In the last 18 hours, we’ve gone from stirrings of a possible deal to what has been called a “stall.” The stall, as Speaker Bass notes, is the “elephant in the room,” Proposition 98 and education cuts.

Further complicating this mess, we have more credit rating downgrades.  Moody’s now has us down to a Baa1 credit rating, and Fitch has us at BBB.  Basically, we are hovering just a step or two from Junk bond status, and in terms of the interest rates that we are having to pay right now, the difference between our bonds and junk bonds really isn’t that great.  

It is pretty clear by now that at least some part of the budget gap will be made up with more borrowing. The wherewithal for a full cuts-only budget just isn’t there, on any side really. So instead, we are borrowing from the future, not just in the pure borrowing sense, but also in that we are cutting our investment in education. However, with these credit ratings that we now have, it will be the current borrowing that will be the object of budgetary consternation for the next few years.

Of course, the fact that we have to use these IOUs has made the problem far worse, to the tune of at least $26 million in July alone. But while George Skelton can see that the Governor’s overreaching has much to do with our IOU summer, he also brazenly repeats a conventional wisdom repeatedly borne out to be inconsistent with the facts. You know the schpiel, the May 19 election was supposed to mean that the voters wanted cuts, cuts, cuts. Of course, Skelton, and most of the Broderists calling for a “mandatory” shock doctrining of the state, repeatedly fail to acknowledge the facts that most Californians want a balanced package of cuts and taxes.

But why bother noticing what California’s voters actually want when you can read tea leaves from 24% of the electorate that understood/cared about what was going on in May that they bothered to vote.  I mean John and Ken say that there is rage boiling over about taxes, and we can’t dare tax the oil companies, or the rich, or the people will explode.  Never mind the fact that it simply isn’t true, we MUST cut everything, because that is what the Real Serious People know to be true.

Will we ever default on our bonds? No, our constitution really won’t allow for that. But can you blame the credit rating agencies for looking askance at our system? They see it is broken, and in financial circles, that calls for high interest rates. But while Skelton and the conventional wisdom of the Sacramento swamp imply that we just should have cut and be done with it, there are only easy answers in a system that has lost its conscience.

Of course, we really aren’t that far away from that, are we?

With the Governor trying to suspend Prop 98 so that he can further reduce California’s future competitiveness, education organizations are understably angry. While the California Teachers’ Association joined up with the Governor to push the May Special election agenda, it seems that once again things are back to normal.

Here’s the full copy from the ad:

“He said he was sorry,” the ad says. “He said never again. But since then, $12 billion more in education cuts. And now Schwarzenegger says he’ll break the minimum guarantee to our schools again. Summer schools, already canceled. Class sizes, on the rise. Art and music, eliminated. Tell the governor, ‘We haven’t forgotten. Protect our schools and put our kids first.'” (SacBee 7/9/09)

Education cuts always get the public upset, so Arnold certianly isn’t happy to see this.  The buy looks to be fairly big, I’ll get some more details on that shortly.

UPDATE: The buy is statewide, in every major market.

Yesterday I wrote a post about a SacBee editorial entitled “Shared Sacrifice”. Looking back, I think I probably focused a bit too much on the teacher pay, which was really a relatively minor side issue, and not enough on the question of Prop 98. Nonetheless, the name of the editorial certainly goes a fair bit towards inflaming itself.

But, the question of Prop 98 is a good one.  Certainly the SacBee got it right when they called it the CA Teacher’s Association’s sacred cow. And given that CTA is one of the most powerful interest groups in Sacramento, that’s not nothing.  However, is it a good thing?  I think that’s a fair question.

Let’s talk Prop 98 over the flip.

Looking at education funding, where we currently reside around 46th in the nation in per pupil spending, it is clear that Prop 98 alone is not the answer to all of our problems.  Prop 98 leaves our K-12 (and community colleges) insulated only when times are good.  When we hit a rough patch, they are vulnerable as well.  After all, it’s based on the total size of the budget, and with the pie shrinking, so does education funding.

