There’s a very pernicious habit in California of turning away from budget issues once a crisis is averted, in a show of relief that we will at least get a small reprieve from having to deal with the contentious battles for a period of time.  This false sense of security is bad enough in regular years, when the budget is cobbled together through borrowing against the future and no long-term solutions are implemented.  In this dynamic economic crisis, when rosy outlooks can darken in a matter of days, it’s downright foolhardy.

Greg Lucas at California’s Capitol has been one of the louder voices in insisting that the budget crisis is not at all over.  According to Controller John Chiang, revenue in February was $900 million dollars below estimates.  Now, if you extrapolate that out, we’ll be in a $10-$12 billion dollar budget hole by the end of the year just if things remain at the same level.  This is of course unlikely, as the February national job numbers showed.  So much of the tax increases passed in the February 19 budget solution are tied to employment – an increase in the income tax, and sales tax increases that of course rely on residents having purchasing power.  In addition, these lean economic times will push more people into needing state services, like unemployment and Medi-Cal.  Then there are the counter-cyclical increases and cuts that are working against what the economic recovery is attempting at the federal level.

In addition, many of the spending and taxation decisions made in the recent budget cancel out some of the benefits to California of the American Recovery and Reinvestment Act.

The federal package provides an estimated $13.1 billion in refundable income tax credits for middle to low-income Californians at the same time the state budget includes $12.2 billion in tax increases, only some of which are deductible. And only half of taxpayers deduct.

The federal bill includes a one-time $250 payment to the state’s aged, blind and disabled poor at the same time the state is reducing the maximum grant for an individual by $37 a month, $444 annually.

“California is roughly an eighth of the nation. The impact of this is sufficiently large that it could affect the prospects of recovery for the nation as a whole,” said Jean Ross, director of the California Budget Project, who has been examining how the state’s budget interacts with the federal stimulus package.

The biggest short-term issue is cash.  Lucas did an interview with John Chiang where he admitted that we will still need to borrow against the anticipation of future revenue as early as April, to the probable tune of $1.5 billion.  Because the budget deal was completed too late to include changes to the income tax code, those revenues will not come in until the following tax year.  The sales tax will go up April 1, but that will not be enough to cover expenses.

CC: Is February a big month for obligations?

JC: No. April is the real difficult month. If we don’t get that RAN, we’re $636 million in the red. But then the bigger issue is July. When we walk into the next fiscal year we will need a massive cash infusion.

CC: How come?

JC: We always borrow at the beginning of the year, 25 out of the last 26 anyway and then in April we make up the difference. But this year we walk in with weakness into the next fiscal year. There are less tools in the tool kit.  We’ll need a massive RAN or RAW (Revenue Anticipation Warrant).

Remember these last budgets borrow $16.5 billion from (state) special funds to backfill the general fund. So if we have any emergency in the state requiring aid from one of those special fund departments, the state is in trouble. Over 1,100 special funds in the state and we borrowed from over 650 of them. Part of this last budget solution gives us the ability to borrow another $2 billion more. The governor’s budget has us borrowing $11 billion from special funds over the next 18 months.

So we’re going to have to do some outside borrowing for the next fiscal year. Period.

And of course, there’s very little anticipation of the worsening economic picture in the budget, meaning that we’ll be in unquestionably worse shape by summer.  And the cash crisis, forcing short-term borrowing, really impacts selected projects that go out into the bond market, for example infrastructure like the high speed rail project, which will basically have to shut down if there isn’t a quick infusion of cash.  Keep in mind that California has the worst bond rating in the country and the credit markets are still not that friendly to the state.

