Note: this is a cross-post from  The Realignment Project. Follow us on Facebook!

Introduction:

With the belated victory of Kamala Harris as Attorney General, the full results of the 2010 election are in for California. There many things that progressives can be proud of – a sweep of statewide offices, picking up another Assembly seat, defeating prop 23 and passing prop 25. On the other hand, there are also some major disappointments – the defeat of prop 19 (marijuana legalization), the defeat of prop 21 (a VLF to fund the state parks), the defeat of prop 24 (rolling back corporate tax breaks), and the passage of prop 26 (2/3rds requirement for fees). Prop 26 especially complicates what this victory means for California.

Indeed, our situation is a lot like the national picture after the 2008 elections – we have an executive who straddles the line between the left and right wings of the Democratic Party, a big legislative majority, but not the ability to break the fiscal deadlock and really be able to govern our state.

So where do we go from here?

Finance:

The rather comfortable million-vote margin by which prop 25 passes would make me rather optimistic about the possibility for the passage of a majority-vote revenue proposal. However the failure of every revenue increase – prop 19, 21, and 23 – are daunting evidence to the contrary. Granted that the outcome might be different in a presidential electorate (younger, more minority and working class voters, higher turnout generally), but I think this shows how difficult it will be to thread the needle of the “Program/Government Blindspot” and the prevalence of austerity thinking, even if we link taxation to spending.

In the mean time, California Democrats have a daunting task ahead of them – to balance the budget without doing any more harm to already brutalized public services, and to create the economic growth necessary to ensure that the budget stays balanced. In the short-term, there are four things we can do:

1. Going back to the Steinberg Maneuver – According to the California Budget Project, Prop 26 doesn't establish a blanket 2/3rd requirement for all fees. A number of fees, including “charges where the feepayer receives a service, product, benefit, or privilege…charges imposed for entrance, use, purchase, or lease of state or local government property, penalties, fines, or other monetary charges resulting from a
   violation of the law, charges imposed for “reasonable regulatory costs” and assessments and property-related fees,” are not covered by the 2/3rds requirement. Thus, it's still possible to raise revenue through a two-step process in which said fees are raised by a certain amount by majority vote, then taxes are raised and the fees are lowered by the same amount by a majority vote. The issue here is whether we can get Governor-elect Jerry Brown to sign such measures, given previous statements of his.
2. We can try again with Ballot Box Budgeting – there's some indication that Brown's approach will be instead to put the budget to a vote as a proposition in a special election. The tricky thing here is how to persuade the public to vote for said budget; Schwarzenegger tried this in 2009 and it was dramatically unsuccessful. Perhaps the 2010 election signals a more realist (and realistic) electorate, but it's a roll of the dice.
3. Banks – I'vewritten before about the potential that a state reserve bank offers. That was true before the 2010 election, but it's even more true now. Given the newly-created restrictions on raising revenue, a state reserve bank offers an entirely new possibility, both for resolving the current budget crisis, and for creating the economic growth necessary for California's future development.
   1. I believe that this bank would be even more likely to gain support if, within the state bank, there was created a series of Development Funds – a Green Development Fund, an Education and Innovation Development Fund, a Health Care and Medical Science Development Fund, and so on – that could make targeted investments into key sectors of California's economy, both public and private.
4. Jobs – with or without financing from a state reserve bank, a Job Insurance fund would fit under the exemption in prop 26 – since the “feepayer receives a service, product, benefit, or privilege,” namely eligibility for a job when unemployed. Ultimately, as I have said before, California cannot balance its budget with 12% unemployment because revenues will continue to decline, no matter how much spending is cut. What is needed is a sudden shock to California's labor market, and unemployment being cut in half is that shock – it will pump huge amounts of money into local retailers and other businesses, it will make employers see the ranks of the unemployed in their communities shrinking, and hopefully shift the “animal spirits” of both employers and lenders.

None of these steps is a total solution for the fundamental problem of revenues – given the problems we had with the budget even before the recession. But they will fill the gap so that we can debate the question of majority-vote revenues in an economic climate of balanced budgets, normal levels of unemployment, and higher economic growth.

Green Economy:

Now that AB32 and CEQA (California Environmental Quality Act) are safe from Prop 23, we need to do more to show the real possibilities of a green economy. This means making it fast and seamless to develop sustainability, through the creation of expedited approval and categorical permits for model projects. It also means establishing special zoning rules in transit corridors to allow for sustainable, energy-efficient, high-density development.