Of course there were other options at the time of Prop 98, and there are other options now.  CTA has filed an initiative with the state that would increase the sales tax by 1% and give that money to schools. Any method is bound to have drawbacks, because at some point we must put some faith in our legislators to fairly and fully fund education, at all levels.

I’ve never been a huge fan of ballot box budgeting.  It converts a perfectly good representative democracy into a mess of direct democracy.  It requires citizens to fully understand issues in a few hours that the legislature argues over for months.  And ballot box budgeting doesn’t give us the flexibility to adjust in times of crisis. Like, say, now.

All that being said, Prop 98 shouldn’t be an amount to peg education spending. Prop 98 should be a floor. In a perfect world we wouldn’t need that.  We wouldn’t need to force our legislators to fully fund education, because they would just do it because that was the right thing to do.

Yet we have the Legislative Republicans, carrying their Grover tatoos right over their heart. Vowing to never increase revenue, above all else and all sound policy.  California grossly underfunds education, even when we meet Prop 98 spending levels.  Yet Prop 98 is the problem?

In 2005, California spent $8,067 per pupil, according to a 2007 Census Bureau study.  In the same year, West Virginia spent $9,005 per pupil. Wyoming spent $10,255/pupil, Alaska spent $10,830, and New York spent $14,119.  And yes, our cost of living is substantially higher than any of those states save New York. So teachers must be compensated at higher levels, and everything else is squeezed.  

And that’s the floor that Prop 98 has brought us, and that’s from 2005, a relatively stable budget year. Can’t we do better than lagging $1,000 behind West Virginia? Where do we go once we have produced a generation of under educated Californians? How do we continue to be the hub of innovation that we have been for so long?

No, Prop 98’s problem isn’t that it’s too high or too inflexible, it’s that it is irrelevant.  Or that it should be, but that it’s not.  There is no reason for a state like California to be constantly flirting with minimum spending levels like this.  There is no reason why we spend so little on what must be our greatest natural resource for the new economy.

So, forget Prop 98, that’s a red herring.  If you want to write an editorial entitled “Shared Sacrifice”, there is only one logical target: Prop 13. It has decimated our revenue base and threatened the “California dream.” We once knew that we could count on our state to provide all of us with a solid education that would place the state in good stead for the long haul.  And we didn’t have to worry about things like Prop 98, because we knew our legislators would fund education.

But no longer.  If we want to talk shared sacrifice, let’s look at the right place.

Cross-posted on the California Majority Report.

Yesterday, the California Assembly and Senate held a rare joint legislative session to hear from California’s economic experts on the state of California’s economy. Treasurer Bill Lockyer, Controller John Chiang, Department of Finance Director Mike Genest, and Legislative Analyst Mac Taylor gave a remarkably uniform presentation that urged immediate action and politically tough compromise.

“If you act now, the cash situation is manageable, unless it gets worse, and I’ve already said it will,” Genest explained with a slight slip of the tongue that was perhaps even more accurate than intended.

“The faster you act the easier it will be for you to fix your problem,” Taylor added.

Over the next two years, current estimates project that California faces a $28 billion budget hole, and all sides are willing to acknowledge that’s likely an underestimate. Moreover, the Legislative Analyst’s Office anticipates huge operating deficits above $20 billion per year through 2014. Lobbying in Washington, D.C. will hopefully reduce our federal tax dollar imbalance, but the complete solution requires bold action in Sacramento as well.

There’s more over the flip…

Failure to act soon, Treasurer Lockyer warned, would force the state to stop construction on a number of infrastructure projects, to the tune of $660 million per month. The harm to the private businesses and employees expecting highway projects would clearly create a domino effect disruptive to the state’s economy. Projects at risk cross Republican and Democratic districts, including a $239 million bridge replacement on Interstate 5 in Shasta County, a $345 million tunnel project on Highway 24 in Alameda County, a $218 million HOV lane on I-5 in LA County, and a $65 million eastbound lane project on Highway 91 in Orange County.