Another pressing matter is the determination of how much money from the federal stimulus will be available to the state to fill budget holes.  There is a “trigger” in the state budget that would actually reduce some cuts – most of them the worst of the worst, particularly in health care for the needy – as well as reverse increases to the income tax, if at least $10 billion dollars in federal money hits the state budget.  It’s not just that money comes in, it’s that it has to go toward general fund relief in order to contribute to the trigger.  And Mike Genest, the Governor’s finance director, has a preliminary estimate up showing that the state will come up short.  This is insanity.  As the California Budget Project noted on a conference call today, there will be many billions above the trigger number available to the state, the legislature need only craft the receipt of that money in such a way to hit the trigger.  Otherwise, they are raising taxes and cutting services, and needlessly so.  One such bill would change Medi-Cal eligibility requirements to free up as much as $11.23 billion over 27 months.  That should happen ASAP.  Democrats are trying to write this as a special session bill and ensure that it requires only a majority vote.

The main point here is that we remain in crisis mode with the state budget, and will continue for years upon years until we stop putting off the fundamental, structural solutions the way we constantly do.  For example, the prison system remained virtually untouched during the budget crisis, despite being both crippling to the bottom line and unconstitutional in its overcrowding and inability to provide health care.  We desperately need structural changes with how the state budgets, and those will only be accomplished by demolishing the conservative veto over the process and repealing the 2/3 rule.

UPDATE: Here’s a link to the CBP study of the American Recovery and Reinvestment Act, identifying as much as $50 billion dollars available to the state in funding.  Surely the legislature can figure out how to capture 20% of that and set off the budget trigger.

Arnold Schwarzenegger got a lot of good press from going on ABC and saying that he would take the stimulus money of any GOP governor who refused a portion of it.

“Well, Governor Sanford says that he does not want to take the federal stimulus package money. And I’ll say to him, I’ll take it,” Schwarzenegger said. “I’m more than happy to take his money or any other governor in this country that doesn’t want to take this money. I’ll take it, because we in California need it. I think it’s a terrific package. I think if you ask a thousand people for their opinion, what is their ideal stimulus package, you will have a thousand different answers. So everyone’s is a little different. I think he’s done a great job and I think California benefits tremendously from that $80 billion of tax benefits there, for around $35 billion. There are other advantages: $45 billion of money that go to transportation, to education, to health care, all those different areas. There’s even some money that could benefit our revenues or, I should say, our budget itself….”

As you may know, what Sanford and Bobby Jindal and Haley Barbour and these Southern Republican Governors were objecting to is changing their unemployment eligibility statutes so they could accept millions in additional funding through the stimulus to give to the jobless.  It’s the best kind of stimulus there is and would probably keep some of the retail sector in business, but these Governors feel that once the federal money to fund the new eligibles ran out, it would be too burdensome on business to raise the funds.  So they have, rhetorically at least, sided with the corporate community in rejecting the funds.

Which is exactly what the Governor appears to be doing.

At a hearing of the Assembly Insurance Committee Wednesday, Republican Governor Arnold Schwarzenegger’s representative, Labor and Workforce Development Agency Undersecretary Steffanie Watkins, refused to support AB 3x 23, legislation that makes California eligible for $839 million in one-time federal unemployment insurance funds available at part of the President’s economic stimulus package.

This from the same Governor who just last week was all over the national media circuit criticizing Louisiana Gov. Bobby Jindal and other Republican Governors who were spurning economic stimulus funds.

What a difference a week makes.

In the end, the bill made it out of committee by an 8-2 vote with members of the Yacht Party crossing the aisle, suggesting that the legislature would have the 2/3 vote necessary to override Schwarzenegger, if it came to that.  But take note of the extreme hypocrisy here.  Mr. Governor-by-Magazine-Cover, the media darling, goes on national TV and wags his finger at fellow Republicans who won’t take stimulus money.  Then he signals that he won’t take stimulus money FOR THE EXACT SAME REASON as those governors he criticized.

Incredible.

