.  

Voters in this election were more likely to be Republicans and less likely to be Independents, whereas Democratic voters came out in proportions consistent with past turnout. Of those that voted in this election, 43% were Democrats, 42% were Republicans and 15% were Independents or minor party voters. This past November, the electorate consisted of 46% Democrats, 32% Republicans and 22% Independents or minor party voters.  

In November 2010, the electorate will be a group that is more supportive of the revenue options tested in the survey, and more strongly opposed to only using cuts to balance the state budget. While only 36% of voters that turned out for the May 19th election supported using entirely budget cuts to balance the budget, even fewer – only 24% — of non-voters felt the same way […]

Voters simply do not trust the leadership in Sacramento, and recognize that the failed special election was just another example of the inability to bring real solutions to voters. When given two choices, four out of five voters – even among those who voted ‘Yes’ on 1A – agreed that the special election was just another example of the failure of the Governor and Legislature, who should make the hard decisions necessary to really fix the budget. Only 20% agreed the special election was a sincere effort to fix the state’s budget mess.

I would argue that the voters feel no trust in the legislature because they see time and again policy solutions that stick the average Californian with the bill that the wealthy and well-connected don’t pay.  The fact that the only permanent tax issue in the February budget was a $1 billion dollar tax cut for the largest corporations in America is a perfect example.

The polling memo also shows broad support for tax increases in a variety of areas, including wiping out this massive corporate tax cut:

75% support increasing taxes on alcoholic beverages (62% support among ‘No’ voters)

74% support increasing taxes on tobacco (62% support among ‘No’ voters)

73% support imposing an oil extraction tax on oil companies just like every other oil producing

state (60% support among ‘No’ voters)

63% support closing the loophole that allows corporations to avoid reassessment of the value of

new property they purchase (58% support among ‘No’ voters)

63% support increasing the top bracket of the state income tax from nine point three percent to

10 percent for families with taxable income over $272,000 a year and to eleven percent for

families with taxable incomes over $544,000 a year (51% support among ‘No’ voters)

59% support prohibiting corporations from using tax credits to offset more than fifty percent of the

taxes they owe (55% support among ‘No’ voters)

In addition, voters oppose the kind of spending cuts outlined by the Governor.

Now, I’m sure I’ll hear “eat it, you pipe dream librul hippie” because of the structural issues that prohibit these kind of tax solutions.  But the reason that the legislature has such desperately low esteem right now is that they fail to publicly even advocate for the solutions Californians plainly want, or the breakage of the structural barriers that would provide it.  This failure caused the May 19 debacle and will cause further problems for the Democrats in the state if they are not careful.  A political party seen as devoid of principle will not be a successful political party forever.  What Californians desire, essentially, is leadership.  And they will punish those who refuse to give it to them.

UPDATE by Brian: I’ve posted the slides for the Binder Research presentation over the flip.

Why Prop 1A Lost Powerpoint –

I heard a bunch of California Republicans yesterday talking about the effort to get the US Treasury to backstop state borrowing as a “bailout,” and the media has fallen for it, using phrases like “California is too big to fail” and other snickering.

This is ridiculous.

Let me explain this fairly clearly.  California will need to borrow billions of dollars to cover their cash flow issues, the same way they do every year.  Traditionally, the money comes in at different times then the money goes out, necessitating short-term borrowing.  Because of the state’s miserable credit rating, the interest rates that investors charge for this borrowing are ridiculously high.  Usually, banks guarantee those loans, but this year they are balking because of the severity of the state’s fiscal picture.  So the state has asked the Treasury to step in and guarantee the loans instead.

This would cost the Treasury Department approximately $0.00 dollars to perform.  Providing loan guarantees simply means that you are insuring against default, which has never happened in the history of California.  Not through the Depression or at any other time.  What this would do is stop Wall Street from gouging the state with abnormally high interest rates, pure and simple.

Here are the words of an idiot:

Rep. Jerry Lewis (R-Redlands) predicted little sympathy for the Golden State on Capitol Hill. “I have the feeling that it’s going to be a long time before Washington decides that they’re going to ask Kansas or Wisconsin to help with California’s funding problem,” he said.

