Via OC Progressive, Assemblywoman Noreen Evans, Chair of the Budget Committee, spells out slowly for everyone the structural problems and false assertions about the California budget process.  If you have non-political junkie friends who want to understand this in a quick and easy way, pass them this link.

This is a very good place to start.  Evans puts the lie to three big myths about California:

1) The “runaway spending” assertion.  Um, no.  Population and inflation accounts for 68% of the increase.  I LOVE how Evans cites the tough on crime sentencing laws as a key element of over-spending, in this case on prisons (20% of the inflation and population-adjusting spending increase).  Ballot-box budgeting with no dedicated funding stream (separate from the initiatives voters stopped lawmakers from raiding yesterday, which have funding sources) also contributes to the problem.  And there are the prior tax cuts like Prop. 13 and Arnold’s VLF cut (which would have filled this ENTIRE current deficit).  To cover for this we sell bonds and now have to pay out interest to service that debt.  The problems beget more problems, and necessitate more cuts because the conservative veto resists taxes.

2) There’s all these “waste” in the budget.  Again, no.  The Performance Review of 2004 found virtually nothing that would save the state any real money.

3) It’s just all that messy partisanship from both sides.  No.  The Democrats have made $40 billion in cuts over the past several years.  The Norquistian Yacht Party won’t budget because they don’t have to.  Evans details the 2/3 requirement and the conservative veto, and cites Norquist himself!

Seriously, pass this to your friends.  Facebook it and Twitter about it.  If you internalize these concepts, the solutions are obvious – we need to restore democracy and give our elected officials a budget process and a Constitution they can actually navigate.

And while we’re at it, let me debunk one other myth.  The one that says all California has to do is sell San Quentin and all that surplus property and save the state.  Well, the money raised from selling state property would not be able to be used to balance the budget.

Under the terms of Proposition 60A, approved by voters in November 2004, proceeds from the sale of any state surplus property can only be used to pay the interest on $15 billion in budget-balancing bonds sought by the GOP governor and approved by voters in March of the same year.

Once the bonds are paid off – the Legislative Analyst estimated at the time that cash from the sale of surplus property would speed retirement of the 30-year notes by a “few months” – sale proceeds would be deposited in the state’s reserve account for emergencies.

Oops.

Well, this is it.  After three months of argument, threats, projections, facts and figures, the special election on the budget has finally arrived.  Voters now get to decide the fate of six ballot measures that will impact the near-term budget deficit and the long-term manner of budgeting in the state.  Well, a FEW of the voters get to decide.  I popped by my local polling place just to see the crowd size – I already voted absentee – and let’s just say that the traffic was, er, light.  

So here are a few lessons as we watch the results tonight:

• Money Isn’t Everything – This race may finally put to rest that axiom of California politics about cash being king.  The No side – and mind you, groups only raised money opposing for certain ballot measures – raised about $4.5 million dollars, all told.  The Yes side raised over $26 million.  Despite this 6.5:1 advantage, most polls show the first five measures on the ballot, the ones that actually affect the budget, going down to defeat.  Prop. 1C, which had NO money against it and the state Democratic Party along with millions from G Tech (the makers of lottery machines) behind it, has consistently polled the worst among all measures.  The No on 1A folks used a strategy that conserved dollars but did get out the message, in particular through Web and Google ads.  But they were obliterated on the air and through mailers, and based on the fact that Arnold Schwarzenegger skipped town and Budget Reform Now doesn’t even have a headquarters tonight, it appeared not to matter.

• No Credible Messengers – The main reason these ballot measures are poised to fail is that, in general terms, absolutely no politician in this state has the trust of the people.  Nobody could sell the message on the Yes side because nobody could even sell themselves.  I’ve heard about internal polls with the legislature in single digits and the Governor below 30%.  We have a crisis of confidence in California, and that stands to reason, considering the extent to which process has overwhelmed personality, making the state largely ungovernable without major revisions to that process.