Anthony Wright of Health Access has a good piece musing about whether or not we’ll still need additional spending cuts or revenue increases before the next fiscal year budget in June 2010.  It basically hinges on two things: the May 19 special election, where close to $6 billion in budget money is on the line, and the federal stimulus, which if it provides enough money to the state could trigger some reductions in cuts and taxes.  First, the trigger:

Although the budget contains a number of spending cuts, it also contains a mechanism to restore some of those cuts using federal funds authorized by the American Recovery and Reinvestment Act of 2009 (ARRA) signed by President Obama on February 17, 2009. The mechanism requires that in order to restore cuts, the state must receive at least $10 billion in federal funds to offset General Fund costs. In other words, $10 billion of federal funds are needed to “trigger off” some of the cuts.

The precise amount of federal stimulus funds for California is still being determined, however, the Director of Finance and the Treasurer must determine by April 1, 2009 whether federal funds meet the $10 billion threshold to trigger off the spending cuts. Specifically with respect to health care cuts discussed above, if there is sufficient federal funding, Medi-Cal benefits would not be eliminated and public hospital payments would not be reduced. If there is insufficient federal funding, those cuts and others–including steep cuts in SSI/SSP, IHSS, and CalWORKS would be implemented July 1, 2009.

Hopefully, these funds will make it to California’s shores to stave off the worst cuts.  Ultimately the federal government should seek a goal of stopping all cuts in public services and layoffs of staff, and should fill the gap in revenue in the short term.  The states are being punished through little fault of their own, and counter-cyclical cuts threaten the success of recovery.

The next element is the May 19th special election.  We’ll be covering that in the weeks to come, but Wright lays out the most important initiatives that relate to the budget.

* Proposition 1D would amend Proposition 10, which was passed in 1998 and increased the tobacco tax to be used exclusive for services for children up to five years old. This budget, subject to voter approval, would redirect Proposition 10 funds of up to $340 million in the first year and $268 annually for the following five years to be appropriated by the Legislature. As a result, local First Five Commissions would have to cut the programs they fund, such as county “Healthy Kids” coverage initiatives.

* Proposition 1E would amend Proposition 63, which in 2004 raised the income tax for the upper-tax bracket to earmark funding specifically for mental health services. This budget, subject to voter approval, would redirect Proposition 63 funds of up to $226.7 million in the first year and $234 annually for the following year from Proposition 63 mental health services to backfill the existing Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program.

* Proposition 1A would pass a Constitutional amendment to institute a spending cap, to limit the amount of revenue that can be appropriated for the General Fund. It also would extend the temporary taxes to last from two to five years. Under the spending cap, any revenues above a forecasted amount must be put in a “Budget Stabilization Fund,” and can only be accessed under certain circumstances. In other words, the spending cap locks up money making the state less able to fund education, health care, and other core state services.

Wright doesn’t mention Prop. 1C, which would sell the state lottery to fill a $5 billion dollar hole in the short term, but cost the state money in the aggregate in the long-term from the loss in consistent revenue.  I’ve always thought it was a stupid and shortsighted idea and would be unlikely to support it in May.

But clearly, Prop. 1A is the most dangerous measure in the long-term, locking the state into deep cuts into the distant future, which would ratchet down services regardless of demand or growth.  This is the long-sought effort by the far right to drown government in the bathtub.  And yet to this point, no opposition has been found to this measure.

The last time Gov. Arnold Schwarzenegger asked California’s voters to permanently cap state spending, organized labor dumped millions of dollars into a successful campaign to defeat his proposals.

Four years later, Schwarzenegger and other proponents are hoping the unions will sit out the May 19 special election in which the governor is again asking voters to enact a spending cap. That measure was placed on the ballot by the Legislature as part of last week’s deal to resolve the state’s cash crisis.

The official ballot arguments have been submitted, and in what administration officials hope is an encouraging sign, the best-funded labor groups opted not to weigh in against the measure. At least not yet.

In addition, the state’s major antitax groups have split over the measure, with at least two supporting it even though it would prolong the tax increase that the Legislature passed last week. The California Taxpayers’ Assn. signed the ballot measure backing the spending cap, and Lew Uhler of the National Tax-Limitation Committee said he also favors the measure, called Proposition 1A.

