While the nation’s attention was properly focused today on the horrific proposals from President Obama’s Catfood Commission, Legislative Analyst Mac Taylor reminded Californians of our own budget problems. The legislature and the new governor have a $25 billion deficit to close by June 30 (for both the 2010-11 and the 2011-12 budgets) while the state faces an ongoing structural revenue shortfall of $20 billion a year:

2010-11 Deficit. We assume that the state will be unable to secure around $3.5 billion of budgeted federal funding in 2010-11. This assumption is a major contributor to the $6 billion year-end deficit we project for 2010-11. We also project higher-than-budgeted costs in prisons and several other programs. In addition, our forecast assumes that passage of Proposition 22 will prevent the state from achieving about $800 million of budgeted solutions in 2010-11.

2011-12 Deficit. The temporary nature of most of the Legislature’s 2010 budget-balancing actions and the painfully slow economic recovery contribute to the $19 billion projected operating deficit in 2011-12. This gap is $2 billion less than we projected one year ago. Actions taken during the 2010-11 budget process to reduce Proposition 98 education spending are a major contributor to the decline.

Ongoing Annual Budget Problems of $20 Billion Persist

Similar to our forecast of one year ago, we project annual budget problems of about $20 billion each year through 2015-16. In 2012-13, when the state must repay its 2010 borrowing of local property tax revenues and the full effect of Propositions 22 and 26 hit the state’s bottom line, our forecast shows the operating deficit growing to $22.4 billion. Because our methodology generally assumes no cost-of-living adjustments, our projections probably understate the magnitude of the state’s fiscal problems during the forecast period.

In short, because the temporary tax increases agreed to in February 2009 and the federal stimulus of that same month expire or run their course in early 2011, the state is going to face a truly dire crisis next year. Another $25 billion in cuts – including billions in cuts to schools – would not only worsen the recession, but would cripple our state’s ability to ever again provide sustainable economic prosperity. We’d face a lost generation of young people whose education is gutted, a severe public health crisis for those who would lose state assistance, and long-term economic weakness due to those factors as well as crumbling infrastructure.

California faces an immediate choice in 2011: either we continue the destructive austerity policies of the last 3 years and cause widespread, long-lasting suffering; or we raise taxes on the rich and on corporations. Even Mac Taylor, himself a center-right figure, calls for long-term tax increases in his analysis, although he shies away from the kind of robust revenue collection from the rich that we really need.

Unfortunately, because voters did not approve the tax measures that were on the November 2010 ballot, it’s going to be even more difficult than usual to get to 2/3rds on the budget. Jerry Brown is already reverting to his 1970s austerity advocacy (which if you’ve been reading Calitics over the last year or two would come as no surprise).

Californians are going to have to choose what kind of future we want – one of widespread suffering and misery, or one of prosperity enabled by taking back our money from the rich and the big corporations and using it to rebuild the California Dream in the 21st century.

…Adding one other thing: Stories like this will undoubtedly fuel further cries that we need to cut public pensions. People throw around huge numbers, like $100 billion, for those pensions, but that’s NOT the cause of the annual structural revenue shortfall – the actual yearly cost of pension benefits is a much smaller fraction of that shortfall, and that spending, like all other government spending, helps keep the recession from getting worse. That won’t stop people hell-bent on cutting pensions, but facts are stupid things.

With an unemployment rate of 12.4%, California’s economy has avoided a total meltdown largely through the use of unemployment benefits. These benefits help people stay in their homes, pay their bills, and keep small businesses afloat – all of which leads to the preservation of jobs for those who still have them.

Because the state purposely collects too little in unemployment taxes from employers during the boom years, the state has to borrow money from the federal government during a downturn to pay the benefits. That’s not a bad thing – it’s sound economic policy to borrow and spend your way out of a recession, and pay down the debt when prosperity has returned.

However, the way the rules have been set up to enable the state to borrow from the feds to pay the benefits means that the bill is coming due sooner than it ought to, as reported in today’s SacBee:

The recession and the Legislature’s decision years ago to raise benefits have drained the state unemployment insurance fund, which now has a estimated $10.3 billion deficit….

the U.S. government is scheduled to bill the state about $362 million in interest next year. The Legislature would have to find the money somewhere to pay it; it wouldn’t be allowed to dip into the unemployment fund, she said.

