It’s already looking ugly:

California lawmakers and their budget advisers estimate that the Legislature, which on Friday approved a $104 billion general fund budget that plugged a $17 billion gap 81 days into the current fiscal year, will be looking at a deficit of at least $1.6 billion nine months from now.

But that number could easily balloon to $7 billion or more…

“All these (projected deficit) numbers will be dwarfed if in fact we are heading into a serious recession because with what’s happening nationally – the credit crunch, people spending less money – projections of state revenues will go into the toilet,” said John Ellwood, a professor at the Goldman School of Public Policy at UC Berkeley.

The article makes the good point that the one-time budget solutions have now been exhausted. We’ll have “securitized” the lottery, done all kinds of accounting tricks, closed the Yacht Tax loophole, and done pretty much everything except what’s necessary – fix the structural revenue shortfall.

Some of us are talking about constitutional solutions, and it is my earnest hope that 2/3 is on the special election ballot next spring. But Democrats also need to get out in front on defining the budget crisis as a revenue problem. I had been tracking since December the tendency of the media to frame this as a spending crisis, which likely helped Republicans get away with their no new taxes demands this summer.

The public reaction against the Bush bailout should suggest the power of a populist approach, blaming deregulation and giveaways to the wealthy for our current problems. Karen Bass began using that language herself, equating the $12 billion in tax giveaways California has approved since 1993 to the Bush tax cuts earlier this summer.

Bass and John Laird also proposed a very good revenue plan emphasizing the restoration of the Reagan and Wilson-era income tax brackets and making corporations pay their fair share. Dems should have stuck to that plan more strongly, but it is a good starting point for the 2009 fight.

Democrats will also benefit from new leadership. Karen Bass is a good progressive and as we saw helped craft a very good revenue solution, and did the right thing in resisting Republican demands as long as she could. Had she come to power earlier in the year she might have had more time to craft a better strategy than what Núñez left her, which wasn’t much. It will be especially good to be rid of Don Perata, who lacked proactive leadership on the budget, instead reacting to events and eventually cutting a bad deal with Republicans and Arnold without meaningful input from Speaker Bass. Darrell Steinberg will likely provide stronger, more progressive leadership as well.

I have a lot of hope for both Bass and Steinberg in their first real opportunity to craft a better budget. But if they are to succeed they need to start defining the terms of debate now – frame this as a revenue crisis. That helps explain how the Republicans are responsible for these ongoing delays as they exploit the 2/3 rule for their narrow ideological agenda. And it can help build public support for the smart, fair, progressive revenue solutions that must be at the core of the 2009 budget.

As the economy continues to sink into what may well be another Depression, it is absolutely vital that California’s public services are up to the task of helping us survive it. The stakes for the 2009 budget cycle could not be higher.

Maybe George Skelton took my post last week to heart, or maybe the self-evident truth smacked him upside the head, but in today’s column Skelton calls for eliminating the 2/3 rule:

It’s a good bet that 51% of the Legislature would have voted for a budget by now — maybe even had one in place for the July 1 start of the new fiscal year. But 67% is required.

Only two other states have such a monstrous hurdle. And both are better positioned to deal with it because, unlike California, their legislatures are lopsidedly dominated by one party….

State Sen. Tom McClintock (R-Thousand Oaks), a hero of fiscal conservatives, long has favored allowing a majority budget vote.

“The two-thirds vote for the budget has not contained spending, and it blurs accountability,” McClintock says. “If anything, in past years, it has prompted additional spending as votes for the budget are cobbled together.”

The rub is that while McClintock is willing to support a majority vote for a budget he is not willing to support majority vote for taxes. That is the one that really matters. If we had a majority rule for the budget but 2/3 for taxes, it would do nothing to change the current budget standoff as Republicans would still use their numbers to block a tax increase and therefore block a budget.

The column has some good quotes from Steinberg and Bass, who are showing welcome interest in fixing the odious 2/3 rule:

Both incoming Senate leader Darrell Steinberg (D-Sacramento) and Assembly Speaker Karen Bass (D-Los Angeles) say they’ll consider developing a 2010 ballot initiative to permit majority-vote budgets.