This doesn't mean dismantling regulations in the name of the environment, but rather shifting the direction of regulation away from NIMBY no-growth, which only encourages sprawl and wasteful development, towards in-fill building of affordable housing in already-developed areas while protecting undeveloped land. It also means – and here is where environmentalists need to reckon with the realities of class and race – getting rid of the tools of modern class (and racial) discrimination: zoning rules that limit building heights to two-stories or less, that ban unrelated individuals from living in the same house (to prevent renters and subdivision), that establish minimum lot sizes to mandate , or that mandate the construction of garages. In other words, ending exclusionary zoning and encouraging inclusionary zoning.

Finally, it means supercharging public investments into green energy, mass transit, and other sustainable ventures. A statewide version of LA's 30/10 plan, aimed at speeding up and extending High-Speed Rail and local mass transit would be a huge transformation, both in terms of creating jobs and spurring growth, but also in lowering CO2 emissions and pushing land-use away into energy-efficient high-density development. Large-scale alternative energy projects, like the Beacon Solar Energy Project, San Fransisco's tidal energy project, should be built under public auspices, making use of the newest forms of technology. The advantage to this approach is that it allows the public sector to act as a yardstick competitor to California energy companies, spurring innovation and providing a guaranteed market for green manufacturing firms under democratic auspices.

All of this links together. Without financing, there's not going to be a green revolution in California any time soon. Without new sources of economic growth that don't depend on housing bubbles, California won't get the revenue it needs. In the end, the fight over our budget is really about the future direction of this state – whether we will have a government that can help build a broad economy or a night watchman state that is powerless to prevent corporate greed from running wild.

So let's get to work.

As the Congressional battle over Obama’s stimulus heats up, so too is progressive activism over the deliberate underfunding of mass transit. Peter DeFazio, an Oregon Democrat, is leading the charge to redress the problem, as shown in this important discussion with policy geek Rachel Maddow:

DeFazio isn’t just complaining on TV – he is offering an amendment to provide $2 billion in direct aid to local transit agencies that have had to cut service or raise fares – or both – as a result of the economic downturn and state budget problems.

Here in California this problem is especially acute, as Arnold is having success in his effort to defund mass transit. As a result local transit agencies have been hit hard. From the Monterey Bay and SF Bay Areas alone:

* San Benito County Express in Hollister and San Juan Bautista raised fares 33% earlier this year and will reduce service 35% effective on February 1, with some routes eliminated entirely.

* Monterey-Salinas Transit hiked fares 25% this month, though they were able to avoid service cuts. (The fare is now $2.50 per ride.)

* SamTrans in San Mateo County (the Peninsula) will raise fares 17% in February.

* Caltrain increased fares on January 1. Caltrain is the commuter rail service between San Francisco, San Jose, and Gilroy.

These cuts are especially damaging in this economy. Many Californians depend on affordable and available bus service to get to work. When routes are cut or fares increased, many can no longer get to work, and job losses merely increase.

It also makes it more difficult to build a sustainable transportation system, since these cuts can be difficult to restore. It took well over a decade for AC Transit to recover from the service cuts of the early 1990s – and even that progress may be set back without federal assistance.

Transportation for America has a map of the transit cuts being proposed or implemented across America. And they are leading the charge for restoring this funding. DeFazio’s amendment will come before the House Rules Committee tomorrow, and T4America is asking folks to call Chairwoman Louise Slaughter (D-NY) to ask her to send the amendment to the House floor.

California has three Representatives on that committee, and their contact information is as follows:

David Dreier – Republican from 26th District (San Gabriel Valley foothills). Phone numbers: DC office (202) 225-2305, San Dimas office (909) 575-6226, Toll-free (888) 906-2626

Doris Matsui – Democrat from 5th District (Sacramento). Phone numbers: DC office (202) 225-7163, Sacramento office (916) 498-5600

Dennis Cardoza – Democrat from 18th District (Stockton, Modesto, Merced). Phone numbers: DC office (202) 225-6131 or (800) 356-6424, Merced office (209) 383-4455, Modesto office (209) 527-1914, Stockton office (209) 946-0361.

Five top Democratic governors have called for a larger stimulus package than is presently being called for in Washington, precisely to fill in the gaps created by a loss of tax revenue in the states.

To help offset state budget cuts, a group of Democratic governors urged the federal government Friday to pass a $1 trillion economic stimulus package, significantly larger than the one under discussion in Congress.

The package would help states compensate for cuts to education spending that could cause long-term economic decline, as well as bolster infrastructure projects and benefits programs for the poor, the governors from New York, New Jersey, Massachusetts, Ohio and Wisconsin said in a news conference […]

The governors recommended that the stimulus plan include $350 billion for infrastructure, including transportation, wastewater and broadband projects; $250 billion for anti-poverty programs such as Medicaid, unemployment insurance, food stamps and child care; $250 billion in flexible education spending to maintain funding for programs from pre-kindergarten to higher education; and middle-class tax cuts.

The money, disbursed over two years, would offset cuts needed to balance state budgets and would serve as a “bridge” until 2011, by which time the governors hope the economy will have recovered, said Massachusetts Gov. Deval L. Patrick.

Predictably, the Republican Governor’s Association called it a “bailout” of the general funds of the various states.

Well, yes.  The states, by and large, did not have the ability to get out from under the financial meltdown, and the consequent economic downturn that resulted shouldn’t disproportionately affect the least of their citizens.  Furthermore, given that the road to recovery is massive fiscal stimulus, having states cutting back on spending at this time, be it infrastructure, education or healthcare, is completely counterproductive and will do nothing but prolong the agony.

In the future, it will take more than backfilling state budget cuts in a downturn, but a more structured system, like a “Federal Infrastructure Finance Corporation,” to ensure that state assets aren’t sold off to private interests during a downturn.  The days of creative borrowing and the crossing of fingers are over.  We need new structures to manage economic volatility and avoid fiscal traps, PARTICULARLY in California, where the tax system too closely mirrors the boom and bust cycle.

In the near term, I imagine something like this will pass.  Barack Obama today put out a call for “strategic investments” to create jobs and improve the long-term economic outlook simultaneously.  The question locally is whether California’s plans will actually accomplish that.  CalPIRG is criticizing the state’s wish list, saying that it relies too much on increasing highway and road capacity and not enough on cleaner energy investments:

The California Public Interest Research Group reports that the state plans to spend 31% of road money on creating new capacity instead of addressing long-deferred maintenance and repair projects. By contrast, the group said, Massachusetts would commit 100% of its road funds to repairs.

“We can’t afford to waste precious resources on new highways at the expense of ready-to-go projects to repair and maintain existing roads and bridges and expand public transportation,” said spokeswoman Erin Steva.

The group also faulted the California Department of Transportation’s list, saying that only 37% of the funds would flow to public transportation. The group called for a higher percentage, citing the record ridership on California’s mass transit systems, which have been hit by severe cutbacks in recent years. The proposed percentage is less than what is being planned in Tennessee, Wisconsin and Massachusetts, CALPIRG said.

It is elemental that the stimulus spending cannot prop up an unsustainable growth model based on sprawl.  Experts up and down the state understand this, and one of the best examples is in this Merced Sun-Star editorial, which nicely explains the tension between speed and smarts:

The problem for the planners is that the stimulus must be geared toward putting people to work as fast as possible. That, many believe, argues for the traditional sort of public works, such as highways.

In many cases, plans are already in place to replace crumbling roads, highways and bridges. By contrast, plans for urban transit systems and intercity high-speed rail are less firm, meaning it may take more time to actually start turning dirt and generating paychecks […]

We’re confident that a solution exists that puts people to work right away and also lays the groundwork for a new approach to the nation’s transportation needs.

It won’t be easy, but it has to happen. We can’t continue to simply build more transportation infrastructure on a model that’s now more than a half-century old.

A new model for transportation is part of the change we need.

Read the whole thing.  One good idea calls for phased stimulus spending, giving enough for critical highway and road repairs at the start, with the bulk coming later for transit and rail projects.

Measure R on the Los Angeles ballot would impose a 1/2 cent sales tax on county residents to pay for increased transit lines and services.  This couldn’t come at a more crucial time, as the MTA is poised to become a casualty of the financial crisis:

The next potential victims of the nation’s credit crunch: nearly 1.5 million people who ride buses and trains each weekday in Los Angeles County. Transit officials say riders could soon be facing serious service cuts.

That’s because the Los Angeles County Metropolitan Transportation Authority might have to quickly come up with hundreds of millions of dollars to pay investors under terms of deals it made involving American International Group, the troubled financial and insurance giant.

“I’ve lost a lot of sleep over this,” said Terry Matsumoto, the chief financial service officer and treasurer for the MTA. He said it was “absolutely” certain the agency would have to cut service if the deals sour.

The state is already cutting transit funding in the budget, and sales tax revenues, which already partially fund the MTA, are seizing up, as the economy slows and job loss increases (fortunately unemployment flattened out in September, albeit at 7.7%).

This is not the time for cutbacks in service at the MTA.  Ridership is at record highs, as people both avoid still-high gas prices (historically speaking) and more attention is paid individually to greenhouse gas emissions.  The Air Resources Board just released their final draft for compliance with AB32, and I can’t see how they could possibly reach their goals for greenhouse gas emission cuts without an increase in transit.  That includes passing high-speed rail, of course, but obviously the existing transit structures, can’t be pulled back at this important time.

Speaker Bass has been calling for the Governor to prioritize a federal stimulus package and has also been making noises about a state-based stimulus as well.  That has to include protections for transit concerns like the MTA, and increased funding flowing to them as well.  It’s a job creation engine, an economic sustainability engine, and an engine to a better environment.

We can all do our part in Los Angeles County by passing Measure R as well.

It does appear that our state Controller has basically said “No Dice” to the governor’s plan to punish state workers for his own leadership failures.

While the governor is poised to order the cuts on Monday, state Controller John Chiang, who is responsible for disbursing state workers’ paychecks, said Thursday that he will refuse to go along with the governor, setting up a political standoff and a possible legal fight.

“The authority to issue people’s paychecks is mine. I have both constitutional and statutory authority,” said Chiang, a Democrat. “Frankly, (the governor) is just trying to make me do something that’s improper and illegal.”

The same exact thing happened in 2003, with Steve Westly refusing to cut salaries as then-Gov. Gray Davis requested.  And Westly got his way until the budget was eventually signed on August 2.  This basically throws the whole issue into the courts and delays the implementation of any salary cut.  And that’s a legal fight I relish having.  For too long the chief executive of the state – and in some cases, the legislature – has absolutely overstepped their authority with regard to fiscal matters.  The most egregious example is their raiding municipal government and transit funds to fill in the cracks of the budget deficit, which leads to ridiculous outcomes like cutting bus service at a time when mass transit should be expanding.

But Chiang standing with workers and holding on to his authority as a statewide elected official is just as important.  We elect a governor, not a king, and this encroachment on the jurisdiction of other constitutional officers is illegal and increasingly dangerous.  State workers who are rallying against the proposed cuts should understand that they have a champion in John Chiang, and that his decision deserves their support.  The California Democratic Party has a petition you can sign to stand with the Controller in this effort.

UPDATE: As informed by the CDP, State Sen. Dean Florez asked the Legislative Counsel for an opinion on Schwarzenegger’s authority to slash wages, and the Counsel agreed that he didn’t have it:

SACRAMENTO – Senator Dean Florez, D-Shafter, sought to alleviate the fears of state workers contemplating how to pay their bills on the federal minimum wage, while heading off a potential lawsuit between the Governor and Controller at a time the state can least afford it, by releasing a Legislative Counsel opinion stating that the Governor does not have the power to order such a cut to workers’ salaries.

“If the Governor really intended this as more than a ‘motivational’ gimmick, he clearly did not do his homework,” said Florez.  “He is making reckless and false threats against the people who keep our state running, causing undue grief to innocent people — many of whom are already struggling to get by – and I really believe he owes them an apology.”

Building on Bob’s report about the San Francisco Clean Energy Act, the California Air Resources Board has released its draft blueprint designed to fall in line with the mandate of AB 32, the Global Warming Solutions Act, by cutting emissions 30% by 2020.  

The 75+ page plan includes a range of policy recommendations.  Chief among them is increasing the state’s renewable electricity standard.  The plan also contains provisions for a regional cap-and-trade program that could work in harmony with other more specific policies to reduce pollution economywide.  The plan also says CARB will consider a vehicle “feebate” program that would provide incentives to consumers to buy cleaner cars.

In addition, the proposal includes plans to reduce emissions from heavy-duty trucks with hybrid engine technology and better fuel economy.  Like many of CARB’s proposals, the heavy-duty truck provisions would improve public health by also reducing smog-forming pollution.  The plan also advocates for a high-speed train system in California.

Jim Downing at the SacBee has more here.  Analysis on the flip:

There’s no question that California needs to do what is within its control to act immediately.  Climate change is already imperiling two-thirds of the state’s unique plants, and Los Angeles is trying dubious ideas like seeding the clouds with silver iodide particles to force it to rain.  The only sustainable solution is to demand mandatory emissions caps to fight a runaway climate.

Some of their ideas are top-notch.  Robert in Monterey, as his High Speed Rail blog, notes that CARB endorsed HSR to reach their targets:

Transportation is one of the capped sectors of the economy – meaning we can no longer just fly around or drive around endlessly; there will be increasing limits and at the same time rising costs as the cost of the credit purchase is passed on to consumers. To achieve the required lower emissions, and to provide sustainable and cleaner forms of transportation CARB endorsed high speed rail as one of its recommendations.

Their explanation was not particularly detailed – basically an endorsement of the concept of HSR and a projection that it would save around 1 million metric tons of CO2 in 2020. That’s around 22 billion pounds per year, close to the figure of 17.6 billion pounds that Quentin Kopp has been quoting.

I also really like the feebate idea that is part of the plan:

CARB also identified a feebate program as one avenue for reducing vehicle pollution. Such a program would establish one-time rebates and surcharges on new passenger cars and light trucks based on the amount of global warming pollution they emit.  This program would deliver benefits on its own, but also would complement California’s tailpipe standards if both were implemented.  According to a University of Michigan study, implementing a clean car discount program would deliver an additional 21 percent reduction in global warming pollution beyond the tailpipe standards.

The worry, of course, is that by the time the lobbyists and special interests get through with these targets, they’ll blow loopholes in them so wide that their impact will be meaningless.  But since the hard target of a 30 percent reduction is state law, I think there will be more backbone to actually reach those targets.  Builders and design specialists have already seen this coming and are producing innovative solutions to reduce emissions and save money.  At its best, carbon reduction is both efficient and cleaner, so really nobody loses except giant polluters.  They’re going to use the state’s budget problems to raise all kinds of fears about cost, but they’re really separate issues.  Plus, as the Bee article notes:

The air board’s mission may already have been made easier by changes in the economy. Today’s high energy prices are driving many of the sorts of emissions-cutting changes called for under the plan.

Sales of fuel-efficient cars are up, transit ridership is breaking records and businesses are investing in ways to save fuel and electricity.

Many have raised concerns about the cap and trade system, but CARB chair Mary Nichols is clearly invested in it, having presided over the most successful cap and trade system in history while in the Clinton Administration, the one that virtually eliminated acid rain.  It may be insufficient to have a few states in the West implement a trading system, but some industries, like energy production, aren’t likely to up and leave California – the market of 38 million people is too lucrative.  Anyway this gives momentum and support for a national system.

What I would like to see is a progressive cap and trade setup, which recognizes that higher energy costs disproportionately impact the poor, and seeks to balance that.  This is easier said than done:

Two things are worth noting. First, utility costs are a bigger problem than gasoline. On a percentage basis, the poor pay 7x as much for utilities as the well off, while they pay only 4x as much for gasoline. What’s more, unlike gasoline, there are seldom any reasonable alternatives for utility expenditures.

Second, there are always tradeoffs. Using the money from permit auctions (or carbon taxes) to rebate other taxes is indeed progressive if the rebate is fairly flat, but only if you pay taxes in the first place – which many of the poor don’t. For the very poorest, then, a tax rebate scheme would still be regressive: you’d essentially be hitting them with a big new energy tax without any offset at all. Conversely, a more targeted approach, like expanding funding for the Low Income Home Energy Assistance Program, helps the poor more directly but removes the incentive to use less energy.

The answer, then, is almost certainly a bit of this and a bit of that. No single solution targets assistance to the poor ideally, but a basket of solutions (payroll tax rebates, energy assistance, more funding for mass transit, etc.) can do a pretty good job. It won’t be perfect, but a well-designed program can make a cap-and-trade program pretty progressive.

Hopefully this will guide the CARB as they seek to work through the policy grinder and implement their reductions.  Right now the board is considering auctioning off few permits and giving away the rest, gradually eliminating the giveaway over time.  This kind of hair-splitting is wrong, and I hope they come to understand that.