The threat of the State of California actually declaring bankruptcy actually declaring bankruptcy seemed ridiculous not that long ago, despite all of the craziness in our budget. Yet, unless we do something about the deficit, we creep closer to the precipice. So, Speaker Bass is considering doing something drastic: Locking the legislators in the Capitol during the week of Christmas.

Assembly Majority leader Alberto Torrico, D-Newark, floated the idea publicly last week of an around-the-clock lockdown of legislators during Christmas week, beginning Monday.

Bass, D-Los Angeles, did not indicate how long she might order the Assembly to stay inside the Capitol if no proposal is passed today to help bridge the state’s projected shortfall of about $40 billion over 18 months.

Bass and Senate President Pro Tem Darrell Steinberg met briefly this morning with Gov. Arnold Schwarzenegger. An Assembly vote is expected today on a budget proposal expected to consist of both budget cuts and tax increases to help ease the fiscal crisis. (CapAlert

The Lockdown itself wouldn’t be that amazing, but for the week of Christmas? Wow, that would be something. But even given that, it just still seems a long shot to get at the Republican votes in the Assembly.  They are the genuine idealogue, letting some grand vision over ride the reality of the situation.

But other than taking away the Legislator’s christmas, what options are there? I suppose Arnold could get tough on the Republicans and get a deal with the Dems on prisoner release, (and maybe even a targeted release of prisoners in the Rep. districts.) Cut off funding for water projects to the Rep districts completely? But at what point do we start cutting off our nose to spite our face, just as the Republicans are doing?

As we slowly descend into the abyss, when do we give up and call a snap special election to raise revenues and change the underlying system that is throttling us?

Open Left’s Paul Rosenberg summarized our site over the past week by musing that California is a failed state.  It’s hard to argue with that.  We have a political system governed in exactly the opposite direction of the will of the people.  Despite 63% majorities in the Assembly and the Senate, in Sacramento the Yacht Party rules.

California is bleeding Republican red as the state’s minority party tries to squeeze a spending cap and pro-business policies from fiscal chaos.

Badly outnumbered and often ignored by the Democratic-dominated Legislature, the GOP is not getting sand kicked in its face these days.

California is hurtling toward a financial abyss, projecting a $40 billion shortfall by July 2010, and no deal can be struck without at least three Republican votes in both the Assembly and Senate.

GOP officials clutch that trump card with relish as the state braces to pull the plug on $5 billion in public works projects and warns it won’t be able to pay all its bills by February or March.

Kind of amusing that the Treasurer thought he was making a threat to Yacht Party regulars when he vowed to shut down infrastructure projects without a budget deal.  To the GOP, that’s a GOAL.  All the posturing and tut-tutting at the lack of compromise, along with the horror stories spun out as a consequence of doing nothing, simply bolster the Yacht Party argument.  If you haven’t been paying attention, they want to do nothing.  They want to end government.  In a way they are the ultimate anarchists.

There’s supposed to be some kind of “cuts only” package released by Republican leaders today, by the way:

The GOP is scheduled to unveil its own proposal Monday, with no tax hike. The plan is expected to identify about $11 billion in budget cuts and, among other things, propose asking voters to redirect money designated for mental health programs and preschool programs and services.

State Treasurer Bill Lockyer, a Democrat, characterized the high-stakes showdown between legislative Democrats and Republicans as political “chicken,” with each party expecting the other to blink.

“I think they’re going to run off a cliff,” Lockyer said.

Incidentally, Bass and Steinberg are willing to come together on good government reforms, which we shouldn’t oppose in a knee-jerk fashion.  Liberals support reforming government and making it effective because they believe in it.  Republicans, under the guise of “reform,” mean to destroy government.  I don’t think there’s anything wrong with a performance review that looks at duplication or ineffective programs and seeks to mend them.  That’s what oversight is all about, and it’s a core function of the legislature.  What I do take issue with is the idea that reform is a “magic bullet” that will end all budgetary worries without anyone having to feel the pain.  That’s irrational and ridiculous, especially in this moment of crisis.

For a while, Speaker Bass and others (including lots of posts here) have pleaded with Governor Schwarzenegger to stand up to the Republican obstructionism.  He says he is for revenue increases, but he’s not knocking heads like past Republican governors have been willing to do. Pete Wilson and Ronald Reagan did it, surely Arnold could bang out some sort of compromise.

