If you want to know why Speaker Karen Bass is talking very loudly about a federal bailout for California, you just have to read the local papers.

The Merced Sen-Star:

At Tuesday’s board meeting Superintendent Terry Brace explained the district will lose $3.5 million under Gov. Arnold Schwarzenegger’s proposed budget plan.

If that passes, the district’s three percent reserve will be pushed to the limit to cover expenses. Brace said the aim will be to maintain educational programs first. After that, “we want to cut things and not people,” he said.

The Hanford Sentinel:

Kings County officials implemented a hiring freeze Tuesday as one of several measures to circumvent anticipated funding cuts from the state in the midst of a faltering economy. The county had already been on a limited or “soft” hiring freeze since July 1, the freeze affecting only positions that won’t affect the basic level of service. No reduction in staffing levels were being considered.

County Administrative Officer Larry Spikes says it’s a necessary measure to protect the county’s fiscal health in light of the worsening state budget crisis underscored last week by the governor’s call for a special session to close the deficit. Never before in California history has a governor called an “extraordinary session” so late in the year.

The Modesto Bee:

Efforts to close an $11.2 billion state budget deficit have shaken up the state’s Healthy Families program, which provides health care to about 13,300 children and pregnant women in Stanislaus County.

Next month, the state is preparing to freeze enrollment in the program, which provides medical, dental and vision care to children whose families earn too much to receive Medi-Cal but can’t afford private insurance. If the Managed Risk Medical Insurance Board approves the proposal Dec. 17, families trying to enroll children will be placed on a waiting list at least until June 30.

This is what’s happening in this state, at precisely the wrong time.  During an economic downturn, with the attendant job loss, people need more services, not less.  It’s the perverse cycle of constrained state budgets with their balanced budget amendments that they need to cut back precisely when they should be expanding.  In a downturn, government must be the spender of last resort, yet the state Constitution doesn’t allow it.  And cutting the budget to get it in balance during this greatest fiscal crisis since the Great Depression would be an absolute disaster.  And frankly, the Yacht Party isn’t going to agree to anything sensible.

It would be better for all involved if the entire Democratic caucus decamped from Sacramento to Washington and sat outside Nancy Pelosi’s office until a stimulus package with aid to state and local governments passed.  Otherwise, the local stories are going to get worse and worse.

The Governator has hit a new low and shown an even lower understanding of how to weather a recession. Schwarzenegger followed through on his plans to sign the most asinine and ill fated executive order I've ever seen. Michael Rothfeld of the LA Times has the story and the Governor's plan:

Nearly 200,000 employees could have their pay cut to the federal minimum wage of $6.55 an hour, with full salary reimbursed once a budget is signed. More than 10,000 lost their jobs Thursday. Exceptions were made for those deemed too critical to let go for purposes of law enforcement, public health and safety or other crucial services

Schwarzenegger also limited overtime and imposed a hiring freeze.

Wow AAhnald, that's your answer to a stalled budget process? Taking money out of the pockets of 200,000 hard working state employees and killing student and seasonal jobs just because you're frustrated with lawmakers being unable to reach a budget deal? I'm sure the newly made minimum wage workers are pretty upset as well, unfortunately they don't have people to use as bargaining chips like the Governator in his poker game with the legislature.

Let's take a look at the situation via this story from Juliet Williams of the AP. Democrats have proposed a way to close California's $15.2 billion deficit:

They want to raise $8.2 billion by boosting taxes on the wealthiest Californians and corporations, and say another $1.5 billion can come to the state through an amnesty on tax scofflaws.

Seems reasonable to me. One would think the best thing to do if you disagree with something is to offer an alternative. That doesn't seem to be the case for California republicans:

Republicans oppose any new taxes but have yet to offer their own budget proposal, said Assembly Budget Committee Chairman John Laird, a Democrat. "It's time for the legislative Republicans to tell the public how they would balance the budget," he said.

Exactly right. Instead California Republicans have fallen into line with their leader in the governors mansion; disagree, complain, argue, kick and scream, but refuse to offer any alternative.

