On May 19, voters were asked to divert money from First Five programs to pay for General Fund expenditures.  The argument was that First Five had a reserve that was just “sitting around” and they should give up some of that money, earmarked for children’s programs, to pay for the budget.  At Calitics, we called this the “if it ain’t broke, break it” proposition.  First Five, financed by a tax on cigarette sales, was well-funded and able to make multi-year program projections, so that the programs started up were not in perpetual fear of being dropped.

One of the values of First Five is that they can seek out other programs affecting children and contribute to them, in keeping with their mandate.  And that is what they have voluntarily agreed to do with respect to the Healthy Families program, California’s version of S-CHIP.

Meeting in Sacramento this afternoon, the First 5 California Children and Families Commission agreed to help the Healthy Families Program, which faces a $90 million General Fund shortfall in 2009-10. But the Commission declined to commit to a specific level of financial assistance. As a result, it appears all but certain that the enrollment freeze approved last month by the Managed Risk Medical Insurance Board, which oversees Healthy Families, will take effect on Friday, July 17.

In a resolution, the First 5 Commission committed “to join with like-minded public and private partners, including but not limited to health plans and philanthropic organizations, to provide financial assistance in Fiscal Year 2009-10 to the extent practicable and feasible…to ensure young children have access to affordable health insurance coverage.” This commitment, however, “is contingent upon the availability of funds in the applicable First 5 California accounts.”

I wish that First Five would have chosen a specific funding level, which could have rolled back the enrollment freeze.  Still, they are making a commitment to help provide health insurance to needy children, one they couldn’t have made if the state clawed back some of their money in the May 19 election.  This way, First Five can target the money and keep in line with what the voters asked from them – to use their revenue to provide needed services for children.  The state could have used that money for anything if they skimmed it off the top.

People often wail about ballot-box budgeting and the broken initiative process in the state, and to an extent I agree with them.  But First Five is an example of GOOD ballot-box budgeting.  It has a dedicated funding source, it’s well-managed and well-capitalized, and it has the ability to make contingencies.  If the structure of state government fails to allow increased revenue to pay for needed services, it’s perfectly logical to go outside that process and produce dedicated sources of funding.  It shows the virtue of a balanced approach.  I don’t necessarily want the ballot to do all of Sacramento’s work for it, but the broken system of government sometimes leaves no choice.

I mentioned in passing that I didn’t particularly like the Democrats’ budget counter-proposal.  Let me go into some detail on that.  

The Democratic budget provides a $3.8 billion dollar reserve.  I recognize that, with state personal income tax revenues falling off the cliff (though by more in several states – man, Arizona’s getting crushed – than here), that $3.8 billion will probably need to be used down the road, when this budget projection fails to match reality.  But we’re on fire right now, and using more of that reserve in this package would eliminate cuts that will probably contribute to more of an economic slowdown and bigger deficits down the road.

Of course, the reserve is so big because that’s clearly the back-up plan for the legislature in case the $2 billion in taxes on oil severance and cigarette companies, so they can pay for their externalities, fail.  I guess the problem is that those tax increases are only $2 billion dollars, and only around the margins instead of actually moving to a more progressive tax structure.  However, there are of course short-term exigencies here – e.g. the 2/3 rule.  But I’m assuming that putting the oil and cigarette taxes up is designed to provide fodder for future campaign ads – “X voted against kids and for Big Oil and Big Tobacco.”  Well, why wouldn’t you HEIGHTEN those contradictions, then?  There are plenty of other options – a nickel a drink alcohol tax, adding tax brackets between $47,500 and $1 million, etc. – that could be put into a model budget.  Why not create the budget you WANT instead of the one you have to have, at least at first?