But up to now, he’s just been sort of attacking the legislature in general and really failing to recognize the underlying unwillingness to work for a solution from the Republicans. Now, surely we can agree that today’s Republicans are a lot more partisan than those of 20 years ago.  However, that’s just not a sufficient excuse for the Republican governor to fail to bring a single vote over.

At yesterday’s press conference, Arnold slighlty altered his tune.  He began to acknowledge what this is: Republicans are holding the state hostage.  They are simply not negotiating in good faith.  Take this for example, from the transcript on the Bee:

But I think that what is important is to come to the meeting and to be prepared and to propose those kind of issues. I have been to many meetings; none of those things were discussed. So I think it’s very hard for the Democrats, in a way, to negotiate when no one puts that on the table and says here is the list of things that we ask for and if we have this list then we’re willing to increase taxes and to come up with extra revenues. But it’s always very vague and nothing specific and I think that makes it sometimes frustrating in those negotiations.

Ok, well it’s a start, Governor, and the legislative inaction clock is very cute. But this simply isn’t enough. But today it seems that criticizing Republicans is too much.  After a Big 5 meeting, Senate Minority Leader Dave Cogdill decided to take his frustration out on the Governor:

I believe that the Big 5 process has been irreparably compromised as a result of comments in the press over the last couple of days, and it’s pretty difficult to negotiate in good faith in that situation. My personal belief is that any resolution to this that is going to be negotiated will result from efforts with the Big 4 similar to what we were able to accomplish with the budget last year, because, again, I just don’t see this process as being productive or helpful. (SacBee 12/11/08)

The thing is that the Republicans in the Legislature have grown used to one Arnold. The post-partisan Arnold that tries to make nice with everybody. The Arnold that we’ve basically had since the 2005 Special Election.  Then some new Arnold dared to nudge the Republicans for failing to negotiate in good faith, so Cogdill is going to take his marbles and go home. Boo-hoo Dave, there’s no crying in politics, Hillary Clinton aside. You are being intransigent, and you got called out on it. You know what else? Nobody likes you, so go cry about that too.

In actuality the problem here isn’t that Arnold is being too tough now, it’s that he’s not being tough enough. We need the Governor to play hardball with these Republicans. The real problems is that he already missed his chance to really break the logjam a few months ago. If he wanted to get reform, well dammit he should have been hanging out in Audra Strickland’s district and campaigning against Tony Strickland in the Senate. He should have gone to Stockton and argued to the voters there that John Eisenhut would work to fix the budget and that Bill Berryhill would not.  But it seems that post-partisanship doesn’t extend so far as to electing people who will actually pursue sound policy, regardless of party.  

Oh to be a fly on the wall of that Big 5 Meeting, but Sen. Steinberg gave us a clue about the atmosphere:

“There was no lunch served,” Steinberg said.

The leaders are signaling that perhaps there will be a deal next week, but I won’t be holding my breath.  The recent behavior of Cogdill and Assembly Minority Leader Mike Villines don’t give much reason for hope.

UPDATE: Speaker Bass released a statement on Cogdill’s little tantrum:

“They said that they came up here because of what they believed in and they believed that there should never be a tax increase. All of us came up here for what we believed in. I came up here to make sure that I would protect programs that now I have to recognize have to be cut.  We all have to do things that we never thought we would do because California is in a catastrophic situation.”

It’d be nice if the Republicans could at least pretend to care that our state government is about to collapse.

Speaker Bass, perhaps annoyed by the clock, acknowledged that the Governor is going to have to provide some real leadership here:

Gimmicks aren’t going to keep transportation projects moving, let schools stay open or provide public safety. The fact remains Democrats are the only ones who have been serious about compromising to find a budget solution. We have stepped up to the plate and support both the deep cuts and new revenues it will take to help close the budget deficit. It is past time for Governor Schwarzenegger to break the logjam created by his own party and produce Republican votes for a package of cuts and revenues. The 2/3 vote requirement means Democrats can’t do it alone. With 51 Democrats we only need three Republican votes in the Assembly. But we need real leadership from Governor Schwarzenegger to convince even a few of his Republican colleagues to compromise. Other Republican governors have done that in time of emergency. This governor has to deliver as well.

Cross-posted on the California Majority Report.

