by Marta Evry

In a sign that progressive push-back against Los Angeles Mayor Villariagosa’s membership in the right-wing “Fix The Debt” lobbying group isn’t abating, activists from MoveOn.org and the Progressive Change Campaign Committee delivered over 21,000 signatures to LA City Hall this afternoon demanding Villariagosa resign from the group’s steering committee.

“They call themselves bipartisan because they’re able to buy members of both parties,” said Richard Eskow, a blogger for the Campaign for America’s Future.

“The primary agenda for these folks is to lower taxes for millionaires, billionaires and corporations,” he said.

In a scathing Huffington Post article about the Campaign To Fix the Debt’s agenda, Eskow was even more blunt, “Let’s be clear: This crowd doesn’t really care about deficits. It never has. It’s an anti-tax group which pursues its goals by fighting to downsize government programs and “reform” the Internal Revenue code. Its natural allies are the Republican Party, the nation’s mega-corporations, and billionaires.”

Besides MoveOn.org and the PCCC, the Calfornia-based Courage Campaign has also called on Villaraigosa to resign from the group.

“The so-called ‘Campaign to Fix the Debt’ is nothing more than a front group to protect tax cuts for the wealthy while balancing the budget on the backs of the poor and elderly,” said founder Rick Jacobs.  “The fact that Mayor Villaragosa, or any other Democrat that claims to want to protect Medicare, Social Security and Medicaid, would join this effort is nothing short of shameful….Mayor Villaragosa should resign immediately.”

Last week, Villaraigosa defended his decision to join fix the debt. “I am a Democrat and a progressive, but you know what? The country is evenly divided.  They won too,” Villaraigosa told CNN, referring to Republican lawmakers.

Angela Garcia Combs, a native Angeleno and former volunteer for the Mayor who started the petition, said she decided to deliver the signatures today after staff from Villaraigosa’s office told her it would take at least three months to schedule an appointment.

She promised today’s action wouldn’t be the end of it. “Any Politician that calls themselves a Democrat, Progressive, Centrist,Bipartisan, we are putting you on notice too. We are coming after you if you join this group,” said Combs.

“Joining the Steering committee of Fix the Debt is like saying I’m joining the steering committee of the Titanic to help all those poor people in the water.”

On Facebook, Villaraigosa again defended his membership in Fix the Debt, attempting to clarify his position on so-called ‘entitlement reform’.

“Let me be very clear: I oppose the privatization of Social Security. I oppose turning Medicare into voucher care,” said Villaraigosa. “I oppose dismantling Medicaid. I support letting the Bush tax cuts expire for the top 2%.”

However, a spokesman for the Mayor’s office told KPCC Villaraigosa was open to raising the retirement age for Social Security and other  federal benefits.

The last time Los Angeles Mayor Antonio Villaraigosa made national headlines he looked like a deer caught in the headlights of an oncoming semi as the Democratic National Convention he chaired descended into chaos.

This time he’s making national headlines for joining the steering committee of “Fix the Debt”, a high-profile lobbying group whose “core principles” include keeping tax rates low for the wealthy while slashing Social Security and Medicare. Founded by deficit hawks Erskine Bowles and Alan Simpson (co-chairs of Erksine/Bowles 2010 deficit-reduction commission) the Campaign to Fix the Debt claims to be a “bipartisan” interest group, and is trying to influence ongoing fiscal cliff budget negotiations taking place in Washington D.C.right now.

“If we’re serious about long-term economic growth, we need a balanced approach for reducing the federal debt,” said Villaraigosa in a press release. “That approach should include spending cuts, raising revenue and reforms that put our entitlement programs on a sustainable footing. The Campaign to Fix the Debt is dedicated to reminding all Americans that we can’t reduce the debt and create the conditions for long-term job creation without working across party lines to find practical solutions.”

If you want to know what some of those “practical solutions” Villaraigosa will be lobbying for might look like, follow the money. Fix The Debt’s $42 million war-chest is funded almost exclusively by Big Business CEO’s notorious for underfunding their employee’s pension plans, Wall Street executives who support privatizing Social Security, and virulent anti-tax lobbyists.

“These CEOs paint a stark picture of hypocrisy,” said Scott Klinger of the Institute for Policy Studies, who co-authored a report which called Fix the Debt a ‘Trojan Horse for massive corporate tax breaks’.