“I’m telling you, I’m very serious about it,” Steinberg says. “We can’t keep doing this. This is ridiculous. It’s unproductive.”

Bass figures there would be plenty of financial support for a ballot campaign from labor unions, healthcare providers and others who rely on public funds and are frustrated by incessantly tardy budgets.

“This budget crisis we’re in is a perfect example of why we need to be like 47 other states,” Bass says. “I’m not sure what we have in common with Arkansas and Rhode Island. . . .

“We would have had a budget by the constitutional deadline, June 15.”

Both Bass and Steinberg need to move on a fix for the 2/3 rule. But since that won’t happen until 2010, we need a solution to THIS budget crisis – a solution which will require voters to hold Republicans accountable for their hostage tactics.

Lest we let Skelton off easy today, he still shows he believes in the Media’s First Commandment: Thou Shalt Not Speak Ill of Republicans:

Don’t blame Republicans either. They’re being asked by the governor to break their pledges — however misguided they were — not to raise taxes. Moreover, most are philosophically opposed to taxing people more — particularly during a recession — and are sticking to their principles. That’s supposed to be an admirable trait.

Nonsense. The 2/3 rule isn’t a problem unless one party makes it a problem. The Republicans are using the 2/3 rule as a weapon to destroy this state and make its residents suffer. Don’t let them get away with it.

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.

He was elected by voice vote with no opposition as the new President Pro Tem of the California State Senate.  I’m not sure what this means for the current legislative leadership, though it seems that he wouldn’t start until December, so Perata is likely to continue through the budget slog.

I wish it was sooner, but I’m happy to get to the day when we have the leadership of Steinberg and Bass in the legislature.

Congratulations, Senator.

I will be on KRXA 540 AM at 8 AM to discuss this and other California political issues

Today Darrell Steinberg is expected to finally be elected as Senate President Pro Tem, bringing the failed leadership of Don Perata to a welcome end. George Skelton welcomes him to office with a column the landmark smart growth bill that Steinberg has been pushing through the legislature. Although the bill won’t pass this year, it has a big head of steam behind it, and faces good prospects in the 2009 session.

Steinberg’s bill would link land use planning in California to the AB 32 global warming targets:

“One issue everyone has been afraid to touch is land use,” Steinberg says. “Everyone understands about using alternative fuel. But land use has been the third rail. AB 32 changed the equation because now land use has to be part of the solution to global warming. You can’t meet our goal just with alternative fuels. You have to reduce the number of vehicle miles traveled.

“If people are going to drive — and they are going to drive — we need to plan in ways to get them out of their cars faster. That means shrinking — not the amount of housing, not economic development, not growth — but shrinking the footprint on which that growth occurs.”

Steinberg wants it to occur within a smaller circle around downtown.

Basically the bill would work like this: Each metropolitan region would adopt a “sustainable community strategy” to encourage compact development. They’d mesh it with greenhouse emissions targets set by the California Air Resources Board, which is charged with commanding the state’s fight against global warming.

Also included are preferential funding for transportation projects that fit with the “sustainable community strategy” and an expedited permitting process for those developments that fit the law’s and the community strategy’s goals.

Tom Adams of the California League of Conservation Voters called the plan “the most important land-use bill in California since enactment of the Coastal Act three decades ago” and he’s right to say it. But the plan does more than help the environment and reduce carbon emissions.

One year ago I called for “redefining the California dream” – restoring the economic security of California workers by abandoning sprawl and turning to urban density and mass transit. This is not just an environmental move, but it is absolutely necessary for job growth, affordable housing, and basic financial security.

California can no longer afford sprawl. The national housing bubble burst right here, in the exurbs of Stockton, Modesto, and Moreno Valley. As gas prices rise at a rate of 30% every year since 2002, sprawl becomes literally unaffordable for most Californians, with a devastating ripple effect throughout the economy.

Republicans will predictably be furious with Steinberg’s plan, but that’s because they represent the emergent “homeowner aristocracy” – certain (by no means all) households that bought their home prior to 1990 or so, those who want to preserve the conditions of the 20th century at all costs.