Yesterday, the California Assembly and Senate held a rare joint legislative session to hear from California’s economic experts on the state of California’s economy. Treasurer Bill Lockyer, Controller John Chiang, Department of Finance Director Mike Genest, and Legislative Analyst Mac Taylor gave a remarkably uniform presentation that urged immediate action and politically tough compromise.

“If you act now, the cash situation is manageable, unless it gets worse, and I’ve already said it will,” Genest explained with a slight slip of the tongue that was perhaps even more accurate than intended.

“The faster you act the easier it will be for you to fix your problem,” Taylor added.

Over the next two years, current estimates project that California faces a $28 billion budget hole, and all sides are willing to acknowledge that’s likely an underestimate. Moreover, the Legislative Analyst’s Office anticipates huge operating deficits above $20 billion per year through 2014. Lobbying in Washington, D.C. will hopefully reduce our federal tax dollar imbalance, but the complete solution requires bold action in Sacramento as well.

There’s more over the flip…

Failure to act soon, Treasurer Lockyer warned, would force the state to stop construction on a number of infrastructure projects, to the tune of $660 million per month. The harm to the private businesses and employees expecting highway projects would clearly create a domino effect disruptive to the state’s economy. Projects at risk cross Republican and Democratic districts, including a $239 million bridge replacement on Interstate 5 in Shasta County, a $345 million tunnel project on Highway 24 in Alameda County, a $218 million HOV lane on I-5 in LA County, and a $65 million eastbound lane project on Highway 91 in Orange County.

The loss of jobs and tax revenues that would result would be accompanied by an increased reliance on social services, and this is obviously a problem far beyond highway budgeting.

Without a real budget, the LAO thinks it will be impossible to convince lenders to provide the state with stimulus and infrastructure bonds, which remain one of the more attractive options left to the legislature.

And Genest gave another reason to act fast. As time wears on, the options available to the state diminish with one glaring exception: Proposition 98 education funding. The legislature has the authority to cut off Prop 98 guarantees at any time, whereas most cuts and revenue solutions rely on early action to reap substantive reward this year.

“Delayed action points the gun very directly at schools,” Genest emphasized.

Controller Chiang echoed Genest’s concerns. While strong opinions exist on both sides of the aisle on cuts and tax increases, to do nothing is worse than making hard sacrifices.

But the bluntest presentation came from Treasurer Bill Lockyer, who minced metaphors but not words. Calling the budget that cleared the legislature in September a “zombie budget … but no sleeping beauty,” Lockyer urged the legislators present to transcend the interests they represent and the ideologies they espouse. “Robotic advocacy misses the unique role of legislators,” he told them. “Stop relying on the tooth fairy and other fantasies.”

What’s needed in Sacramento more than a tooth fairy is a two-thirds fairy. To raise taxes, close tax loopholes, and pass budgets requires two-thirds approval, in essence giving Republicans in both legislative houses veto power over most solutions provided they remain unified. Legislative Democrats have acknowledged that additional cuts will be required, though legislative leadership is understandably getting push back from some of the legislature’s more progressive members. Nevertheless, Democrats have shown in the past that they can largely fall in line with leaderships’ recommendations on budgetary matters. The elephant in the room, as has been the case for a number of years, is whether enough Republicans will agree to revenue solutions that they know will be opposed by conservative activists.

At least publicly, legislative Republicans have yet to back away from their no tax pledge, and if they didn’t get the message after this presentation, then we are in for a world of hurt.  

“The good news is, on the Assembly side, we only need three votes,” said Speaker Bass at a press conference preceding the session. And indeed, there may be cracks in the Republican armor.

While Senate Minority Leader Dave Cogdill other Republicans bloviated forever with rhetorical questions and right wing red meat designed for the cameras, at least two Republicans seemed genuinely open to learning from the exercise. Assemblymember Danny Gilmore, who represents the only district in the state where a Republican picked up a Democratic seat, noted his district’s high levels of unemployment and asked the presenters how important job creation was to solving California’s economic crisis. Assemblymember Kevin Jeffries asked the experts which tax increases will harm California’s economy and which will help, suggesting he at least recognizes that some taxes might be helpful.