• Take The Message You Want – The Yacht Party will certainly try to paint this as a victory for their anti-tax jihad, and it’s highly likely that the dwindling state political media, and even possibly the Democratic leadership, will believe them.  However, regardless of conservatives being “emboldened,” the fact is that progressives opposed the special election for very specific reasons, and Democratic leaders must reconcile with that as well.  The constraints on governance here in California are undeniable.  And yet the time has come to stop finding ways around the mountain of structural problems and pick up the shovel and start digging through the mountain.  It won’t take overnight, and in the meantime there are solutions – some painful, some creative – that the leadership will have to take.  But the message from the electorate, including those that sat this race out in anger or frustration, is that people don’t want gimmicks and spending caps and service cuts.  They want a functioning government and they don’t see one, and they will continue to punish these people who call themselves leaders until they start acting like it.

• Musical Chairs – Curren Price will win election to SD-26 today, shrinking the need for Republican votes to reach the 2/3 threshold in the Senate to 2.  At the same time, this will increase the need for Republican votes to reach the 2/3 threshold in the Assembly to 4.  There are more targeted seats in the Assembly, so in the short term this is a slight net win.  But it’s obviously not optimal, and that Assembly seat may not get filled, if the SD-26 odyssey is any guide, until late fall.

When you go beyond the headlines, there are several interesting elements of the Governor’s May Revise – which by the way, was illegally delivered, under the February budget agreement, but hey, what’s the law, right?

We know some of the major portions of the Governor’s plan – cutting education, thousands of state employee layoffs, lots of borrowing (something like 40% of the gap through revenue anticipation warrants), selling public landmarks, etc.  First of all, with respect to selling off public property, easier said than done.  

Case in point: the governor’s plan a while back to sell EdFund, the state’s student loan guarantee fund. It was projected to bring in $1 billion, but still hasn’t been sold (and was last valued at 50% of its original estimate). I mention that because in this proposal, the governor suggests $1 billion for selling off part of the State Compensation Insurance Fund. Maybe it’s an easier deal than EdFund (and others in the past), but…

Some other interesting pieces:

• Despite the fact that Schwarzenegger adamantly insisted there will be not tax or fee increases as part of any solution, there in fact are new fee increases included.  The Governor seeks higher fees, but significantly, those fees would hit some of the most vulnerable citizens in the state.  For example, he raises fees for residents living in veterans homes throughout the state, adding $2.8 million dollars.  What’s important here is that he betrays his own rhetoric by raising some fees inside his own revised plan.

• While the budget deficit exists because of an historic drop in revenue during this Great Recession, instead of temporarily cutting various services, the Governor’s revised budget would cut them permanently, particularly in programs like Medi-Cal, In-Home Supportive Services, SSI/SSP, regional centers, Cash Assistance Program for Immigrants.  This despite, once again, the Governor reconciled his raid of local governments by saying that “hopefully the economy comes back.”  But even if it did, the permanent cuts to programs serving the most vulnerable elements of society would remain.  The vast majority of those cuts would be implemented regardless of the outcome of the May 19 ballot measures.

• Never one to let an opportunity in crisis to slip by, the Governor would also allow the first new offshore drilling off the California coastline in 40 years, putting a major dent in any possible depiction of Schwarzenegger as some kind of environmentalist.  Despite not being able to tax the severance of oil from California land, the Governor would lease new offshore drilling sites to bring in $100 million from the state.  And this would nullify a ruling by the State Lands Commission that denied further oil leases.  As recently as last summer, Schwarzenegger vowed not to allow new drilling off the California shore.

You won’t read much of this fine print in the discussion of the budget, or the glorifying media profiles of the “Governator.”  But it’s important, because every aspect of this reveals him as a cheap fraud.

I have several questions about this sudden restatement of the budget deficit for the next year.  First of all, this is not an independent assessment by the Legislative Analyst, but from the Department of Finance.  No report was released accompanying the budget revise, just some raw numbers in a letter to the legislature.  Apparently a dual revision, one based on whether the ballot measures pass and one based on whether they fail, will be illegally delivered on Thursday, despite the fact that the February budget deal calls for it to be released on May 28.  The Governor is getting around this by calling the release a “summary,” allowing them to AGAIN show no numbers, just a “trust me” belief that the deficit is now $15 billion, $21 billion if Props. 1C, 1D, and 1E go down.

More curious is this bit from John Myers:

Taking a closer look at the $15.4 billion deficit projection, aides to Schwarzenegger say that a full $7.4 billion of that is in the fiscal year that ends just 50 days from now; the remaining $8 billion is in the 2009-2010 fiscal year.