As Jerry Brown recognized when he was governor 30 years ago, and still recognizes today, density done right is the key to maintaining the middle-class California dream for the 21st century. Only by following the Portland model of strictly limiting sprawl and encouraging infill development and providing the transportation options needed to serve that development can we bring affordability back to California, and secure the economic future for new generations of Californians.

Steinberg’s genius move is to link that strategy to the fight against global warming. It’s nice to finally see some real leadership from Democrats on this matter and particularly from the new leader of the State Senate. SB 375 may not make it to the governor’s desk this year, but it deserves our strong support in the 2009 session. It will transform California for the better, and there are few bills aside from SB 840 that can credibly make that claim.

I’ve been mulling this around in my head for a few days.  Three powerful members of the House Judiciary committee have have sent a letter to the Justice Department calling for an investigation into leaks surrounding the inquiry into State Senate President Pro Tem Don Perata.

No article since November 2004 has explicitly said that any information came from a federal government source. But in a letter to U.S. Atty. Gen. Michael B. Mukasey obtained by The Times on Monday, U.S. Reps. John Conyers Jr., Linda Sanchez and Zoe Lofgren wrote, “We are disturbed and concerned that news story after news story . . . has cited federal law enforcement sources as the basis of information.”

The only article specifically mentioned in the July 31 letter was a story in the San Francisco Chronicle. The article cited “sources familiar with the probe,” a broad term that could encompass federal agents, defense attorneys and people who have been questioned […]

On Friday, the day after the congressional letter was sent, a Wall Street Journal article said the investigation into Perata “gained momentum over the past year.” The article’s details were attributed to anonymous people “close to the defense,” who said Perata’s longtime political consultant, Sandi Polka, was granted immunity to compel her to answer questions.

(Here’s that SF Chron article mentioned in the letter.)

The Perata investigation certainly has dragged on for years, leading to him needing more and more funds to raise in his defense.  In particular, the dumping of $250,000 from the California Democratic Party into his legal defense fund raised a lot of eyebrows around these parts.  After the initial explanation of “We’re the CDP and we can do what we want,” a secondary explanation was that the investigation had been politicized and that this was part of the DoJ’s efforts to prosecute and delegitimize Democrats.  A couple weeks later, out comes this letter, signed by two members of the California delegation.  But it’s Conyers’ participation that makes me believe that this is a real concern.  I trust Conyers enough to think that he wouldn’t simply badger the DoJ to help out a political problem in California.

Of course, let’s look at what the letter is actually alleging.  It’s not suggesting that the investigation itself is unnecessarily political, but that someone inside the investigation is using the media to disparage Perata.  That may well be true, but it doesn’t necessarily follow that the whole investigation is a farce.

Let’s now look at what this does NOT suggest:

• It in no way excuses the CDP for paying off Perata with $250,000 in the middle of an election year, whether that money was simply laundered through them and earmarked for Perata or not.  Based on this SacBee report, it appears Perata is perfectly capable of raising money for himself:

Senate President Pro Tem Don Perata has solicited at least $200,000 this year from political interest groups for a nonprofit foundation that promotes and rallies support for one of his bills.

The arrangement, apparently legal, allows the Senate leader to solicit unlimited funds for his own political agenda without having to detail how the money is spent.

“He may have found a loophole in the Political Reform Act that needs to be closed,” said attorney Bob Stern, a co-author of the state’s Political Reform Act who now runs the Center for Governmental Studies in Los Angeles.

Which leads me to point 2:

• There is no way that Perata should still be Senate President Pro Tem at this point.  While he has done a good job of hammering Republicans for their intransigence on the budget, this image hit, as well as the constant distraction of having to find new ways to raise money for his legal bills, are not what we need at this sensitive time, ESPECIALLY when Darrell Steinberg is waiting in the wings and perfectly capable of performing the same duties without the black cloud of indictment hanging over the head of the Democratic leadership.  They haven’t even taken a caucus vote on this yet, to my knowledge – it’s currently scheduled for August 21, but during these budget negotiations that’s doubtful to come off.