The Governor's plan does nothing but hurt even more Californians facing a bad economy and an even worse housing crisis. Playing with the lives of state employees to score cheap political points, its no wonder the Government is having such a difficult time trying to get a budget deal in place. But what should we expect from a Governor who has enjoyed yucking it up in front of the cameras more than being engaged in the budget process.

George Skelton wrote about this in the Los Angeles Times:

"I am a governor that does not believe that the action is in Sacramento and sitting around an office. That is not going to do anyone any good."

This may be true as it relates to dousing wildfires. But unfortunately, that's the Schwarzenegger governing style for virtually every problem — whether healthcare, education or budgeting: Hit the road, stage the "town halls," perform for the cameras. Showboat.

Now yes, the Dems asked in June that he stay out of it, but he should have known better. Smart Governors know better:

"Getting the legislators to finish the budget without pressure from the corner office is like getting teenagers to come home early without a curfew," says Dan Schnur, former communications director for Gov. Pete Wilson and the new director of the Jesse M. Unruh Institute of Politics at USC.

Fortunately, some are still fighting this preposterous measure:

State Controller John Chiang, a Democrat who was elected to his post, suggested that the governor had overstepped his authority and said he would not cooperate. Chiang made his statements in a letter to Schwarzenegger and at a Los Angeles news conference.

"The state of California, the elected leadership, cannot put the important public servants of California in harm's way," he said. "We put people first, we make sure we protect their interests, and that's why I have to tell the governor, with all due respect, I am not going to comply with this order."

Good, maybe that will finally force the Governor to take a look at real solutions for the budget crisis and California working families.

Pressure from the Governor, or some shred of true leadership probably would have saved California from a lot of the turmoil they find themselves in today. Instead Californians got politicking in front of the camera, a failure to engage in negotiations until the situation was out of control, and now an embarrassing executive order launched as a scare tactic. Governor Schwarzenegger still doesn't understand. George Skelton does though:

All this compromising should have been concluded weeks ago — at least by the July 1 start of the new fiscal year. No excuses.

(Cross-posted at Living in the O.

Somehow, over the past few months, the recession hadn’t effected me much. Though I don’t make a lot of money, my job at a non-profit is secure – I don’t have to worry about getting laid off or having my employer go out of business. I also don’t have a car so gas prices haven’t really effected me. And though I’ve noticed the increase in food prices, this has mostly been offset by the amount of produce I’m now growing.

I of course was aware of the recession and had heard lots of stories about people not having enough money to fill up their tanks to drive to work and some who were buying less bread or less milk because they could no longer afford the steep prices. I’m acutely aware of the global food shortage and its causes (ethanol production, drought, increased demand, etc.).

But up until yesterday, the recession hadn’t directly touched me and I don’t think I had realized how bad it is.

Yesterday morning, me and my girlfriend went to breakfast at Mama’s Royal Cafe. If you haven’t been there, Mama’s is an Oakland institution. It’s been around for more than three decades, and on weekends for breakfast, there’s always at least an hour wait for a table. Well, at least there used to be.

We hadn’t been in for many months so we were a bit shocked when we walked in and it was nearly empty. Sure, it was a Wednesday, but even when we’ve gone on weekdays, it’s usually at least two-thirds full and sometimes there’s even a short wait.

My girlfriend mentioned something about this to our waiter and he said that maybe it was because of the heat (it was a hot day, but not that hot) and also the economy’s been so bad.

That’s when it hit me – if the economy’s so bad that places like Mama’s are empty, what does that mean for less established businesses? I thought of my favorite downtown Oakland Indian restaurant that unexpectedly shut down a couple months back and realized there must be many more stories like that.

There are still lots of restaurants in Oakland that are doing brisk business, but they’re in neighborhoods that have a bigger draw. It’s still impossible to get a reservation on a weekend at Dona Tomas or Pizzaiolo in Temescal, and Old Oakland restaurants seem to be busy too. But places like Mama’s, that aren’t in heavily foot-trafficked areas and have to depend on their own draw, are really suffering.

