Well, Sacramento lawmakers miss their homes and they have a couple months of campaigning to do.  So they got together and hammered out a no-taxes, no-borrowing, cuts-and-gimmicks budget that delays for at least a year the great reckoning that California desperately needs if it wants to have a functioning government.  Of course, there are new taxes in the deal, in the form of gimmicks that will eventually force the state to raise taxes higher in the future.  For example, the budget apparently borrows from taxpayers:

A key element of the deal would increase by 10 percent the amount of income taxes withheld from working Californians, and from taxpayers who earn income from investments.

The maneuver would generate about $3.8 billion to ease the budget crunch, but the plan calls for providing future refunds to affected taxpayers.

In other words, we’ll all be giving California immediate cash they then will have to hand back to us later, increasing the need for future revenue adjustments.  In the short term, this literally cuts the wages of workers in the state across the board, particularly those who can least afford it.

In addition, there are new truck-sized loopholes that will be shepherded in here.  This is from the California Tax Reform Association, and if true, it’s a bombshell:

In exchange for a small amount of temporary short-term revenues, the Legislature is poised to open two vast new loopholes in the corporation tax, loopholes which will continue indefinitely.  The impact will be to greatly diminish the corporation tax at future costs to education, health care, and public safety. This is a huge giveaway to multinational corporations.

Those loopholes are:

Net Operating Loss Carrybacks.  In exchange for suspending the ability of corporations to take losses going forward for two years, the budget deal would permit loss carrybacks-the ability to get refunds against prior taxes based on a year’s losses.  

This is nothing but a tax shelter which destabilizes the general fund.  It gives a refund for taxes already paid, with such refunds coming most likely when the economy is in recession. As a result, when we’re making cuts, the state will be cutting refund checks to large corporations. The ability to take losses into the future has been part of tax policy for 20 years, but the legislature has rejected carry-backs for 20 years, because it is nothing but tax manipulation.

Cost:  at least _ billion per year, but likely more because of the second loophole.

Exchanging credits among affiliated corporations.  For state tax credits, the state has always insisted that the credits be taken by the corporation that engaged in the activity which is eligible for a credit.  In exchange for limiting corporation tax credits for two years to get short-term revenue, the budget deal opens up the ability of affiliated corporations or subsidiaries to transfer their credits among other corporations-forever!  

There are many billions in unused credits from companies that have not earned sufficient profit to use them.  This proposal will open the ability of companies to effectively sell these credits-e.g. by allowing ownership by another company-so that the billions in unused credits can now be used by profitable corporations.  

Cost:  this could be billions per year and will total many billions over the years. In combination with loss carry-backs it will open the corporation tax to endless manipulation.

If you’re the state controller, you can say goodbye to collecting one dime of tax revenue from corporations in the foreseeable future.  I guess we’ve finally become a business-friendly state after all.  Thank you, shock doctrine!

And in addition, there will be very real pain from this budget, not just in the future, but right now.  Just in the area of health care, the costs are tremendous.

The immediate cuts in the budget deal are expected to include:

• increased reporting (every six months in Medi-Cal) with the purpose of having over 250,000 children lose coverage.

• increased Healthy Families premiums.

• delayed restoration of the 10 percent Medi-Cal provder rate, leading to a loss of hundreds of millions of federal matching funds.

These are severe cuts that will hurt not just hundreds of thousands of patients, but our state’s health system and our economy.

You read the first one right, the goal is to use “death by paperwork” to kick a quarter of a million children off of Medi-Cal.  This is the honorable, do-no-harm budget our legislative leaders have constructed.

There was no reason to believe that any persuasion would have worked on the Yacht Party from the beginning of this session.  Dragging this out 77 days so we could provide a big ol’ giveaway to corporations while doing nothing to address the long-term structural deficit doesn’t make a lot of sense.  It would have been better to force the issue through ballot initiative right now, and end this madness of a 2/3 requirement for budget and tax matters.  The state is poorly run because so much energy is put into overcoming intractable structural hurdles rather than trying to streamline a bureaucracy that must serve 38 million people.  This starts with injecting minimum accountability for the party in power and allowing lawmakers to do their jobs.  I believe that Karen Bass and Darrell Steinberg know this, and they will be more reluctant to go along with drilling a giant financial hole for future generations.  The question is whether or not they’re too late.

The latest economic numbers for the state are over at the Department of Finance, and they are as expected.

From July 2007 to July 2008, the state lost 75,900 nonfarm jobs, a 0.5-percent drop, with the state’s beleaguered housing industry continuing to be the focus of most of the losses.  Employment rose 47,000 in educational and health services; 39,300 in government; 9,200 in leisure and hospitality; 6,200 in professional and business services; and 900 in natural resources and mining. Of the year’s growth in government, more than three-fourths-29,800-was in local government.  Over the year, employment fell by 83,100 in construction; 35,400 in financial activities; 30,900 in manufacturing; 20,500 in trade, transportation, and utilities; 7,800 in information; and 800 in other services.