Perhaps I’m reading the tea leaves too much here, but until proven otherwise, I will hold out hope that Gilmore and Jeffries are willing to take a more pragmatic approach to solving our economic crisis than most of their colleagues. As the state’s economic experts explained, to rely solely on cuts or solely on tax increases would increase unemployment in the state, whereas infrastructure bonds and stimulus offer opportunities to create jobs.

And as if on cue, the Commission for Economic Development, chaired by Lt. Governor John Garamendi, held their quarterly meeting at the Capitol this morning focused on the needs of California’s aerospace, agriculture, biotechnology, goods movement, and tourism and entertainment sectors. Not surprisingly, education, career training, and increased collaboration between businesses and schools were among the top priorities for all involved. As the California Taxpayers Association understood when they endorsed a modest sales tax increase a few months back, California needs an educated workforce to remain competitive in our cash cow high-tech, entertainment, and finance industries.

“The California Commission for Economic Development is intensely concerned about the California economy and understands that the ultimate solution to the budget crisis depends on a very healthy and growing economy,” Lt. Governor Garamendi explained. “To accomplish that, today we heard recommendations from six different industries on how they can advance the interests of their industry. The Commission will transmit all of those recommendations to the legislature and the Governor for immediate consideration.”

Added Democratic Assemblymember Lori Saldana, who sits on the Commission: “Here we have reports on the needs of a skilled workforce, and yet where are we talking about cutting? Education and infrastructure. We clearly need the people who were in this room to communicate more forcefully in this discussion.”

The partisan budget games, played primarily by legislative Republicans, need to stop. Legislative Democrats are willing to swallow politically risky cuts harming key constituencies to see our financial footing strengthened. Democrats will receive severe flack for their efforts, on this blog and elsewhere, as the weeks and months progress. To borrow Treasurer Lockyer’s terminology, at least one party in Sacramento is willing to transcend “robotic advocacy.”

Meanwhile, a Republican legislator at the hearing spoke fondly of a Toyota plant recently built in Mississippi to argue that California’s tax climate is unfriendly to businesses. We can quibble with specific tax rates or specific tax incentives, but one thing we should all agree on is this: California is not Mississippi, and we don’t want it to be. To allow a budget that relies excessively on cuts to our education and social services infrastructure would fundamentally alter the character of California and destroy the institutions that have made California a hub for high-end jobs over the years.  

The ball is now in the legislative Republicans’ court. They can do their part to sink our economy, or they can stand up to the Grover Norquists of the world and agree to a compromise. Democrats are willing to buck pressure from the key interest groups that form the Democratic donor base. Can Republicans say the same?  

I want to publicly thank Jordan Rau and Patrick McGreevey for ripping off my “Scared Straight” moniker to describe yesterday’s joint legislative session.  This is par for the course with the traditional media creatively borrowing the work of bloggers without attribution.  Hey, at least our site didn’t send us into bankruptcy.

UPDATE: Mr. Rau, in a somewhat snippy but professional email, tells me he doesn’t read the site and the “Scared Straight” idea was independently his.  Fair enough.

As for the effectiveness of the “Scared Straight” session, which posited that all state infrastructure projects would be shuttered by the end of the year without a new budget, and that the state would be essentially out of money by February or March, and that doing nothing will make the problem substantially worse… well, let’s just say it could have gone better.

The Republicans, who attended reluctantly, refused to accept tax increases, instead emphasizing the importance of limiting state spending and ferreting out waste and bloat in existing programs.

“I didn’t see a lot of productive work there today,” said Senate minority leader Dave Cogdill (R-Modesto). “I think it was more about trying to heighten the intensity around this thing and push people to a place that they have been trying to push us to for a long time, and I don’t think it’s going to work.”

Sen. Dave Cox (R-Fair Oaks) held aloft two weighty yellow tomes produced by the last effort to trim state government — Schwarzenegger’s 2004 California Performance Review, which suggested 279 ways to save money by reorganizing the state bureaucracy. Almost none were adopted.

Look!  The answer is just holding up the performance review and shuffling around the bureaucracy!!!  Ahem…

In his comments, Mac Taylor, the Legislature’s nonpartisan fiscal analyst, described the folly of trying to close the gap either by taxes or through spending cuts alone. A tax-only solution would require increasing the sales tax by 2 cents, adding a 15% surcharge to the personal income tax and hiking corporate taxes by 2% — making all of those taxes the highest in the nation, he said.

