The latest Big Five meeting is underway, and we could see a yay deal as soon as tonight. Digby, who I’m lucky enough to call a colleague over at Hullabaloo, has a great post about the budget debacle and the collective lack of perspective in politics.  She references the 2003 special election freak show and how the media became seduced by marketing and reality-show gamesmanship into cheering on the “Who Wants To Be Governor Of California” spectacle (side note – I actually almost worked on the actual “Who Wants To Be Governor Of California” TV show produced at the time by Game Show Network).  And while turning the recall into a game, everyone forgot about the insanity of the associated issue:

The “issue” that supposedly precipitated this little tantrum was the required restoration to earlier higher rates for car registration, brought about by a weakening of the economy. The media went wild, even friends of mine who know absolutely nothing about politics pretended to be enraged that they would be forced to pay $30.00 more a year and they all went out and voted to recall the Governor and replace him with The Terminator.

That recall was a political sideshow of epic proportions, featuring porn stars, Gary Coleman and even Arianna. It was great fun. Standing in line to vote that day — the longest line I’d ever experienced at the ballot box — was like being at an American Idol party.

But check it out. In an otherwise terrible George Skelton column, he does make one interesting observation:

Schwarzenegger had campaigned full throttle against Gov. Gray Davis’ “outrageous” raising of the vehicle license fee. His favorite stunt was using a wrecking ball to smash an old jalopy that symbolized the tax.

Davis really had only bumped the fee back to its historic level: to 2% of a vehicle’s value, rather than a recently enacted 0.65%.

Schwarzenegger’s canceling of the fee hike actually amounted to the single biggest spending increase of his reign. That’s because all the revenue from the vehicle license fee had gone to local governments, and Schwarzenegger generously agreed to make up their losses by shipping them money from the state general fund.

The annual drain on the state treasury was $6.3 billion until February. Then the governor and Legislature raised the fee to 1.15% of vehicle value, saving the state $1.7 billion. But it will revert to its lower level in two years.

Cutting the car tax plunged the state deeper into debt just as Schwarzenegger was taking the wheel. To cover it — at least temporarily — the new governor went on a borrowing binge. It didn’t take much to persuade the Legislature and voters to authorize $15 billion in “economic recovery bonds.”

Passing those bonds and a companion spending “reform,” the governor promised, would mean “no more deficit financing.” They’d live within their means. Sacramento would “tear up the credit card and throw it away.”

The only thing thrown away was all the bond money, spent long ago on daily expenses — the equivalent of borrowing to buy groceries.

I’m not saying the car fee issue is the reason the state is currently in chaos. It’s far deeper and more complicated than that. But I do believe that the simplistic, downright silly approach Americans take to politics is largely to blame. It long ago became more about marketing and entertainment — and preening, shallow self-gratification — than serious consideration of responsible governance.

I would be remiss if I didn’t total up the $6.3 billion a year in lost revenue from the vehicle license fee, along with the interest on those needless economic recovery bonds, and note that the total is surely more than the current budget deficit or even the last two combined.

But Digby’s main point is correct.  When the media in this state bothers to pay attention to politics, it’s as a freak show, and they ascribe the same kind of reporting available in the sports section rather than give anyone the information they need to make serious choices about what kind of state they’d like to live in.  The so-called “car tax” was the kind of populist pitchfork-fest that was perfect for Schwarzenegger, and he repeated enough movie quotes and manipulated enough emotions to prevail.  Along the way, almost nobody challenged the thesis, nobody provided the truth about the VLF, nobody slid the debate from the zaniness of the recall – porn stars! – into the serious business of a government that works.

Digby thinks that “we are going to have to reform more than the state constitution to fix things. We need to reform politics itself somehow, convince people that it isn’t American Idol or the World Series, or the ruling class will always be able to afford to put on a show whenever they need to manipulate the folks and the folks will probably fall for it.”  And I agree with that to an extent: for one, the system cannot be reformed without a responsible citizenry understanding the reasons why.  But I’m enough of a goo-goo to believe that enough people can become energized by taking back their government so that the seriousness and the structure will be injected back into California’s system.  That’s why I believe sweeping constitutional reform is in the end the only option – because a status quo system will only empower the types of shenanigans that brought us both the Governator and hundreds of thousands if not millions of residents left with no help and no hope.  To get the circus out of town, we must offer an alternative to the sideshow that is our government.  If enough of us wish to be a laughingstock no more, it can be done.

