It has been truly depressing to watch the Twitter feeds of John Myers and Scott Lay tonight, as the mood shifted from guardedly hopeful to despairing.  The Senate keeps voting on things and not coming up with any solutions.  They tried to pass the stop-gap solution again, and came up short of the votes needed.  They passed the majority-vote budget with some fee increases, and the Governor vetoed them.  Let’s all please remember that.  With a stroke of the pen, the Governor could have ended this.

If SB 64 and SB 80 (the stop-gap) don’t pass by midnight (and actually, in an hour or so, because it takes a couple hours to prepare the necessary paperwork), the state will forfeit $3 billion in cuts to the 2008-09 budget year, which they will have to find in the following year, and a total of around $7 billion in total costs, when you add in the costs of additional borrowing, etc.

At some point, a large majority-vote budget (which wouldn’t take effect for 90 days), absent the tax increases, passed the Senate and moved on to the Assembly, where it will be voted on tonight.  According to Scott Lay, it covers all but $1 billion of the target, which is probably enough for the Governor to veto it.  Why, it’s almost as if he doesn’t want a solution but instead an opportunity to push through a bunch of long-sought goals shock-doctrine style!

The Senate just tried again to get the necessary votes for the stop-gap, and fell short by the exact same amount.  They’re in recess until 9:30 and will probably get only one more shot.

…we’re past 10pm at this point, the Senate has yet to reconvene, and by most calculations the die has been cast.  Enjoy your scrip!  Zed Hollingsworth has been spotted in the Governor’s smoking tent, for whatever that’s worth.  But the Governor remains intransigent and apparently determined to bring the state to complete failure.

…counting down the minutes until the end of the fiscal year is kind of like waiting for New Year’s, only it involves budgets and trailer bills and at the end people die.

…So the Senate is going back into session.  John Myers tweets: “Senate pro Tem Steinberg calls senators back..we’ve watched a lot of “shuttle diplomacy” betwn Dems, GOP, and Guv’s ofc. Still, long odds.”  We’re at T-minus 43 minutes.

…the way this is going from the Twitter feeds, Steinberg looks like he’s desperately trying to pass the stop-gap measures again.  The odds are long.  He pleads to the Yacht Party not to be party to irresponsibility.  I wonder what the response will be?… this: “Reeps still refuse to put up votes.”  Maldonado, in fact, won’t vote at all.  He’s just walking away.  Abstaining his way into oblivion.

…Democrats are spending a lot of time lobbying Leland Yee (who has been consistently voting against this stop-gap solution because it hurts schools too much) and Abel Maldonado (who isn’t voting), but of course even if they switched their votes that would leave the Senate one vote short of being able to override Arnold and put the stop-gap into effect.

…Republicans are playing their usual game of holding back all their votes until all the Democrats vote for something, so they’re waiting on Yee to flip.  But assuming he does in the next 20 minutes, who joins him?  Two GOP votes are needed.  Beyond Maldonado, who would change their vote?

…Yee just came back to the floor, I’d bet he’ll vote with the majority this time around, but time is running out… indeed, Yee votes aye.  Will there be a second Republican?  Or even a first?

…Maldonado still not voting on the three-bill stop-gap package.  10 minutes and counting…

…This is pretty much over.  At midnight, the state loses the equivalent of $7 billion in savings.  I will remind everyone that Senate Democrats, in the end, voted 25-0 for this deal; Republicans, 0-14 with 1 cowardly abstention (Maldo)… and Steinberg shuts it down.  It’s over.  IOUs will go out on Thursday, $7 billion wasted by the so-called fiscal conservatives.

The Senate followed the Assembly today by passing a majority-vote budget, mostly along party lines, that solves the entire current deficit and includes a large reserve.  The Governor has vowed to veto the package.  CDP Chair John Burton is asking for grassroots action to force the Governor into compliance, which I consider unlikely, but it’s worth reposting some of the letter for the perspective of Burton:

Late last night, Assembly Democrats passed a spending plan that minimizes the cruel cuts advocated by the governor by raising $2 billion in new revenue. Just a few minutes ago, Senate Democrats followed suit, passing a plan that requires Big Tobacco and Big Oil to share in the state budget sacrifice.

