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  

Late last week I received a statement from an anonymous state employee working at the Employment Development Department, which included some pretty stunning allegations about how Arnold Schwarzenegger and the Legislature are dealing with state workers.  For example, the Governor would reduce all state employee salaries by 5%, including ones not paid out of the General Fund but through other dedicated resources, including federal dollars.  Our budget deficit is a General Fund crisis, not a crisis of those other resources, and so there is absolutely no necessity to reduce those salaries.  In addition, the Governor has proposed furloughing such workers, an illegal action since state law excludes Special Fund workers from these types of job reductions.  The State Compensation Insurance Fund just successfully sued the Governor over this matter.

Perhaps worst of all, the Governor and the Legislature have in recent years used special fund money to balance the budget.  This is EXACTLY what Props. 1D and 1E would have done, moving dedicated funds into the General Fund.  And yet the Governor and a compliant legislature goes ahead and does it anyway when the funds at risk are more murky and have lower-profile champions.  This parallels the Governor, despite failing with Prop. 1A, budgeting a $4.5 billion dollar reserve for the upcoming fiscal year, despite the “rainy day” we’re currently facing, essentially moving forward in violation of the will of the voters with a spending cap.  

Democratic lawmakers are floating a plan to use that projected reserve, but resist augmenting that with new revenues, leading to $19 billion in additional cuts and borrowing from local governments, really a terrible plan considering the alternative options on fees.  The unions are getting impatient with the lack of leadership, and advocacy groups seem more interested not in working with them but just going the heck around them.  This note at the bottom of the LAT piece from Lenny Goldberg is the buried lede:

The next step for unions could be going directly to voters. One labor-backed group, the California Tax Reform Assn., has prepared a possible ballot measure to repeal the three corporate tax cuts Democrats agreed to in the last year to get GOP support for the budget.

“It’s ready to go,” said Lenny Goldberg, the group’s executive director.

Reading the statement from the state employee, which I’ve posted on the flip, gives you some of the reasons why workers feel they have no allies in Sacramento anymore.

I’m a California State Employee and I’m currently working approved overtime in the middle of a state financial crisis.  I work for the Employment Development Department (EDD).   EDD is conducting massive hiring.  In the two months alone, my office alone has hired 30 trainees and is continuing to hire.   This action is allowable because approximately 90% of EDD’s budget is paid directly with federal dollars.   The majority of the remaining balance is paid by seven other special funds.  Only one quarter of a percent derives from the General Fund.

Gov. Schwarzenegger would have Californians believe that all state employees are lumped into one sole classification. In reality, state employees work for departments that fall into one of two categories:   General Fund or Special Funds.

Special Funds Departments budgets are allocated by either self sustaining revenue funded entirely on fees or premiums and/or have been designated for a sole purpose by California Voters or funds from the federal government.  There are 51 state departments whose budgets are derived from the Special Fund.   The current State financial crisis is a General Fund crisis, NOT a Special Fund crisis.    Politicians and the media fail to emphasize the distinction.  They would have you believe that there is one state indistinguishable budget.

For example, The Department of Alcoholic Beverage Control, The Department of Community Services and Development, and The State Council on Development Disabilities and are funded entirely out of federal dollars and receive no General Fund dollars. The Department of Motor Vehicles and California Highway Patrol are funded entirely out of special funds.

I and my co-workers are at a loss to understand why the governor is proposing to reduce all state employee salaries by 5%.   His action is illogical.  Special Fund employee salaries are not paid out of the General Fund. This is wasteful management of resources and of personnel.   There is no justification for this action.  Why reduce an employee’s salary when there is no necessity to?   Why continue to hire if the state is in cash flow crisis?  Anyone can review the State Personnel Board’s web site (http://jobs.spb.ca.gov/wvpos/search_p.cfm?showAll ), and can see for themselves that the State is still hiring.  There are currently over 2000 job vacancies with the State of California.

On top of the proposed 5%, the governor implemented a two day furlough for all state employees.  The reality is that I am mandated to report to work on my furlough days to meet public need and not get paid for it. The official policy is that the furlough days are accrued and can be taken at a later date.  However, due to the high work load, requests for time off in exchange for furlough days are denied.   There is a deadline for which all furlough dates must be taken: June 2010.   Use it or lose it.   The California Attorneys, Administrative Law Judges and Hearing Officers in State Employment have filed a lawsuit on behalf of its Special Fund Employees as being unlawful.  Interested parties can read the brief at    http://www.sacbee.com/static/w…

The lawsuit cites how each department is funded and its impact on the General Fund.

My co-workers and I work overtime to recoup lost hours just to pay for my necessities of life, such as my food and my mortgage. Contrary to popular opinion, the average employee does not make six figures.  In issuing furloughs and the proposed 5% cut, the state increases its budget deficit in that it loses income tax revenue from state workers.

In recent years, the governor and the legislative branch have dipped into the Special Funds Budget to cover the General Fund deficit.  Gov. Schwarzenegger balanced last year’s budget by borrowing $574 million from various special funds.  Where does this money go? How is it repaid? No one truly knows.   Californians rejected his budget measures in the May 19 special election to shift money from special funds for mental health services and early childhood care and education.  Why is this practice still being continued?

On February 5, 2009, The Los Angeles Times reported that the U.S. Labor Department objected to EDD employees being furloughed since the salaries were primary paid with Federal dollars.   (http://articles.latimes.com/2009/feb/05/business/fi-unemploy5)  The Labor Department notified the governor that the furloughs could impact EDD’s performance in meeting criteria for the timely handling of unemployment claims and appeals.   The Labor Department notified the EDD that failing to comply could violate Social Security laws.   The governor was unmoved.

Similar to 911, this is a game of power and politics.    It is a tactic to instill fear in the general public to justify actions that would not normally be endorsed or approved.   The governor should follow the President Obama’s lead and use a scalpel rather than an ax to make precise cuts.  The governor can not have budget reform without the trust of the people and without providing the state with crucial and vital details of the nature of the budget.

Signed

Employee Proudly Serving the State of California

The legislative budget committee working on closing the deficit responded to Governor Schwarzenegger’s demands for “efficiency” in state government by cutting his own staff.  This is quite an opening salvo, and basically a giant middle finger in the Governor’s face.  And both sides of the aisle were all too happy to do it.

A legislative budget committee voted unanimously Wednesday to eliminate state agencies altogether, taking dead aim at an administrative layer of gubernatorial bureaucracy that oversees most of the state’s departments.

The 10-member panel — six Democrats and four Republicans — also voted to eliminate the Office of the Secretary of Education, which lawmakers said is unnecessary because the state already has an elected Superintendent of Public Instruction and a State Board of Education.

Gov. Arnold Schwarzenegger recommended last month that lawmakers consolidate more than a dozen boards and commissions to save $50 million. Schwarzenegger also began laying off 5,000 rank-and-file state workers.The Legislature’s move Wednesday appeared to be a sharp retort directed at higher-paid administrative appointees who oversee the departments that provide direct state services.

I really like what they did with respect to the Integrated Waste Management Board, which costs the state no money at all.

Schwarzenegger told lawmakers Tuesday that they should eliminate the Integrated Waste Management Board as a first matter of course before making any other cuts. The board would save the state no general fund dollars, but it has become an easy target because it contains ex-legislators who earn six-figure salaries while serving on the board.

The budget conference committee on Tuesday instead recommended that the state eliminate the Department of Conservation and the Department of Toxics Control while moving their functions to the Integrated Waste Management Board. The committee also recommended that the Integrated Waste Management Board members become part-time and take reduced pay.

The Governor’s spokesman Aaron McLear smiled through gritted teeth in response to all this, saying that he’s “thrilled” the legislature is joining the effort to make government more efficient, but saying he would not support eliminating any of his OWN authority, of course.  He would only support eliminating the Secretary of Education, for example, if the Department of Education (now under the State Superintendent of Public Instruction) were moved into the executive branch.

None of this means that the Legislature will suddenly get religion and reject all of Arnold’s bad cuts.  The Obama Administration okayed $6 billion in education cuts without threatening stimulus funding, and you can bet the Governor will take him up on the offer.  And Democratic leaders, at least, appear in agreement on a number of cuts.

But this is the first example of the Legislature really pushing back at the Governor, and letting him know he doesn’t rule California by fiat, nor does he get to unilaterally decide to run it into the ground.  In addition, the more public disclosure of the billions in corporate tax cuts in recent budget deals while the programs for the poor get slashed brings a disconnect to the process on which perhaps some progressive lawmakers can capitalize.

The tax loopholes made it through the Legislature with no public hearings and little analysis of the effect, said Jean Ross, executive director for the California Budget Project, a research group that studies the effects of policies on the poor.

“The problem with dark-of-night deals is that you never get a chance to get a debate over value choices,” she said. “These three tax breaks represent a reduction of one-third the income taxes paid by California corporations…. They really represent a stark contrast in values and what kind of future we want to see for Californians.”

The tax breaks will cost the state $640 million for the rest of this fiscal year and for the 2010-11 budget year as lawmakers search for ways to close a $24.3 billion deficit, according to Ross’s report, “To Have and Have Not.” By the time they are fully implemented in 2014-15, the tax breaks could cost nearly $2.5 billion a year, she said.

Corporations are LYING, by the way, when they say that this makes the state more competitive.  See this paper or this one showing that state enactments have had little effect on economic development.  Big business simply wants to lighten their tax burden.

The legislative revolt against Schwarzenegger could be directed into sensible options for closing the budget gap, like repealing the corporate tax cuts, restoring the Reagan/Wilson tax brackets in between $47,500 and $1,000,000 imposing an oil severance tax, extending the sales tax to services while lowering the overall percentage, boosting enforcement of tax cheats, and more.  Right now, we have to settle for signals.  And this is a particularly good one.

Arnold Schwarzenegger’s address to the legislature was notable only for its fatuousness.  He demands the destruction of the social safety net in California and pleads that we have “no choice,” while hiding the decisions he made which brought us to this point. He claims that his budget is not “just about cuts,” then offers the same reforms that the voters have time and again rejected, or half-measures like firing groundskeepers (to privatize school responsibilities to low-wage contractors, incidentally).  Evidently, the May 19 special election, which has been massively over-interpreted and interpreted wrongly by the Governor, was supposedly a call to arms against tax increases, but a spending cap and rainy day fund, which were on the ballot and voted down by 66% of the electorate, are still viable ideas.  He drew a line in the sand by calling for the dissolution of the Integrated Waste Management Board, an organization that IS NOT FUNDED WITH ONE PENNY FROM THE GENERAL FUND but instead with fees on garbage collectors.  He talked about spending less per inmate on the prison population but his budget seeks only to get rid of precisely the services, rehabilitation, drug treatment and vocational training, that would lower recidivism rates, unstuff the prisons, and allow us to spend less on their management.  He admitted that money from the sale of surplus property cannot go toward the General Fund, in a fleeting moment of truth, but claims it would lower our debt payments, which is true, but precisely what Arnold has been increases with borrow and spend policies for the last six years.

Of course, Arnold urged swift passage of all his Shock Doctrine proposals, because that’s how it works.  The goal is to give nobody time to think, only to acquiesce in the face of crisis.  Some, like Assemblywoman Nancy Skinner, will not put her brain on autopilot, mindful of the Depression that would ensue from an all-cuts budget and the drastic consequences for our economy.

“The Governor’s opening statement that the voters in rejecting the special election measures said, “don’t ask us to solve complex budget issues, that’s your job,” is right,” she said. “He was wrong however in his assertion that Californians want an all cuts solution …We have choices. For instance, restoring the top income tax rate on high wealth incomes of $250,000 and above in place under Republican Governors Pete Wilson and Ronald Reagan would allow us to avoid $4 billion of these cuts. Enacting an oil severance fee on oil drilled in California, revenue collected by every state and country in the world that produces significant amounts of oil, could avoid another $1 billion in cuts.

“The Governor talked of us acting courageously. Acting courageously is looking at all alternatives and making smart, rational choices that lessen the cuts with some sensible new revenues,” she said.

Noreen Evans, similarly, has stepped up, at least rhetorically, to offer a counter-weight to the Governor’s Shock Doctrine tactics:

SACRAMENTO – Santa Rosa Assemblywoman Noreen Evans is emerging as one of Gov. Arnold Schwarzenegger’s fiercest critics, a noteworthy development given her prominent role in the high-stakes back-and-forth over the state budget crisis […]

“I don’t know what the point of that exercise was, really,” the Democrat said immediately after the speech as she stood outside the Assembly chambers.

Schwarzenegger told Assembly and Senate lawmakers that he has “faith in our ability to once again come together for the good of the state.”

But Evans said the governor was not helpful “at all” in bridging the divide between Republican and Democrat lawmakers. Rather, she labeled Schwarzenegger’s approach to budget matters as one of “shock and awe.”

“It’s working because it’s shocking, and it’s awesome, and it’s terrible,” she said.

While there are some voices in the Legislature creating pushback, my experience is that the Democrats fall in line with their leadership (same with the Yacht Party, actually; it’s practically a Parliamentary system).  And given the clear signs from Bass and Steinberg to bend over backwards to enable Arnold’s proposals and get it done quickly, I think the only way to halt this forward march would be to mass support inside the Capitol around specific proposals.  For instance, the California Budget Project today released a report about the $2.5 billion corporate tax cuts included in recent budgets in September 2008 and February 2009, cuts we certainly cannot afford in this economic climate.  If everyone must share in the pain, as the Governor said, that must mean something. And so these $2.5 billion in corporate giveaways ought to be repealed.  Period.  Full stop.  Here are some of the gems from these tax breaks:

Nine corporations, dubbed the “lucky nine” in the CBP’s analysis, will receive tax cuts averaging $33.1 million each in 2013-14 due to the adoption of the elective single sales factor apportionment, according to estimates by the Franchise Tax Board.

Eighty percent of the benefits of elective single sales factor apportionment will go to the 0.1 percent of California corporations with gross incomes over $1 billion.

Six corporations will receive tax cuts averaging $23.5 million each in 2013-14 from the adoption of credit sharing.

Eighty-seven percent of the benefits of credit sharing will go to the 0.03 percent of California corporations with gross incomes over $1 billion.

Are there 27 Democrats in the Assembly, or 14 in the Senate, willing to go to the mat to force the repeal of these unnecessary corporate giveaways, providing revenue that can go to the poor, the sick, the infirm, the elderly?  Rank and file Democrats never think to show their power in these negotiations.  In a time of crisis, they should – and force the Governor toward a more equitable solution.  Richard Holober’s post, which I referenced earlier, closes with this:

It’s time to re-unite a fractured progressive movement – based on hope, not fear. We need leadership that can think beyond the imminent crisis, reach out to build a coalition, and organize for budget justice. Labor and community based activist organizations must supply the leadership.

Let’s mobilize behind broadly supported values: require corporations to pay their fair share of taxes; increase the progressivity of our tax system; and eliminate undemocratic super-majority budget and tax rules that give a handful of reactionary politicians a stranglehold over funding our schools, health and public safety services. The campaign may take years. We can win, but first we need to get out of the budget crisis bunker.

Which politicians will enable us to escape that bunker?

Harold Meyerson had a nice piece last week similar in tone and scope to my piece on Jarvisism – arguing that Prop. 13 really was the original sin that sent the state on an almost continuous downward spiral, as much a reflection of the Age of Reagan as the financial deregulation that presaged a crisis at the federal level.

By passing Howard Jarvis’ malign initiative, California voters reduced the Golden State to baser metal. Under Republican Gov. Earl Warren and Democratic Gov. Pat Brown, California epitomized the postwar American dream. Its public schools, from kindergarten through Berkeley and UCLA, were the nation’s finest; its roads and aqueducts the most efficient at moving cars and water – the state’s lifeblood – to their destinations. All this was funded by some of the nation’s highest taxes, which fell in good measure on the state’s flourishing banks and corporations.

Amid the inflation of the late 1970s, however, the California model began to crumple. As incomes and property values rose, Sacramento’s tax revenue soared – but the parsimonious Democratic governor, Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians grumped to the polls and passed Proposition 13, which rolled back and limited property taxes – effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and ’60s, California sank to Mississippi-like levels – the mid-40s in rank – by the 1990s.

Meyerson puts together all the malign elements of Prop. 13 – the defunding of local government, where people gain their impressions of government as a whole (so defunding it serves conservative frames of government as useless); the 2/3 majority requirement for raising a tax, giving over the state to a conservative veto; the regressive nature of the tax structure that became an outgrowth of that super-majority, since the only taxes allowed by the Yacht Party affect the poor disproportionately, leading to the lower class spending a higher percentage of their incomes on taxes than the upper class; the tax-cutting troglodytes emboldened by their ability to hijack.  He closes by explaining how Washington should not ignores the dysfunction of the nation’s largest state.

Because California is so much larger than any other state, and its unemployment rate is among the nation’s highest, the collapse of its capacity to spend will counteract some of the effect of the federal stimulus and retard the nation’s recovery – much as its aerospace slump retarded the recovery of the mid-1990s. The Obama administration ignores California’s plight at its own – and the nation’s – peril.

The nation’s banks are stuck with so much bad paper from California mortgages gone awry that a huge contraction in state spending would make their assets even more toxic. In the short term, the only way to avoid a further downturn may be a federal loan to the state.

A more permanent, homegrown solution to California’s woes (and it may take a state constitutional convention to get it) would require the state to eliminate the two-thirds threshold for enacting taxes, to repeal Proposition 13’s freeze on the value of commercial properties (some of which are still assessed at their 1978 levels) and to end the process of ballot-box budgeting through the initiative process, which is now more dominated by monied interests than the Legislature ever was.

Harold Meyerson showed the way forward, to such a degree that the SacBee editorial board called today for a fresh look at Prop. 13.  The news peg may be San Francisco County Assessor Phillip Ting’s activism in support of a split-roll solution, assessing commercial property taxes at similar levels.  But the intellectual underpinnings are all in Meyerson’s piece, which out to be memorized by progressive activists.  

People generally respond to leadership.  Legislature, take note.

Despite his admission that California is ungovernable, the Governor soldiered on today, announcing the full slate of revised budget cuts to replace his proposed borrowing, since scrapped, and to fill the even larger deficit estimated by the Legislative Analyst.  As expected, the Governor called for eliminating the CalWORKS program for the poor, eliminating Healthy Families to provide health insurance to poor children, and phasing out the Cal Grants program which provides financial aid to California students.  But that’s not all. As Noreen Evans says, the Governor’s cuts “dismantle the New Deal.”  Here are some of the lowlights in these 25 distinct cuts:

• Add another furlough day to an already-negotiated contract between the Governor and SEIU Local 1000.

• Cuts $1 billion dollars over 3 years to UC and CSU budgets.

• Eliminates CalFIRE equipment repair and replacement for one year.

• Eliminates all General Fund support for state parks, forcing them to become self-sustaining to survive.

• Cuts Medi-Cal coverage for breast and cervical cancer treatment and dialysis.

• Eliminates funding for Indian Health Services, Rural Health Services, and Seasonal Agricultural Workers.

• Reduces funding for the AIDS Drug Assistance Program.

All in all, we’re talking about $6 billion or so in further cuts, most of them, as you can see, to the most vulnerable members of society.  More than 1.9 million Californians could lose health coverage as a result.  About the only positive here is that the Governor follows through in commuting the sentences of nonviolent, non-serious, non-sex offenders, for one year only, in 2009-10.  Of course, he won’t invest the time or money in treatment and rehabilitation that would save the state billions in the long run by completely revamping our corrections system.

Now, we’re told that, since the citizens won’t accept any new taxes (the truth, of course, is that the special interests won’t accept them), because they supposedly let their voices be heard (in record-low numbers) in the special election, this is the best we can do.  Let’s set aside the fact that public opinions on this front are contradictory at best and the very opposite of what the Governor suggests at worst.  The truth is that anyone who tells you we must cut, cut, cut because there’s no other option is lying to you.  

The only permanent tax measure in the entire February 2009 budget was a giant tax cut for the largest corporations in America.  At a time when revenues are scarce and no money can be found for poor children or student grants-in-aid, every large corporation will be allowed to decide for themselves how they choose to be taxed by the state of California.

At issue is the new “elective sales factor,” a system for determining how much tax a company should pay in the state. Up to now, California’s tax system taxed corporations using a formula based on employment, property and sales in the state, sometimes know as a “triple factor” system.

Many companies have long argued that this traditional way of calculating taxes punishes companies that invest in the state and create jobs, but critics disagree. Under the new elective system, set to go into place for the 2011 tax year, companies can choose to pay under either the triple factor formula or via the  “single sales factor” system, based entirely on their sales in California.

“The policy behind a single sales factor formula is you reward the companies that heavily invest property and payroll in the state,” said lobbyist Chris Micheli, who represents numerous corporate clients with his firm, Aprea & Micheli. He said he did not personally lobby on the elective sales factor provisions.

The most vocal critic of these changes is Lenny Goldberg, executive director of the California Tax Reform Association. He said he is opposed to single sales in the first place-but that allowing companies to choose which system they use is even worse. He said companies will now be able to report more revenue to the state in good years and move losses into the state in bad ones.

“Tax policy should be consistently applied,” Goldberg said. “But we’ve given this elective that provides for infinite manipulation.”

The changes were part of a budget trailer bill, ABX3 15, authored by Assemblyman Paul Krekorian, D-Burbank, and a related bill from the Senate, SBX3 15 by Senator Ron Calderon, D-Montabello. Goldberg said these bills negotiated behind closed doors, without hearings, during rushed budget negotiations-leading to a very bad deal for the state.

“This is the gutting of the state corporate tax,” said “In fact, they did it so badly that lawyers are chuckling about the opportunities for tax avoidance.”

This would make California the only state in the nation to give corporations a choice on how they would like to be taxed.  It will make the state’s finances more volatile forever, because as Lenny Goldberg says companies can use California as almost a kind of tax haven.

By the way, such a tax evasion was pushed as much as anyone by Democrats in areas with high-tech sectors.  They have been clamoring for this shift in corporate tax policy for a generation, and they slid this into the budget at the last minute.  And… wait for it… reversing it will require a 2/3 vote.

You can argue about whether or not this would spur local investment or just provide a giveaway – although the facts point to the latter.  You cannot argue at all that, in the midst of an historic recession and a dearth of revenue, now was the best possible time to hand out what could be $1.5 billion dollars a year in a huge corporate tax break.  Supposedly, we’re told by the Governor and political leaders that now is a time for sacrifice and to “live within our means.”  Surely the corporations ought to be held to that same standard.  We are in a situation where we have no money for parks, no money for the poorest in society, but enough to give a huge corporate tax cut.  Surely they feel the civic responsibility to contribute their fair share.  Surely they understand the dangers of a less-educated, less-healthy workforce on their personal bottom lines.  Surely they aren’t all about the MONEY.

It shouldn’t stand.  The Democratic leaders in the legislature, who allowed this to go forward with nary a peep in February, should not be allowed to get away with such complete double-talk this time.  That $1.5 billion would save almost every program I bullet-pointed above.  If they want to cut their way to glory, at the very least they can repeal this massive, unjustified corporate tax cut.  The reason the next Governor will inherit a mess is mostly process, but also the failure of the Democrats in the leadership to look out for the best interests of the state and allow far more hijacking than is reasonable.  15 Democrats in the Senate and 27 in the Assembly could actually DEFY that leadership and demand a repeal to this tax giveaway.

Otherwise, they have absolutely no standing to argue that the cuts-only nightmare we will soon face represented “the best they can do.”

The hopes of receiving loan guarantees backed by the federal government to help California secure borrowing to cover short-term cash issues dissipated the moment the media started calling something that wouldn’t cost the government a dime a “bailout.”  With Democrats essentially mimicking their Republican counterparts and the rhetoric of a fiscal reckoning predominant, a solution based on massive program cuts and eliminations appears inevitable to everyone in Sacramento.  Only regular citizens – the same ones demonized by elites for daring to vote against what elites call “their own interests” – hold legitimate interests in stopping the drive to cut our way out of this crisis.  Students in Los Angeles are holding walkouts over proposed firings of teachers.  The families who would be most directly hit by canceling programs like Healthy Families (California’s SCHIP), CalWorks (serving poor families) and Cal Grants (student grants-in-aid for college) are speaking out about the real-world effects of those cuts.  And a growing movement of activists from across the political spectrum are looking to the future by trying to turn this crisis into a tipping point for a Constitutional convention to get the state onto a sounder fiscal course.

The silence from the political leadership on these fronts is deafening.  And yet, absolutely everyone knows the remedies to perpetual crisis and long-term dysfunction, remedies that too rarely cross the lips of leadership so that such opinions could actually make it to the minds of the electorate.  Evan Halper today provides some relief in this desert with an oasis of an article, explaining in clear language exactly what steps can be taken to transform California into something other than the failed state it is.  I don’t agree with all of it – Halper asserts that the richest 1% of the state contribute half of the income tax, which is simply a function of inequality and frankly irrelevant; he leaves out that the effective tax rate for the top 1% (around 7% of income) is LOWER than that for those with the state’s lowest incomes (around 11%) – but it’s still worth reading.  An excerpt:

The oft-cited waste and abuse is a problem, but the deficit is bigger than the entire state bureaucracy.

California could fire every state employee — including well-paid prison guards and university professors — close every government office, stop all travel and even cease the purchase of paper clips without closing the budget gap. The government would be gone but the deficit wouldn’t […]

The runaway spending is caused largely by an ever growing group of Californians making use of basic state services as the cost of those services escalates. Since Gov. Arnold Schwarzenegger took office, for example, the amount the state spends on Medi-Cal health insurance for the poor has grown more than 40%, from under $10 billion annually to more than $14.4 billion. Spending on community mental health services has nearly tripled, and the state’s program that provides services for the disabled leapt from a $1.6-billion annual expense to nearly $2.4 billion.

This has happened despite efforts by the state to contain costs. Primary care doctors, for example, are paid just $26 for an office visit with a Medi-Cal patient. There is no simple way to seriously limit these healthcare costs short of eliminating the benefits for hundreds of thousands of Californians.

Halper’s five steps – updating the tax structure, eliminating the 2/3 rule, reining in citizen initiatives, building a real rainy day fund and instituting a performance review – are a mixed bag IMO, but they take a legitimate, serious approach to reforming the governmental structure, coming from the position that the current system is exactly how not to run a state.  Regardless of these solutions, a debate on which we can and should have, that viewpoint makes me hopeful.  I believe people are starting to understand the intractable nature of the current process, a thought echoed by Jean Ross in her special election post-mortem:

So why do I believe that the May 19 results can be viewed as a triumph of hope over fear? I spent the better part of the last two and a half months traversing California, talking about the budget, the special election, and California’s future. From San Diego to the North Bay, I spoke before diverse audiences ranging from Orange County PTA activists to Silicon Valley community leaders, from philanthropists to East Bay nonprofit leaders and community organizers in Los Angeles. While California faces tremendous challenges – the worst economic downturn in the post-World War II era and budget crises that show little prospect of abating – I found a new level of interest, concern, and commitment to building a better future for all Californians.

While I am not going to argue that the thousands of individuals that I met are a representative sample, they do represent the best that the state has to offer. Parents who volunteer to improve the quality of their children’s schools and public education more broadly; nonprofit service providers who struggle in the face of tight budgets and rising demand to care for the state’s most vulnerable; and interested voters who got up early or stayed out late to learn the about the state’s finances, how we ended up in the mess we’re in, and how to get out. Almost universally, I met voters deeply dismayed by, but profoundly interested in fundamentally addressing, the state’s budget challenges […]

In the midst of all this doom and gloom, I found an underlying sense of optimism. The afterglow of the November election has brought new activists to the table and rekindled a belief that change is possible. There is also a sense of realism and an understanding that tough choices lie ahead. The ambitious federal efforts to stem the economic downturn, stabilize financial markets, and rein in the excesses of private markets are beginning to help voters see government as a solution to, rather than the cause of, economic malaise.

Our leaders have failed.  Our people have not.  In fact, they’re just getting started.

Virtually the entire political leadership in Sacramento took without questioning the view that the overwhelming loss of the special election is somehow a mandate for “living within our means” and deep, drastic cuts to the budget.  The Washington Post, the Los Angeles Times (in multiple venues) and most other publications provided uncritical coverage of the Governor and even leading Democrats, parroting this theory that “the voters spoke” and the message was that only cuts would be allowable from this point forward.

Beware of any sentence that starts with the words “What the voters told us was…”  Far too often in our politics, dishonest lawmakers decide that voters mandate their particular ideologies and preferred policy decisions regardless of the facts.  Perhaps the only real message delivered from the voters to lawmakers was that the former doesn’t particularly like or trust the latter.  But there are other possibilities.  A new polling memo by David Binder Research details why Prop. 1A in particular failed, and the results do not match the Governor’s ramblings.

Contrary to what the Governor is saying after the defeat of his proposals, Prop 1A did not fail because voters delivered a message to “go all out” in cutting government spending. The all-time record low turnout for a statewide special election clearly demonstrates the lack of depth to that argument. Prop 1A did not

generate a spike in turnout and taxes were not cited as the main reason why voters overwhelmingly rejected Prop 1A.  Support for a state budget that relies solely on spending cuts is very limited – even among those voting no on Prop 1a.  

Voters in this election were more likely to be Republicans and less likely to be Independents, whereas Democratic voters came out in proportions consistent with past turnout. Of those that voted in this election, 43% were Democrats, 42% were Republicans and 15% were Independents or minor party voters. This past November, the electorate consisted of 46% Democrats, 32% Republicans and 22% Independents or minor party voters.  

In November 2010, the electorate will be a group that is more supportive of the revenue options tested in the survey, and more strongly opposed to only using cuts to balance the state budget. While only 36% of voters that turned out for the May 19th election supported using entirely budget cuts to balance the budget, even fewer – only 24% — of non-voters felt the same way […]

Voters simply do not trust the leadership in Sacramento, and recognize that the failed special election was just another example of the inability to bring real solutions to voters. When given two choices, four out of five voters – even among those who voted ‘Yes’ on 1A – agreed that the special election was just another example of the failure of the Governor and Legislature, who should make the hard decisions necessary to really fix the budget. Only 20% agreed the special election was a sincere effort to fix the state’s budget mess.

I would argue that the voters feel no trust in the legislature because they see time and again policy solutions that stick the average Californian with the bill that the wealthy and well-connected don’t pay.  The fact that the only permanent tax issue in the February budget was a $1 billion dollar tax cut for the largest corporations in America is a perfect example.

The polling memo also shows broad support for tax increases in a variety of areas, including wiping out this massive corporate tax cut:

75% support increasing taxes on alcoholic beverages (62% support among ‘No’ voters)

74% support increasing taxes on tobacco (62% support among ‘No’ voters)

73% support imposing an oil extraction tax on oil companies just like every other oil producing

state (60% support among ‘No’ voters)

63% support closing the loophole that allows corporations to avoid reassessment of the value of

new property they purchase (58% support among ‘No’ voters)

63% support increasing the top bracket of the state income tax from nine point three percent to

10 percent for families with taxable income over $272,000 a year and to eleven percent for

families with taxable incomes over $544,000 a year (51% support among ‘No’ voters)

59% support prohibiting corporations from using tax credits to offset more than fifty percent of the

taxes they owe (55% support among ‘No’ voters)

In addition, voters oppose the kind of spending cuts outlined by the Governor.

Now, I’m sure I’ll hear “eat it, you pipe dream librul hippie” because of the structural issues that prohibit these kind of tax solutions.  But the reason that the legislature has such desperately low esteem right now is that they fail to publicly even advocate for the solutions Californians plainly want, or the breakage of the structural barriers that would provide it.  This failure caused the May 19 debacle and will cause further problems for the Democrats in the state if they are not careful.  A political party seen as devoid of principle will not be a successful political party forever.  What Californians desire, essentially, is leadership.  And they will punish those who refuse to give it to them.

UPDATE by Brian: I’ve posted the slides for the Binder Research presentation over the flip.

Why Prop 1A Lost Powerpoint –

Dems dont understand unwritten scripts

Every Dem in the Legislature should be given a book on tape of the Political Mind by George Lakoff, and a copy of his commentary yesterday at Kos.

the electorate was NOT saying cut cut cut, we were saying majority rule is the way to go.

I voted all NO, and I have voted for a gooper only once in my lifetime, and he was a personal friend.

link here:

http://www.dailykos.com/story/…



The Democratic leadership should listen to its grassroots.

All budgetary and revenue issues shall be decided by a majority vote in both houses of the legislature.