The state’s unemployment rate rose to 7.3 percent in July-a 12-year high.  July’s unemployment rate was up 0.3 percentage point from a revised June unemployment rate of 7.0 percent and 1.9 percentage points from July 2007’s unemployment rate of 5.4 percent.  This large year-over-year increase will most likely be revised down next February.  The national unemployment rate increased by 0.2 percentage point to 5.7 percent in July, leaving the gap between the state and national rates at 1.6 percentage points.

And of course, the national numbers in August were even worse, so this has nowhere to go but down right now.

More important, the General Fund numbers for August were $124 million dollars below forecast, with personal income tax revenues down $67 million and sales tax receipts down $222 million.  In essence this means that the deficit is even worse than advertised, and the projections to bring it into balance are likely to be bogus if and when a budget is signed, provided that the economy doesn’t rebound quickly.

I listened to this NPR report yesterday, which put the budget delay into an entirely new context.  In Sacramento it’s a fight between competing ideologies; but in rural health clinics, at community colleges, all over the state, it’s the difference between staying in school and dropping out.  The difference between getting medical care and finding it out of reach.  The difference between keeping your clinic running and having to shutter it.  These are deeply harrowing personal stories, and there are millions of them, and they’re only getting worse.  For some reason, while a few of these stories have been told in Capitol committee hearings, I haven’t seen Democrats amplify one of their voices – not one – through a television ad describing the stakes of the budget delay, Yacht Party intransigence and the need to abolish 2/3 or throw enough Yacht Party members out so that 2/3 is achieved.  What exactly are they waiting for?  At least you could message test this on local cable and the Web.

You can’t just expect people to figure these things out for themselves.

Well this is kind of interesting.  So the Yacht Party put together their “Let Them Eat Cake” budget in the Senate today, and predictably, it was voted down.  What was not predictable is that two Republicans didn’t vote for it, the precise number needed to flip to get a budget passed.

In the end, despite all Republican Senators being present, only 13 voted for the bill, AB 1793, and 21 Democrats voted against it. The two Republican Senators who did not vote, Abel Maldonado and Roy Ashburn, raised eyebrows as some consider their move to indicate they could conceivably be two votes in play for some compromise. Together with Democratic votes they could give the necessary votes to reach the two-thirds supermajority needed to pass a budget but gave no other outward signs that this would be the case […]

Democrats are caucusing right now, after the vote. Senator Perata at the end of the Senate debate was clearly frustrated. He asked the Republicans necessary to pass the budget to contact him and let him know what was needed for their votes-or to do so publicly.

It’s instructive to see what the Yacht Party budget would actually do, for the purposes of electoral politics.  I’d love to see it mailed to independent voters in swing districts (call it the “Contract On California”).  But in the short term, troops should be deployed to Sens. Maldonado and Ashburn’s districts immediately.  Ashburn has already proven himself amendable on a budget solution, as has Maldonado.  Neither of them have to run again (the primary’s already over in Maldonado’s election) so that common Yacht Party threat is irrelevant.  We need to end this stalemate as soon as possible, to literally save lives and end suffering, and so it’s time to get it done.  Fighting 2/3, or getting 2/3, is the medium-term goal right now.

Man, it’ll be good to have a Democrat in charge who understands the importance of progress instead of covering your ass and rewarding your friends:

“First of all, though it doesn’t help much this year, I think this process and the frustration many of us are expressing reveals what must be done next year.

We need to not only think about but begin planning for taking significant questions about state and public finance back to the people of California. And next year as your leader I intend to do that. I’m not going through this anymore. I’m tired of it. It’s unproductive. It does nothing for the way people view us.

You’re right Senator Aanestad, under the current state of the Constitution; it is a two-thirds requirement to pass a state budget. And I know that question has been taken to the people in one form or another. But maybe it has not been take to the people in the right form, at the right time. And so, be prepared next year. Whether it is through the legislature or by the initiative process, we’re not going to go through this anymore.

If Darrell Steinberg was in charge right now, Jeff Denham wouldn’t be in the State Senate.  Abel Maldonado would be hanging on for dear life.  And we’d have a 2/3 majority.  Because he would prioritize it.  He would design the entire year around achieving it.  Don Perata simply has failed in understanding what is crippling this state.  Steinberg gets it.  And finally, progressives and the legislature will be on the same page.  For now, we struggle with the failed perspective of the past.

I really don’t know where this came from other than the shrinking class of California political pundits just understanding common sense, but they are all gradually coming on board with the notion that what’s killing the state is the 2/3 requirement, and that until it’s fixed, nothing in the Capitol will materially change.