There’s more. Starting in 2012, if the loan balance isn’t repaid in full, higher federal unemployment-benefit taxes are scheduled to hit employers in California (Employers pay both federal and state unemployment taxes).

The best solution is for the federal government to roll over the loans for another few years. Economic recovery is anemic at best, and we’re likely to still have high unemployment in 2012. Cutting benefits should be totally off the table – it would guarantee more foreclosures, more layoffs, and a worsening of the overall economic picture – and even the Cal Chamber acknowledges in the article that benefit cuts alone won’t fix the problem, that higher taxes on employers will be needed (which they don’t want).

Predictably, some argue that we should either cut or stop paying the benefits entirely, in order to force the unemployed to get a job – because of course there are SO many jobs in California out there for people to take, even at minimum wage.

Even if there were a huge number of low-wage jobs available, and there aren’t, the effect of cutting benefits and shoving people into those jobs would be massively deflationary. The middle-class would be eviscerated, families would see a permanent reduction in their ability to spend money and maintain security, and the economy would lurch even deeper into a two-tier system with a small handful of wealthy folks and a mass of everyone else struggling to get by. No wonder the right-wingers want this to happen.

With teabaggers controlling the US House of Representatives, it may be difficult to manage an extension of the federal loan repayment deadlines. The Federal Reserve could use some of its QE2 money to help, or the White House could use some unspent TARP funds. Ha, just kidding, of course neither option is going to happen.

So watch for unemployment insurance to become a major battleground in the 2011 legislative session. Progressives ought to start gearing up now to prepare for the fight, because we cannot afford to lose it.

UCLA law prof Jonathan Zasloff argues that Prop 26 doesn't undermine AB 32 and that the California Air Resources Board still has the ability to impose an oil severance fee:

First, take a look at the careful analysis that Cara, Sean, and Rhead produced a couple of weeks ago. It notes one extremely important fact about Proposition 26: its retroactive provisions only go back to January 2010, and AB 32 was enacted in 2006. AB 32 explicitly authorizes the California Air Resources Board to impose regulatory fees. Since Proposition 26 only applies to state “statutes,” it does not affect administrative regulations.

While this still screws state and local governments' ability to impose fees for any other activity unrelated to AB 32 (for example, at Netroots California on Saturday Ted Lieu said he'd like to levy a foreclosure fee on banks, but that Prop 26 makes this nearly impossible), Zasloff's argument is that Prop 26 cannot stop CARB from implementing any AB 32-related fees since voters clearly intended to uphold AB 32:

By passing Proposition 26, could we reasonably read the state’s voters as wanting to undermine AB 32? Absolutely not, because at the same time they passed Proposition 26 with a small though clear (52.8%) majority, they overwhelmingly (61.2%) rejected Proposition 23, which would have suspended AB 32. Thus, any doubts in interpreting Proposition 26 must be resolved in favor of allowing AB 32 to continue. Put another way, Proposition 26 has no effect on the broad grant of authority to the California Air Resources Board to implement, enforce, and fulfill the purposes of AB 32….

 

Thus, if CARB found with substantial evidence that, say, an oil severance fee — which charges oil as it is pumped from the ground — would be an appropriate way of internalizing the external costs of petroleum, then California courts would be obliged to defer to this determination. California is the only oil-producing state that lacks such a severance fee. Other such fossil fuel fees would also be permissible for CARB to impose, for the purposes of fulfilling AB 32′s mandate.

Zasloff's arguments are important, and I expect to see this employed in a future court battle over the meaning and implementation of Prop 26. It does indeed appear that Prop 26 won't undermine AB 32 to the extent we feared.

However, that's just one small silver lining. Prop 26's passage will have massively negative fiscal ramifications for state and local governments, making our budget crisis much worse and destroying our ability to recoup the externalized costs of other private actions. We got rid of the 2/3rds rule for budgets in the passage of Prop 25. Now it's time to lower the 2/3rds rule for taxes and fees. That battle begins today.

	Brown	Whitman
White:	46	50
Black:	77	21
Latino:	64	30
Asian:	55	38
Other:	55	36
18-29:	59	32
30-44:	55	38
45-64:	53	43
65+	47	48

The exit polling is clear – California Democrats won a big victory on Tuesday night because Jerry Brown and the rest of the Democratic ticket reached beyond the white base that constitutes the Republican electorate. At right you can see the exit polling results for the gubernatorial race, indicating that while Whitman won white voters overall and voters over 65, she did poorly everywhere else.