Finally, the budget sets aside the $2.5 billion dollar annual tax breaks for the largest corporations in America, secured in the last two budget agreements in the middle of the worst economic downturn since the Great Depression.  That doesn’t come close to sharing sacrifice, and it’s really disappointing to see the Democrats shield big business on this.  Their tax hikes are so small that all of them could have been covered by repealing the tax breaks.  And a point of information – while normally repealing such tax breaks would require a 2/3 vote, because this is a modification of an existing budget and not a new budget, I’m not so sure that remains the case:

A couple of other points worth noting. First, the package of proposals is a modification of the state budget; the new fiscal year spending plan was actually enacted in February. As such, all proposals that are not a tax increase — most notably, the spending reductions — can be passed with a majority vote in each house. Trouble is, that would mean they wouldn’t take effect for 90 days… thus delaying aid to the cash-strapped state. For the cuts to kick in immediately, it will take a supermajority vote — which shifts some of the pressure over to the GOP about matching votes to their rhetoric about cuts, even if the rest of the package isn’t to their liking.

Looking for some information on whether that applies to repealing tax cuts as well, I’ll get back to you.

UPDATE: John Myers writes in to tell me that his understanding is it would take 2/3 to repeal those corporate tax credits.  I pretty much figured this, but it seems weird that you cannot cancel what was enacted in the same budget cycle with a simple majority.  In addition, treating repealing a tax cut like a tax increase and covered by Prop. 13 sounds just very wrong to me – an extension of conservative dogma that ought to be challenged in court.  But yes, that’s the most perverse part of our budget dysfunction. Hat tip to John for the info.

(As a side note, we will see what it’s like if you lowered the 2/3 threshold for the budget and not for taxes – and that is, EXACTLY THE SAME.  Taxes are part of the budget process.  Walling them off makes it just as hard to pass a budget, especially if you’re in the kind of hole that California is in.)

That the failed enterprise zone program is still funded at $500 million dollars annually is a sin.

Finally, there are very few solutions here – outside of the vehicle license fee for state parks – that incorporate the majority-vote fee increase items passed in January and vetoed by the Governor.  They have veto bait in this deal, so I don’t see why you wouldn’t add the fee increases as well, which would have savings in the billions.

Some of the solutions that the Democrats came up with are fine, some gimmicky (delaying paychecks for state workers one day from June 30 to July 1, 2010 “saves” the state $1.2 billion dollars in this budget), but some still unconscionable – basically all of the education cuts sought by the Governor remain.  There are $1 billion in Medi-Cal cuts that would need a federal waiver.  And there were options to cancel those cuts.

The Democratic leadership thinks Schwarzenegger will cave and accept this budget.  Keep in mind that, other than the $2 billion in tax increases, Republicans are somewhat irrelevant in a modification, and the fight will focus on whether that $2 billion will come from the budget reserve or additional cuts.  Republican votes are needed to put the modifications in immediately, which maximizes their savings.  So all these fiscally conservative Republicans can say now and waste the state lots of money.  Their choice.

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  

I thought this was the key moment in the Appropriations Committee debate over ABx1 1, which passed the Assembly yesterday.

Republican Assemblywoman Mimi Walters asked Nunez and the Department of Finance whether they were certain financial projections would come through. AB x1 1 relies on $4.5 billion in federal dollars in addition to other revenue sources. Department of Finance staffer Tom Sheehy said one provision in ABx1 1 would not be implemented unless the Director of Finance declared that money to pay for the program was in hand and in state coffers.

Assemblyman Mark Leno, Democrat chairman of the Appropriations committee, followed up with questions about whether the program could be turned off if money did not come in as expected. Nunez’ staff responded that ballot initiative would contain provisions to assure that insufficient funds would trigger a series of events to pull back the program, including the individual mandate and the market reforms. It would first allow the governor and legislature to fix any fiscal imbalances. If lawmakers and the governor did not act, then the pieces of the legislation would be repealed, including the public program expansions and tax credits, returning the state to the status quo.

This is the key because this is what has happened to every single state that has tried to implement anything approaching universal health care.  They pass the bills with a lot of fanfare but are either unable to control costs or keep up with population or their numbers on revenue fall short (nobody EXPECTED the $14 billion dollar budget deficit this year, to use a parallel example), and the program has to be scaled back and eventually scrapped.  And there’s no massive celebration or gathering on that day, where everyone gets in a room and congratulates each other.  But that’s what’s happened very single time.