Taylor said erasing the budget gap by cuts would require lawmakers to end all funding for the University of California and state universities, welfare grants, developmental health services, mental health and in-home supportive services.

It’s of course a red herring that Democrats are seeking a “tax-only” solution, one that Karen Bass sadly saw fit to perpetuate yesterday by stating “I think some of my colleagues on both sides of the aisle are living in denial, frankly.”  Um, every Democrat in the Legislature voted for a shared responsibility budget that raised revenue and implemented painful cuts.  If Bass doesn’t want to make the fight at all, she ought to let everyone know.  It’s not helpful to try and spread the blame equally.  We have a Yacht Party that has no intention of lifting a finger in the face of crisis.  In fact, they see it as their opportunity to drown government in the bathtub and eliminate the social safety net permanently.

This is why the state GOP is bordering on irrelevancy throughout the state (BTW, if you want to laugh, read Ron Nehring’s prescription for Republicans.  Clueless and pathetic).  Californians have thoroughly repudiated the Yacht Party vision.  However, this is true everywhere but in the legislative chamber in Sacramento, where the 2/3 budget and tax rule allows them to hijack the legislature.  In the long term, there is nothing to do but to capture a 2/3 majority and finish the irrelevancy project.  In the interim, California’s Democratic lawmakers are better off flying to Washington, DC, where at least they’ll have a chance of getting money for state and local governments in the new stimulus package, then staying in Sacramento, where they have no shot at breaking the stalemate.  That’s just reality.

Scared Straight didn’t work.  On to DC.

UPDATE: This is better from Karen Bass.  I’ll put the whole release on the flip, but she is, as she has been doing repeatedly throughout the crisis, calling for specific aid from DC.  A taste:

Meeting with California Congressional leaders and President-elect Obama’s transition staff, Assembly Speaker Karen Bass today outlined specific steps the federal government can take to boost California’s economy and ensure that the state can actually benefit from stimulus packages currently under discussion.

“Infrastructure investment is critical to getting the national and state economies back on track,” Bass said. “But the major spending cuts and tax increases that California and other states will need to balance our budgets could undermine the success of any infrastructure stimulus efforts. Today, I shared with Representative Barbara Lee from the Appropriations Committee and President-elect Obama’s transition office California’s  firm belief that direct federal assistance has to be part of an economic stimulus plan.”

more…

Bass was accompanied by Assemblymember Noreen Evans (D-Santa Rosa), Chair of the Assembly Budget Committee, who noted that California’s budget problems are directly linked to the revenue meltdown that followed the national recession and crises in the mortgage, credit and automotive sectors.

“We need federal aid because our troubled finances are the result of our nation’s economic downturn,” said Evans.  “$25 billion of our $28 billion deficit comes from a revenue drop after the October stock market crash.”

In their meetings Bass and Evans emphasized several specific avenues for potential federal aid:

Maximize California’s Federal Medicaid Assistance Percentage (FMAP). Although California has a large number of low-income and disabled individuals eligible for the program, we receive only the minimum 50% sharing ratio from the federal government.

Reauthorize the State Children’s Health Insurance Program (SCHIP). Most states, including California, are overspending their SCHIP allocation and have exhausted their prior year unspent allocations. Reauthorization by March 2009 is critical.

Increase Food Stamp Funding. In California, roughly 1.7 million people receive food stamp benefits. Increased funding means more food purchasing power for children, adults and senior citizens.

Further Extend Unemployment Insurance Benefits. With an 8.2% unemployment rate California would benefit from a further UI extension, improved UI coverage and increased administrative funding for states to deal with the increasing number of applicants.

Increase State Criminal Alien Assistance Program Funding. California spends approximately $1 billion per year to incarcerate an estimated 18,000 undocumented felons. However, for the fiscal year 2008-2009, the state will only receive $111 million in reimbursement from the federal government.

Increase Pell Grant Funding. The credit crisis has made it much more difficult for families to qualify for student loans, especially private loans. For FY 09, the estimated overall Pell Grant shortfall is $3.5 billion. Pell Grant funding should be increased to ensure that adequate funds are available for all eligible students.

Bass and Evans also stressed the need for infrastructure investments as part of federal stimulus packages, including investment in transportation, housing, flood control and green technologies:

Transportation:  Funding for California’s highways, transit systems, passenger rail and goods movements projects.