The above-mentioned provision that extends the taxes passed by the Legislature makes for approximately the easiest demagoguery in the history of California initiatives.  Jon Coupal at the Howard Jarvis Taxpayers Association says his group will try to defeat the measure.  The fact that the ballot arguments had to come in so quickly may be driving this perceived silence on the part of slower-moving unions, but they need to make themselves clear.  Do they support a spending cap that will unquestionably take the state backwards in the future, or will they oppose it – and back up that talk with action?  We shall see.

The final numbers on the stimulus package are trickling out.  Some of the baseline investments are here:

* Investments in Infrastructure and Science – $120 billion

* Investments in Health – $14.2 billion

* Investments in Education and Training – $105.9 billion

* Investments in Energy, including over $30 billion in infrastructure – $37.5 billion

* Helping Americans Hit Hardest by the Economic Crisis – $24.3 billion

* Law Enforcement, Oversight, Other Programs – $7.8 billion

It’s unquestionable that the conference report is worse than the House bill but better than the Senate.  It costs less than the Senate bill while providing more stimulus.  Some bad spending like the clean coal “FutureGen” project is out, along with some of the worst corporate tax breaks.  Mass transit spending is up, the child tax credit was partially restored to House levels (now kicking in after $3,000 in income), and the state fiscal stabilization fund gets around $54 million (but that includes funding for school construction).  You can find the full summary here.

There are some very solid elements to the bill.  White House economists estimate that the package will create or save 396,000 jobs in California and 3.5 million nationwide.  This is a down payment on a new generation of investment in America.

However, like with most Congressional sausage-making, there may be some rough patches.  The worst is the allegation that Dianne Feinstein is trying to include filtering into the stimulus as part of the program to expand broadband capacity across the country.

The Open Internet Coalition – which includes groups like Public Knowledge, Free Press and the Computer and Communications Industry Association (CCIA) – is applauding the more than $2 billion expected to be in the stimulus bill for broadband build-out in rural or underserved areas. They say not only will building out high-speed Internet instantly create jobs, but giving people in those areas more access to the Internet will spur small-business creation and other growth […]

These groups are also over-the-moon about the fact that the Senate bill has a non-discrimination, interconnection requirement that essentially says any provider receiving stimulus funding has to make sure they provide equal access to everyone over their network (part of the so-called “net neutrality” debate). The House version requires the FCC to define “open access,” which essentially calls for carriers to share their networks with competitors.

But they’re worried Hollywood is still trying to insert a content filtering provision via Sen. Diane Feinstein, D-Calif., at the last minute. Feinstein has been trying to add language specifying that Internet service provider (ISPs) may engage in “reasonable network management” … “such as” efforts to combat illegal activity like “child pornography and copyright infringement.” In essence, some argue, ISPs would be able to monitor any content coming to and from your computer, just in case there was some copyrighted material violating fair use, or kiddie porn in there.

But groups like the Motion Picture Association of America stress the “network management” angle of the bill (“filtering” is a nasty word around these parts). After all, it’s hard to argue against stopping kiddie porn from being sent over one’s pipes. I’ve left a message with Feinstein’s press office to see what the status of her amendment is. It doesn’t appear to be in there, but I’ll let you know if she plans on trying to stick it in at some point.

“Of course we see huge privacy invasions from this sort of thing,” said Cathy Sloan of CCIA.

Now, some caveats.  There was a hyperventilating story in the UK Register claiming that this would kill net neutrality.  As stated earlier, there are open access provisions in the stimulus, and it doesn’t appear that this amendment even made it into the final version.  This looks to me to be more of a privacy and anti-competition issue.

In another part of that story, Henry Waxman was implicated.  His office has assured multiple constituents, including yours truly, that he has had nothing to do with any filtering amendment.

