I have several questions about this sudden restatement of the budget deficit for the next year.  First of all, this is not an independent assessment by the Legislative Analyst, but from the Department of Finance.  No report was released accompanying the budget revise, just some raw numbers in a letter to the legislature.  Apparently a dual revision, one based on whether the ballot measures pass and one based on whether they fail, will be illegally delivered on Thursday, despite the fact that the February budget deal calls for it to be released on May 28.  The Governor is getting around this by calling the release a “summary,” allowing them to AGAIN show no numbers, just a “trust me” belief that the deficit is now $15 billion, $21 billion if Props. 1C, 1D, and 1E go down.

More curious is this bit from John Myers:

Taking a closer look at the $15.4 billion deficit projection, aides to Schwarzenegger say that a full $7.4 billion of that is in the fiscal year that ends just 50 days from now; the remaining $8 billion is in the 2009-2010 fiscal year.

That $8 billion in the ’09-’10 year matches up with March’s projection by Legislative Analyst Mac Taylor. And given that Controller John Chiang announced last Friday a $2.1 billion shortfall in anticipated revenues for the current year… that leaves about $5 billion in what budget watchers might call “new” deficit in this announcement.

That doesn’t make a lick of sense.  I believe Chiang’s numbers that we’re $2 billion short in tax collection in the current year through April 30.  I do not at all believe a Governor who has lied repeatedly about budget projections throughout his entire career, claiming $5 billion in new deficit in the last 50 days of the budget year.  Especially because there are no independent numbers to check.

Like Legislative Analyst Mac Taylor, I would not be SURPRISED that we’re not $15 billion out of balance.  Some expenditure increases contributed to this deficit, and clearly the worsening economic picture has strained the revenue side.  But I’m funny this way – I actually want to see the data.  The Governor has spent the entire special election trying to scare people into compliance; would anyone but this Hail Mary pass with one week to go past him?

Browsing the papers today, I’m noticing quite a bit of confusion between the parallel crises California faces with respect to the budget.  Jean Ross explains the difference pretty nicely between a cash flow crisis and a budget crisis in this post.  The Legislative Analyst identified a cash crisis that arises out of the difference between when payments are due and when revenues enter the state’s coffers.  Because of that disparity, California and most other states must go out into the bond market and sell “revenue anticipation notes” to cover short-term cash needs, to be repaid when the revenue comes in.  The budget crisis exacerbates the cash flow crisis, but the two are not the same thing.  And the Legislative Analyst himself appeared to conflate them by claiming in his report that California faces $17 billion dollars in borrowing needs, but failure of Prop. 1C, 1D and 1E would require $23 billion in borrowing.  Well, so would passage.  Prop. 1C enables the government to BORROW against lottery revenue.  This may not be short-term notes, but borrowing is borrowing, and due to the state’s horrific credit rating, the interest rates will remain high no matter what kind of borrowing it is.  

That borrowing will cost the state money and widen the deficit somewhat, but a decent amount of that is known beforehand, and baked into the cake of any budget deal.  As Ross notes, the Legislative Analyst did not update his projection that the state faces an $8 billion dollar shortfall through July 2010, based on lower revenues than the projection in the February budget.  However, John Chiang today estimated that current revenues through April are $2.1 billion out of balance with budget projections.  According to the Legislative Analyst, this shortfall can be added to the $8 billion, because most of that referred to the next fiscal year.  Doing the math…

Meanwhile, the Public Policy Institute of California just released a poll showing Propositions 1C, 1D and 1E trailing. Those measures would provide $5.8 billion in budget cash in 2009-10. Of particular concern for budget officials is that Proposition 1C is failing badly (32 percent for, 58 percent against), since it would provide $5 billion in cash.

If the ballot measures fail, the state would be looking at a $16 billion deficit (the LAO’s $8 billion plus Chiang’s $2.1 billion plus the ballot’s $5.8 billion). But the LAO number came in March, after which economic indicators grew worse, which means the overall deficit figure could be higher than $16 billion.

Meanwhile, in the above-linked LA Times piece, the Schwarzenegger Administration floats a proposal to significantly address the prison overcrowding crisis:

As the ballot measures lag in the polls, the administration of Gov. Arnold Schwarzenegger has begun revealing the cuts it is weighing as an alternative.