Housing: Housing construction related activities, foreclosure prevention and mitigation and housing market improvement policies.

Clean and Green Economic Sector: The economic stimulus infrastructure program should provide funding to help California achieve our renewal portfolio standard (RPS) goals through the siting, planning, and building of transmission lines, as well as funding for green job training programs for displaced workers, at-risk youth and veterans.

Flood Control Projects: California is eligible to receive $15M for flood control feasibility studies and over $112M for flood control projects. Federal funding should be provided for these important public safety projects.

“California stakeholders, including the legislature, the governor, city and county governments and other interested parties, are coming together to develop a list of projects and priorities for immediate federal infrastructure stimulus,” Bass said. “It is in the state’s best interest to speak with a united voice wherever possible in this process, so it’s important to have the stakeholders develop and vet such a list before making the case for individual projects.”

Bass added that the Assembly also intends to work closely with its Congressional partners as reauthorization of the Transportation Act approaches. Because reauthorization has such a potential impact on California and its economy, Speaker Bass will appoint a special Assembly Working Group in 2009 to help advance California’s interests throughout the reauthorization process.

Speaker Bass announced that Gerald Parsky will be the head of the California Tax Commission.  The Commission was formed in October with the mission of releasing a report on April 15 (cute, huh?) on how to restructure the tax code in California. For some background, Parsky is the former chair of George W. Bush’s California campaigns in 2000 and 2004.  Along with Parsky, Bass named at least one more member of the commission, Chris Edley, the dean of UC’s Boalt School of Law.

As for what this commission is going to do exactly, well, that’s not totally clear:

The commission’s stated goal is not to raise taxes, Bass and the governor have said.

“It is revenue neutral, so we’re not looking, at this particular point, for any additional revenues. We are basically just looking for one thing and that is to create stability,” Schwarzenegger said at the press conference announcing the commission.

As for who else will be represented, Bass has made clear she wants a diverse group.

“When we looked at forming the commission we wanted to make sure that every sector of our economy was represented,” she said in October, “so we want to make sure that we have business leaders there, we want to make sure we have the high-tech industry, agriculture, etc.” (SacBee 12/08/08)

Obviously our overly cyclical tax structure has failed us.  By relying almost solely on a few revenue streams, primarily the income tax and capital gains, we have forced ourselves into these boom-bust cycles. The question is what can this commission do to fix that?

As a Republican with a strong background supporting Bush and McCain, Parsky will presumably have a better shot at convincing some of the Republican legislators of the importance of some of these reforms.  He’s fairly close with Arnold, and his name was tossed out as a possible Treasury Secretary had McCain prevailed last month.  He’s raised millions of dollars for Republican candidates, so if money counts, and it does, he should have the ear of the GOP legislators.  In many ways we need a prominent Republican voice on this commission, the Republicans need cover from a big-time money guy who has a track record on the GOP private sector trickle-down mumbo jumbo.

And Parsky does have the private sector GOP mumbo jumbo street cred. More over the flip.

If Parsky can bring some common sense progressive reforms to our tax code, great.  The guideline of a revenue neutral reform should be some sort of Shock Doctrine protection.  The important part of this is not just the smoothing of our income stream, but to also ensure fairness and that every pays their fare share.  However, we need to ensure that the Republicans on this commission aren’t looking to facilitate any Shock Doctrination of California. Parsky is generally moderate, but he has been known to push for some very corporate friendly policies in the past.

Parsky has a history of these commission reports.  Back in 2007, Parsky was named to a commission to review our pension obligations to public employees.  The report that was released called for immediate action, but in the end was summarily ignored.

Parsky knows quite a bit about pensions though. After all, he created the mess in UC’s Regents Investment Committee. For a full report on this, I highly recommend checking out Chris Thompson’s story on Parsky from 2007 had a great story about Parsky back in 2007. Parsky was the key figure behind moving Cal’s pension fund from a body operated based upon the advice drawn from the world class staff at the University of California system into one just another plaything of bigtime investment managers.  

It’s nothing new in the Bush dominated America: government for the profit of the rich.  Will Parsky’s leadership of Bass’s commission mean that any reforms will be regressive? Not necessarily, but with such a big goal, opportunities for big changes arise.  We need to move towards a more fair and a more progressive tax structure rather than going backwards.