Speaker Karen Bass, President Pro Tem Darrell Steinberg and their caucuses should be commended for standing firm against the governor’s Draconian cuts.

In order to pass the plan, legislative leaders structured it to require a majority vote. That’s because Republicans have repeatedly refused to provide the handful of votes necessary to pass the plan with two-thirds support.

Disappointingly, Gov. Arnold Schwarzenegger has vowed to veto the Democrats’ budget plan, preferring to play a game of chicken with the budget. He and Legislative Republicans would rather strip health care from nearly one million children and close 220 state parks than ask corporate special interests to pay their fair share.

Now, the onus is on the governor and Republican lawmakers to explain to Californians why they would rather drive the state over a cliff than agree to a budget with a mix of cuts and new revenue.

Please, call Governor Schwarzenegger’s office today at (916) 445-2841 or (213) 897-0322. Ask the governor to sign this budget plan, which minimizes the cuts by sharing the sacrifice.

Echoing the theme, Sen. Steinberg said today, “Shutting down the govt is not the answer to solving CA’s problems.”  He also called on the Governor to “release the Senate GOP” and allow for a bipartisan vote on stop-gap measures, the same that passed the Assembly, to allow for continued negotiations after the June 30 deadline.

What is now at risk, in addition to the distribution of IOUs, are $3 billion in savings from the current fiscal year, savings that will essentially be lost with no deal by midnight tomorrow.

In a nutshell: the deficit solutions pitched by both Governor Schwarzenegger and Democratic legislators rely on a spending reduction of about $3.3 billion in the 2008-2009 fiscal year that ends on June 30.

That’s tomorrow at midnight. Once the new fiscal year begins, those savings are effectively gone.

$3 billion of those savings would come from K-12 and higher education. They are not popular spending cutbacks in education circles, but reflect the larger ‘all options are bad’ narrative that you’ve heard in all circles for the past several weeks. The final $300 million or so of current year savings come from a plan to transfer money away from local redevlopment agencies.

Budget staffers say it matters which budget year to which these spending reductions are attributed (2008-09 vs. 2009-10) — in large part because additional cutbacks in 2009-10 could complicate the already delicate issue of eligibility for federal stimulus dollars.

Immediate savings are important for another reason: they provide some breathing room for the cash-depleted state coffers and might lower or eliminate the need for Controller John Chiang to issue IOUs by week’s end.

With no stopgap, essentially lawmakers will have to find an additional $3.3 billion in the 2009-10 FY budget, on top of everything they’re already doing.  So the Governor not only threatens a government shutdown with his intransigence, he wastes the state an additional $3 billion dollars, in effect.

The Republicans nixed the Democratic proposals in Senate.  But Senate President pro Tem Darrell Steinberg doesn’t seem to be willing to toss in the towel just yet.  However, as Dave noted in the above-linked post, what is the endgame?  

This video is of a presser immediately after the vote went down in the Senate.  Steinberg looks alternatively frustrated, punch-drunk, sad, and jocular. At one point, he questioned the entire system that dumps children off insurance while refusing to look at tobacco taxes. It really is quite poignant for a moment.  Steinberg then moves on to acknowledge the tyrannical power of the minority and the unlikelihood of getting substantial revenues. But this budget mess is really wearing on him; he wants a deal.

As a practical matter, Steinberg does work to establish a rhetorical wall around the social safety net.  But anybody who pays attention to what’s going on in Sacramento can tell that when rated on a scale of levees, it’s more New Orleans than Amsterdam. He says that he will not let Health Families insurance for hundreds of thousands of kids be destroyed, will not let in-home support services be removed, will not let Cal-WORKS be eliminated, and wants to protect CalGrants, among other areas. Really, he outlined the base to which he could not sink past. But, as Bob Dylan says, if keeps on rainin’, the levee gonna break.

All that being said, in the rather long video, he also says that he definitively will get a deal done by July 1. For those not by their calendar, that is next Wednesday. That’s not a long time to convince some Republicans in his “super secret negotiations” to come up with a plan to close $6 Billion that Republicans themselves have definitively rejected.