On Thursday, the administration advised law enforcement officials that it was preparing plans to commute the sentences of 38,000 state prison inmates, including all illegal immigrants. It also is considering closing some prisons and sending inmates to county jails, according to a copy of the proposal obtained by The Times.

Under the plan, 19,000 illegal immigrants — 11% of state prisoners — would be turned over to the U.S. Immigration and Customs Enforcement Agency after having their sentences commuted. An additional 19,000 “relatively low-risk offenders” would have their sentences commuted as well.

The Governor tried this late last year and nothing really happened with it.  Some of these ideas are OK and some are horrible – overburdening county jails won’t exactly help either fiscally or from a public safety standpoint.  But if the crisis can actually start a dialogue about our insane prison policies, I’m all for it.

I am working for the No on 1A Campaign, however, I am not working for any other No campaign. My opinions should not be construed to be those of the campaign, especially when it comes to the remaining measures.

Back in the presidential campaign, Arnold Schwarzenegger said that Barack Obama “needed to work out” and that he needed to work on “putting some meat on his ideas.” While Arnold has done his best to publicly buddy up to President Obama since the election, he just can’t cover up the turd he is currently in the process of laying on the carpet.  When Squirrel does that, I scold her. When Arnold does it, Californians scold him too. In poll after poll, state leaders are repeatedly chastised. But while the Leg gets, and to some extent deserves, a share of that, it is more a statement of the dramatic failure of Governor Schwarzenegger.

In a poll showing that the budget props are flailing, many are trying to peg this on fear of taxes.  And Howard Jarvis’ corpse will do its best to make sure that is how politicians see it.  But that is simply not it.  After all, it’s not that long since we passed the millionaire’s tax in Prop 63 to improve mental health services. And the Field Poll found a whole slew of taxes that big majorities of Californians supported.

No, this is an absolute failure, and a grand statement of the 6 years of epic Fail after epic Fail emerging from the Horseshoe. Arnold never really found his footing in the Governor gig. He tried playing it like an action movie by calling people he didn’t like “girlie men.” He tried some mea culpas and cozying up to some of the legislative leaders. He tried pleading with the Republicans, but in vote after vote couldn’t get them to follow his program. (Well, I should note that he did get Abel Maldanado to parrot his talking points and basically say what he could not.) But in the end, Californians are solidly rejecting his agenda.

He has used the economic crisis in the most cynical way to get Californians to accept a spending cap that they solidly rejected when it was known as Prop 76 in the last special election. While the President calls to our hopes, Arnold preys on our fears.

Robert pointed out the disparity between Californians’ opinions of their state and federal leaders. There are two reasons for this: first, part of this is term limits. Voters don’t really get to know their legislators.  But more importantly has been Arnold’s abject failure to produce any results. In this vein, CalBuzz called our leaders “UTTERLY TONE DEAF.”

Despite the ravings of the Jarvis folk, this election is not about taxes, but about the failure of leadership. Arnold came to power promising to blow up the boxes, but like Wile E. Coyote, he’s ended up with powder all over his face.

Californians want a responsive government with a clear plan to ensure that their government will be there for them going forward. We want a message that gives us hope, not fear. We want real reform of the budget process to make the system truly workable. We want a voice in a newly democratic process.

And that is the takeaway that Arnold and the Legislators should take from this mess.  

Jackfolsum alludes to it, but I wanted to highlight it as well.  Arnold got tripped up a little bit today in front of the Jesusita Fire, caught in between telling Californians what they wanted to hear, or telling them they’re all going to die.  It’s pretty amusing:

One of Schwarzenegger’s strengths has been to respond to emergencies and assure local residents he will provide all support necessary. But that message clashes with his statements earlier this week that fire services would be jeopardized if voters reject the ballot measures on May 19.

Because he declared a state of emergency for the Santa Barbara fire, he said he was able to get the federal government to pay for 75 percent of the costs.

“This is very helpful for us because as you know, we have a financial crisis in California,” Schwarzenegger said. “But I wanted to make sure you all know, even though we have this crisis, we will not be short of money when it comes to fighting these fires.”