That $8 billion in the ’09-’10 year matches up with March’s projection by Legislative Analyst Mac Taylor. And given that Controller John Chiang announced last Friday a $2.1 billion shortfall in anticipated revenues for the current year… that leaves about $5 billion in what budget watchers might call “new” deficit in this announcement.

That doesn’t make a lick of sense.  I believe Chiang’s numbers that we’re $2 billion short in tax collection in the current year through April 30.  I do not at all believe a Governor who has lied repeatedly about budget projections throughout his entire career, claiming $5 billion in new deficit in the last 50 days of the budget year.  Especially because there are no independent numbers to check.

Like Legislative Analyst Mac Taylor, I would not be SURPRISED that we’re not $15 billion out of balance.  Some expenditure increases contributed to this deficit, and clearly the worsening economic picture has strained the revenue side.  But I’m funny this way – I actually want to see the data.  The Governor has spent the entire special election trying to scare people into compliance; would anyone but this Hail Mary pass with one week to go past him?

I think the sand has come out of the eyes of most everyone in Sacramento, and seeing their May 19 solutions sinking, the legislative leadership has returned to the drawing board, where a deficit somewhere between $14-$16 billion dollars for FY 2010 must be wrestled with.  Unsurprisingly, conservative lawmakers and the media have foregrounded cuts as the first among all other options.

So where might they look?

For starters, the state would spend down its $2 billion reserve, Steinberg said.

State leaders are eyeing a possible $5 billion reduction in school spending allowable under the state’s constitutional education guarantee when revenue drops. Education groups say that could threaten valuable programs and prevent schools from rescinding layoff notices they issued this spring.

“Schools would have to look at extracurricular programs, library hours, transportation,” said Scott Plotkin, executive director of the California School Boards Association. “An awful lot of things not required by the law that are desirable are going to start falling by the wayside.” […]

Schwarzenegger aides have warned public safety groups he may propose an early release of up to 38,000 prisoners, split between 19,000 undocumented immigrants and 19,000 low-level offenders. The governor may also seek to house those who commit “wobbler” crimes in county jails rather than in state prisons.

The plan would save an estimated $335 million in 2009-10 and $849 million in 2010-11.

It proposes to hand over undocumented immigrant prisoners to United States Immigration and Customs Enforcement, though public safety officials questioned whether the federal government would agree to such a plan. The plan also would release 19,000 “nonserious, nonviolent, non-sex offense” inmates in the final six months of their sentences.

I don’t see ICE terribly happy with the state plopping 19,000 undocumented immigrants in their laps.

On the flip side of this, I think it’s important to recognize the solutions out there that involve no cuts, ones that must become part of the conversation immediately.  For example, federal guarantees for municipal bonds would save the state billions of dollars that could be diverted to closing the budget gap.  While it appeared that Congress was unmoved by this proposal, the Treasury Department could step in.

The Treasury, for instance, is working on a plan to help cities, school systems, hospitals and other agencies borrow money at cheaper rates. The credit crisis made it more expensive to get money for buildings, ballparks and other projects. The problem has been particularly acute for those with lower credit ratings, which require them to pay more for their bonds.

Officials are considering options including the creation of a federal agency that could back the bonds, aiding bond insurers that backstop municipal bonds or simply providing subsidies that could lower the rate for municipalities.

This is not a direct pass-through to the budget, but the savings would be felt in future scorings of overall revenue and spending.

More important, the Senate leader has started to talk about the majority vote fee increase once again.

But making deeper cuts into social services begins to run against logic, Steinberg said. With CalWorks, for instance, the federal match is “so significant,” that to cut $1 is to turn away $4 or $5 in federal dollars.

“At some point, it makes little sense to cut even deeper,” he said. “But, let’s assume we make significant and broader cuts. Then, you’re looking at corrections and public safety. … I wouldn’t take it as a complete given that the other side is really willing to vote for a cuts-only strategy.”

If Republicans don’t go along with new revenues, Steinberg said Democrats may have to resort to a simple majority vote on fees, the same tack he took last winter before Schwarzenegger vetoed the effort to force negotiations. “But we’re not going to lead with that,” Steinberg said.