The loss of jobs and tax revenues that would result would be accompanied by an increased reliance on social services, and this is obviously a problem far beyond highway budgeting.

Without a real budget, the LAO thinks it will be impossible to convince lenders to provide the state with stimulus and infrastructure bonds, which remain one of the more attractive options left to the legislature.

And Genest gave another reason to act fast. As time wears on, the options available to the state diminish with one glaring exception: Proposition 98 education funding. The legislature has the authority to cut off Prop 98 guarantees at any time, whereas most cuts and revenue solutions rely on early action to reap substantive reward this year.

“Delayed action points the gun very directly at schools,” Genest emphasized.

Controller Chiang echoed Genest’s concerns. While strong opinions exist on both sides of the aisle on cuts and tax increases, to do nothing is worse than making hard sacrifices.

But the bluntest presentation came from Treasurer Bill Lockyer, who minced metaphors but not words. Calling the budget that cleared the legislature in September a “zombie budget … but no sleeping beauty,” Lockyer urged the legislators present to transcend the interests they represent and the ideologies they espouse. “Robotic advocacy misses the unique role of legislators,” he told them. “Stop relying on the tooth fairy and other fantasies.”

What’s needed in Sacramento more than a tooth fairy is a two-thirds fairy. To raise taxes, close tax loopholes, and pass budgets requires two-thirds approval, in essence giving Republicans in both legislative houses veto power over most solutions provided they remain unified. Legislative Democrats have acknowledged that additional cuts will be required, though legislative leadership is understandably getting push back from some of the legislature’s more progressive members. Nevertheless, Democrats have shown in the past that they can largely fall in line with leaderships’ recommendations on budgetary matters. The elephant in the room, as has been the case for a number of years, is whether enough Republicans will agree to revenue solutions that they know will be opposed by conservative activists.

At least publicly, legislative Republicans have yet to back away from their no tax pledge, and if they didn’t get the message after this presentation, then we are in for a world of hurt.  

“The good news is, on the Assembly side, we only need three votes,” said Speaker Bass at a press conference preceding the session. And indeed, there may be cracks in the Republican armor.

While Senate Minority Leader Dave Cogdill other Republicans bloviated forever with rhetorical questions and right wing red meat designed for the cameras, at least two Republicans seemed genuinely open to learning from the exercise. Assemblymember Danny Gilmore, who represents the only district in the state where a Republican picked up a Democratic seat, noted his district’s high levels of unemployment and asked the presenters how important job creation was to solving California’s economic crisis. Assemblymember Kevin Jeffries asked the experts which tax increases will harm California’s economy and which will help, suggesting he at least recognizes that some taxes might be helpful.

Perhaps I’m reading the tea leaves too much here, but until proven otherwise, I will hold out hope that Gilmore and Jeffries are willing to take a more pragmatic approach to solving our economic crisis than most of their colleagues. As the state’s economic experts explained, to rely solely on cuts or solely on tax increases would increase unemployment in the state, whereas infrastructure bonds and stimulus offer opportunities to create jobs.

And as if on cue, the Commission for Economic Development, chaired by Lt. Governor John Garamendi, held their quarterly meeting at the Capitol this morning focused on the needs of California’s aerospace, agriculture, biotechnology, goods movement, and tourism and entertainment sectors. Not surprisingly, education, career training, and increased collaboration between businesses and schools were among the top priorities for all involved. As the California Taxpayers Association understood when they endorsed a modest sales tax increase a few months back, California needs an educated workforce to remain competitive in our cash cow high-tech, entertainment, and finance industries.

“The California Commission for Economic Development is intensely concerned about the California economy and understands that the ultimate solution to the budget crisis depends on a very healthy and growing economy,” Lt. Governor Garamendi explained. “To accomplish that, today we heard recommendations from six different industries on how they can advance the interests of their industry. The Commission will transmit all of those recommendations to the legislature and the Governor for immediate consideration.”