Then last night I got home and CBS was featuring a really depressing story about gas prices and food banks. Basically, food banks are suffering four-fold. First, they have to pay more in gas to deliver food. Second, they are not getting as much food donated because of the food shortage. Third, individual donors aren’t giving as much because they’re trying to make ends meet for themselves. And on top of all of this, there’s more of a demand for the food they provide to the community

An hour after watching this segment, I got a call from my sister, who sounded like she was in tears. She had just gotten laid off from the job she loved working at the House of Blues in LA. When her boss told her the news, her boss started crying, saying she didn’t want to let my sister go but the directions were coming from corporate headquarters – apparently, they’re laying off several employees around the country. Even though my sister felt like her coworkers were family, her ultimate boss didn’t see her that way – she’s just an expendable cost.

In one sense, I’m really pissed that this happened to her. But I can also understand what companies like the House of Blues must be experiencing – I mean, in this economy, who has expendable income for entertainment?

So yesterday was pretty depressing, but I guess it was a needed reality check. No matter who you are or what you do, the recession’s going to effect you in some way. There’s really no avoiding it.

Kind of ironically, I finished reading Robert Reich’s memoir last night (which I highly recommend) and couldn’t help but feel really angry at Clinton and what he didn’t get done. I really hope that Obama does a better job at investing in our nation and protecting all of us from experiences like my sister’s.

I wrote last week about the failure of President Bush's economic stimulus package to stimulate anything beyond public opinion polls that prove its worthlessness and longer lines at food banks across California.

And with little of the stimulus package actually making it into the economy, states are still being forced to cut their FY2009 budgets to weather the slow economy.

The plight of states being forced to slash away at their budgets has been well chronicled this year, but on Sunday Louis Uchitelle wrote a piece in the New York Times about the broader implications of state cutbacks on spending. After highlighting the many crises caused by the economic failures of the Bush administration including a housing bust, credit crunch, shrinking level of consumption, rising unemployment and faltering business investment, they discuss one prop that’s holding up our failing economy:

State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.

This article goes on to enumerate the kind of impact state budget cuts are really going to have on the economy:

At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles.

In some states like California, the budget cuts and their negative consequences are already set in stone.

“We are looking at a $4 billion cut to public schools and deep cuts that will result in thousands of Californians losing their health care,” said Jean Ross, executive director of the California Budget Project, offering a preview of coming hardships. “But the reality is we have not pulled money off the streets yet.”

But when the current fiscal year ends in 30 days (or in the fall for many municipalities), state and city spending will fall, along with employment — slowly at first and then quite noticeably after the next president takes office.

The results of this slow down in spending could end up leaving little doubt as to whether or not the United States is in a full fledged recession:

Sometime next year, the decline will reach an annual rate of $50 billion, Goldman Sachs estimates. “It is a big reason to expect a weak economy in 2009,” said Jan Hatzius, chief domestic economist at the firm.

The $90 billion swing — from more spending to less — could be enough to push down a weak economy to zero growth or less, because state and city spending has accounted for as much as half of total economic growth since last fall.

Yet despite all of this there is a glimmer of hope if the federal government takes the proper course of action, which is hardly a given with the Bush administration. The answer is actually very simple:

…the next president, struggling to revive a weak economy, will almost certainly have to consider a second stimulus package.

But what should it be? Should it be a reprise of the checks, relying again on private-sector spending for rejuvenation? Or should Washington channel extra federal money to city and state governments so they can sustain their outlays for the numerous programs that otherwise would be shrunk? The answer, even on Wall Street, is often: subsidize the states and cities.

In creating the first economic stimulus package the government erred in assuming that the general public would spend most if not all of their rebate check and thus a significant portion of the stimulus package did not make its way back into the economy. In reality there is only one way to make sure that aid from the federal government gets spent. On giving money to the states:

“If you want to make sure that federal money gets spent, and jobs are created, you give it to them,” said Nigel Gault, chief domestic economist at Global Insight, a forecasting firm.

Like many others, Mr. Gault contends that more than 50 percent of the $107 billion in stimulus checks now going to households is likely to produce no stimulus at all. Instead, it will be used to pay down debt or buy imported goods and services. Imports bolster production in other countries; not in the United States.