When Arnold Schwarzenegger isn’t governing by magazine cover, he’s governing by Sunday talk show.  This is a good venue for him, because nobody asking him questions has any idea what Arnold’s actually done to California, and he can spout off one-liners and talk the Beltway language of post-partisanship without rebuttal.  These kinds of interviews are never given to reporters in his home state, because they might actually have experience with his tenure and thus would be in position to know a lie when they see one.

For example, the Governor is getting a lot of ink for the line about how he’d be willing to take any stimulus money from any governor in the country who rejects it.  Less discussed is the essential falsehood present in this comment:

STEPHANOPOULOS: So when you — we’re looking at a similar budget crisis in the coming years here in the United States. Does the Republican Party have to re-think its absolute opposition to tax increases of any kind?

SCHWARZENEGGER: Well, no, I think that the Republican Party or any party has to always think, when you make a decision, “Do I want to make a decision that’s based — that’s best for the party? Or am I a public servant and have to serve the people, what is best for the people?”

And in this particular case, in order to solve a $42 billion deficit, the only way you can do that is a combination of making severe cuts and also having some revenue increases.

Really?  Arnold was “listening to the people” when he helped ram through a massive corporate tax cut, in a time of deficits, for large multinational corporations?  Show me the poll where the public was clamoring for a multinational corporate tax cut.  How about the poll where the public was desperate for waiving environmental laws regarding public works projects and delaying implementation of laws regulating diesel emissions?  Actually, the California public has spoken pretty profoundly that they want a serious reduction of greenhouse gas emissions.

I mean please.  This is a guy who campaigned almost entirely in 2003 on cutting the vehicle license fee, costing the state almost enough to fill this entire budget gap over 6 years, and now he’s raised it after admitting defeat.  Arnold Schwarzenegger is a born liar.  He has the interests of the California Chamber of Commerce and anything but the people of California.  That’s why he refuses to engage with them or their elected representatives, preferring to float above it all and run to the national media with false tropes about “serving the people.”  Forget just apologizing to Gray Davis, he should abdicate to him.

This last bit from John Myers was amusing:

And in non-governor news, he confirmed an interest in a cameo appearance in an upcoming Sylvester Stallone flick, picked Mickey Rourke to win an Oscar, and said The Candidate was his favorite political flick. That movie is an interesting choice, given it’s about a candidate who’s so focused on winning — rather than governing– that after his victory famously says: “What do we do now?”

Exactly.

So Abel’s tears found a floor, and the deal is now done.  It’s a terrible, terrible deal.  Let’s first focus on what Maldonado got, which is less than meets the eye.

• He got his open primary legislation on the ballot, but not until June 2010.  Arnold was interested in it, and so it was likely to get on that ballot anyway.  This won’t help Maldo in 2010, which was probably a condition of the deal.  Considering that it affects Congressional races as well as legislative ones, I expect Nancy Pelosi to go all in trying to defeat and I don’t expect it to pass.  Open primaries have lost on the ballot in the past.

• The constitutional amendment banning legislative pay increases during deficit years passed; the amendment cutting all legislative pay during a late budget failed.

• The 12-cent gas tax increase was cut, replaced with a slight increase to the state income tax, federal stimulus money (which was always going to fill in because it was more than budgeted for) and $600 million in unspecified line-item vetoes from the Governor, which  are going to be ugly.  Let’s just say that the huge corporate tax cut is not the first place Arnold’s going to look.

Now, that’s what Maldonado got.  Among the other goodies in this budget, besides the corporate tax cuts and the privatization of state highway projects and the rest, are:

• A $10,000 tax credit for homebuyers, but only if they buy new construction.  So a “developer bailout” when there is all kinds of existing inventory sitting on the market and lowering property values inside communities.  And now there’s an incentive for them to stay there.  Great.