That’s not to say that we shouldn’t be concerned.  DiFi is allegedly trying to pay back a corporate constituent with a highly invasive amendment that would certainly violate the spirit if not the letter of privacy laws.  And of course this kind of monitoring is a slippery slope, as are most IP issues.  At the root I agree with John Cole:

As baseball season is getting close, I would like to propose a trade. We give the Republicans Dianne Feinstein and a PTBNL and they give us Olympia Snowe. This is a solid trade for us. With Judd Gregg at commerce, we would almost complete the New England rout, and Feinstein, as a newly minted Republican, will go down to certain defeat in California. Additionally, there is nothing in this agreement that says the PTBNL can’t be Nelson or Lieberman.

When the cuts to the federal economic recovery bill in the Senate were made public, my back-of-the-envelope calculation was that $5-$8 billion dollars in aid to California would be lost.  The San Jose Mercury News did the math and came up with similar numbers.

The $838 billion Senate bill would create about 400,000 jobs in the state by funding infrastructure projects, from schools to roads to broadband. But that’s 51,000 to 63,000 fewer jobs for the state than the $820 billion House bill, according to the Center for American Progress. The Senate plan puts a heavier emphasis than the House bill on stimulating the economy through tax cuts, in addition to direct government spending.

Funds for reimbursing state Medicaid costs are about the same in each bill, but the funding formula in the House bill favors states with higher unemployment. California would receive $11 billion in the House bill and $9.6 billion in the Senate measure. The House bill also has funds to help those who are recently unemployed receive health coverage. “On health, the House bill is significantly better for California,” said Anthony Wright, executive director of Health Access California, a consumer advocacy group.

The Senate cut in half the House’s $79 billion fund to help states pay for education and other services. If the Senate version prevails, California would receive about $4 billion instead of the $7.9 billion in the House bill. In addition, the Senate eliminated $14 billion in funds the House allocated to modernize schools, which drew sharp criticism from Rep. George Miller, a Concord Democrat who chairs the Education and Labor Committee. He said the Senate version would cost 315,000 construction and other jobs nationwide.

“With more Americans losing their jobs by the day, we must make every effort to bring that figure up,” Miller said.

The Chronicle has a similar article.

The latest from the negotiating table is that only $5 billion of the $40 billion cut from the Fiscal Stabilization Fund will be restored in conference.  So that’s about $3 billion less, overall, for California from that fund, as well as the cuts to Medicare funding of about $2 billion.  The school repair funding will be restored to about $6 billion from $16 billion, which means that California probably loses $1 billion there.

So overall, we’re probably $5-$6 billion short from where we were with the House bill.  Which will make it that much more difficult to cut a budget deal.  In addition, if the formula for getting federal funds is in the form of block grants with a state match, California won’t be able to access any of them until the cash crunch is solved.

Both the Washington Post and the LA Times have stories today about the budget crises facing the states, where governors and legislatures have exhausted every gimmick and now must enact painful cuts that will work against the federal program to bring us out of the economic downturn.  The personal stories are significant:

Nevada resident Margaret Frye-Jackman, 71, was diagnosed in August with ovarian cancer. She had two rounds of chemotherapy at University Medical Center, the only public hospital in the Las Vegas area.

Soon after, she and her daughter heard the news on TV: The hospital’s outpatient oncology services were closing because of state Medicaid cuts. Treatment for Frye-Jackman and hundreds of other cancer patients was eliminated […]

“If this is what it’s like in Nevada, with cancer stuff closing, is it like that everywhere?” said Frye-Jackman’s daughter, Margaret Bakes, accompanying her mother to the doctor’s recently. “Are all the other states closing stuff too?”

The answer, in at least 39 states, is “yes” — or “soon.” With personal, sales and corporate income tax revenue plummeting, state governments — which recently trimmed their budgets to cover a cumulative $40.3-billion shortfall for the current fiscal year — are now watching in horror as a $47.4-billion gap opens for 2009.

And for fiscal year 2010, they will face a $84.3-billion hole, according to the National Conference of State Legislatures. The total shortfall through fiscal 2011 is estimated at $350 billion, according to the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington.