Government has to step in, Keynesians argue, when private spending is not enough to lift the economy, despite the nudge from tax cuts or lower interest rates or rebate checks. This downturn might be one of those moments, involving as it does the bursting of a huge housing bubble. That has precipitated sharp declines in various tax revenues on which the states and cities depend, forcing them into extraordinary spending cuts.

The GOP propaganda machine would have you believe that the federal government stepping in with aid to the states would lead to nothing more than radical, out of control spending sprees on various projects that are not needed. Any rational person however would understand that this money would go towards ensuring states don't have to dramatically slash their budgets in a way that could wreck the economy, not starting new projects.

And for anyone who may be wondering which programs could use a little help, here is a great place to start.

Stateline.org wrote today about another potential crisis; unemployment benefits:

More than a dozen states would be hard-pressed to provide unemployment benefits if the economy tailspins into a full-blown recession and more workers get pink slips.

What happens if the unemployment trust funds run out of money? People will still get their benefits, it would just put an even heavier burden on the states:

If a state unemployment insurance trust fund runs out of money, unemployed workers would still get their benefits, but the state would have to borrow the money from the federal government and pay it back with interest. Such a scenario would burden those states that are already cash-strapped and borrowing heavily to balance their budgets without having to raise taxes.

This is not a small problem either, there are already four states in seriously trouble, and 14 more that could join them:

Michigan, Missouri, New York and Ohio could face the biggest problems since the amount of money in their unemployment insurance reserves already are far below recommended levels…

States that are also well below the recommended level with only about six months of money in their reserves are: Arkansas, California, Illinois, Indiana, Kentucky, Minnesota, North Carolina, New Jersey, Pennsylvania, South Dakota, South Carolina, Tennessee, Texas and Wisconsin.

Suggesting that the federal government do something to help the states with potential unemployment benefit crises is not outlandish. The program is already a joint federal-state program with joint funding by federal and state employer payroll taxes and the states administering the program. This also wouldn't be the first time that the federal government has stepped in to help the program. It was done in 2002 with considerable success

Most states’ UI trust funds weathered the 2001 recession, first because they went into the recession with more reserves than they have now. But Congress also helped in 2002 by transferring $8 billion from the federal UI trust fund to the individual state UI accounts.

If states are more strapped for funds now than they were in 2001, then it would seem that federal aid would be even more necessary today than it was 6 years ago. Especially if you factor in the slower economic growth rate and the number of people who are considered "long-term unemployed." Naturally this fact is lost on the Bush Administration. In today's episode of "inexplicable Bush administration economic policies that are destroying the country as we know it:"

Congress is once again considering helping states cover UI claims, but the measure has drawn a veto threat from President Bush, who has said such a move is too costly and premature.

Really? A move that would prevent the states from having to borrow money from the federal government at astronomical levels to balance the budget is too premature? The federal government can bail out Bear Stearns for $30 billion, but it can't provide states with the money they need to maintain unemployment benefits? Fortunately Congress doesn't have the same failed conservative talking points blinders on as the Bush Administration:

Before recessing for the Memorial Day holiday, the U.S. Senate passed, by a veto-proof margin, a measure that would extend unemployment benefits by 13 weeks for all workers and provide an additional 13 weeks for workers in high unemployment states. Unlike traditional UI benefits that are financed through federal and state payroll taxes, the federal government would pay for all of the extended UI benefits, estimated to cost $11 billion.

Thankfully there are some out there who understand the true role of the federal government is to step in when the states need it to the most, and right now state and local governments are cash strapped and desperately trying to avoid slashing essential services and programs out of their budgets. Let's hope more bills like this become the prevailing wisdom on Capitol Hill.

Wasn't the economic stimulus package supposed to prevent things like this from happening?

I read in Monday's Press-Telegram that food pantries across California are beginning to see more and more brand new clients:

Like nearly a third of the first 50 customers to arrive at the Emergency Food Bank of Stockton, Hoffman was new to the pantry…

"I'm down on my luck," Hoffman said, squeezing and sniffing the bread. "And food is going through the roof. I need help."