The bill has some advances on the health reform front, and is not an ignoble effort.  But nobody seems to want to deal with these historical facts.  “This is better than nothing” doesn’t mean anything when 5-7 years down the road, you’re ACTUALLY left with nothing.  And I think walling off the funding and claiming that it’s revenue neutral makes it more likely that road will be travelled again.  The state budget should reflect priorities.  We all want every Californian to have access to health care.  Paying for it with part gimmick taxes, part wishes and hopes of federal support, et cetera, shows that you really don’t value it all that much.  And admitting that the program will fall apart unless people continue smoking a lot of cigarettes… well, you see where I’m headed.

UPDATE: Ezra Klein, the sharpest commentator on health care in the progressive blogosphere, on the plan:

It is, in short, a pretty good plan — better, in certain ways, than those offered by the national Democrats — and it’s got the support of folks ranging from the Democratic legislature to Arnold Schwarzenegger to Andy Stern. I’m not super confident in its long-term prospects, as various groups are going to spend hundreds of millions to defeat the ballot initiative containing its financing package, and even if the plan survives that, I still don’t believe states have the fiscal strength to sustain universal health care in times of recession. But I’d like to see it pass, if only for the momentum it would give the national conversation over health reform.

Klein doesn’t get back to his native California much, so I can forgive him for later plaudits in the post about Schwarzenegger.  But I definitely associate with the remarks I’ve bolded.

UPDATE II: Shorter Sen. Perata: Fuhgettaboutit.

“I think it’s DOA. I haven’t found anybody yet that I have talked to that can make any sense out of it. It sounds ridiculous to say that we’re going to have health care for everybody in four years, but in the meantime most people won’t have health care because we have to cut the budget,” Perata told KPIX.

On Monday, the Senate leader sent a letter to the nonpartisan legislative analyst asking what the fiscal impact of the health plan would be on California’s budget deficit.

“You couldn’t balance your home checkbook that way, much less run the fifth or sixth largest economy in the world,” Perata continued in the interview.

Then he ended with this: “He simply does not understand the way in which this works,” though it’s not clear from the clip who the Oakland Democrat is referring to.

(Apologies to the Thers at Whiskey Fire for stealing his gimmick of using a Guided By Voices lyric as a blog title)

I feel like there are two completely different conversations happening on the major issues of the day in California.  In one, there is an historic opportunity to provide quality health care to everyone in the state, which will be affordable and comprehensive and go a long way toward solving our numerous health care problems.  In the other, the state is completely in the fucking toilet and nobody in a position of power has the political will to do anything about it.

Now the governor finds himself in a predicament similar to that of his predecessor, Democrat Gray Davis: staring at a crippling budget shortfall that threatens to overshadow all other business in the Capitol and tarnish his political legacy.

On Monday, Schwarzenegger ordered all state agencies to prepare plans to cut spending across the board by 10% next year. Education, transportation and healthcare will all be affected. Some programs face elimination. Layoffs may loom. The state’s budget shortfall, thanks largely to the troubled housing market, has ballooned from a few billion dollars projected at the beginning of the year to $10 billion.

Experts are not surprised.

“There has been lots of talk and lots of gimmicks, but none of the state’s underlying budget problems have been dealt with,” said Ryan Ratcliff, an economist at the UCLA Anderson Forecast. “Even in the middle of a revenue boom, we kept spending more than we take in.”

Spending has increased, but the issue is structural.  There’s no way California can meet the needs of its burgeoning population under the draconian revenue and spending structure we have in place, and the Governor has made no moves to fundamentally change that, just to pass the horror show on to whoever replaces him in the most hacktastic manner possible.  Here’s Kevin Drum.

Four years ago Arnold Schwarzenegger took office in the midst of a massive budget crisis after promising voters that he would end our “crazy deficit spending.” In true Republican fashion, he did this by immediately reducing the state auto licensing fee by $4 billion a year and then insisting that we all approve $15 billion in bonds to paper over a shortfall that was now even more desperate than the one he inherited. The hope, apparently, was that nothing bad would ever happen to the economy and eventually we’d squeeze out from under the rock we were under.