Note that there is one Republican who does have an idea to close the last $6 Billion: Tom Campbell. Campbell, Arnold’s former Director of Finance and candidate for governor, calls for a one-year gas tax increase to raise $6 Billion. Of course, the proposal probably eliminates Campbell from the Republican primary, but his position is noteworthy.

As Dave mentioned, the failure is the system. Short term, some bad deal will be made. Long-term, we must have a repeal of both 2/3 rules as a primary issue and get rid of both of them, pronto.

More videos at Steinberg’s Senate website.

In the upside-down world of the California budget mess, the Senate President Pro Tem is now criticizing Republicans for their refusal to vote for cuts.

Senate Leader Darrell Steinberg wants to put Republicans on record today on two political questions: whether they can accept $11.4 billion in cuts that Democrats are proposing, and whether they will vote on $2 billion in new taxes.

On taxes, Steinberg conceded he is unlikely to win a single Republican vote when the Senate takes up the Democrats’ $23.3 billion deficit reduction plan. But that, he said, shouldn’t stop them from supporting his package of cuts, which will be voted on separately.

“If they’re going to stand on the argument that cuts are not deep enough and thereby not vote for $11 billion in cuts, then we have some issues,” Steinberg said at a news briefing next to his Capitol office. “It’s interesting. I’m getting a sense that Republicans are getting shy about voting for cuts. That would be an odd headline: Democrats urging Republicans to vote for cuts.”

Actually, it’s not an odd headline.  It’s the inevitable consequence of a broken political system where you need a simple majority to make cuts and a 2/3 majority to raise taxes.  Period.  

In this case, Steinberg can pass the whole budget, save $2 billion in oil and cigarette taxes, by majority vote, because this is not a budget enactment, but a revision.  If he doesn’t muster 2/3 for the cuts, however, the revision will be delayed 90 days, reducing the effectiveness of the cuts by roughly 1/4, and forcing additional solutions to fill the deficit later.  Even when mostly cuts are on the table, Republicans are using the leverage of undemocratic supermajorities to force more cuts.

Here’s Zed Hollingsworth playing dumb that all he wants is a comprehensive solution.

“We’re willing to vote for the cuts that provide for a complete solution,” said Republican leader Dennis Hollingsworth, R-Temecula. “We’re not willing to vote for a partial solution that has us coming back in the spring having to find more revenues when another calamity hits. We’re not interested in political gamesmanship.”

No, the Yacht Party would NEVER be interested in political gamesmanship, perish the thought.  They’d never want to try to send the state into bankruptcy to make a political point or anything.  By the way, Zed, news flash: you’ll be back in the spring.  The projections from the Legislative Analyst have consistently fallen short of reality, and no matter how big a budget reserve gets baked into this new budget, you can bet dollars to donuts it won’t be enough, especially considering the potentially accelerated Depression that additional cuts to the social services net will force.  The Anderson Forecast estimates 64,000 government jobs lost from this round of budget cuts.  Even in Dan Walters’ world, that’s a significant chunk.

My problem with the Democrats on this is mainly their insistence on working within a broken system.  They miss every opportunity to put the failed governmental structure on trial.  Something as absurd as Republicans voting against program cuts – to ensure MORE program cuts – defies belief without an explanation of how it’s a symbol for a bad process that must be fixed.  The goal of this budget, which was never going to be pretty regardless of the May 19 election, should have been to heighten that reality.  

UPDATE by Brian: I’ve attached a  summary of the Budget Committee’s bill over the flip.  

The plot thickens.  The Governor today threatened to veto the work of the bipartisan Budget Conference Committee and reject any bill that, essentially, doesn’t hew to his desire to destroy the social safety net of the state.  The Democratic leadership countered that they’ll pass the bill anyway.

Democratic legislative leaders vowed today that the Legislature will pass a “share the pain” budget-balancing plan early next week – with or without tax increases — that will close the state’s spending deficit without completely shredding California’s social services safety net.

The vows by Senate President Darrell Steinberg, D-Sacramento, and Assembly Speaker Karen Bass, D-Los Angeles, came about an hour after Gov. Arnold Schwarzenegger said he wouldn’t sign a plan that was balanced with tax increases.