It is perfectly consistent to be skeptical of the Justice Department’s case against Perata and to ALSO demand that he step down from his leadership position, and to excoriate the CDP for their conduct in either shoveling Perata money or acting as a conduit for that fund transfer.

Yesterday’s SacBee has a Q&A with Darrell Steinberg on the budget. His answers are brief but brilliant – along with Speaker Karen Bass it is clear we now have leadership in Sacramento that finally understands not just what is wrong with the budget but how to properly frame it:

Q: Why would the Democrats roll out a tax plan that they knew ahead of time the Republicans wouldn’t vote for?

A: There’s actually some consensus that has developed over the past several years. It’s clear from even the way the Republicans are acting in the budget negotiations, there is a common recognition that we cannot cut our way out of this problem. The Republicans aren’t putting $15 billion of cuts on the table, for good reason. … That would implicate the department of corrections and law enforcement, public education, transportation, a whole host of other policy areas that are not necessarily partisan in nature, so now the debate is framed very clearly.

This is very good framing. He’s pointing out that Republicans tacitly accept that spending cuts are not a realistic option – that even Republican programs like prisons would be crippled. California voters need to hear more of this – that spending cuts are just not possible.

Q: Are the Democrats concerned that the increase in taxes would have a negative effect on business retention in California?

A: I think the Democrats are approaching the tax question in an intelligent way. Look at the upper-income tax. This was a tax that (Pete) Wilson, a Republican governor, pushed through. I know the claim is made that wealthy earners would leave California, but that belies the facts. I did Proposition 63, the mental health initiative, which was just a surtax on earnings over $1 million, and there hasn’t been some great flight out of the state. … People choose to live in California for a lot of good reasons, and ensuring that we have the resources to properly invest in education and health care and an infrastructure, I think, is more important to the business community.

These are excellent evidence-based arguments and build off of what Speaker Bass and John Laird have been saying – that California has previously turned to taxing the wealthy without cost to our economy. The lie that taxing the wealthy hurts the overall economy has been the cornerstone of conservative anti-tax sentiment for decades, and it is long past time for Democrats to be rejecting it.

Further, Steinberg touches on a point that should be made more explicit. It’s not just the business community that finds more value in good government services over low taxes – it’s working Californians. Most of us understand that Californians get far more in value from affordable, quality schools; affordable, quality education; affordable, quality mass transit, etc – but that message hasn’t been truly embraced by Democrats ever since Jerry Brown’s notorious “born again tax cutter” emerged the day after Prop 13 passed in 1978.

California owes its current economic prosperity – such as it is – to the legacy of Pat Brown. We’ve been living off of earlier government spending. Even Ronald Reagan increased taxes when faced with a similar crisis (in 1967). If Democrats can make that argument loudly and as often as possible they will undermine the Republicans.

Q: Does the state of California have a revenue problem or a spending problem?

A: That’s a question that is always asked in the political context, and I believe we have a revenue problem. … The governor went through the stage of blowing up the boxes … he didn’t find a lot of the waste, fraud and abuse. We have a very complex state, with a growing population and with significant unmet need, and so I think we have both a revenue problem, and we have a major structural problem. … We’re misaligned, for example. Local government has significant responsibility to provide services and little authority over the revenue side of the equation.

This is pure gold. Steinberg points out that Arnold’s own performance review failed to find the “waste, fraud and abuse” that we were told we’d find in the budget. It no longer exists, if it ever did. You cannot cut something that isn’t in the budget. Plus it’s nice to see him using the structural revenue shortfall framing I’ve been using for months.

Q: Why is it that the state always seems each year to spend more money than it takes in?

A: The system of public finance that we have in California is not keeping up with the public demand for public education, for more and better quality transportation, for improved access to health care, and for first-rate local government public safety and other services.

Steinberg refuses to be baited by the Bee’s leading question here, and insists that the problem is a government that cannot play the central role it needs to play in guaranteeing economic stability to all Californians.