I opposed the bonds at the time, and I’ve never regretted that vote since. Defeating the bonds would have caused immense fiscal pain, but it would also have forced Schwarzenegger and the legislature to actually fix our underlying problem by increasing taxes and reducing spending. Our nonpartisan legislative analyst made it clear from the beginning that Arnold’s plan had no long-term chance of success, but he just flashed that million-dollar smile and went ahead with it anyway.

And now we’ll be paying for years and years to come, with ENORMOUS pain just down the road when the bonds come due.  And we’re talking about providing universal health care?

The plan itself has significant things to feel good about, even if it is only a first step.  It includes an individual mandate, but with all of the affordability exemptions, it’s not a mandate at all.  It expands public health services as much as any reform since the creation of Medicare and Medicaid.  And there are excellent reforms like guaranteed issue and a modified community rating for cost control.  Obviously there are questions about what minimum coverage provides but the affordability requirements, capping out of pocket costs at 6.5% of income, should be a mitigating factor.

But the entire discussion is happening in some kind of alternate universe of fiscal health.  The 10% across the board cuts will impact health care, particularly any public care options; is AB X1 going to account for that?  The convoluted funding mechanism, which will need voter approval because the 2/3 system for tax increases is still in effect, includes 8 core parts, including “federal matching funds” and “reinvested state savings.”  Why don’t you just add a pony, too?  We’re heading into a time where the state could be as much as $10 billion in the hole.  The new entitlements will be the first ones crowded out by a governor wedded to anti-tax ideology.  And he hasn’t signed on to a new cigarette tax, by the way, still preferring PRIVATIZING THE LOTTERY, and the net income increase from which will be approximately zero dollars in the long term, at best.

And let’s not gloss over the ballot-box hurdle such a plan would have to scale.  Maviglio soft-sells the defeat of a tobacco tax to pay for health care in Oregon yesterday, saying that California’s different, conveniently forgetting that Prop. 86, which was, um, A TOBACCO TAX TO PAY FOR HEALTH CARE, failed miserably here just last year.  In fact, the Oregon ballot measure wasn’t the only one that a tax-averse, skittish electorate rejected yesterday.

Cost-conscious voters rejected school vouchers for Utah students, state-sponsored stem cell research in New Jersey and increased cigarette taxes in Oregon to fund health care for uninsured children.

New Jersey voters had not killed a statewide ballot measure since 1988.  The rejection was a defeat for Democratic Gov. Jon S. Corzine, who campaigned heavily for the plan to borrow $450 million over 10 years to finance stem cell research.

“The public understands the state has serious financial issues that must be addressed first,” Corzine spokeswoman Lili Stainton said.

No state has more serious financial issues than California right now.  And voters are listing the economy as a greater concern than Iraq at this point in time.  Ballot-box budgeting ends up producing results that are popular but not necessarily effective.  Painful solutions regarding revenue and spending are the only way to dig us out of the mess the so-called leaders in Sacramento have created, and voters aren’t entirely likely to be informed and sanguine enough to pull the trigger on that.

This is why I continue to maintain that universal health care ideas on the state level are doomed almost by definition, and particularly in a state with the looming budget troubles like we have here. 

The history of state health reform initiatives (and there’s quite a history) is a tale of false hopes and great disappointments. The deck is stacked from the start, and the house-in this case the insurers, the providers, and other agents of the status quo-always wins. The new raft of reforms may prove different, but they probably won’t. Universal care advocates must be realistic about that, and think hard about how to convert the energy in the states into a national solution before the current crop of novel experiments fail-because fail they almost certainly will […]

One of the great things about state governments is that they have more freedom than the federal government does to test new policy ideas. But it pays to look honestly at what the results of those tests actually say. And in this case, the results are pretty clear: states are no good at delivering universal health care.

No one can doubt the role Massachusetts and California have played in reinvigorating the debate over national health care. And if the reforms currently percolating at the state level help provide momentum for a national health care system in the next few years, all the effort will have been worth it. If they don’t, however, they may ultimately prove detrimental. If high-profile efforts like those in Massachusetts and California can’t be properly implemented, or are launched and then collapse, they’ll become powerful weapons in the hands of protectors of the status quo.

There is a world in which bad policy ideas can actually be worse than now policy at all.  We have to tread very lightly and ensure that doesn’t happen in California.