Oops!  But Arnold’s “strong leader/warrior/protector” shtick clashes with his “vote for my spending cap or you will BURN BURN BURN!!!” shtick.  So he backpedaled.

“First of all, let me just make it clear, because there’s always the question that comes up, what happens to the fire departments and to the budget if those initiatives don’t pass,” Schwarzenegger said. “The first thing you should know is, I will always fight and get every dollar I can for public safety, that is the important thing you should know.”

“No. 2, it is very clear that when the initiatives fail there will be $6 billion less that will be available, so therefore there will have to be additional cuts made, if it is in law enforcement, fire, education,” he added. “…But I will fight for every dollar, and will always make sure we have enough manpower and enough engines and helicopters ready to fight those fires.”

Interesting use of “when the initiatives fail,” not “if” there.  Arnold reads the polls, I guess.

He really has no idea what he’s doing.  He wants to scare and please at the same time, so it comes out like mush.

Come to think of it, Arnold sounds a lot like the Californians seduced by the Two Santa Claus Theory, who want to cut services in general but protect services in particular.  So maybe he’s just giving the people what they want.  

The Budget Reform Now folks, on the heels of one ad narrowing their focus to Props. 1A & 1B, have released yet another, basically with the same script only substituting a teacher for the firefighter, warning of $16 billion in cuts if 1A & 1B fail to pass.  1A & 1B do NOTHING in the current budget year or the next.  Nothing at all.  Arnold Schwarzenegger and his cadres are exploiting a crisis with fearmongering tactics to gain a spending cap they can use to ratchet down state services forever.

This is very simple.  If 1A’s spending cap would immediately limit state services $16 billion dollars below the baseline funding needed to provide services at the current level, then $16 billion in services aren’t at risk with the failure of 1A.  They’re at risk with passage.  And that risk would be permanent, and would increase every year, well and above the two year extension of tax increases.

Arnold obviously doesn’t give a damn about the current budget gap.  Heck, he probably enjoys it; he can use his new furlough tools and threaten to set the state on fire and a host of other right-wing options.  The golden goose for him and his rich supporters is the spending cap.  And those Democrats who enable him in this effort ought to understand what they’re supporting – a permanent reduction in services for the state’s most vulnerable citizens.  “What’s your solution,” is the phrase thrown around at us.  The problem is we know theirs.

UPDATE: The latest brilliant idea from the Governor: raid local governments if the Props fail, a direct contradiction of his deal with cities to stop raiding their budgets five years ago.  Under yet another Prop. 1A from 2004, the state can borrow 8% of property tax revenues (about $2 billion), which would have to be repaid with interest in three years.  The credit cards are open for business again!  While this measure represents 10-15% of the total projected budget gap, it would decimate services at the city and county level, services that – voila! – the state would need to step in to provide.  Also the Governor cannot pull this off unilaterally: it would require a 2/3 vote of the legislature.

(A quick notice of an opportunity to have a conversation with Jean Ross of the California Budget Project at 11 AM today.  We will be focusing on Prop 1A and its impact on the general budget mess. The call will be recorded and aired as the next Calitics Podcast as well. It’s something of an experiment with the podcast. If you are interested in hopping on the call, shoot me an email (brian A T calitics dotcom) and I’ll get you the call-in info.   – promoted by Brian Leubitz)

I am working for the No on 1A Campaign, however, I am not working for any other No campaign. My opinions should not be construed to be those of the campaign, especially when it comes to the remaining measures.

Sen. Sheila Kuehl knows a thing or two about the legislative process. The long-time legislator and persistent advocate of single-payer health care has published an essay on the California Progress Report opposing Props 1A, 1D, & 1E. The first essay covers only the first half of the props, with the remaining coming soon.  She minces no words on Prop 1A, and the guarantee of money for schools in Prop 1B is not enough to change her mind:

I don’t like the idea of a spending cap [in Prop 1A], even calculated on the regression model. I would prefer the ability of the Legislature to spend one-time money on one-time expenditures and calculate ongoing expenditures separately, without an automatic cap, and a growing rainy day fund. With such a cap, there will never be enough monies for the schools, even with a small portion of the monies over the spending cap going into an education fund. In my experience, all programs get short-changed when a robo-cap like this is enacted.

***

I don’t think the education funding is a sufficient reason to enact the permanent spending cap proposed by Prop 1A in the state Constitution. Other teachers’ organizations oppose Prop 1A and have indicated, since they believe the state already owes the 9.3 billion, they will simply sue the state for it. Which would, of course, create even more of a hole in the budget. There needs to be a sure hand with authority to pass an adequate budget without gimmicks, which is why I support an end to the 2/3 requirement.

She’s a little more mixed on Prop 1C:

This is the one proposition I’m tempted to support. Of the six billion current dollars estimated to come from all the propositions combined (not counting increased tax revenue three and four years out), more than five billion is estimated to come from the sale of the lottery receipts. Although I do not support increased encouragement for gambling, this income could be the least damaging.

It’s also interesting that the casino-operating tribes made sure that the measure avoids any new games that could threaten their operations.

Read the full essay here.

I am working for the No on 1A Campaign, however, I am not working for any other No campaign. My opinions should not be construed to be those of the campaign, especially when it comes to the remaining measures.

Building off of Dave’s post earlier today, and Robert’s from yesterday, it is clear that the Yes on 1A campaign is doing its best to marginalize any opposition as “hyper-left.”  From our friend, Yes on Prop 1A consultant Steven Maviglio:

“The public screams, ‘Do your job! Govern!’ Steinberg calmly replies, ‘We are governing; we have made difficult choices.'”

Which apparently the hyper-left, along with the hyper-right, doesn’t seem to get. Neither side wants to compromise. With (sic) is what Steinberg and Bass have done, and is what leadership is all about, particularly when there’s a 2/3 budget requirement handcuffing their ability to push progressive values. (CMR)

Look, I understand what it means to compromise. I’m all for reasonable compromise where it makes sense.  But compromise for compromise sake, well let’s say it’s hardly guaranteed to ensure a winner.  (Two words: Missouri Compromise.)  But if we are going to complain about the constraints that 2/3 has shackled upon us, as Steve does, how are we going to add yet another constraint on top of the ones we have now? We are trading additional long-term dysfunction for the right to kick the can a few years down the road.

Furthermore, the “rainy day fund” won’t even be there to help us in our next bust cycle. Prop 1A’s requirement that money taken from the slush rainy day fund go only to one-time expenditures.  What made the San Francisco rainy day fund so successful was the flexibility to protect vital services, as in the case of the city granting SFUSD $11 million to save 130 teaching jobs.  But Prop 1A offers none of that protection for Californians and the services that we want to remain viable.

Despite everything else that has been or will be said, the fact is that Prop 1A still does not impact the budget for the next two fiscal years. Nothing, nada, zip, zero. While the Yes campaign is trying to make this all one big package, perhaps they should take Robert’s advice and focus on Prop 1C. That’s where the real money is, without quite the same level of dysfunction. While the Republicans wanted to slash through Prop 63 mental health funds (1E) and Prop 10 first five funds (1D), the real prize for them is the “spending cap” (Mike Villines words, not mine) contained in Prop 1A. That’s why they tied the additional out year taxes to the passage of 1A.

Compromise isn’t itself a governing principle, and the support of generally progressive legislative leaders doesn’t ipso facto make it “progressive.” As former Sup. of Pub. Instr. Delaine Easton pointed out, Prop 1A will leave us in a hole that we will not be able to dig out of. That’s hardly a compromise that progressives are clamoring for.

UPDATE: One more thing that I missed in Steve’s post, that we see in the latest Yes on Prop 1A ad, and that we see in Arnold’s rhetoric, the doomsday scenario.  At least they’ve taken off Arnold’s phony $50 Billion number, but the message is still the same. Vote for this or your children will be out on the streets, which will be falling apart and full of busted water mains because we can’t fix them, and they will be harassed by arsonists who can run free because we have no police or firefighters. Boogah-Boogah!

Dave pointed out the sheer ridiculousness of this fear mongering, but as it appears to be a central aspect of the campaign, it’s worth mentioning again. And as I mentioned above, Prop 1A, the gooey center of dysfunction in this tootsie pop, contributes not one dime in the next two years.  

Play doomsday all you want, but what does it have to do with Prop 1A? If they were so concerned about doomsday why didn’t their latest ad even mention the measures that actually bring in cash this year? Prop 1A has nothing to do with whether your teacher of firefighter has a job next week, or next month or next year. But the doomsday theme is an attempt to tie the lot of the propositions together, despite the fact that Prop 1A would do nothing to avert layoffs in the short-term, and over the long-term threatens to throw a wrench in how we provide services in California for decades.

Of course, it’s sheer cynicism, as Prop 1A has absolutely nothing to do with Props 1C, 1D, and 1E. Like the Governor calling George Skelton and asking him to dumb down the propositions for the people of California, this doomsday line demands that Californians cast an unquestioning eye upon these measures and take the Governor at his word. But given his track record, why should the people of California trust him or his fuzzy math?

I spoke at yet another Democratic Club meeting on the May 19 propositions yesterday, against yet another member of the California Legislature, Julia Brownley (who I really like and respect).  One thing I sought to make clear to everyone is that we are going back to the drawing board on May 20 no matter what happens on May 19.  The Legislative Analyst already finds the February budget deal to be $8 billion dollars out of balance, and April tx receipts came up $1.8 billion dollars short of the budget projection.  Some of us recognize that this means alternative solutions must be gathered right now, because Democratic legislators will be stuck in the chamber with the Yacht Party on May 20 regardless.

I was heartened to hear Assmeblywoman Brownley note that a majority vote fee increase will probably be part of the solution.  When the Legislature passed this in December, they raised more money than would be sacrificed if Props. 1C, 1D and 1E failed.  An argument could be made that the majority vote fee increase combined with the passage of those props would obviate the need for almost any cuts.  I think that’s faulty reasoning, since 1D and 1E ARE cuts, to vital services that will cost the state more money in the long run.  As for 1C I find it completely unworkable and just a borrowing gimmick.

I do have to say that it would be much easier to swallow this posturing from the ballot measure supporters that they would have no choice but massive cuts on May 20 if everything failed, if they didn’t enable massive permanent corporate tax cuts in the last budget deal…

Corporate tax attorneys are chuckling over the absurd deal in the last agreement that lets multistate and multinational taxpayers decide, each year, how much income they want to report to California. Because this was negotiated in private, with no hearings and no independent expertise brought to bear, the result is a giveaway and a national embarrassment, in a state that had prided itself on a fair, successful corporation tax.

Here’s how it works. Each state typically figures out what percentage of a large company’s business is done in the state, and then taxes that percentage of income. Historically, if 10% of a multistate company’s payroll, property and sales are located in the state, then 10% of its nationwide or worldwide income is subject to tax. In the budget deal, California changed the formula to allow companies to choose to make that percentage based only on sales in California.

…and if they didn’t protect the very corporate interests who are now bankrolling their ballot measures:

The entire architecture of the ballot pact that emerged was heavily shaped by leaders’ desire to please – or at least neutralize – the state’s most powerful political players.

Now, some of those very interest groups protected in the budget deal are bankrolling the campaign to ratify it.

For the oil industry, the package omits a once-proposed 9.9 percent oil severance tax. Energy companies have given more than a million dollars to pass the plan, led by a $500,000 donation from Chevron.

For the liquor, beer and wine industry, increased alcohol taxes were shelved. Alcohol industry heavyweights, such as E. & J. Gallo Winery ($100,000) and California’s Beer and Beverage Distributors ($50,000), have all opened their checkbooks.

For the teachers union, the list of ballot measures includes a separate measure to ensure repayment of deep cuts to schools and protections for top-priority programs. The California Teachers Association has contributed $7 million to the passage of Propositions 1A and 1B.

For casino-operating Indian tribes, the state lottery measure avoids any new games that could threaten their gambling operations. Tribes, who could have been major contributors against the lottery proposition, have kept their checkbooks closed.

In the last budget deal, all the industry-specific taxes, all the service-based taxes that wouldn’t be so regressive, faded away, and the same groups protected by that fade (including practically every sports team, as sporting event-industry taxes were once on the table) ponied up for the special election.  So pardon me if I don’t believe your lament that you’ll just be forced to cut state services, when you found room for billions in tax cuts to the largest corporations in America and protected every single industry that could donate money for ads and mailers.  Let’s just say I don’t buy the image of a legislature with their hands tied.