The rhetorical staking out of ground by the key figures in the current version of the state’s ongoing fiscal melodrama came a day after the Legislature’s joint budget conference committee, on a party-line vote, adopted a plan that included about $2 billion in new oil production and cigarette taxes to help bridge a $24 billion budget gap.

Let’s take a brief look at what else the conference committee has done.  They resisted some of the worst health care cuts, including the total elimination of Healthy Families (the SCHIP program).  They reduced education spending significantly in both K-12 and higher ed.  They reduced corrections spending by a fairly large amount.  Despite the fact that state parks pay for themselves, Democrats agreed to cut state participation in park funding, replacing it with additional fees on park admissions.  They agreed to increasing withholding by 10%, which amounts to an interest-free loans from citizens to the state.  According to Karen Bass, they agreed to 45% of the Governor’s proposals in full, and 93% in part.

So the idea that Democrats are not cutting spending is simply unreasonable and wrong.  At the same time, they rejected additional cuts to state worker salaries.  They rejected the end of Cal Works or Cal Grants or In-Home Support Services.  And some of the Governor’s proposals, like borrowing from local governments, were rejected unanimously.

I don’t even much like what the Democrats came up with.  But they did not agree to completely wipe out the social safety net, calling for moderate increases in revenue on constituencies who have been getting away with murder, pretty much literally, for decades, to pay for the externalities in health care costs that they impose on the public.  As Noreen Evans explains:

Californians expect their schools to be good, a safety net to be available to the needy, a college education to be affordable for working families, their air and water to be clean, and their parks to be open and kept up. In order to meet their expectations, we must to pursue new revenues. Today, for the greater good, we approved two new tax proposals that won’t impact most Californians.

Establishing a 9.9 percent tax on oil extracted from California would generate $830 million in FY 2009-2010 and $1.1 billion in future years. This precise proposal was part of the governor’s budget proposals last year. Increasing the excise tax on cigarettes by $1.50 per pack generates $1 billion in FY 2009-2010.

Tax increases require a 2/3 vote. Absent the pursuit of new revenues, wider and deeper cuts will be required. Getting new revenues requires a mere 6 Republican votes: 2 in the Senate and 4 in the Assembly. It is undemocratic that the votes of 6 Republicans can veto the votes of 75 Democrats.

But Arnold wants to destroy the state of California like a good little neo-Hooverist, so he said no.

The Dem leadership appears to want to have this fight for the moment, so they ought to realize one thing: Arnold will ultimately be responsible – and reviled – in a government shutdown situation.  No question about it.  Not 1 in 10 Californians can even NAME a Democrat in the legislature.  If the ship sinks, Arnold will be perceived as the skipper.  And so, if and when Arnold vetoes the bill, the Democrats should send it back – with MORE tax fairness solutions, daring Arnold to prolong the agony.  That resets the battle and draws clear lines between those who want the richest companies in America to sacrifice along with ordinary Californians, and those who want to protect the rich completely.  Unfortunately, the Dems are tipping their hand that this will not be the case.

But Bass and Steinberg seemed to be reconciled to the likelihood that the tax hike proposals would fail next week. Steinberg said that if they did, the package they sent the governor would have a reserve $2 billion smaller than he had sought.

We have a couple days to change this dynamic.  The progressive movement around the budget has stiffened spines a bit so far.  Time to make the calls and emails.

This is funny:

Schwarzenegger added that he wants a budget plan that will bridge the entire projected deficit of $24 billion, not a stopgap measure to “kick the can down the alley.”

The plan must consist of permanent solutions to the state’s fiscal problems, not one-time revenue that sparks ongoing spending commitments, Schwarzenegger said.

When Schwarzenegger was reminded that his own budget plan contains some one-time revenue proposals, such as acceleration of income tax payments, he smiled.

“Very good point,” he said. “We don’t want to add to the problem.”

The cyborg is not running on all cylinders.  He has a single-minded purpose to kill the California dream and even these extremely moderate revenue enhancements.

June 16 2009 Conference Report – Get more Business Documents  

More to come on this post, but as we are rapidly approaching 6 pm, I wanted to get the word out about the Budget town hall with Senators Leno and Steinberg.  Here’s the link for that:

http://democrats.sen.ca.gov/to…

More details on the budget shortly in an update to this post…

OK, moving it over the fold…

UPDATE 1: As we are about to begin, there are a few things to point out. Today, the budget conference committee approved a “first pass” of their budget, that was focused primarily on cuts. it wasn’t the full $24 Billion, so we will see where the rest comes from.

UPDATE 2: Steinberg addressed shifting some of the funding decisions to the locals and then Sen. Leno discussed the Vehicle License Fee, and the fact that the backfill from the state to the counties that Arnold created when he cut the “car tax” is now the largest area of spending growth.

UPDATE 3: Why is just the Big5 making the decisions? Steinberg says that he is not just using the Big5 in this round of the budget mess, Leno then addresses the current process. The Big5 grew out of some hard bargaining between Willie Brown and the Governor at the time. This time they are doing a more public process. This time they held 3 weeks of hearings in the joint committee.

In the comments, it is noted that there were over 700 questions for this event. I’m not sure if they are going to release the questions.

UPDATE 4: Why not have the Legislature go part-time? paraphrases here, not quotes.

Steinberg: California is a “nation-state.”  Trying to govern the state part-time would be disastrous. Steinberg sticks up for his colleagues, talking about the hard work that the Legislators do. Having legislators have other jobs would harm the public interest, as the legislators would have to have other jobs, and not dedicate their full attention to the job.

Leno: The complexity of this job is amazing. If we are in a committee for two hours, we’ve prepared for at least 2 hours before hand.  The amount of work is amazing. Do we want to abrogate all of our responsibilities to state staff, who are unelected?

UPDATE 5: Is it time to Split the corporate rolls from the personal Prop 13 rolls?

Public education are short billions of dollars because we have not adequately established the difference between corporate and personal property. We need to go to the ballot

Leno: We are subsidizing corporations by not reassessing the properties. We should go to the ballot.

UPDATE 6: We need to end that corporate tax cut?

Leno: I agree, we shouldn’t include that tax cut. It is going to the biggest companies. That 2.5billion should be used for some of the important priorities of the state.

Steinberg: Governing is a matter of choices. Would the people of California rather decimate CalGrants or suspend the corporate tax cuts. This is an important debate. 2/3 or no 2/3, we are going to have that debate.

Mac Taylor is joining the conversation next…

UPDATE 7: 2/3 Vote on Budget Taxes?

Steinberg

UPDATE 8: Why aren’t you bringing in more revenue?

Leno: We need 2/3. Almost all of the Republicans who joined us are facing recalls. They are putting their careers on the line. There were some real profiles in courage in the February deal. We don’t think they will be willing to do that again. We should ask Californians if they want to really go down these paths?

UPDATE 9: Blame the immigrants?

Leno: It would be disastrous for public health and welfare if we simply stop treating all immigrants. We don’t live in a bubble, and ignoring one segment exists doesn’t actually make things better?

UPDATE 10: Are in-home support services cheaper than institutionalizing people?

Mac Taylor: In certain circumstances, it is cheaper to have IHSS right.

UPDATE 11: Why are the budget projections always wrong?

Mac Taylor: We have tried to get this right, but the problems is that we have to predict the economy. That’s hard. Also, the revenue structure is crrraaaazzzy, and unpredictable.

UPDATE 12: Schools?

Leno: It is heartbreaking that we are going to have to cut schools, but it is the largest chunk of the budget. We are going to spend more on corrections than higher education next year. that is disturbing, we need to fix that.

Steinberg: If we want to build an economy of high wage workers, we need to increase education. We will do our best to hold the line, but this crisis is real.

UPDATE 13: This is getting a bit long now, as even I am struggling to keep up with this. I will provide links to the archived video shortly…

UPDATE 14: Marijuana?

Leno says he supports at least changing possession to an infraction. Steinberg is a bit hesitant, open to discussion.