Added Democratic Assemblymember Lori Saldana, who sits on the Commission: “Here we have reports on the needs of a skilled workforce, and yet where are we talking about cutting? Education and infrastructure. We clearly need the people who were in this room to communicate more forcefully in this discussion.”

The partisan budget games, played primarily by legislative Republicans, need to stop. Legislative Democrats are willing to swallow politically risky cuts harming key constituencies to see our financial footing strengthened. Democrats will receive severe flack for their efforts, on this blog and elsewhere, as the weeks and months progress. To borrow Treasurer Lockyer’s terminology, at least one party in Sacramento is willing to transcend “robotic advocacy.”

Meanwhile, a Republican legislator at the hearing spoke fondly of a Toyota plant recently built in Mississippi to argue that California’s tax climate is unfriendly to businesses. We can quibble with specific tax rates or specific tax incentives, but one thing we should all agree on is this: California is not Mississippi, and we don’t want it to be. To allow a budget that relies excessively on cuts to our education and social services infrastructure would fundamentally alter the character of California and destroy the institutions that have made California a hub for high-end jobs over the years.  

The ball is now in the legislative Republicans’ court. They can do their part to sink our economy, or they can stand up to the Grover Norquists of the world and agree to a compromise. Democrats are willing to buck pressure from the key interest groups that form the Democratic donor base. Can Republicans say the same?  

With all the talk about cutting into Prop 98, the minimum education spending requirement, we get this latest news on our schools:

California schools, required by the federal No Child Left Behind Act to lift more students over a higher academic hurdle this year, instead stumbled and slipped back, as nearly 1,400 fewer schools met test-score targets.(SF Chronicle 9/4/08)

Now, much of the blame should be laid at the feet of the terrible No Child Left Behind Act. Its focus on testing, testing, testing is antithetical to actual learning.  That being said, our failures can also be linked to our low level of spending on education. We are 46th in the nation.  46th!

Prop 98 is a minimum, not the proper level of spending.  We should be funding education at a far higher per pupil level than the slightly greater than $7K/year we currently spend.  Yet, we want to borrow from Prop 98 funds again? Prop 98 should be irrelevant because we spend so much more than that floor.

The Orange County Register is pretty despondent about Californians rejecting Prop 98, a deceptive little scheme using eminent domain as a stalking horse for the installation of a totally new system of property rights. A system where ownership is absolute and sacrosanct, the needs of the community be damned.  In the end, Californians rejected this ruse by about 61% of the vote.  So, the Register thinks you are an idiot, as they pretty much tell you with this headline:

“Editorial: Voters give away some of their rights”

Now, the Register isn’t your garden variety, James Dobsian, Right-wing paper. It’s “libertarian” in a Grover Norquist kind of way; they’d pretty much love to see the Orange County staff consist entirely of 3 cops and a security fence to keep the poor people away from the rich ones. They rarely editorialize in favor of propositions, as to the Register, all government action is bad. Every so often they get behind one, typically one that would gimp government some how.  Prop 98 was right up their alley.

And boy did you make a bad decision. The Gum-a-ment is going to take all of your stuff! Boogy, Boogy, Boogy.

Expect cities to become particularly aggressive in using these police powers in ways detailed in the U.S. Supreme Court’s 2005 Kelo decision. Don’t say we didn’t warn you.

The problem with this analysis? Kelo has been in effect since 2005, and the number of eminent domain proceedings hasn’t skyrocketed. We haven’t been just steamrolled with gentrification across the landscape and people wailing and gnashing their teeth.  The truth is that eminent domain is very rarely invoked. Statistics are a bit murky because typically these issues are resolved through settlements, but the number of eminent domain incidents is so low as to be statistically insignificant.

The Register will whine about now that they know they’ve won on 99, cities will run amok.  But they have no evidence or reason to suggest that, when boiled down, all you find is naked supposition.

Now, stoopit voters, would you please quit voting so we can get back to the business of plundering the state?

( – promoted by David Dayen)

A couple more from Dave: