The accounting gimmicks and clever tricks have reached their end.  Sacramento is out of money.

(John) Chiang, whose office writes the state’s checks, says California is about out of stopgap tricks to pay its bills and keep all its programs running.

The controller says California is down to Plan D on its checklist of paying bills. Its cash reserves are piddling; the special funds it borrows from are tapped out, and no one in the private sector is going to lend it any cash at a reasonable interest rate.

That leaves what in state government circles are called “payment deferrals” and what in real life is called “stiffing your creditors.”

In this case the creditors include income taxpayers expecting refunds, college students waiting on state aid, counties that operate public assistance programs, and companies that sell goods and services to state agencies.

Chiang has said he won’t write $3.7 billion worth of checks for those and other state programs if legislators and the governor haven’t reached a deal by next Sunday to close the budget gap.

The overarching problem here is a tax system that is too closely aligned to the boom and bust cycles of the national economy.  That is protected by the 2/3 rule.  And the result is a state that lurches from one crisis to the next, seemingly without end.

Well, the end is pretty much near.  The state may not declare bankruptcy, but that will be functionally the case.  And while IOUs may be a couple months down the road, the payment deferrals are going to put a lot more people out of work.  The counties and various agencies aren’t in the financial position to float by until some revenue floods in.

Of course the fact that IOUs still may be a few months away is of limited consolation to those who will be out of luck if Chiang pulls the no-payment trigger next week.

“For the first time in my career, there are counties facing the reality of just not being able to front the state the money to keep these programs operating,” said Frank Mecca, executive director of the County Welfare Directors Association.

Mecca, who has been in the human services field for 20 years, said counties are facing a double whammy: Revenue is withering while needs are blossoming.

This is at a time when we’re seeing jobless rates as high as 15% in some counties, and over 10% in 31 of the 58 counties in the state.

That stimulus spending from the federal government, perhaps $21.5 billion over two years, can’t come fast enough.  But if there’s not a solution in the next week, it may not matter.  The damage will be done and the pain will spiral out of control.

In a missive sent out today, Arnold Schwarzenegger’s press team sent out an email for those of you who don’t regularly read the Flash Report.  In it they point to the recent article calling John Chiang “The Union Tool” by none other than John Fleischman himself.  I don’t know if Arnold is trying to promote John Chiang for higher office, because saying that Chiang stands up for the unions is a pretty sure way to win a Democratic primary. But that’s neither here nor there, as it is becoming quite clear that Chiang isn’t one of Arnold’s favorite political chums.

Anyway, Fleischman’s article goes on to point out that Chiang has a bunch of * gasp* union endorsements.  Oooh, that must make him a bad man and totally incapable of opposing a union. Maybe Chiang thought about signing a pledge to make sure his recalcitrance was complete.

A note to all you right-wingers intent on demonizing the (somewhat factionalized) union movement. Democratic leaders support California’s workers, and that is not going to change.  But unlike Republicans who swear an oath to recalcitrance over sound public policy, Democrats aren’t mindless vote zombies. There can be no greater sellout to the state than signng an oath which puts itself over sound policy.  You want to see a special interest tool, just check the Republican Legislative Roster.  We don’t need to name a long string of names to indicate their allegiance.  Special interest, thy name is Howard Jarvis.  

And as for you, Gov. InPocket DeCalChamber, those in glass houses and all that.  

For the last week or so, all of the elected officials have declined to follow the Governor’s lead on the two day/month furlough program. One by one the legislative leaders and then all of the constitutional leaders said they would not be forcing their staff to take two unpaid days off.

Well, you can go ahead and mark this down as another hollow threat from Governor Hollow Threat.  Today Controller John Chiang called the governor on his furloughs:

“California law is clear that only the Legislature has ultimate authority over setting state employee salaries,” Chiang said. “While I agree with the Governor that State employees – like all Californians – must tighten their belts, it must be done so in a manner that is consistent with the rule of law.” (Sac Bee 1/21/09)

Of course, Arnold could go to court over this, and who knows maybe he will. But by the time any of this actually gets litigated, he’ll be off to his next gimmick.  Perhaps one of these days he’ll cut out the gimmicks and get to getting a Republican vote (or 5) for some revenue increases.