Some more on the Pension below:

In 1999 and 2000, in a series of secret meetings, Parsky spearheaded an effort to radically remake the pension fund’s investment philosophy. Under his leadership, the regents gave hundreds of thousands of dollars to a Los Angeles investment firm to recommend and implement changes to the way the university invests tens of billions of dollars. At the same time, the president of that firm, Wilshire Associates, gave tens of thousands of dollars to the very Bush presidential campaign chaired by Parsky.

Wilshire, Parsky, and the Regents’ Investment Committee farmed out control of the investment fund to an army of pension consultants and money management firms, ending the decades-long practice of using university staff to trade stocks themselves. Along the way, they humiliated and destroyed the reputation of Patricia Small, the UC treasurer who had managed the investments for years and strenuously opposed their plans. Billions of dollars in stock were bought and sold in the midst of a massive stock market crash.

Seven years later, what was once one of the most lucrative pension plans in America is in desperate trouble. Before Parsky and his colleagues restructured the investment strategy, the university’s fund easily made more money than the average pension plan. Now, it ranks among the country’s worst performers. Before Parsky’s reforms, the university paid nothing to outside money management companies, aside from a small venture capital arm. Last year, the UC treasurer’s office paid at least $32 million to forty different money management companies whose investment advice may have cost the fund billions of dollars. (East Bay Express 5/9/2007)

The Speaker’s office uploaded a video of her Inauguration Speech to the incoming Freshmen Assembly Members, but I found this video a lot more interesting.  It’s from a press conference where she’s answering questions from the Sacramento press, such as it is.

She’s pretty blunt about what she’s expecting from Schwarzenegger: 3 votes in each house. I’m not sure if there’s a lot more Democrats can do. We’ve gone a long way, too far if you ask me, in the way of cuts.  And still the Republicans stand there looking like goofballs with their hand on their hips watching as our ship of state sink.

And from the more bad news category, there’s this little tidbit about the lottery.  As you may recall, selling out the lottery for a short chunk of cash fast was one of the big GOP/Arnold plans. It was really the key to the Republican plan, and was in a few of the Dem plans.  Well, don’t hold out for a flood of cash to come in. Sales are down:

Ticket sales by the California lottery are off about 10 percent compared to a year ago, a drop lottery officials are pinning on a bad economy. But California Lottery officials say they don’t think the lagging sales will interfere with efforts to modernize the lottery and revamp it to give more revenue to the state.

For the first four months of the 2008-2009 fiscal year, the California Lottery sold $985 million worth of lottery tickets, down from $1.09 billion for the same period a year ago. (Capitol Weekly 12/2/08)

Like every other revenue source we have, the lottery is cyclically dependent on the economy.  It’s just one more way to ensure that our budget is crazy every year, because we wouldn’t want any dull times around here.

What’s left of the Sacramento press are abuzz over today’s session of the Legislature.  Reportedly if there is a vote, it will be some sort of replacement for Arnold’s sales tax plan.  In a press release from the Speaker’s office, the leaders describe it as a package of $8.1 Billion in cuts, the same in new revenues, and $800 million in “other”.  I’m guessing other means another form of budget gimmick. We must be running low on those at some point here.

The Problem still exists.  As with everything else money related in Sacramento, the Problem is the Republican obstructionism.  It looks like the governor is on board with the plan to be voted on today, but not so much with the Republicans. The frustration is visible within the Democratic caucus.

“The cuts and revenue increases we are going to vote on in session Tuesday are real, with no gimmicks or new borrowing, and they are consistent with the recommendations of the non-partisan Legislative Analyst’s Office,” Assembly Speaker Karen Bass said. “This package contains difficult cuts and revenue increases that are tough for everyone to swallow, but they are what is needed to address our fiscal disaster responsibly and they should be supported by a strong majority in each caucus – Democratic and Republican. I’m confident Assembly Democrats will once again step up to the plate and show real leadership by accepting cuts we don’t like, as we already have. California needs our Republican colleagues to finally do the same regarding revenues. We are running out of time.”

The frustration is clear in her tone.  While I think this is probably going to end up as another drill, it’d be nice to see Republicans do something hard for them.  Apparently it’s only the Dems that are willing to make tough decisions.  It’s like negotiating with a wall.

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

The Merced Sen-Star:

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

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

The Hanford Sentinel:

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

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

The Modesto Bee:

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

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

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

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