“They’re simply taking advantage of the so-called ‘fiscal cliff’ to push the same old agenda of more corporate tax breaks while shifting costs onto the poor and elderly.”

Klinger’s report paints a stark picture of what Villaraigosa has signed up to defend:

• Make permanent the Bush tax cuts for the top 2%.
• Cut corporate tax rates and shifting to a “territorial tax system” that would permanently exempt from U.S. taxes all offshore income earned by U.S. corporations.
• “Reforming” earned-benefit programs by raising the retirement age and means-testing Medicaid, Medicare, and Social Security benefits.

The politically ambitious Villaraigosa is termed out of office in 2013, and is no doubt fishing around for his next gig.  With limited options in California, perhaps he thinks The Campaign to Fix the Debt will burnish his national profile and launch him into a cabinet position with the Obama administration.

Perhaps. But by signing on as a progressive “beard” for corporate interests, he’ll be on the wrong side of this fight in the eyes of the coalition of working Angelenos, public sector unions, and progressive organizations fighting for economic justice who’ve traditionally backed Villaraigosa.

“Fix the Debt is a creature of Goldman Sachs, Morgan Stanley and the Wall Street Engineers of the the economic crisis we elected Barack Obama to get us out of, ” said Rick Jacobs,  founder of the California Courage Campaign. “I hope the President will pay attention to the voters and not those who put us into this mess.”

Politicians like to talk in abstractions.

Come to think of it, they like to argue and obfuscate in abstractions, as well. They campaign in abstractions and make abstract pledges until those abstractions turn into something tangible, like a subprime lending crisis or a downgrade from a particular private rating agency.

We spend so much time wading through abstractions that we cannot get to the meat of the issues that face us today. Enough of that.

What really happens in a bad economy? And what is the public’s role during these tough times?

Americans feeling the pinch have less disposable income–their paychecks go in increasing amounts to paying the bills and saving to make ends meet.

This means there is less overall consumer spending. Sure, certain industries do better–oil & gas, for instance–because they are pseudo-required for transportation to and from work or school.

Less consumer spending means lower demand for durable goods (automobiles, clothes, household appliances, etc.). This lower demand results in lower prices for these goods (or even a forced lower supply).

Lower prices & lower supply means businesses bring in less money and potentially less profit. This means big-time layoffs and a plethora of pink sheets.

Fewer workers and fewer wage jobs further decreases consumer spending, even though prices have lowered. This drives that vicious circle even farther, resulting in even greater job loss.

All of this illustrates what we can call the “paradox of thrift:”

“By attempting to increase its rate of saving, society may create conditions under which the amount it can actually save is reduced. This phenomenon is called the paradox of thrift….[T]hrift, which has always been held in high esteem in our economy, now becomes something of a social vice.”

Pundits are fond of saying that “if a family operated its finances like the federal government, they would go bankrupt!” This is true, from the whole to the individual unit in society. But the revered Adam Smith wrote, “What is prudence in the conduct of every private family can scarce be folly in that of a great Kingdom.” The implication that spending in the federal government is wrong or evil is false; it’s a “fallacy of composition.”

What does that mean? “If a population saves more money…then total revenues for companies will decline. This decrease in economic growth means fewer salary increases and perhaps downsizing. Eventually the population’s total savings will have remained the same or even declined because of lower incomes and a weaker economy.”

So what is the role of the public–through their government–in these tough economic times?

Government spending bridges the gap–while the overall propensity of families across the nation may be to save, public investment slows the contraction of the economy due to that subsequent lower demand we talked about earlier. Government spending helps individual families do what is economically prudent according to their own circumstances, without unnecessarily dragging down the national economy.

In other words, when you and your family are focused on spending, you can’t help grow the economy through your usual spending and investment. That’s where public investment is pivotal–and has historically brought us through rough patches.



Of course, this argument presupposes that in good economic times, government–as a matter of course–spends less; this did not happen from 2001-2008. Unnecessary government spending on programs with no long-term benefit to the American public–the Bush-era tax cuts and spending on two major wars–drive up both deficits and explode the national debt. That is what has driven the current debt/deficit reality.