Looks like Darrell Steinberg is hedging his bets on fixing the broken political structure in Sacramento by going to the ballot to protect children’s health coverage:

Days after Gov. Arnold Schwarzenegger proposed to abolish the Healthy Families Program (which would entail booting more than 900,000 California kids out of health insurance), Steinberg’s Committee for a New Economy on Monday made a $75,000 contribution to Californians for Children’s Health – a sizable cash infusion for a committee that previously had only about $20,000 in its coffers.

The statement of organization for Californians for Children’s Health says the group – for which a Web site is under construction – exists to support “expansion of children’s health coverage,” and its sponsoring organizations include the Children’s Defense Fund Action Council; the Children’s Partnership, a project of the Tides Center; Children Now; and PICO California. Its CFO is PICO California director Jim Keddy; its secretary is Kelly Hardy, Children Now’s associate director for health.

Hardy earlier today told me Californians for Children’s Health aims to develop a ballot measure for November 2010, and although today’s rapidly changing budget environment makes it hard to say exactly what that measure’s specifics will be, “we’re contemplating new revenue sources that would come in, not General Fund sources, that would support children’s coverage programs.”

Steinberg has a history of going outside General Fund revenues to pay for social services projects – see the millionaire’s tax in Prop. 63, which funds mental health programs.

You need to play within the hand dealt, and voters have shown a willingness to use tax increases to fund specific programs.  Losing the Healthy Families Program would mean 900,000 kids without health care in California, and we would be the only state in the country not accessing federal SCHIP funds.  So obviously, you try to get that revenue absolutely any way you can.

At the same time, is this any way to run a government?  Create a system where no revenues can be raised inside the legislature, forcing stakeholders and politicians to go to voters to look for a dedicated stream here and another dedicated stream there?  This is unsustainable to the nth degree.  We will not transform California one dedicated funding stream at a time.  It just won’t work, and we’ll spend hundreds of millions of dollars on consultants in the process.  Steinberg shouldn’t foreclose the option, of course, but his money would be better spent on reform efforts so that he no longer needs to go to the voters for everything, and we can have a representative democracy such that has worked in America for over 220 years.

Moreover, I fear that Steinberg is setting this fallback plan up assuming that Healthy Families will be either eliminated or gutted in the next couple weeks.  Perhaps the donation to a potential ballot committee is a threat to the Governor; but perhaps it’s a signal that the cuts can come down.  Let’s be clear – in the meantime, while we wait for the results of that election, children will die from a lack of health care coverage.  We have other options – Jean Ross describes some of them beautifully here – and the Democratic legislature should be drawing lines in the sand, not giving up on drastic cuts and making contingencies.

George Lakoff writes today that this could be a moment of freedom for California Democrats.  Their compromised ballot measured having gone down in flames, they can now focus on the only solution to what ails the state: democracy.  They can include in every public utterance until the moment the 2/3 rule is repealed the theme that California’s democracy is broken, and that we must restore it with a majority vote for budget and revenue matters.  The time for half-steps and non-fixes must be over.

Up to now, Democrats have been acting like sheep being herded by the Republican minority. They need to show courage and stand up for what they believe. That’s what the voters are waiting for […]

Get rid of the 55% proposals. People understand that majority rule means democracy. 55% means nothing.

Even if you don’t address taxes and just address the budget process, the Republicans will still say you’re going to raise taxes. You may as well go for real democracy.

And finally, get a unified message that can be supported by the grassroots. Do grassroots organizing for 2010, starting now. Organize spokespeople to get that message out. Organize bookers to book your spokespeople in the media. You Democrats are a majority. Act like it. The public will respect you for it.

Unfortunately, Darrell Steinberg and Karen Bass failed the first test, stuck in a mindset that will bring the state to ruin.  First, Steinberg.

“The voters have spoken and they are telling us that government should do the best it can with the money it has. We will immediately and responsibly get to work to balance the budget and head off a cash crisis in July. Delay is not an option. The necessary decisions we must make will only get harder with time.”