Democratic victories on Tuesday would have been even more substantial had more of the electorate showed up. 21% of voters were 65 and over, and 45% were between age 45 and 65, with just 12% being age 18-29. 62% were white, but 22% were Latino – and while Brown dominated among Latinos, he essentially split the white vote.

Overall, this paints a picture of a state whose electorate – even older white voters – do not respond well to exclusionist appeals. Whitman made much of her anti-immigrant, anti-Latino politics, and it not only cost her big among Latinos, it also helped her lose younger white voters whose vision of California is of a state where everyone is welcome and seen as an equally deserving member of society.

This trend is mirrored nationally. Pew Hispanic Center reports that Latinos broke 64-34 for Democrats across the country. In Nevada, Harry Reid put on a clinic in mobilizing a working class coalition led by Latinos to stop Sharron Angle.

In terms of ideology, here in California “moderates” broke 60-35 for Brown, with “independents” breaking 47-43 for Whitman. This might be explained partly by the trend the PCCC identified nationally, that many Obama independents stayed home out of frustration and left a more Republican-friendly bloc of independents to tip the balance of several elections around the country. Here in California, the fact that Republican-friendly independents are a much smaller portion of the overall electorate (all independents were 27% of the exit poll sample) may explain their lower impact.

Over at Mother Jones, Kevin Drum takes a look at the national polls and finds that the core of the Democratic coalition held together. A bloc of people who stayed home in 2008 – probably teabaggers – were the biggest movers to Republicans, along with whites, seniors, and rural voters. Urban voters, mothers, Millennials, and African Americans were the least likely to shift to the GOP.

So taken together, it seems clear that while older whites may have broken for Republicans, the rest of the population – i.e. the majority – either broke for the Democrats or only barely moved to the right. And since it’s the shrinking parts of the population – whites and old folks – who broke most for Republicans, it’d be right to conclude that 2010 was a temporary setback for Democrats that can be reversed once the Obama Administration gets its head out of its ass and starts helping people get jobs instead of helping Wall Street get richer.

That’s not how Kathleen Hennessy and James Oliphant put it in a absurd LA Times article:

Democrats searching for good news amid the rubble of Tuesday’s midterm election results can look to Latinos and African Americans, two groups of voters that stayed with the party in large numbers.

But that, in a sense, is like taking comfort in that fact that as your house is falling down around you, it isn’t also on fire.

The Democratic Party was overwhelmingly rejected by whites, independents and seniors. Perhaps most troubling to Democrats was that increasing numbers of women also turned toward the Republican Party.

How is that bad news? Latinos are the fastest-growing demographic group not just in California, but in the country. They clearly swung the California and Nevada elections, and perhaps several others. To put it gently, seniors are not exactly going to be in the electorate for very long, and whites’ numbers are shrinking in the key battleground states.

The LA Times article also claims Dems are losing women:

The Democratic erosion was perhaps most accentuated by the flight of women, who were among the party’s most enthusiastic supporters in 2006 and 2008. According to exit poll data, women essentially split their votes evenly between Democrats and Republicans on Tuesday. The last time that happened was in 2002.

White women in particular defected from Democrats, giving their votes to Republicans by an 18-point margin. Similarly, 57% percent of married women voted for Republicans, while unmarried women – a more liberal group – turned out in smaller numbers than in 2008.

I don’t read this as a “flight” from Democrats. Lower turnout levels are a big part of this story. And here in California, women went for Brown 55-39. Clearly, women felt as many other voters did that the DC Democrats hadn’t done enough to help repair the economy (which is true) and some stayed home, some voted Republican.

But there’s really no evidence that the 2010 election portends long-term doom for Democrats. Instead it is Republicans who are in trouble. They won by appealing to a shrinking group of people who are determined to hog democracy and prosperity for themselves at the exclusion of the young and the nonwhite. If Republicans follow through, they will merely repeat Meg Whitman’s error and alienate the rest of the electorate – Republicans cannot maintain their majorities for very long at all if they cannot win over people of color and younger voters of all backgrounds.