(And for those worried about raising taxes on families in tough times–I certainly am–let’s simply let the Bush tax cuts expire already. They cost the country a whopping $1.8 trillion, contributed to the housing bubble and did not achieve growth. They did the exact opposite of what a responsible government does when the economy is strong; instead of running a surplus and paying down the debt, they ran up needless deficits and exploded the national debt.)

(Cross-posted from The Journeying Progressive.)

Nonpartisan reform group asks leaders to make reform part of budget talks

SACRAMENTO-California Forward’s non-partisan leaders today asked legislative leaders to address the long-neglected need for lasting and fundamental budget reform as part of this year’s negotiations over the state budget.

Robert Hertzberg and Thomas McKernan, co-chairs of the reform organization, sent the following letter to the four legislative leaders:

May 12, 2010

The Honorable Darrell Steinberg

President pro Tempore of the Senate

The Honorable John Pérez

Speaker of the Assembly

The Honorable Dennis Hollingsworth

Senate Republican Leader

The Honorable Martin Garrick

Assembly Republican Leader

Dear Legislative Leaders:

California Forward recognizes and deeply appreciates the significant commitment of time and energy that you and the other legislative leaders – as well as individual Assembly members and Senators and your staffs – have devoted to thoughtfully examining our non-partisan plan for comprehensive budget reform.

In both the Senate and the Assembly, members of both parties have been engaged in good-faith discussions and deliberations about how to refine the principles we have identified as key to restoring public confidence in the state’s fiscal operations.  It is particularly noteworthy that these discussions have proceeded even as our proposals have drawn criticism from partisan special interests invested in the status quo and opposed to reform.

As each of you know all too well, another difficult budget season is now upon us.  In our judgment, it is critical that long-term budget reform become part of this year’s budget deliberations.

In the next few days and weeks, each of you will have to grapple with hard choices, and set priorities about the spending of limited public dollars at a time when needs are great and California’s economy remains fragile.

There are no easy answers.  But the current crisis does provide California with the opportunity to finally address the long-neglected need for lasting and fundamental budget reform, and we urge you to take it.

Thanks in no small part to your efforts, this goal is in sight.  In both the Senate and Assembly, real progress has been made in crafting non-partisan reforms based on the best practices of successful businesses and other states, including improved accountability and oversight, better long-term forecasting, setting unexpected windfalls aside, and adopting a pay-as-you-go mechanism for both legislation and initiatives.

Furthermore, our plan provides the first step in rethinking the relationship between state and local government, providing new incentives and resources for communities to start working together to address priorities and bring government closer to the people.

We understand that this work is not yet complete – and that significant hurdles remain before the principles we’ve outlined can garner the bipartisan support necessary to place them before voters in November.

We believe, however, that reform remains our best hope for forestalling future difficulties, and that failing to enact significant reforms this year would only hasten the advent of the next fiscal crisis.

That’s why we ask you to continue to work together to achieve this elusive goal, and urge you to place the reforms we’ve proposed on the ballot.  As always, we stand ready to provide any and all assistance we can in this endeavor, and we would welcome any suggestions you have about other steps we can take to move this process forward.

Very truly yours,

Robert Hertzberg, Co-Chair

California Forward

Thomas V. McKernan, Co-Chair

California Forward

cc:  All Senators and Assembly members

In a rather disheartening statement about the status of California’s debt, the state was forced to pay a shockingly high 4% (tax-free) for about $1.9 Billion in bonds sold this week:

Borrowing $1.9 billion on Tuesday via bonds that mature in June 2013, the state was forced to pay a 4% annualized tax-free yield to lure investors. As recently as Friday the brokerages underwriting the deal, led by Goldman Sachs, had estimated that the bonds could be sold at a yield of 3%.

The boost in the yield demanded by investors reflects the “saturation” of the market with California debt over the last seven weeks, said George Strickland, a bond fund manager at Thornburg Investment Management in Santa Fe, N.M. Since Sept. 23 the state has sold more than $21 billion in short- and long-term debt for budget-related reasons and to fund infrastructure projects. (LA Times 11/11/09)

Unfortunately, with the state looking at about $14 Billion of budget deficits over this fiscal year and the next, there’s no indication that we will be able to take it easy on the borrowing.  And this bond itself is to repay $2 Billion that the state took from local governments to cover the gaps they opened up in the budget “solutions.”

Furthermore, with the signing of the water package, the state is looking at taking another $11 Billion of general fund bond indebtedness.  Treasurer Lockyer points out that with these bonds, our debt service as a percentage of budget looks like a rather ugly figure, possibly rising as high as 10%.  If we continue to heap on debt, basic services will continue to suffer.

But the decision on water still must pass a vote, and the decisions that face the voters of California are some very difficult ones. The question of whether the winners in this deal, primarily the wealthy farmowners of the Western Central Valley, are able to keep the anti-debt forces at bay is still an open question.  Or as Peter Schrag puts it in the California Progress Report:  

Water is a fixed – and probably declining – resource. The only way it can be stretched is by conservation, recycling of waste water and by more efficient use. This deal takes the first baby steps in that direction, but only by promising more goodies to agriculture and by taking most of the money to pay for it not from the beneficiaries but from schools, universities, the old and the sick, and from the taxpayers, present and future. Next November, when they get to vote on the bonds, they’ll have the last word on that.

With all the recent campaigning about what will happen if the special election doesn’t pass, there’s another side of the rather grim situation. Namely that we have a budget deficit that will require drastic action either way.  It’s been said to be at least $8 Billion, but the tax revenues suggest that might be a tad bit optimistic.

State Controller John Chiang said today that California’s revenue picture continued to deteriorate in March, thanks to a sharp decline in retail spending statewide.

In his monthly report detailing California’s cash balance, receipts and disbursements in March, Chiang said general fund revenue in March was down $178 million, or 5.2 percent, from estimates in the recently adopted 17-month state budget.

“Unfortunately sales taxes continue to be hammered by diminished retail spending across the state,” Chiang said in a news release. (CapAlert 4/10/09)

On the plus side, personal income tax and corporate tax revenues are slightly higher than expected. Controller John Chiang is fairly upbeat that revenues will meet projections from the budget compromise, but with the craptastic economy it is far from certain.

The budget is real, and there will be additional, excruciating, cuts. I’ll leave you to decide how you think this would factor into your decision on the special election. I’m just like FoxNews, I report, you decide. Or something like that.

Note: I will be hosting the morning show on KRXA 540 AM from 8-10 to discuss this and other topics in California politics

In the aftermath of last week’s delivery of layoff notices to 26,000 teachers and news that the budget is already $8 billion in the hole it makes sense to continue to look at serious revenue solutions to close a 30-year shortfall. Unless, of course, you are a Republican:

Assembly GOP leader Mike Villines of Clovis (Fresno County), one of three Assembly Republicans who voted for taxes in the latest budget package, said taxes to close additional budget shortfalls can’t be on the table.

Sen. Dennis Hollingsworth, R-Murietta (Riverside County), who became the Senate minority leader last month after a coup during the marathon budget session, said passing any more taxes or fees “would add insult to injury to California taxpayers.”

It seems highly unlikely that Republicans will support new taxes without a major public movement to demand that they do so. And if Californians understand that new revenues are the only way to protect schools and health care services from even more crippling cuts then they might be willing to make those demands.

As reported by the SF Chronicle several Democratic legislators have proposed various measures to raise revenues, most of which are very sensible:

AB87 (Davis)/SB531 (DeSaulnier): Fees for shoppers who use plastic bags.

AB89 (Torlakson)/SB600 (Padilla): Increases the cigarette tax.

AB390 (Ammiano): $50-an-ounce tax on marijuana, which would be legalized for recreational use.

AB462 (Price): 1 percent income tax for individuals who earn more than $1 million a year, to fund public schools and universities.

AB656 (Torrico): Oil severance tax to help fund the state’s community colleges and universities.

AB1019 (Beall)/SB558 (DeSaulnier): Tax or fee on alcohol.

AB1082 (Torrico): Sales tax on pornography.

AB1342 (Evans): Cities and counties would be allowed to raise income taxes and vehicle license fees.

SB96 (Ducheny): Increases the income tax rate on the state’s wealthiest residents while lowering the rate for some middle-class taxpayers.

California remains one of the few oil-producing states that does not tax companies for taking that oil out of the ground, and Torrico’s bill would change that. Ducheny and Price are on the right track with their tax-the-rich proposals, probably the best way to quickly raise a significant amount of money to help close the budget gap. Tom Ammiano’s marijuana proposal is interesting and deserves serious consideration.

Of particular importance is Noreen Evans’s bill to give local governments more of their own tax power. Republicans, who generally loathe democracy when it comes to government finances, do not want to give Los Angeles and San Francisco the power to raise their own taxes in such a broad way, even though many cities (like New York) possess that power and even though it could help ease the state’s own financial burdens by letting localities make up some of the difference. This is a bill that definitely ought to pass.

I also think Democrats would be wise to get behind efforts to tax the wealthy. That dovetails nicely with President Obama’s own federal tax proposals, and is probably one of the revenue answers that Californians can rally behind at this time. Doing so would help expose Republican obstruction for what it is – a naked defense of wealth and power. And if Democrats are to be serious about building a long-term movement to break anti-tax politics in this state, higher taxes on the rich are a necessary starting point.

Darrell Steinberg, after the brutal February budget battle, doesn’t seem inclined to make that fight:

“Frankly, our focus ought to shift to tax reform,” he said. “That means seriously addressing the volatility in our tax system. That means realigning the relationship between state government, local government and school districts. Whoever is providing the service ought to be able to raise revenue.”

Last month’s passage of the $12.5 billion tax package as part of the budget “was an exception to the rule because of the magnitude of the problem,” Steinberg said.

I think he ought to be more supportive of exploring the wealth taxes, but he is clearly indicating support for the kind of ideas Noreen Evans is talking about – giving local governments the power to help fix their own problems. If a local school district wants to impose an income tax to support schools, why not let them do so?

That’s a question we ought to force Republicans to answer publicly and often.

In an interview with KGO-TV in San Francisco Republican gubernatorial hopeful Tom Campbell suggested a higher gas tax as a solution to the state budget deficit:

Former State Finance Director Tom Campbell will be offering legislators his idea of a partial solution — an 18 cent temporary gasoline tax.

“The price of gasoline has now fallen in our state. Last June it was about $4.60. If you were to put on a gasoline tax of about 18 cents, so we’d still be well under two dollars a gallon,” said Campbell.

It would be nice if KGO explained that the Democrats’ budget deal – which Arnold vetoed – would have basically done the same thing, replacing the current gas tax with a “gas fee” that would result in a net 13 cent increase to the taxes paid on gasoline. But it’s good to see Campbell proposing an eminently sensible plan like this.

Whenever higher gas taxes – or higher taxes of any sort – are proposed, some progressives react with criticism, pointing out that some of these taxes are regressive. They’re not wrong – when you’re talking about taxes, progressive income taxes and property taxes are generally a fairer way to obtain revenue than excise and sales taxes.

But if you stop there, you’re missing the point.

Because when you include the whole equation – the effect of spending cuts as well as tax increases – it becomes clear that even sales and gas taxes are much better for the economy, and especially for working and poor people, than spending cuts.

Such is the point Nobel Laureate Joseph Stiglitz makes, in work cited in this California Budget Project report. Stiglitz demonstrates, using hard evidence, the following points:

• The economies of states that substantially increased taxes in recent years performed as well or better than states that did not
• The economies of states that enacted large tax cuts in the late 1990s and early 2000s performed worse than other states
• Personal income taxes are better than spending cuts as they don’t have as harmful an effect on consumption or local economies.

Much of this ought to be common sense. We are facing a recession driven by rising unemployment and folks having less money in their pocket. While the right-wing ideologues would have us believe taxes take money out of that pocket the amounts pale in comparison to the money lost to spending cuts.

In the early 1990s recession both California and the US government raised taxes. It didn’t worsen the recession, and it didn’t prevent an economic boom from emerging after 1993.

Spending cuts are really just a euphemism for mass layoffs. When you fire tens or hundreds of thousands of public employees that means they are spending less money. Fewer shopping trips, fewer visits to restaurants, fewer people paying their mortgage. That creates a spiral of job losses and business failures, which in turn mean fewer tax revenues. Spending cuts ultimately leave the budget worse off, not better off, than before.

This is true especially for lower-income families. A sales tax or gas tax hike will have some bite. But as much as a school closure? As much as a father being laid off from his job on a state infrastructure project, or a mother being laid off from her job in the county government office? I strongly doubt it.

For example, the cost to a family of a restored VLF, between $150 and $300 a year, is chump change compared to the cost of having to provide health care to an uninsured family kicked off of state assistance. If a school closes or higher education is priced out of reach that is going to have a far larger cost to a family both immediately and over the long-term than any tax increase.

This is common-sense stuff, obvious to anyone willing to give even a cursory glance at reality. But 30 years of anti-tax rhetoric has blinded us to these realities. Spending cuts are the most regressive form of budgeting there are – and while we need as progressive a tax code as possible, we need to keep in mind that this is a continuum of progressivity:

Income and property taxes > sales taxes > spending cuts

While there are differences among kinds of taxes and spending cuts, the above is a good shorthand to keep in mind as we push back against 30 years of ruinous policies and bad priorities that have brought California to the brink of a Depression.

Back in 2002-03 it was hard to get away from media coverage of the failing Gray Davis administration. At least, that’s how it got framed in the state and even the national press. At the time I was living in Seattle and all the coverage I saw was of Davis screwing up this way or that way. Friends would ask why Californians voted to reelect someone so clearly incompetent. With media coverage like that it was never any doubt that Davis would lose the recall.

Five years later California is in a worse situation than we were in 2002-03, when Davis was blamed for everything that had gone wrong in California and was recalled just 11 months after having been reelected. Arnold has given us a $40 billion deficit – larger than anything Davis grappled with. And when Democrats, facing a severe cash crisis, got creative in finding a solution and gave Arnold almost everything he demanded, Arnold vetoed the solution anyway. California bankruptcy seems more likely than ever, a direct consequence of Arnold’s actions.

But that’s not the story the media tells the public. The Arnold that you read about in the newspapers or see on TV is a strong governor willing to make tough choices for the good of the people. An environmental leader who has the people’s interests, but who’s weighed down by a typically screwy legislature, where Democrats and Republicans (though it’s mostly Democrats) are to blame for any problems we face.

Last night’s appearance on 60 Minutes was a classic case of media enabling of Arnold’s failures:

But now “home” is in trouble. California is the foreclosure capital, and unemployment is above eight percent. The governor proposed to close that budget deficit half with tax increases and half with budget cuts. Republicans and Democrats opposed him.

When 60 Minutes sat down with Schwarzenegger at the Capitol, he had just left the legislative leadership and he seemed in no mood. Before they got settled, Pelley was worried that the last thing the governor wanted to do was talk to him.

“I’m not sure that meeting went all that well. You seem pretty preoccupied. You got the ‘Terminator look’ on your face,” Pelley remarked.

That was basically the extent of the conversation on the budget and the economy – issues that dominate our state right now. The rest of the piece was typical greenwashing of Arnold’s environmental record. Arnold is touting green jobs as a solution to economic recovery, and in a hypocritical Newsweek op-ed he called for sustainable infrastructure spending as economic stimulus…just as the state had to suspend ALL infrastructure projects owing to the cash crisis.

That crisis – for which Arnold bears primary responsibility right now – is even jeopardizing crucial planning work on high speed rail, which will create hundreds of thousands of green jobs in California – unless Arnold’s efforts to destroy the state succeed in derailing that as well.

Arnold’s 60 Minutes interview is an all too typical example of how the media has enabled his failures. The piece didn’t mention his role in the budget crisis or how it makes a mockery of his green jobs goals. And because he gets fawning coverage while bold and inventive Democratic efforts to save the state are dismissed as trickery by the media, Arnold gets away with trying to bankrupt the state while talking a big game on the environment.

In fact, nowhere in the 60 Minutes interview was it explained that among Arnold’s recent budget demands was a gutting of CEQA oversight of development. 60 Minutes doesn’t tell its viewers that while Arnold plays an environmentalist on TV, back in Sacramento he is doing everything he can to destroy environmental protections.

And yet there is some evidence that, maybe, just maybe, the traditional media is starting to wake up to that fact. More over the flip.