• Large commercial vehicles are exempt from the increase in vehicle license fees, because… gee, I have no idea.  This is perverse, the opposite of what we should be taxing, which are inefficient vehicles.

• Rental car companies can pass VLF increases on to customers, which they probably would have done anyway, but this makes it even easier.

• One provision allows for the delay of retrofitting of heavy diesel equipment, which will maintain poor air pollution in at-risk communities, and let’s face it, kill people.  Don’t believe me, take it from the Chairman of the Air Resources Board, Mary Nichols: “There are people who will die because of this delay.”

Dan Weintraub is right – this is a budget the GOP can be proud of, because it’s a profoundly conservative budget.  Because they hold a conservative veto over it.  And they get the best of both worlds – they don’t have to vote for the budget en masse so they don’t have to own it.  In short, the hijacking worked.  And that’s a function of process, not personality.

As Jean Ross says, “If this year’s budget negotiations don’t increase public support for reducing the vote requirement for approval of a budget and tax increases, it is not clear what will.”

…there are two initiatives that have entered circulation that would repeal 2/3 for budget and taxes, and replace it with an arbitrary 55%.  It should be majority rule.  But it’s about to gather signatures.  Budgets and bad policies can eventually be changed if the process is changed.

We figured that when Darrell Steinberg assumed the leadership post in the Senate, there would be less accommodation and more risk-taking from the Democratic caucus.  Well, this potential deal floated in today’s LA Times would certainly fit that description.

State lawmakers began moving toward a deal this week to close California’s deficit with the help of steeper car fees that would cost many drivers hundreds of dollars annually, according to people involved in budget talks.

Under the plan, GOP lawmakers — most of whom have signed anti-tax pledges — would vote to triple the vehicle license fee that owners pay when they register their cars every year in exchange for a ballot measure that would impose rigid limits on future state spending. Motorists’ annual license fees would rise from 0.65% of the value of their vehicles to 2%. For a car or truck valued at $25,000, the increase would be $336.

The higher fees would generate $6 billion annually, helping to fill a budget gap that is projected to reach nearly $28 billion over the next year and a half.

The proposal is being championed by incoming state Senate leader Darrell Steinberg (D-Sacramento). Democrats and advocates for the poor have opposed strict state spending limits, saying they would cripple government services.

Steinberg may be gambling that voters would reject the limits, as they have in the past.

This would be a simple restoration of the VLF to the levels put in place by Pete Wilson (yes, Wilson; the increase, which was meant to occur during poor economic times, only triggered under Gray Davis).  It is not a progressive version or a “feebate,” and it does not increase for higher emission-producing cars and trucks.  So it’s not the best way to restore the VLF, in my view.

And the exchange, a ballot measure to restrict state spending, is a long-sought Yacht Party agenda item.  I’m guessing it would be substantially similar to the version voted down in 2005.  A spending cap is simply a way to ratchet down government and eliminate needed services which the public has said time and again they not only want, but are willing to pay for.

I understand Steinberg’s reasoning on two levels:

(1) It’s probably correct that Democrats and unions would fight like hell to stop a ballot measure with a spending cap.  These are tough economic times, however, and they’re projected to continue in the near future, so cutting spending may look more attractive to voters.

(2) This would be a stake through the heart of Yacht Party rhetoric about taxes.  You can see the effect of what this would do by just listening to talk radio:

Prospects for the plan, however, immediately began to dim after details were published on the Los Angeles Times website. Angry phone calls from constituents, advocacy groups and talk radio hosts prompted lawmakers to publicly distance themselves from the proposal.

I mean, this came out on the same day when Senate leader Dave Cogdill wrote an op-ed entitled Cut, Don’t Tax.  And Arnold Schwarzenegger made cutting the VLF the signature piece of policy in his platform in the 2003 recall election.  For him to reverse it just 5 years later would be humiliating.

Ultimately, Republicans are probably too spineless to agree to this – they’d fear primary elections in 2010, although directly after an election would probably be the best time to pull this off, with the most distance between now and the next election.  But Democrats should think hard about this as well.  Is it really worth having to fight a ballot measure that would cripple the state?  It may well be, especially considering there’s probably no other way to raise needed revenue.

It’s quite a gamble.

As the special session gets underway, the new “Budget Nun” Mac Taylor, and since it’s a he this time I think we’ll go with “Budget Priest”, has released an overview of the Governor’s proposals.  The first thing that pops out is we now have a new shortfall number: $28 billion for the next 20 months, and an unsustainable long-term deficit thereafter.

State Faces $27.8 Billion Shortfall. We concur with the administration’s assessment that the state’s struggling economy signals a major reduction in expected revenues. Combined with rising state expenses, we project that the state will need $27.8 billion in budget solutions over the next 20 months.

Long-Term Outlook Similarly Bleak. The state’s revenue collapse is so dramatic and the underlying economic factors are so weak that we forecast huge budget shortfalls through 2013?14 absent corrective action. From 2010?11 through 2013?14, we project annual shortfalls that are consistently in the range of $22 billion, as shown below.

Overall, Taylor is generally supportive of the Administration’s proposals for closing the gap, but I think that has a lot to do with the fact that the Governor is finally using realistic numbers and not employing any borrowing gimmicks.  Compared to the 2008-09 budget, this is extremely welcome.  However, Taylor makes the point that a short-term increase in the sales tax cannot possibly be the backbone of a long-term solution, and three years out we’d still see deficits in the range of $9-11 billion.  Instead, he offers a couple points.  First is one that I’ve been making a lot, that California needs to lobby hard for state and local government relief in the second stimulus package:

In the coming months, there is a good chance that Congress will pass economic stimulus measures in an effort to boost the national economy. In the past, some components of such measures have directly provided state fiscal relief. To date, the administration has not built any estimates of such relief into its budget numbers.  For the time being, this is appropriately cautious to avoid counting on relief that may never come.  The state, however, should continue to press the federal government for economic stimulus measures that will provide California with flexible fiscal relief. While such relief would not solve the state’s budget problem, it could provide several billions of dollars in budgetary solutions.

(While we’re at it, we could also recoup the $2 billion giveaway to Wells Fargo precipitated by the Treasury Department illegally changing the tax code to allow banks to avoid corporate taxes.  Any California Congresscritters want to hop right on that?)

He also rightly notes that the Governor’s tax proposals are regressive in nature, and offers one final solution – fix the VLF that you broke as your first act in Sacramento.

Alternative Program Realignment. As noted above, raising the VLF tax rate to 1 percent has merit from a tax policy perspective. If the Legislature made it the foundation of a program realignment with local governments, programmatic outcomes could be improved as well. Under this approach, $1.6 billion of state criminal justice and mental health programs could be realigned to counties and supported by (1) the revenues raised by the increase in the VLF rate and (2) most of the VLF fee revenues currently retained for administrative purposes by the DMV. By consolidating these program responsibilities at the county level, and giving counties significant program control and an ongoing revenue stream, we think California could achieve greater program outcomes and significant budgetary savings.

You can see the total savings chart at the end of this PDF, but clearly the VLF raise is the big story here.  The LA Times picked it up as a news story and also on their op-ed page today.  For those who counter that the VLF is just as regressive as the sales tax, it doesn’t have to be.

Right now the VLF is a flat rate on the assessed value of a vehicle, which is based on its purchase price and a fixed schedule of depreciation (basically 10% per year). It’s true that if all you did was raise the VLF to its old rate of 2% it would remain about as regressive as a sales tax (see Table 5 here), but that’s not the only way you can do it. Unlike a sales tax, which needs to be a flat rate for administrative reasons, the VLF could easily vary by assessed value. It could stay at its current rate of 0.65% up to, say, $10,000 in assessed value, increase to 2% for more expensive cars, and increase still further to 4% for top end cars. The average rate would still be about 2%, but the incidence of the tax would be more progressive.

You can also build progressivity into the VLF by having it function as a carbon tax, essentially. You could set the VLF at a higher rate for cars that produce greater emissions, and at a lower rate for cars that are cleaner. As California is about to get a waiver to regulate tailpipe emissions under the Clean Air Act in a new Obama Administration, they would certainly be empowered to do so.

This is a repudiation of the very issue Schwarzenegger ran on in 2003.  We’ll see if he’s inclined to own up to his mistake.

I STILL haven’t had a moment to process the still-brewing outcome of Election 2008 here in California, but there’s not much time to savor or despair about the results.  A new session of the Legislature has been called, and Arnold is starting off by calling for a tax increase:

Gov. Arnold Schwarzenegger called today for a temporary 1.5-cent increase in the state sales tax to help close an $11.2 billion deficit in the state budget, as well as new taxes on liquor and oil production.

Schwarzenegger also proposed one-day-a-month unpaid furloughs for state workers for the next 17 months, as well as rescinding two of the workers’ 13 paid holidays.

There are also massive spending cuts planned, $4.5 billion in all, including $2.5 billion on primary school education.  This is all happening because we have a short-term deficit of maybe $10 billion dollars, with an additional $13 billion dollar shortfall estimated for next year.  In all, by the middle of 2010, the projections are that we will be $24 billion in the hole.

This proposal is completely and utterly insufficient to deal with that.  A sales tax increase is regressive and there’s no way around that.  Part of the proposal to extend the sales tax to services like “appliance and furniture repair, vehicle repair, golf fees, veterinarian services, amusement parks and sporting events,” according to the LA Times, and this is part of Karen Bass’ restructuring of the revenue side.  And an oil extraction fee is deeply needed.  We’re the only oil-producing state in the country that does not charge oil companies to take our natural resources.

But the cuts are pretty cruel.  And education isn’t the only thing on the chopping block.  The Governor wants to eliminate dental insurance through MediCal for poor Californians, cut welfare subsidies, and reduce services for the elderly, blind and disabled.  Hey, they don’t have lobbyists, right?  And this proposal somehow snuck into the package:

• Relaxing some state labor regulations dealing with meal and rest periods, overtime exemptions and work schedules.

Hey, it wouldn’t be a Republican plan if there wasn’t some giveaway for business.

There is no question that the state’s finances are in the worst shape since the Great Depression.  But those Californians doing well have shown, as Robert notes today, a desire to pay for those services that can make this a great state.  It’s aberrant for people who are wealthy to pull up the drawbridge and have no concern for the least of society.  Their continued economic good fortune depends on the stability and security of all citizens, as a rising tide lifts all boats.  We have been in a constant state of economic crisis for going on eight years because nobody will admit what needs to be done – to have a revenue structure that doesn’t reflect the boom-and-bust cycles of the greater economy.

A couple of the things that Schwarzenegger is doing make sense.  He is calling for a 90-day moratorium on foreclosures so lenders can work out loan modifications with borrowers, something President-Elect Obama has already proposed and which will improve our economy (a foreclosure costs something like $250,000 a piece to the economy).  And his proposal would speed public works programs as a kind of statewide stimulus package.  But the very first thing that can be done is to reinstute the automatic VLF increase that Arnold cut and is now scrambling to cover, which would cost the equivalent of $12 a month for most Californians.  But Robert Lehman at SEIU has outlined a new progressive version of the VLF that I think would increase revenue and help protect the climate.

Dedicated Revenues. VLF revenues, based on up to 0.65% of vehicle market value, are dedicated (CA Constitution Article 11, Sec. 15, implemented by Proposition 47 in 1986) to cities and counties; some additional VLF revenues above 0.65% may also be partly dedicated to cities and counties, depending on current statutes. It is unclear whether additional revenues from a vehicle GHG-emission-based component of the fee, rather than the vehicle market value, might be obligated to cities and counties. GHG component revenues should be made available for other dedicated purposes, such as improving State transportation GHG emissions through R&D, energy infrastructure improvements, transportation equipment subsidies or incentives, etc.

Progressivity. The VLF is currently based on a flat 0.65% rate applied to the current estimated market value of the registered vehicle. Owners of newer and more expensive vehicles with higher current market values pay higher level fees, while owners of older and less expensive vehicles pay less.  People without vehicles who use mass transit, bicycles, or other forms of transportation do not pay the fee. The 2003 reduction of the VLF heavily benefited Gov. Schwarzenegger for example, with his ostentatious fleet of Hummers, while mass transit riders did not benefit at all.

With this flat fee structure, the VLF still absorbs a larger share of low-income vehicle owners’ household income than it does for upper income Californians; the VLF’s moderate regressivity is similar to that of the sales tax in terms of its relative burden on the lowest income quintile compared to the upper quintile (see UCB Incidence paper below, and CBP, “Options for Balancing the Budget: Reinstating the Vehicle License Fee,” 5/8/02, p.2). A more progressive alternative exists. Rather than assessing the fee on the full value of the vehicle as California has done, Virginia exempts the first $5,000 of vehicle value, making the fee more progressive. With a $5,000 exemption, for example, an estimated one third of California vehicles would be exempt from the VLF and owners of slightly higher value vehicles would pay significantly less. The exempt value could be adjusted over time. A restored VLF should initially be based on vehicle value, with a significant deductible amount from this value, and a rate probably set above 2% to compensate for lost revenue.

This is a smart idea and should be the first counterpoint that the state Democrats propose.  At some point we must start raising revenue sensibly.  Furthermore, doing anything before December 1, when a net of 2 new Democrats in the Assembly and possibly 1 new Democrat in the Senate join the team in Sacramento, would be ridiculous.

The governor exacerbated the budget problem on his first day in office by slashing the vehicle license fee and denying the state billions of dollars in revenue.  He could return money to the state’s coffers without going back on his promise, by hewing to his supposed environmental credentials and following the will of the people:

Californians support the idea of charging “green” vehicle fees that would make drivers of gas guzzlers pay higher taxes and offer discounts for those driving less-polluting vehicles, according to a survey by a transportation researcher at San Jose State University.

The state now charges drivers registration and licensing fees and gasoline taxes at rates that do not take into account vehicles’ pollution levels. But the survey, conducted by Asha Weinstein Agrawal, a research associate with the university’s Mineta Transportation Institute, found that Californians would support a variety of taxes and fees to raise money for transportation improvements as well as combat global warming, including:

— Raising vehicle registration fees, which now average $31, to an average of $62 and having higher-polluting vehicles pay higher rates and cleaner cars lower rates.

— Offering rebates of up to $1,000 for people who buy new cars that emit very little pollution and levying a surcharge of as much as $2,000 on those purchasing gas hogs.

— Levying a mileage-based tax that would replace the 18-cents-per-gallon gasoline tax. The per-mile amount would vary depending on how much a vehicle polluted the air.

“The public is very supportive of these green taxes and fees,” said Agrawal. “This shows that it is realistic to improve the way we collect transportation taxes in this state.”

You could even make this revenue-neutral for all I care and it would still have a meaningful impact.  But if the budget could be improved and the air quality at the same time, all the better.  The governor talks a good game on global warming but hasn’t yet called for the kind of action necessary.  This could be coupled with a direct investment in mass transit and incentives for transit riders, so that those who can’t afford low-emitting vehicles aren’t adversely affected.  We’re not going to get rid of the car culture in one fell swoop, so encouraging consumers to buy clean energy vehicles while implementing the proper smart growth and transit policies (along with massive renewable infrastructure) will get us there in stages with a meaningful reduction in emissions right at the beginning.  The people want it, the government needs to give it to them.

Cross-posted on the California Majority Report.

It was overcast and dreary in Oakland today, and the dark clouds spread to Lake Merritt United Methodist Church during a budget crisis forum sponsored by Assemblymembers Loni Hancock (D-Berkeley) and Sandré Swanson (D-Oakland).

“I believe the drastic cuts proposed by the Governor would be devastating to the people I represent,” Hancock told the 100-person crowd. “The budget will define our values as a community.”

The budget as a statement of values was a theme repeated throughout the program. “We can have this conversation about numbers,” Swanson added. “But that kind of misses the point. This is really about values.”