Most of George Skelton’s column today concerns the “dance of death” – a ritual slaughtering of budget proposals through the normal legislative process until one survivor comes out on top.  There is too much of a top-down approach in the legislature, with the Big 5 making the determination on the budget instead of the relevant committees having a crack at it.  But near the end, Skelton reveals the truth:

My nomination for additional budget reform: Eliminate the ludicrous requirement of a two-thirds legislative vote for passage of a budget. Only two other states suffer the same straitjacket. California would have had a budget weeks ago if it could have been passed by a simple majority vote. The governor still would have the final say with his paring knife.

This mirrors exactly what conservative Dan Walters said in his column the day before.  Walters wants to keep the requirement for tax votes, but he does seem to understand that without the accountability that a majority budget vote provides, there’s no way to peg the fortunes or failures of the state on any one political party.  Not only does it hinder legislators from doing their jobs, it impedes the opportunity for voters to determine the cause and effect.  It’s the “killer app” for governmental reform, and must be the first, last and only step in the short term to end the perpetual crisis at the heart of a broken system.

Now, this reform will not come easy.  Republicans will caterwaul at losing the only leverage they currently own.  The only path to this solution comes with actually getting a 2/3 majority in both chambers, and then offering the solution up for a vote in time for the next governor to reap the rewards.  The Drive for 2/3 is monumentally important (and it’s likely to be a two-cycle process) to restore functionality to Sacramento and allow legislators to do the work their constituents sent them to the Capitol to do.

I happened to catch Which Way L.A., one of the few public affairs programs in California, and after about 20 minutes of listening I considered the unique method we have of running a 38 million-person nation-state with almost a total media blackout on government’s inner workings to be maybe a good thing.  Because this was the most fantastical 20 minutes of drivel you could possibly conjure, and I’m pained by the thought that anyone was exposed to it.

Warren Olney had his usual insider flaks on, with pollster Mark Baldassare, Fred Silva from California Backward Forward and Neal Johnson, Director of the “public performance” project at the Pew Center on the States.  You can listen to it here, but please, please don’t.  Let me summarize.  Basically the problem with state government is that nobody gets along.  If we’d only all pitch in as a team and work together to move things forward, everything would be dandy.  Also reviewing the performance of every single public program would eliminate the budget deficit, or something.

I don’t remember the words “two-thirds requirement” in the 20 minutes I heard, or “tax pledge,” or the sundry other characteristics that make California completely ungovernable.  The idea that you’re going to get people with the ability to hijack the budget with a tiny minority to willingly give up their power in the spirit of “working together,” when they’ve organized themselves around precisely the opposite circumstance, is so ridiculous and unserious that I’m surprised anyone can make the argument when they’re not teething.

Here’s the extremely simple point.  California isn’t allowed to govern itself, by its own rules.  If you want any possible solution without the same kind of gridlock and delays, CHANGE THE RULES and allow elected lawmakers to do their own jobs.  It’s not about being friendly or reforming on meaningless margins or “restoring voter’s trust” (whatever the hell that means).  It’s about allowing government to govern.  Talking about anything else is just verbal masturbation.

I mean, if Dan Walters can see the frickin’ light on this, it’s not locked away in some formula.

It is what those in the Capitol call – and what California Forward identifies as – a “structural deficit.” This is, in brief, a unique situation and what any governor did in the past means absolutely nothing today. Until and unless California resolves its underlying crisis of governance, the budget crisis, along with the crises of water, education, transportation, housing and everything else, will continue to bedevil us.

That’s the message that California Forward should be driving home.

No kidding.

Charlie Brown reported $225,000 in the first quarter of 2008, with over a million dollars raised throughout the campaign.  He’s had 12,000 donors thus far.

Russ Warner took in $100,000 in the first quarter and has $220,000 cash on hand.

But I was more interested in this story, which shows the CNA making an electoral play in two swing districts to help the Democrats reach a 2/3 majority.

This year the nurses union also is backing two Democrats vying for open seats which are being vacated by Republicans:

Up north, longtime San Ramon Valley School Board trustee Joan Buchanan seeks the East Bay’s open 15th Assembly District being vacated by termed-out Assemblyman Guy Houston. In January she reported a $166,000 war chest and most likely will face off against San Ramon Mayor Abram Wilson.

Down south, former Santa Barbara Assemblywoman Hannah-Beth Jackson wants to fill Ventura County’s open 19th District state Senate seat being surrendered by termed-out Tom McClintock, who’s heading north to run for an open congressional seat near Sacramento. Ex-Assemblyman Tony Strickland is the GOP’s anointed successor.

“We only need two more Democrats in the senate and six more in the assembly to have a two-thirds Democratic majority,” said CNA legislative director Donna Gerber, who spent six years as a Contra Costa County supervisor.

“When there are budget cuts those budget cuts pretty much happen in health care and education. So for sure we are supporting Hannah-Beth Jackson and Joan Buchanan. Those are two that we’re putting a lot of our energy into.”

If labor jumps in explicitly in these legislative races to aid in the drive for 2/3 then we’ll have a distinct financial advantage.  Remember that the CA Republican Party is essentially broke.  This is the best news I’ve heard all week and I know the rest of labor will follow suit.