That is not what voters are telling you. As I said yesterday, you cannot reconcile the supposed anti-tax fervor with the passage of a transient occupancy tax in conservative Palmdale with 64% of the vote.  California is a big state and no one message from a statewide election can predominate, but the mass boycott of the polls certainly suggests that we don’t want to do your job anymore.  I know it’s been so long since Democrats exercised their Democratic muscles and principles in Sacramento, but this election called out the political leadership for failed governance.  And everyone who has studied this for half a second understands that the failure will continue until the structural barriers are removed.  And so making this absurd and vindictive statement about voter intentions both misses an opportunity to refocus the discussion and angers the grassroots further.  

Here’s Bass:

“There are many difficult choices and a lot of hard work ahead of us.  We now have to responsibly fill the budget hole that has been caused by the national recession and deepened by the failure of today’s ballot propositions.  I hope the bipartisan cooperation between the Legislature and the Governor that went into this effort will continue as we move forward – the people of California clearly expect us to work together to get the job done.  And we will.

The people of California could give a rat’s ass who works together with who.  They don’t want to see this level of dysfunction anymore.  Bipartisan cooperation was clearly rejected last night, because inevitably that gives leverage to the minority and provides unworkable non-solutions.

Where is the argument for DEMOCRACY in these statements?  Since 1978 that democracy has crumbled and needs to be completely rebuilt.  Everyone knows this but refuses to say it out loud.  This is why the legislature and the Governor have historically low approval ratings.  People are starved for actual leadership and see none.  Only democracy will save us.  This failed experiment with conservative Two Santa Claus Theories has now become deeply destructive.  Because the democrats have provided no leadership and ceded the rhetorical ground, California public opinion holds the contradictory beliefs that the state should not raise taxes and also not cut spending.  And if it persists without leadership and advocacy to the contrary, nothing will change.

I think the sand has come out of the eyes of most everyone in Sacramento, and seeing their May 19 solutions sinking, the legislative leadership has returned to the drawing board, where a deficit somewhere between $14-$16 billion dollars for FY 2010 must be wrestled with.  Unsurprisingly, conservative lawmakers and the media have foregrounded cuts as the first among all other options.

So where might they look?

For starters, the state would spend down its $2 billion reserve, Steinberg said.

State leaders are eyeing a possible $5 billion reduction in school spending allowable under the state’s constitutional education guarantee when revenue drops. Education groups say that could threaten valuable programs and prevent schools from rescinding layoff notices they issued this spring.

“Schools would have to look at extracurricular programs, library hours, transportation,” said Scott Plotkin, executive director of the California School Boards Association. “An awful lot of things not required by the law that are desirable are going to start falling by the wayside.” […]

Schwarzenegger aides have warned public safety groups he may propose an early release of up to 38,000 prisoners, split between 19,000 undocumented immigrants and 19,000 low-level offenders. The governor may also seek to house those who commit “wobbler” crimes in county jails rather than in state prisons.

The plan would save an estimated $335 million in 2009-10 and $849 million in 2010-11.

It proposes to hand over undocumented immigrant prisoners to United States Immigration and Customs Enforcement, though public safety officials questioned whether the federal government would agree to such a plan. The plan also would release 19,000 “nonserious, nonviolent, non-sex offense” inmates in the final six months of their sentences.

I don’t see ICE terribly happy with the state plopping 19,000 undocumented immigrants in their laps.

On the flip side of this, I think it’s important to recognize the solutions out there that involve no cuts, ones that must become part of the conversation immediately.  For example, federal guarantees for municipal bonds would save the state billions of dollars that could be diverted to closing the budget gap.  While it appeared that Congress was unmoved by this proposal, the Treasury Department could step in.

The Treasury, for instance, is working on a plan to help cities, school systems, hospitals and other agencies borrow money at cheaper rates. The credit crisis made it more expensive to get money for buildings, ballparks and other projects. The problem has been particularly acute for those with lower credit ratings, which require them to pay more for their bonds.

Officials are considering options including the creation of a federal agency that could back the bonds, aiding bond insurers that backstop municipal bonds or simply providing subsidies that could lower the rate for municipalities.

This is not a direct pass-through to the budget, but the savings would be felt in future scorings of overall revenue and spending.