Jean Ross, Executive Director of the California Budget Project, laid out what values are being put to the test in Governor Arnold Schwarzenegger’s budget:

• Confronting education — a $4.825 billion cut to K-12 schooling. That’s a reduction of $786 per student;
• Confronting health care — a $1.126 billion cut to Medi-Cal spending;
• Confronting crucial social services for children and families — a $463 million cut to CalWORKs programs. The largest share of these savings would come from removing aid for 150,000 children in low-income households; and
• Confronting crucial social services for the elderly and disabled — a $324 million cut to cost-of-living adjustments for cash assistance programs for low-income seniors and persons with disabilities in the SSI/SSP program.

To make matters worse, some of these cuts would take away federal matching funds. “What sense does that make?” Assemblymember Swanson pondered.

For more, including a discussion of the early release of prisoners, see over the flip…

As Assemblymember Hancock noted, California is the only state in the nation to both require a two-thirds vote in the legislature to raise taxes and grant the Governor line item veto authority. “This reminds me of the seven layers of Hercules,” Hancock said. “You have impossible barriers you need to cross before you get to the place you need to be, but if we don’t do that this year in California, we will find that this place is no longer the place it has been or we want it to be.”

Previous Schwarzenegger budgets in comparatively good economic times have relied on a combination of bonds, gimmicks, and already steep cuts. With a $14 billion budget shortfall this year, that will no longer be sufficient. Lenny Goldberg, Executive Director of the California Tax Reform Association, laid much of the blame on Governor Schwarzenegger’s revocation of the vehicle license fee and the Governor’s subsequent bonds to make up for lost revenue. Combined, these add up to $9 billion, nearly two-thirds of the budget deficit.

During previous deep red budget years, Republican governors Ronald Reagan and Pete Wilson combined a mixture of tax and fee increases and spending cuts to balance the budget. But this year, legislative Republicans and even our so-called post-partisan Governor have vowed to oppose all new fees and taxes. “The rational conversation on the tax side has been completely cut out,” Goldberg lamented.

On the issue of convincing Republican legislators to act more rationally in regards to tax and fee matters, Hancock and Swanson played good cop, bad cop.

Hancock emphasized that there are some genuinely rational legislative Republicans, even if their voting records suggest otherwise. She told the crowd that she has had Republican legislators approach her and say, “I know a really good tax loophole that you should cut. Of course, I can’t actually vote for it.”

Swanson was a bit less concilitary on the subject. “I can be just as irrational,” Swanson quipped. “I will not make cuts to Prop 98. I will not make cuts to after-school programs.” If Republicans insist on holding firm on revenues, Swanson made clear, then it’s up to Democrats to do the same on the services we care most about so we can finally have a “fair and rational” debate and make a genuine compromise.

Karen Hemphill, a Berkeley Unified School District Board Member, gave the best summary of why Democrats care so much about preserving education funding. The Governor’s proposal would take away revenue equivalent to a month in school for every school district in the state. That’s $768 less per child. At stake aren’t just pencils, textbooks or dodge balls. Education is the most important investment a state makes, she emphasized. Lower performing schools lead to lower performing students. Lower performing students will make less money on average, increasing their reliance on state services and decreasing their contribution to the tax pool. Lower performing students are also at a greater risk for falling into a life of crime, which of course ups the costs associated with courts and incarceration. “I don’t think many of us thought this was what was meant by the Year of Education,” Ross joked.

Hemphill also informed the audience that the district expects to lay off most of its counselors if the Governor’s budget moves forward. But she warned that Berkeley Unified School District is actually in better shape than most schools in the state, because Berkeley voters recently approved a parcel tax to help fund school programs.

The discussion on education costs frequently returned to the question of local government solvency. Assemblymember Swanson noted that much of the Governor’s budget simply shifts responsibility to the local level as an unfunded mandate. “It doesn’t go away; it just passes responsibility,” he said.

Alameda County Supervisor Keith Carson gave a sobering breakdown of statewide city and county concerns. 50% of Oakland’s revenue comes from federal and state money, but this includes property tax revenue collected by the city and transferred to the state. And local governments’ access to local property tax revenue has been on the decline. Less than 25% of the county’s budget is discretionary.