Overall Steinberg is pushing out some great frames that attack the heart of the Republican nonsense that we can cut wasteful spending that does not actually exist. The Republicans are left to propose massive cuts to core services which they are of course unwilling to make. All they have left is a dogmatic stance that everyone now sees right through. If Niello is an emperor then he’s clearly got no clothes.

As many have noticed, the Leadership has moved on the offense in the budget fight.  They’re not negotiating with themselves, instead staking out a fairly strong position for changing the revenue model and rejecting a stop-gap, borrow-and-spend, cuts-only approach.  Media wags, who normally act like two year-olds and talk about “working together” as if this would solve the problems in Sacramento, are responding to the aggressive approach.  George Skelton writes today about how California voters “can’t handle the truth,” how they want unlimited services without paying for them, and how they need to face reality.  He also specifically cited the 2/3 requirement as crippling the state.  Dan Walters says it’s about time for a “budget cage-match,” the ideological battle to once and for all address the structural deficit and budgeting-by-catastrophe that has become commonplace.  

Yet at the same time, the California Democratic Party hands $250,000 to the Senate President Pro Tem to pay for his legal bills, causing oodles of outrage.  Over the last two days I’ve been given a lot of reasons for this.  “The money was earmarked for Perata,” they say.  Perata has his own campaign account already and he’s perfectly capable of raising his own cash.  If people want to hide their donations by legally laundering them through the CDP, that’s nothing the state party should involve itself with.  There ought to be transparency.  “He’s being railroaded,” they say.  That’s certainly possible in an era of Bush league justice, but nobody is making that case credibly, just talking about how long the investigation has dragged on.  

And then there’s this excuse.  “If the Senate leader is indicted, that will hurt downticket races.”  But the appearance of impropriety in the CDP legally laundering contributions and paying for Perata’s legal defense fund is doing the EXACT same thing, and at a crucial time.  The LAT op-ed that Bob mentioned is just the beginning.

Furthermore, I have no idea why Sen. Perata is still the leader.  Sen. Steinberg, who did a $10 fundraiser in Sacramento a couple days ago and who I feel represents a breath of fresh air, is perfectly capable of carrying out the duties, and having someone this tainted as the face of the budget fight is incredibly damaging.  It won’t be long before the press connects this story and the budget story, and then all the mostly laudable efforts to cast a stark difference between Democrats and Republicans on the budget will be compromised.  For the life of me, I can’t figure out why the caucus has not demanded immediate leadership elections.  I believe Steinberg is scheduled to take over on August 11, when we’ll already be down the road in budget negotiations.  It is the height of stupidity to thrust someone into the leadership at that late date.  He should have been in there a month ago.

At the least, Perata can return the money and throw himself fully into this budget fight as a means of preserving what’s left of his legacy.  The CDP can return to its core mission of electing Democrats, and if it has to give back this $250K to donors, so be it.  But at a time when the momentum is on Democrats’ side and the budget fight is going to consume all the oxygen for the next couple months, allowing a distraction like this is a huge mistake.

Lite Gov. Garamendi along with some Senators (Garamendi, Steinberg, & Kehoe) are distributing a letter (PDF) to US Commerce Secretary Guttierez regarding the proposed 241 Toll Road over San Onofre state beach. The toll road was rejected 8-2 by the Coastal Commission after a marathon public comment session.

John and the Gang want the Secretary to reject the Foothill/Eastern Transportation Corridor Authority’s appeal of the Coastal Commission’s decision. They had some backup plans in case the Bush administration is all predictable and takes the appeal: they want another lengty public comment session in SoCal.  From the letter:

We believe that you should out of hand reject the TCA’s appeal.  However, should you take it up, we urge you to hold a public hearing in Southern California and to extend the public comment period accordingly to ensure full opportunity for public participation.  We are certain that at such a public hearing you would quickly learn that Californians consider this coastal public park a treasure and that there is broad public opposition to the Toll Road.

But, this is the Bush administration, and they are way, super into building roads that can make a profit for companies instead of the public. This might be another situation where any and all delays are a good thing in the decision-making process. We desperately need a better administration in Washington that doesn’t just impulsively privatize everything.