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?