I just heard Will.I.Am on NPR talking about education cuts in California.  The budget crisis has gone mainstream.  And once everyone gets the news that tax refunds, welfare checks and student grants will be suspended because the state is out of cash, a whole lot of other people might get some awareness as well.  The dirty little secret about “liberal bastion” California is that we are not a civically engaged people, generally speaking.  The budget has been in “crisis” for decades but not enough Californians have mustered up the interest in it.  We have right-wing astroturf movements that play to base emotion, but not really citizen’s movements that ask for basic fairness.  Californians are 45th in the country in volunteering, 44th in attending community meetings and 45th in working on community problems.  Chalk it up to traffic or self-absorption or what have you, but the general take is that Californians don’t see much beyond what is in front of them.  IOUs would change that.  Well, maybe.  It depends on if the banks will accept them, which is still being negotiated.

The payments to be frozen include nearly $2 billion in tax refunds; $300 million in cash grants for needy families and the elderly, blind and disabled; and $13 million in grants for college students.

Even if a budget agreement is reached by the end of this month, tax refunds and other payments could remain temporarily frozen. Chiang said a budget deal may not generate cash quickly enough to resume them immediately […]

State officials have already designed an IOU template, Chiang said, and have been negotiating with banks over whether taxpayers could cash or deposit them if they are issued. The state could be forced to pay as much as 5% interest on delayed tax refunds if they are not paid by the end of May, Chiang said.

The last time the state issued such IOUs — the only time since the Great Depression — was in 1992.

In other words, the only way this delayed tax refund is going to work is if it causes MORE debt for the state.  But let’s go back to 1992.  This was the last big recession in the country, and California again found itself unable to pay its bills.  Tell me again how the budget problems aren’t structural.  Anyway, the state issued about $350 million in IOUs that year, about 15% of what is being prepared today.  The process was not smooth:

IOUs have caused headaches for the state in the past. California issued $350 million worth of IOUs to 100,000 recipients in 1992 during a budget impasse between then Gov. Pete Wilson and the Legislature.

A four-year legal battle ensued after some workers had trouble cashing them. The dispute was settled in 1996 with some state workers getting paid time off for the inconvenience they experienced.

Beth Mills, a spokeswoman for the California Bankers Association, said individual banks statewide haven’t decided yet whether they will accept the state IOUs this time.

Banks are barely willing to lend money, I just don’t think they’re going to be interested in accepting $2.3 billion in IOUs when the process was so difficult last time, and there is more uncertainty in the financial markets now.  And even if they do, it will not be uniform across all banks, and customers are going to have varying experiences.  

The State of the State speech that nobody watched proved the need for fundamental reform, but it generated barely a blip among non-elites.  Having trouble cashing your disabled mom’s assistance payment, that’s a whole different story.  Not to mention the fact that the continued erosion of jobs and the 5,300 public works projects that have been delayed by the state will create a lot of angry and idle minds.  Of course, the cautionary part of this is that the 1992 IOUs did not lead to structural reform.  However, we all can agree that this is a much bigger problem.

Pitchforks and torches may be at a premium.  And while it’s hard to write a new Constitution in a riot, something needs to shake up this decayed and dysfunctional system.

Look around you and you probably know somebody who had been affected by the economic slowdown, particularly here in California.  Maybe it’s someone you know in the construction industry:

State Controller John Chiang refused to make payments Thursday to contractors for work done on more than three-dozen public-works transportation projects. The action, the first of what are likely to be a series of blocked payments, was prompted by the state’s unprecedented budget shortage.

The move was required by the Pooled Money Investment Board, which on Dec. 17 ordered a halt to the payments to projects financed with a mix of voter-approved bond funds pending a resolution of the state’s fiscal dilemma […]

The projects are all being handled by Caltrans, which has objected to cutting off the money to the contracts. Some $33 million and 39 public projects are affected.

(It’s hilarious that the Governor objected to this after his own Finance Director voted to shutter all infrastructure projects a few weeks ago.  Did he not know that this would be the result?  Another Santa Claus Republican.)

Or maybe it’s that friend of yours who doesn’t have any health care or the ability to pay for treatment, or that other lady you know who works at the hospital:

California hospitals are threatened. With only 1.9 hospital beds per 1,000 population,3 the state’s residents are being placed at risk by the negative impact caused by inadequate Medi-Cal payments and California’s faltering economy. Currently ranked 49th nationally, hospital bed availability is likely to contract further in this environment, diminishing access to health care services even more. As a result of low Medi-Cal payments, the majority of california hospitals have already made cutbacks or anticipate reducing services, including closing subacute units and psychiatric units; eliminating skilled nursing beds and ER beds; reducing cardiology, obstetrics and other clinical services; and laying off staff or reducing pay.

The impact of the economic downturn is evident. Hospitals report a 73 percent increase in consumers having difficulty paying out-of-pocket health care costs, and 33 percent report an increase in ER visits for uninsured

patients. With the growth in unemployment, hospitals are experiencing the effects of more californians without job-based insurance. in fact, hospitals report a 30 percent decrease in volume for elective procedures – one of the few areas that provide hospitals an opportunity for revenue growth. In addition, the capital markets are providing a significant hurdle for many california hospitals. More than 25 percent report the inability to access financing for construction, remodeling, equipment purchases or working capital.  This has resulted in 41 percent of hospitals halting construction projects or equipment purchases. This has a significant impact on the state’s economy and jobs.

Or maybe your neighbor has a son or daughter who wants to go to college.

The University of California system may cut the number of in-state first-year students by 2,300, or 6 percent, as the recession squeezes the budget.

The proposal to reduce enrollment for the 2009-2010 school year, as well as a plan to freeze 285 salaries of administrators, will be presented Jan. 14 to the Board of Regents by President Mark Yudof, the Office of the President said today in an e-mailed statement. The system, based in Oakland, has 220,000 students on 10 campuses.

As an aside, health care and education were the only two industries to INCREASE jobs in today’s dismal employment report.  Here in the Golden State, we are going in the opposite direction.

The failure of leadership over the last decade at all levels of government is now coming due.  We are not prepared – nor are we taking seriously enough – the magnitude of this meltdown on the state of California.  We are about 3-4 weeks away from the state sending out IOUs.  That’s functionally bankruptcy, and the trickle down of that will be fast and painful.  Everyone in the state will either be affected or know someone close who is.  

California’s dysfunctional government has finally caught up to itself.  The general lack of urgency about this is stunning to me.

Good thing an old-politics hack like John Burton will lead us out of the abyss!

…let me add state employees into the mix…

California will close most state offices on the first and third Fridays each month starting in February, padlocking DMV outlets and other services while reducing state worker pay to help survive a massive budget problem, according to a state Department of Personnel Administration memo.

Only offices deemed critical, such as state hospitals and prisons, will remain open under Gov. Arnold Schwarzenegger’s twice monthly furlough plan.

Ugly.

Because the state simply doesn’t have the money to give it back to you.  But you will get a shiny new IOU note from Controller John Chiang.  And you’ll be in good company, the Legislators will be the first to get the IOU notes from the state. From the Bee:

State Controller John Chiang warned Tuesday that the first group to get hit in the wallet by California’s budget debacle is likely to include legislators – and it could happen as early as Feb. 1.

The bad news is that next in line to get IOUs instead of cash would be state income taxpayers awaiting refunds and companies that do business with the state.

In a letter to state agencies, Chiang said his office was projecting the state would run out of cash around the beginning of March. (SacBee 12/30/08)

At this point the situation is so precarious, that it isn’t even clear that if the Democratic Legislative Leaders and the Governor come to some sort of agreement, that we’ll even be able to implement it in time. Perhaps we’ll be in a better position to borrow money, but that depends a lot on the credit markets.  And at this point, our position at the mercy of the credit markets is not an enviable one.

You know, it’s really getting hard to think of new ways to describe this mess. I mean, FUBAR is putting it quite mildly.  The state of California, the seventh largest economy in the world, will literally be out of cash in March. Such a collapse would make the collapse of Lehman Brothers or Bear Stearns look laughable.

Paul Krugman advocates for the obvious solution, aid to states in paying for social services such as unemployment and medicaid.  California will need a very large chunk of change, but the stimulus package appears to be growing by the day.  Right now, it looks to be at least $850 Billion.  With any luck, that will come down sooner rather than later.

In the interim, perhaps we should have a naming contest for this mess. My Entry: Minerva‘s Moola Mess.  

The national media is starting to pick up on the developments with the California budget, and their potentially devastating impact on the larger economy.  Bloomberg has an article on the shutdown of infrastructure projects and the impact statewide:

Just $5 million of work is needed to complete a new California Court of Appeals building in Santa Ana. The state may not have the money, and come July judges may be writing opinions in their living rooms.

“I’ve been on the bench for 23 years, and I’ve never seen anything like this,” said David G. Sills, the presiding justice for the Fourth District Court of Appeals, Division Three, in a telephone interview.

California’s worst budget crisis has held up $3.8 billion in spending on public works, possibly including the courthouse adjacent to Santa Ana City Hall. Sills and his seven fellow jurists had planned to move in before the lease on their temporary offices expires June 30.

“Everyone will have to work from home,” said Sills, 70, “and we’ll have to rent a place for when we hear arguments.”

The story ticks off all of the projects lying unfinished – highway improvements, bridge and levee repairs, a hospital at San Quentin, a middle school in South Gate.  The delays are not only a threat to the soaring unemployment rate and the state’s economic future, but public safety.

South of downtown Los Angeles, a delay finishing a school building could put children in danger, said German Cerda, principal of South Gate Middle School. About a third of his 2,900 students are scheduled to move into the new building a half-mile away in 2012, relieving overcrowding inside and making nearby streets safer, he said.

On Dec. 2, a 14-year-old South Gate student was killed when a car stuck him a block away, an accident Cerda attributed to congestion.

“The biggest complaint we get from parents is what happens when the bell rings at 2:42 p.m. each day,” Cerda said. That’s the time that his students are dismissed and 3,000 more are leaving a high school down the street. “They don’t want to see another tragedy.”

Then there are the expected cuts to state Medicaid programs, at precisely the time when more Californians qualify for services.

Among the states with the gravest financial problems — and pressures on Medicaid — is California. In July, Medi-Cal, as the program there is known, slashed by 10 percent the rates it pays hospitals, nursing homes, speech pathologists and other providers of health care. It tried to lower payments to doctors and dentists, too, but they have sued to block the decreases.

Gov. Arnold Schwarzenegger (R) has asked the state legislature to approve other cuts, including an end to dental care for adults, about 1 million of whom use it now, and a sharp reduction in care for recent immigrants.

At two hospitals run by NorthBay Healthcare, midway between San Francisco and Sacramento, about one patient in five is on Medi-Cal. The rate cuts translate into a $4 million loss this year. In September, the health system closed a rehabilitation program for children that provided physical therapy, speech therapy and other help to about 300 young patients at a time — with 100 more usually on the waiting list.

“It was heart-wrenching to have to go out and announce,” said Steve Huddleston, NorthBay’s vice president of public affairs.

The Obama campaign is weighing options for both backfilling Medicaid for the states and jump-starting infrastructure spending through cash infusions.  However, the biggest thing the federal government could do right now is what John Chiang describes in a letter to the Obama transition team and California’s congressional delegation – guarantee the financing for infrastructure projects.  The reason they cannot be funded right now is that the market for revenue anticipation notes and bonds is locked.  Though California has never defaulted on these securities, investors are nervous that the careening budget crisis will cause them to do so.  So putting the full faith and credit of the US government behind the notes, which if California does repay its creditors would cost the feds next to nothing, would immediately allow the infrastructure projects to begin again.  That’s the short version – here’s Chiang with the greater plan, including incentives for banks to lend.

This proposal is simple, straight forward and cost effective:

1) Develop a federal guarantee program of limited duration for state and local debt issued to fund new infrastructure construction and renovation. Each state could designate a state commission or agency to disburse the state’s allocation of federal guarantees in accordance with the program guidelines;

2) Allocate these benefits, or guarantees, in the amount of $500 to $1,000 per capita to states. The allocations can be based on unemployment or 2000 census population, with a minimum “baseline” allocation to low-population states; and

3) Furthermore, the proposal would greatly benefit from abolishing the limit on the amount of deductible interest costs for commercial banks related to the purchase of these particular state and local infrastructure bonds during the term of the program. This restriction has been in place since enactment of the Tax Reform Act of 1986.

This would mean the restoration of up to 200,000 jobs in California alone, as well as $16 billion in economic activity.  Those are numbers that an incoming Obama Administration cannot afford to lose as they begin implementing a recovery package.

Obviously, the biggest remedy to show confidence to the markets and gets the lending flowing again would be to pass a budget and prove to investors that California is getting its financial house in order.  That is up to the Governor to decide, and 200,000 jobs hang in the balance.

With the Governor and the legislature still no closer on a special session solution on the budget, Controller John Chiang issued a strong warning about the very near future, finally bringing public the possibility of IOUs for state vendors:

“Specifically, my office will be forced to pursue the deferral of potentially billions of dollars

in payments and/or the issuance of individual registered warrants, commonly referred to as IOUs,” Chiang said in a letter to the governor and other officials.

“In order to ensure that the State can meet its constitutionally required obligation to schools and debt service, the Capitol’s budget paralysis may leave me no choice but to, in full or in part, withhold payments or to issue IOUs to other individuals and entities entitled to state payments. Given the current financial instability of the banking industry, it is highly unlikely that the banks, if they accept the IOUs at all, will be able to do so for any sustained period of time. Consequently, the recipients of the registered warrants may have no apparent options but to hold them until redemption.”

Chiang said his office is also pursuing the issuance of “revenue-anticipation warrants,” a form of short-term borrowing that carries high interest and heavy fees because it’s believed that the state cannot issue “revenue anticipation notes” that would have to be repaid by June.

If it was impossible to sell revenue anticipation notes to lenders, I don’t see why they’d accept revenue anticipation warrants, even if they offered the promise of higher interest rates.

It goes without saying that this stalemate, and the prospect of eliminating vital services, comes at the worst possible time, when California’s most at-risk citizens need a social safety net the most.  The California Budget Project detailed this today in a paper, appropriately titled Proposed Budget Cuts Come at a Time of Growing Need.

More Californians are turning to income support and related programs, such as Food Stamps, WIC, Healthy Families, Medi-Cal, and CalWORKsfor assistance.

Increased demand for public programs comes at a time when policymakers have proposed deep cuts to health and human services programs to close the state’s budget gap.

However, prominent economists argue that carefully chosen tax increases are preferable to spending cuts during a recession because “steep budget cuts will exacerbate the economic downturn and harm vulnerable low-and moderate-income”families.

With unemployment rising to the third-highest rate in the nation, with one in five Californians out of work for longer than 27 weeks, with projections of the unemployment rate rising over 9.3% by 2010, with almost a million Californians underemployed (working less than they’d like), with applications for food stamps up 33% over the past year, and with every county in the Central Valley experiencing double-digit unemployment, including an incredible, depression-era 23.4% unemployment in Imperial County in Southern California, the prospect of losing vital services to those affected would be absolutely devastating.  And yet that’s where we are.  County governments are already expecting the worst, to have their funds raided by the state to eventually fill the budget hole, so they’re cutting back.  The self-sustaining cycle of cutbacks creating job loss creating less revenue creating more cutbacks has already begun.  And that’s why it’s not just bad politics but horrible policy for Schwarzenegger to hold the state hostage for extremely marginal rewards that will almost certainly be overturned once he’s out of office anyway.  His intransigence, perhaps based on his inability to get anyone in state government to listen to him, is puerile nonsense.  But it also really hurts people.

As I’ve said continuously, the budget mess in California cannot be solved under the current broken system without serious help from Washington.  Fortunately federal lawmakers are fighting for state and local government relief for California, done in such a way that we can actually access it without having to put money up front (which is impossible given the current cash-flow crisis).

(As a side note, I want to on behalf of the editorial board thank our friends in the blogosphere for driving attention to our ongoing Calitics budget coverage, in particular paradox at The Left Coaster.  I think I speak for everyone in saying we appreciate the links and support.)

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?  

You know this whole mini-Depression/Mega-Recession that we’re going through right now? Well, it’s hit our revenue coming into the state coffers.  Hard:

Senate President Pro Tem Don Perata estimated Tuesday the state will face a $3 billion to $5 billion deficit this fiscal year without corrective action, a significant gap that increases the possibility lawmakers will have to consider new spending cuts or tax increases in a special midyear budget session.

State Controller John Chiang, meanwhile, announced California has taken in $1.1 billion less through the first quarter than state officials projected earlier this year.(SacBee 10/8/08)

So, there you have it.  This is where we are. Broke, and slashing at the very heart of our government.  Perata and other state leaders are further estimating that next year’s budget deficit could be another $15-20 Billion. There is nothing left to cut. We’ve already cut services that shouldn’t have been cut. We already on the hook for about $8 Billion in prison building thanks to “ToughOnCrime”.

Of course, the Republicans continue to fiddle while the walls of our government come crashing down in flames.  There is no more choice, there is no more chance to hedge. We either raise taxes or our government will end up like Lehman Brothers.  Well, you can call Dave Cogdill the new Richard Fuld.

“As this continues to get more serious, it’s going to take even more drastic action on the part of the state to rein in spending,” said Senate Republican leader Dave Cogdill of Modesto. “We’re not supporting any additional tax increases. It makes less sense today than it did the day we put the budget out.”

Besides raising taxes, Perata suggested the state could save money by releasing low-level prisoners who committed nonviolent crimes. But Cogdill said the state could find other ways, such as selling off excess state-owned land.

We need capital, ie cash, just like some of these big banks. Unlike Lehman, however, we have a means of getting it. It’s called taxation.  All of Cogdill’s little techniques are merely tricks that won’t bring in anywhere near the amount of money that we need.

Perhaps it is time to start gathering signatures for a progressive budget reform measure on the special election ballot? The outlines of such a plan are still hazy in my mind, but the general concept of going to the ballot to avoid the legislature might end up, unfortunately, being the only way to save the state from Dick Fuld the legislative Republicans.