Naturally, as on the state level, the services provided with discretionary funds disproportionately harm those most in need of help. If the Governor has his way, the services that will be cut include things like preventative health care, educational opportunities programs, job training, rehabilitation programs, prison deferral services, and the like. While the state may see a short-term savings by destroying these programs, Carson made a crucial point that is frequently lost in the blustering anti-tax rhetoric that frequently permeates in Sacramento and among the chattering class. Simply put, in the long term, these programs improve society and save the state money. Preventative health care stops illnesses before they become a huge financial burden. Programs to broaden educational opportunities and to provide job training help the children of poor Californians become part of the well-educated, higher tax-paying, more flexible middle-class. Drug and alcohol rehabilitation and prison deferment programs reduce imprisonment costs, help reform broken lives, and ultimately generate more tax revenue for the state. Schwarzenegger “clearly didn’t have an understanding of how his budget proposal would impact local communities,” Carson explained.

The Governor’s budget also includes a $372 million cut to the Department of Corrections, mostly through the early release of 20,000 inmates and a quickening of the parole process for another 20,000. While this proposal has received bipartisan condemnation, many progressives will be inclined to support this part of the Governor’s budget, because there are far too many non-violent offenders in prison who simply don’t belong there, and because our country’s incarceration system all too frequently creates hardened criminals where there once was a good chance at rehabilitation. But the panelists cautioned that early release alone is insufficient.

As Ross explained, “I know many of you probably think that’s a good idea, but the problem is those individuals would not have supportive services in the community to help them find housing, help them find jobs, and help them restart their lives in a positive way.”

“It is irresponsible to [release prisoners early] without some funds to help the counties manage,” Swanson cautioned.

“Many of those individuals we would like to have in our community,” added Carson. “But they don’t have the supportive services necessary to assist them.”  

But there is reason for cautious optimism on this issue. Hancock thinks we have a real chance to turn the budget lemon into public safety reform lemonade by including rehabilitation block grants for local governments in conjunction with early release. This would still save the state money and provides a realistic opportunity to permanently reduce the population in our state’s overburdened prisons.

Clearly, Governor Schwarzenegger wasn’t the room’s favorite person, but there was some praise for the Governor, sort of. While previous budgets have relied on “smoke and mirrors,” Ross gave the Governor credit for presenting a more or less honest portrayal of what the budget would look like without additional revenue. “This budget makes clear that California is facing a very serious challenge,” she said.

And there was some good news to report too. Assembly Bill 32, California’s landmark global warming bill co-authored by Speaker Fabian Nunez (D-Los Angeles) and then-Assemblymember Fran Pavley (D-Agoura Hills), is not particularly threatened by the Governor’s budget, because the California Air Resources Board has limited authority to raise fees without legislative approval. Indeed, the state’s budget wonks are looking into redirecting money from the general fund that Governor Schwarzenegger reserved for AB 32, since that money could also be generated via a CARB fee hike.

So where do we go from here? How do we insure that our values are reflected in California’s budget this year? Goldberg had some suggestions:

• Tax oil producers. This would generate more than $1 billion yearly, and we are the only oil-producing state that doesn’t tax the oil producers;
• Bring back the vehicle license fee;
• Restore the top tax bracket that Governor Wilson abolished. This would generate $2 billion yearly, and those who faced the tax hike could even get a portion back in their federal tax returns;
• Institute a tax on goods purchased on the Internet;
• Find fees that can help relieve the general fund. Fees only require a majority vote, so they provide an opening for the Governor and legislative Democrats to increase state revenue without the support of legislative Republican obstructionists. He cited a carbon fee as one option;
• Organize parents, teachers, and concerned citizens in Republican districts to fight against cuts to education. Schools in Republican districts tend to be even more vulnerable to state cuts to education, and it’s possible the pressure could sway some legislative Republicans to take a more nuanced perspective on taxes;
• Get taxes on the ballot. While a legislature-approved tax initiative would also require a two-thirds vote, it is possible that enough Republicans could be persuaded to let the people decide their own financial fate; and
• Support groups that wish to independently carry revenue-generating initiatives. Even if a tax hike initiative can’t clear the legislature, we should expect signature gathering to begin from concerned interest groups.

So those are some of our options. Where are we likely heading? Said Goldberg, “My guess is one way or another, we’re going to be fighting this out on the ballot.”