California and Nevada show the future – and it’s a future where today’s Republican Party, predicated on defense of white privilege, is doomed.

California Democrats are poised to have a clean sweep of the statewide elected offices, depending on whether Kamala Harris can maintain a razor-thin margin of victory over Steve Cooley. (Seriously, who the hell votes a Brown-Boxer-Newsom-Cooley ticket? WTF is wrong with those people?)

Here are the results as we know them, with 96.6% reporting across California. Note that the Secretary of State’s site appears to be back up. It’s not her fault the site crashed – they apparently got screwed by a vendor that made promises they could not keep.

Governor: Brown 54, Whitman 41

US Senate: Boxer 52, Fiorina 42

Lt. Gov: Newsom 50, Maldonado 39

Sec State: Bowen 53, Dunn 38

Controller: Chiang 55, Strickland 36

Treasurer: Lockyer 56, Walters 36

Attorney General: Harris 46.1%, Cooley 45.6%

Insurance Commissioner: Jones 50, Villines 38

Supt. of Public Instruction: Torlakson 55, Aceves 45

Ballot props:

Prop 19: 46 yes, 54 no

Prop 20: 61 yes, 39 no

Prop 21: 42 yes, 58 no

Prop 22: 61 yes, 39 no

Prop 23: 39 yes, 61 no

Prop 24: 42 yes, 58 no

Prop 25: 55 yes, 45 no

Prop 26: 53 yes, 47 no

Prop 20: 40 yes, 60 no

Other selected races around the state:

CA-3: Lungren 51, Bera 43

CA-11: McNerney 82,124, Harmer 82,003 (wow)

CA-20: Vidak 51.5, Costa 48.5

CA-47: Sanchez 51, Tran 42

SD-12: Cannella 53, Caballero 47

SD-28: Oropeza 58, Stammreich 35

AD-5: Pan 49.1, Pugno 46.1

AD-10: Huber 51, Sieglock 43

AD-15: Buchanan 53, Wilson 47

AD-53: Butler 50, Mintz 43

AD-68: Mansoor 56, Nguyen 44

AD-70: Wagner 58, Fox 37

So. What all does this mean?

First, that Californians want to be governed by Democrats, and certainly not by wealthy CEOs. The Whitman bust is one of the most laughable and epic political failures we’ve ever seen. She spent $160 million to lose by double digits. Ultimately she and Fiorina could not overcome the basic contradiction of Republican politics: their base hates Latinos, but California’s elections are increasingly decided by Latinos.

More importantly, Californians rejected right-wing economics. They rejected Whitman and Fiorina’s attack on government and public spending to produce economic recovery.

The loss of the House stings – California will feel that painfully, not only because the first Speaker from California has lost her majority, but because the new House majority is deeply hostile to the values Californians just showed.

The propositions could have gone better. The defeat of Prop 19 was not surprising, and while I wish it had passed, it turned in a better showing than some had projected. Prop 21’s failure just sucks; are people really skittish about spending $18 a year to save state parks? Prop 26’s passage is going to cause a lot of problems. We won a huge victory in passing Prop 25 and defeating Prop 23, of course. And in what should come as no big surprise, voters overwhelmingly said they want redistricting done by an independent commission.

Looking at the legislative races, Democrats basically treaded water. With a more 2008-like turnout we could have flipped some of these seats, such as AD-68 or AD-70. But we’ve built a strong base for the future.

Overall, Californians rejected the right-wing and showed they want a Democratic future. But progressives still have our work cut out for us, both nationally and here in California.

Will the right-wing tide break at the Sierra Nevada? One can only hope.

Follow the returns live at the Secretary of State’s site. Keep in mind that the bigger counties like Los Angeles tend to report later in the evening, so there may be some races and ballot props that we won’t be able to know the outcome of until late.

UPDATE: So all the major networks have called the races for Jerry Brown and Barbara Boxer. But Whitman is refusing to concede, as Pete Wilson is telling her that there are still a lot of ballots to count. I’m hearing that as of 10:35, with 24% in, Brown is up 50-45. So Whitman might just be stalling so that if she does give a concession speech, it’s at 2AM when nobody is paying attention and as few Californians as possible will see her epic failure.

UPDATE 2: Whitman finally concedes, announces campaign for governor of Texas in 2014.