They ought to go ahead and lead with it.  The problems we face in Sacramento are governance problems, which favor solutions that kick the can down the road instead of facing up to current challenges.  In such an environment, bold solutions that finally remove the structural revenue gap and end budget dysfunction are really the only step forward.  The majority-vote fee increase is a bold, albeit short-term, step, certainly preferable to counter-cyclical and counter-productive spending cuts, and the pressure on the Governor to accept it will increase as the summer marches on.  The long-term solution, of course, comes in building the rationale for restoring democracy to the legislature by ending the conservative veto over the process and returning to a simple majority to run government.

Jackfolsum alludes to it, but I wanted to highlight it as well.  Arnold got tripped up a little bit today in front of the Jesusita Fire, caught in between telling Californians what they wanted to hear, or telling them they’re all going to die.  It’s pretty amusing:

One of Schwarzenegger’s strengths has been to respond to emergencies and assure local residents he will provide all support necessary. But that message clashes with his statements earlier this week that fire services would be jeopardized if voters reject the ballot measures on May 19.

Because he declared a state of emergency for the Santa Barbara fire, he said he was able to get the federal government to pay for 75 percent of the costs.

“This is very helpful for us because as you know, we have a financial crisis in California,” Schwarzenegger said. “But I wanted to make sure you all know, even though we have this crisis, we will not be short of money when it comes to fighting these fires.”

Oops!  But Arnold’s “strong leader/warrior/protector” shtick clashes with his “vote for my spending cap or you will BURN BURN BURN!!!” shtick.  So he backpedaled.

“First of all, let me just make it clear, because there’s always the question that comes up, what happens to the fire departments and to the budget if those initiatives don’t pass,” Schwarzenegger said. “The first thing you should know is, I will always fight and get every dollar I can for public safety, that is the important thing you should know.”

“No. 2, it is very clear that when the initiatives fail there will be $6 billion less that will be available, so therefore there will have to be additional cuts made, if it is in law enforcement, fire, education,” he added. “…But I will fight for every dollar, and will always make sure we have enough manpower and enough engines and helicopters ready to fight those fires.”

Interesting use of “when the initiatives fail,” not “if” there.  Arnold reads the polls, I guess.

He really has no idea what he’s doing.  He wants to scare and please at the same time, so it comes out like mush.

Come to think of it, Arnold sounds a lot like the Californians seduced by the Two Santa Claus Theory, who want to cut services in general but protect services in particular.  So maybe he’s just giving the people what they want.  

The Budget Reform Now folks, on the heels of one ad narrowing their focus to Props. 1A & 1B, have released yet another, basically with the same script only substituting a teacher for the firefighter, warning of $16 billion in cuts if 1A & 1B fail to pass.  1A & 1B do NOTHING in the current budget year or the next.  Nothing at all.  Arnold Schwarzenegger and his cadres are exploiting a crisis with fearmongering tactics to gain a spending cap they can use to ratchet down state services forever.

This is very simple.  If 1A’s spending cap would immediately limit state services $16 billion dollars below the baseline funding needed to provide services at the current level, then $16 billion in services aren’t at risk with the failure of 1A.  They’re at risk with passage.  And that risk would be permanent, and would increase every year, well and above the two year extension of tax increases.

Arnold obviously doesn’t give a damn about the current budget gap.  Heck, he probably enjoys it; he can use his new furlough tools and threaten to set the state on fire and a host of other right-wing options.  The golden goose for him and his rich supporters is the spending cap.  And those Democrats who enable him in this effort ought to understand what they’re supporting – a permanent reduction in services for the state’s most vulnerable citizens.  “What’s your solution,” is the phrase thrown around at us.  The problem is we know theirs.

UPDATE: The latest brilliant idea from the Governor: raid local governments if the Props fail, a direct contradiction of his deal with cities to stop raiding their budgets five years ago.  Under yet another Prop. 1A from 2004, the state can borrow 8% of property tax revenues (about $2 billion), which would have to be repaid with interest in three years.  The credit cards are open for business again!  While this measure represents 10-15% of the total projected budget gap, it would decimate services at the city and county level, services that – voila! – the state would need to step in to provide.  Also the Governor cannot pull this off unilaterally: it would require a 2/3 vote of the legislature.