That’s where Evan Halper’s story in Sunday’s LA Times is so significant. It’s a welcome shift away from the hagiography of Arnold the Governator and a more accurate assessment of the risks to the state and to his own position that Arnold is taking with his reckless and destructive approach to our state’s budget and economy:

But rejecting the plan carries big risks for Schwarzenegger. It shifts responsibility to him if things get bad enough that the government has to shut down or go into default. He must get the Democrats to blink to keep the situation from careening out of control….

The governor gave no indication that the additional cuts he is seeking amount to less than 1% of state expenses. Nor did he let on that a day earlier, he had told the Capitol press corps the tax hikes were not what stopped him from signing the Democratic package; rather, he wanted lawmakers to incorporate more of his ideas…

Some rank-and-file Democrats say the governor is exploiting a crisis.

More like that, please. Honest reporting that doesn’t quite go as far as it should, but is a badly needed step in the right direction. By showing Californians that Arnold is a failure, a cause of and not a solution to our crisis, the media might actually help solve this mess.

Crossposted from the California High Speed Rail Blog

All the way back in March I opined that the biggest threat to the passage of the high speed rail bonds was the state budget. If the budget was still in deficit, folks might vote against HSR bonds even though the two are unrelated.

That may well be happening. We haven’t seen new polls on Prop 1A in some time, but when we do I expect it to show a very close race.

The problem is that this thinking is deeply flawed. The state budget’s problems do not – at all – mean that Prop 1A is a bad idea. Prop 1A is not the reason why the state is in deficit. It will not worsen that deficit. Instead Prop 1A is absolutely necessary to getting us OUT of deficit. Anyone telling you otherwise is simply demonstrating their ignorance of economics.

Let’s look at this more closely. First, the state budget deficit. Deficits are NOT a product of natural forces but instead of bad decisions. California’s current deficit stems from two major sources:

1. $12 billion in tax giveaways since 1993. This includes a $6 billion hole Arnold blew in the budget when he unilaterally cut the vehicle license fee upon coming to office in 2003. That is an annual cost of $6 billion, by the way, since Arnold has since been backfilling the revenues. Restoring that $6 billion would alone close the projected deficit. Prop 1A will create 160,000 infrastructure jobs that will pump income and sales tax revenue into the state’s general fund. We badly need that revenue. We cannot afford to leave that money on the table.

   (Note: California has also cut nearly $10 billion in spending since early 2007. Those who claim that this is a spending problem clearly have no knowledge of the details of the state budget.)

2. The weakening economy. As I have been arguing almost every day this month, that is an argument FOR Prop 1A. Infrastructure projects are a tried and true part of stabilizing and growing the economy during rough times. The Golden Gate Bridge, Shasta Dam, and the California Aqueduct were all built with voter-approved bonds during a recession, the first two during the deepest part of the Great Depression. Prop 1A will do the same today. We need jobs. Now. California would be crazy to turn down 160,000 jobs right now.

Further, as a recent PBS documentary explained, it was high gas prices that burst the housing bubble. Yes, gas prices have been falling – but that is only because of demand destruction. In other words, people drive less, so the price falls. The ONLY way that can be sustained over the long-term is by building alternatives to oil. If we don’t, demand WILL rise – and so will gas prices.

Finally, numerous economists have argued strongly for infrastructure spending right now as both economic stimulus and a way to ease the financial crisis – which after all is happening because of underlying insolvency here in the United States. These economists include Lawrence Summers, Nouriel Roubini, Duncan Black, Dean Baker and Brad DeLong, and Nobel Laureate Paul Krugman.

Those who claim otherwise – that the state budget deficit means we must reject Prop 1A – are lying to you. They’re trying to prevent a revival of the New Deal. These groups, like the oil company funded, far-right Reason Foundation, or the anti-government Howard Jarvis Association, are primarily interested in drowning government in a bathtub. Their opposition to HSR is part of a broader ideological agenda designed to prevent California from addressing its economic crisis by providing sustainable, non-oil based transportation that we badly need.

If you want to help ease our budget deficit and grow the economy, vote for Prop 1A. If you want to prolong the pain and do nothing to resolve the deficit, vote against Prop 1A. A no vote on Prop 1A is like punching the wall to cure starvation. It’s only going to leave you in more pain and do nothing to solve the immediate problem.

UPDATE: David Dayen makes a similar point, on a much broader scale, about the need to go Keynesian on this crisis and reject neo-Hooverism.