And this is not an isolated occurrence. Edit by Brian: More over the flip.

A survey conducted of 180 food banks in late April and early May found that 99 percent have seen an increase in the number of clients served within the last year. The increase is estimated at 15 percent to 20 percent, though many food banks reported increases as high as 40 percent.

Yet while demand has gone up, food pantries are facing difficulties due to the necessity to transport the food from one site to another, sometimes up to 150 miles. Like so many other problems with the country, food banks are citing soaring gas prices as one of the main reasons why they are having so many problems.

"The way it's going, we're going to have a food disaster pretty soon," said Phyllis Legg, interim executive director of the Merced Food Bank, which serves 43 food pantries throughout foreclosure-ravaged Merced County.

"If gas keeps going up, it's going to be catastrophic in every possible way," said Ross Fraser, a spokesman for America's Second Harvest.

The cost of a bag of flour is up 69 cents from 2007. A dozen large eggs are 55 cents more expensive. A loaf of white bread rose 16 cents. All in the wake up a stimulus package that was supposed to make life easier.

We have already reached the point where anything is possible with President Bush. He could announce tomorrow that the key to ending global warming is to place the sun on the axis of evil list and I wouldn't be surprised. But with that said I still find it hard to believe that President Bush's plan in pushing through his Economic Stimulus Package earlier this year was to price people out of buying their food at grocery stores and super markets.

So with more and more people turning to food pantries, or as demonstrated by this articlefrom the Green Bay, changing the type of meat as the main course for their dinner, it is clear that the Bush Administration can add the "stimulus" package to the long list of its failed economic policies.

In one of the first of what will be many polls giving the big thumbs down to Bush’s 2008 “stimulus package”, Rasmussen reports that 56% of voters nationwide say it had no impact on the economy. Furthermore only 24% of people thought that the stimulus package helped the economy.

The report shows that the public’s mind is just about as clouded as Bush’s when it comes to how to respond to the continuing economic crisis.

Rasmussen Reports national telephone survey found that 57% believe that if Congress and the President do nothing more, the economy will be in even worse shape a year from now.

However, if another stimulus package is passed, just 17% believe the economy will get better and 21% say it will get worse. Most voters say that if another stimulus package is passed, the economy will be about the same a year from today.

Its clear that the "stimulus package" didn't stimulate much economic activity and that further action by the federal government is necessary to prevent this recession from spiraling into something much worse.

Generally I agree with the opinions of the American public expressed in the Rasmussen survey. The "stimulus package" obviously did jack and another stimulus in the same vein as the first would just be more wheel spinning.

But the rub comes in the part of the results that show most Americans still have their heads up their rear ends when it comes to figuring out what to do next.

54% of people polled said that reducing regulation and taxes is the best thing the government can do to help the economy.

Clearly three decades of relentless GOP propaganda still has people mouthing empty Newt Gingrich era platitudes.

This model of achieving a balanced budget is exactly what is crippling the states today. It's not as though this is some sort of new and improved way of tackling the problem from a different angle. Many states have tried this practice as recently as last year to no avail. If this method sounds familiar, it's because this is exactly what Governor Ahnold attempted to do last year. This piece “California Budget 101: What went wrong, when” outlines why this approach goes no where:

When Gov. Arnold Schwarzenegger signed the state budget last summer, he all but declared "mission accomplished" in his administration's biggest battle. The spending plan not only eliminated the state's perpetual deficit, he said, it also boasted a record $4 billion reserve.

Suddenly though, the Governor found himself in a predicament where the reserve fund was drained and the state was still facing a projected $17 billion shortfall. What went wrong?

Employment growth flattened. Corporate profits sagged. The crash in the housing market slowed consumer spending. Tax revenues that last summer had been expected to total more than $102 billion now figure to come in under $98 billion for the year.

Spending is up, too, though. The forecast for the current year was about $102 billion. The latest figures now put the cost of the state's commitments at more than $104 billion.

But the economic issues only worsened a basic, structural problem in the state budget: Spending is programmed by law to grow each year at a rate that is generally faster than tax revenues can match. Current state law would push general fund spending to $113 billion next year if nothing is done to slow it, according to the Schwarzenegger administration. Revenues, meanwhile, are projected to decline further, to about $95 billion. The budget Schwarzenegger celebrated last summer would have bridged the gap for one year at best.

The government rightfully decided that increasing the money spent per pupil in K-12 education and the money spend on health care for the poor, physically or mentally disabled, and the elderly was a good idea. Yet we are supposed to believe that the plan of reducing regulations and slashing taxes that is being pushed by such enlightened organizations as the Hoover Institution (Conservative Think Tank) and the Club for Growth (100% endorsement of Republican candidates in 2008) is what the economy and the American people need? Because these policies have been so beneficial since they were enacted almost across the board 5 years ago?

In reality, all that reduction of regulations and taxes will do is force dramatic cuts in education, healthcare, and other essential services, which is what we are now being forced to do.

Instead of proposing a long-term, viable solution to California's budget deficit, Gov. Schwarzenegger called for a ten percent across the board cut for all departments and the Legislature passed it. When pressed about this strategy, he stated that he did this to "rattle cages" to get the Legislature and all Californians to think about alternative solutions to the budget crisis. (Emphasis added)

However, his "solution" has caused a firestorm of anger with educators, labor unions, and health care advocates among others who have come out fighting. There's not a group out there who won't feel the stinging effects of these cuts beginning July 1, 2008.

At least the Governor is right about one thing. It’s time for a new brand of thinking, not a reversion back to the line of thought that helped guide us into the muck in the first place.

Oh, and in case any further evidence was needed:

Five years ago: President Bush signed a 10-year, $350 billion package of tax cuts, saying they already were "adding fuel to an economic recovery."

How’s that working for ya?

This is really shocking to the conscience (via SadlyNo)

I don’t think we have a full appreciation of what’s really happening in these exurbs.  This is a crime.

By the way, the most lucid explanation I’ve seen about how this housing crisis happened is in this Web comic, of all places.  Basically the investment banks tried to put together a pyramid scheme, knowing that it was fated to fail but hoping that they were more clever than everyone and nobody would find out, and the housing market would hold out at the historically anomalous levels it was headed in 2004-2005.  I remember being told in 2005 when I was looking for a house that “nobody gets a fixed mortgage anymore.”  That was the mentality from the banks, the lenders, the investors.  The goal was to shovel more and more people into mortgages, no matter their credit history.  Everybody benefited; government, industry, financial institutions.  There was no check on this forward motion, the regulation that was needed.  Unregulated capitalism will always step in the “Shitpile” this way.  And the banks and the lawmakers will all get bailed out, at the expense of these people in the Hoovervilles Bushvilles.

• According to Dan Walters, all his serious economist friends are telling him there’s no recession yet, theoreticaly speaking.  He might want to read his own paper, about how the Employment Development Department can’t keep up with the demand for unemployment benefits and everyone calling in is getting a busy signal.  Tip to those who apparently aren’t feeling a recession: use the EDD website.

• In a reversal to the Bush Administration, a judge has ruled that George Bush cannot exempt the Navy from environmental laws regarding the use of sonar within 12 miles of the California coast.  Not that Bush followed the ruling of the judiciary the first time, but…

• There are still high hopes for an end to the WGA strike, and meetings in Los Angeles and New York have been scheduled for the weekend (ostensibly to present the contract), but caution lies ahead, as more foreign imports and reality television are likely to wind up on schedules, and less pilots are likely to be shot.  Of course, this was my point all along, and why I underscored the need to grow the union for the benefit of everyone involved and give everything on television the opportunity to unionize.  But jurisdiction for reality and animation was dropped in the most recent round of talks, and there will be consequences to that.

• Our friends at the SEIU are going to start a $75 million dollar, year-long, national campaign in support of universal health care.  I have to think that this is a positive by-product of the coalition built in California around the ultimately unsuccessful effort on health care reform.  If so, then there was nothing unsuccessful about it.  It’s very exciting to see a full media and ground effort to draw the policy distinctions on health care between the parties, and to advocate for a system that makes sense for working families.

Use this as a repository for everything but the election.