I spoke at yet another Democratic Club meeting on the May 19 propositions yesterday, against yet another member of the California Legislature, Julia Brownley (who I really like and respect).  One thing I sought to make clear to everyone is that we are going back to the drawing board on May 20 no matter what happens on May 19.  The Legislative Analyst already finds the February budget deal to be $8 billion dollars out of balance, and April tx receipts came up $1.8 billion dollars short of the budget projection.  Some of us recognize that this means alternative solutions must be gathered right now, because Democratic legislators will be stuck in the chamber with the Yacht Party on May 20 regardless.

I was heartened to hear Assmeblywoman Brownley note that a majority vote fee increase will probably be part of the solution.  When the Legislature passed this in December, they raised more money than would be sacrificed if Props. 1C, 1D and 1E failed.  An argument could be made that the majority vote fee increase combined with the passage of those props would obviate the need for almost any cuts.  I think that’s faulty reasoning, since 1D and 1E ARE cuts, to vital services that will cost the state more money in the long run.  As for 1C I find it completely unworkable and just a borrowing gimmick.

I do have to say that it would be much easier to swallow this posturing from the ballot measure supporters that they would have no choice but massive cuts on May 20 if everything failed, if they didn’t enable massive permanent corporate tax cuts in the last budget deal…

Corporate tax attorneys are chuckling over the absurd deal in the last agreement that lets multistate and multinational taxpayers decide, each year, how much income they want to report to California. Because this was negotiated in private, with no hearings and no independent expertise brought to bear, the result is a giveaway and a national embarrassment, in a state that had prided itself on a fair, successful corporation tax.

Here’s how it works. Each state typically figures out what percentage of a large company’s business is done in the state, and then taxes that percentage of income. Historically, if 10% of a multistate company’s payroll, property and sales are located in the state, then 10% of its nationwide or worldwide income is subject to tax. In the budget deal, California changed the formula to allow companies to choose to make that percentage based only on sales in California.

…and if they didn’t protect the very corporate interests who are now bankrolling their ballot measures:

The entire architecture of the ballot pact that emerged was heavily shaped by leaders’ desire to please – or at least neutralize – the state’s most powerful political players.

Now, some of those very interest groups protected in the budget deal are bankrolling the campaign to ratify it.

For the oil industry, the package omits a once-proposed 9.9 percent oil severance tax. Energy companies have given more than a million dollars to pass the plan, led by a $500,000 donation from Chevron.

For the liquor, beer and wine industry, increased alcohol taxes were shelved. Alcohol industry heavyweights, such as E. & J. Gallo Winery ($100,000) and California’s Beer and Beverage Distributors ($50,000), have all opened their checkbooks.

For the teachers union, the list of ballot measures includes a separate measure to ensure repayment of deep cuts to schools and protections for top-priority programs. The California Teachers Association has contributed $7 million to the passage of Propositions 1A and 1B.

For casino-operating Indian tribes, the state lottery measure avoids any new games that could threaten their gambling operations. Tribes, who could have been major contributors against the lottery proposition, have kept their checkbooks closed.

In the last budget deal, all the industry-specific taxes, all the service-based taxes that wouldn’t be so regressive, faded away, and the same groups protected by that fade (including practically every sports team, as sporting event-industry taxes were once on the table) ponied up for the special election.  So pardon me if I don’t believe your lament that you’ll just be forced to cut state services, when you found room for billions in tax cuts to the largest corporations in America and protected every single industry that could donate money for ads and mailers.  Let’s just say I don’t buy the image of a legislature with their hands tied.

The Yacht Party’s public relations staff scored a coup by getting one of their press releases into print about those mean, nasty legislators spending all our tax dollars.  Now, it turns out that some of the cost-cutting measures put forward by these Republicans have a bit of merit.  But it’s all a matter of scale.  These measures would produce savings in the millions of dollars, which is a lot to the individual blogger who really welcomes your donations (hint, hint), but not so much to a nation-state of 38 million.  However, missing from the litany in this article is any measure that would actually put a dent in the budget crisis, like a broader-based sales tax that captures what people consume.  AB178, which was also squashed this week, could have added anything from $2 billion-$5 billion to the General Fund.  In other words, it would take more than 1,000 bills of the likes of Jeff Denham’s AB44, to abolish the Integrated Waste Management Board, to have the impact of Nancy Skinner’s AB178.  But million and billion sound alike, so the Waste Management Board bill gets in the paper, while the squashing of the bill that would raise almost as much as Prop. 1C all by itself gets… nothing.

More of the essentially conservative slant of the media.