More important, the Senate leader has started to talk about the majority vote fee increase once again.

But making deeper cuts into social services begins to run against logic, Steinberg said. With CalWorks, for instance, the federal match is “so significant,” that to cut $1 is to turn away $4 or $5 in federal dollars.

“At some point, it makes little sense to cut even deeper,” he said. “But, let’s assume we make significant and broader cuts. Then, you’re looking at corrections and public safety. … I wouldn’t take it as a complete given that the other side is really willing to vote for a cuts-only strategy.”

If Republicans don’t go along with new revenues, Steinberg said Democrats may have to resort to a simple majority vote on fees, the same tack he took last winter before Schwarzenegger vetoed the effort to force negotiations. “But we’re not going to lead with that,” Steinberg said.

They ought to go ahead and lead with it.  The problems we face in Sacramento are governance problems, which favor solutions that kick the can down the road instead of facing up to current challenges.  In such an environment, bold solutions that finally remove the structural revenue gap and end budget dysfunction are really the only step forward.  The majority-vote fee increase is a bold, albeit short-term, step, certainly preferable to counter-cyclical and counter-productive spending cuts, and the pressure on the Governor to accept it will increase as the summer marches on.  The long-term solution, of course, comes in building the rationale for restoring democracy to the legislature by ending the conservative veto over the process and returning to a simple majority to run government.

In this edition of “Did you know?” we take a look at Prop. 1C.  Sure, the ballot statement, the legislative analyst’s report, and every public utterance about Prop. 1C to date asserts that it would allow the state to borrow $5 billion dollars against future lottery revenues.  But did you know that, according to Darrell Steinberg, it would actually allow the state to borrow twice that?

Trailing badly in the polls, Proposition 1C would infuse the state budget with cash by borrowing against future California Lottery revenues. The February budget assumed that it would provide $5 billion for the 2009-10 budget. But Steinberg said he now believes the state could borrow $10 billion from the Lottery and use it all in 2009-10.

Consider it something of a “Hail Mary” argument for Proposition 1C.

“In my view we can triage our way through an $8 billion problem,” Steinberg said. “That doesn’t mean that there won’t be some difficult choices. But, you know, we have a $2 billion reserve. There may be other opportunities with federal economic stimulus … If 1C passes, you know, it’s actually a $10 billion one-time securitization. It was just contemplated as being spread across two fiscal years. You could bring the second $5 billion into the budget year.”

What fun things you learn when your proposition trails in the polls!

Let’s go to the summary of Prop. 1C, shall we?

Impact on 2009-10 State Budget: Allows $5 billion of borrowing from future lottery profits to help balance the 2009-10 state budget.

Hm, no mention of future state budgets there.  But yes, the Senate President Pro Tem is correct.  In the analysis by the Legislative Analyst, he mentions that “the state also could borrow more from lottery profits in future years.”  In fact, the $5 billion dollar figure appears nowhere in the text of Prop. 1C.  Here’s the relevant portion of the text:

(2) Notwithstanding any other provision of law or this Constitution to the contrary, the Legislature is hereby authorized to obtain moneys for the purposes of the California State Lottery through the sale of future revenues of the California State Lottery and rights to receive those revenues to an entity authorized by the Legislature to issue debt obligations for the purpose of funding that purchase.

Well, that would be interesting to know before voting, wouldn’t it?  That this proposition basically opens up a new state credit card for the potential purpose of endless borrowing?  Borrowing that would have to be paid back, with interest, for the next several decades?

California’s reliance on borrowing to cover the budget deficit has been part of the landscape for 30 years.  Debt service currently costs the state $5 billion a year.  If you think this is a good idea, I invite you to enable it by voting to allow basically limitless borrowing against the lottery.  Surely that won’t be abused.

…by the way, the depiction by Steinberg of $8 billion dollars as a niggling problem not to be trifled with, but $14 billion as simply insurmountable, is another new one.  Considering that Steinberg and the Senate passed a majority-vote fee increase of around $9 billion last year, more than the $6 billion allegedly at stake in the special election, and his description of how to fill the budget gap did not include this, forgive me for saying that his beliefs don’t hold up to scrutiny.