Nobody would be helping anybody.  The federal government would guarantee loans that California would pay back.  This is about lowering interest rates to make the price of short-term borrowing lower.

I understand that President Ford rejected these types of loan guarantees for New York City in the 1970s.  But later he approved them.  By the way, after that so-called “bailout,” every single dollar was repaid by the city of New York.  How on earth could this be characterized as a bailout?  

The Ford Administration, under the direction of Treasury Secretary William Simon, imposed certain conditions on the loan guarantees (which will actually delivered directly by Treasury, so this is somewhat different).  That could also happen here, and the Shock Doctrine possibilities are not pleasing.  Still and all, this savings (which would only represent about $1 billion dollars in all, 1/20 of the current deficit) would not cost the federal government one red cent and thus shouldn’t be used to cram down California in a punitive way.  The possibility exists, but it’s worth the risk.

UPDATE: Presumably because reporters still don’t understand this, Tim Geithner gave an answer today to a question no state was really asking which is being spun as the end of this option, when he plainly states its possibility.

Treasury Secretary Timothy Geithner said the U.S.’s $700 billion financial rescue package can’t be used to aid cities and states facing budget crises.

The law “does not appear to us to provide a viable way of responding to that challenge,” Geithner told a House Appropriations subcommittee in Washington today. Among the hurdles: Money from the Troubled Asset Relief Program is reserved for financial companies, he said.

The Treasury chief said he will work with Congress to help states such as California that have been battered by the credit crunch and are struggling to arrange backing for municipal bonds and short-term debt.

He added that cities and states need to “get deficits down” to aid their credit worthiness, but absolutely did not take the option off the table.

Via OC Progressive, Assemblywoman Noreen Evans, Chair of the Budget Committee, spells out slowly for everyone the structural problems and false assertions about the California budget process.  If you have non-political junkie friends who want to understand this in a quick and easy way, pass them this link.

This is a very good place to start.  Evans puts the lie to three big myths about California:

1) The “runaway spending” assertion.  Um, no.  Population and inflation accounts for 68% of the increase.  I LOVE how Evans cites the tough on crime sentencing laws as a key element of over-spending, in this case on prisons (20% of the inflation and population-adjusting spending increase).  Ballot-box budgeting with no dedicated funding stream (separate from the initiatives voters stopped lawmakers from raiding yesterday, which have funding sources) also contributes to the problem.  And there are the prior tax cuts like Prop. 13 and Arnold’s VLF cut (which would have filled this ENTIRE current deficit).  To cover for this we sell bonds and now have to pay out interest to service that debt.  The problems beget more problems, and necessitate more cuts because the conservative veto resists taxes.

2) There’s all these “waste” in the budget.  Again, no.  The Performance Review of 2004 found virtually nothing that would save the state any real money.

3) It’s just all that messy partisanship from both sides.  No.  The Democrats have made $40 billion in cuts over the past several years.  The Norquistian Yacht Party won’t budget because they don’t have to.  Evans details the 2/3 requirement and the conservative veto, and cites Norquist himself!

Seriously, pass this to your friends.  Facebook it and Twitter about it.  If you internalize these concepts, the solutions are obvious – we need to restore democracy and give our elected officials a budget process and a Constitution they can actually navigate.

And while we’re at it, let me debunk one other myth.  The one that says all California has to do is sell San Quentin and all that surplus property and save the state.  Well, the money raised from selling state property would not be able to be used to balance the budget.

Under the terms of Proposition 60A, approved by voters in November 2004, proceeds from the sale of any state surplus property can only be used to pay the interest on $15 billion in budget-balancing bonds sought by the GOP governor and approved by voters in March of the same year.

Once the bonds are paid off – the Legislative Analyst estimated at the time that cash from the sale of surplus property would speed retirement of the 30-year notes by a “few months” – sale proceeds would be deposited in the state’s reserve account for emergencies.

Oops.