This article frames it as there being “no choice” but tough budget cuts or tax increases for states facing shortfalls, states that cannot print money or run budget deficits.  But that’s not entirely true.  There was a good deal of help being offered by the federal government in the House stimulus bill, which included $79 billion in state fiscal stabilization aid.  But among their other cuts, the Axis of Centrism cut that aid in half, by $40 billion dollars, and in so doing guaranteed additional layoffs to teachers and firefighters and cops and nurses and all sorts of other professions which rely on a state paycheck.

California law mandates that layoff notices to teachers be given out by March 15 for the next school year. Arnold Schwarzenegger is proposing $10 billion in education cuts. Republicans, which use our state’s rule requiring a 2/3 vote of the legislature to pass a budget, are demanding these cuts as the price of a tax increase to close the remaining $40 billion and ensure that the cuts aren’t bigger.

But all of us were hoping and expecting that the US Congress would come through with aid to stabilize state budgets, to help ameliorate the problem and save teacher jobs by providing stimulus money. It must be in the stimulus because, as I just noted, the layoff notices will go out within 5 weeks – there is no time to include it in another bill.

Now we are told that Ben Nelson and Susan Collins, two Republican Senators, have reached a deal to cut that education assistance and that the Senate is likely to accept it.

In short, what they have done is guarantee to my sister and to thousands like her that they will receive a pink slip within five weeks.

To call this fearmongering, as John Ensign did on Meet the Press today, just denies reality, par for the course for both Republicans and bipartisan fetishists like Claire McCaskill, who was at first giddy about cutting 600,000-700,000 jobs in the stimulus, and then passive-aggressively “defended” it by saying the alternative was no bill.

Claire McCaskill is now defending herself against Krugman on Twitter:

Just saw Krugman’s comments on reduction in recov act. Question for him. Would no stimulus act be better than one thats 800 B instead of 900.

She follows that up with

Compromise had to happen or we would NOT have 60 votes. Period.

And for further evidence of how much the bill is the same, she claims:

Original Senate bill was 60% appropriationss, 40%tax cuts. Compromise was 58, 42.Senate bill is 90% the same as House bill.

I’m glad that’s she expressing herself here, and that we’re able to somewhat have a dialogue. But I’m not sure how much in good faith it is. McCaskill began by stating how glad she was that they got a $100 billion cut out of the bill, that the “silly stuff” that Republicans didn’t like is now out. She then switches to a passive aggressive mode in defending the cuts – it’s basically the same bill and it wouldn’t have made it through the Senate – but glosses her own role in making the cuts. From the way she talks about the bill, wouldn’t she have been among those voting against the bill if the cuts hadn’t been made and new non-stimulative tax cuts hadn’t been added in?

McCaskill doesn’t want to admit her role in putting 600,000 Americans out of work on Friday, which will harm public safety and increase class sizes and shut down bus and rail lines and send the sick and uninsured looking in vain for treatment and a host of other inadvisable outcomes.  And there’s no rational economic reason for it, just that the Axis of Centrism choked on the price tag and had to compensate for the non-stimulative tax cuts the Senate tossed into the bill.  Massive job loss or increased property tax rates (as states compensate for the loss to education funds) is on McCaskill and Nelson and Collins and Spector’s hands.

The big question is what will come out of the House-Senate conference next week, whether the cuts, especially the state government relief, will be restored at the expense of things like the $70 billion dollar patch to the alternative minimum tax.  Larry Summers left that an open question on ABC this morning.

One of President Barack Obama’s top economic advisers forecast Sunday a difficult struggle with Congress over Senate cuts of $40 billion for state and local governments from the administration’s massive spending and tax cut package to stimulate the failing economy.

The $827 billion Senate version of the plan — designed to bring the economy out of the worst downward spiral since the Great Depression — was expected to pass the Senate on Tuesday. The House had already passed its $819 billion version of the measure.

And in the opening moments of This Week, an exchange between George Stephanopoulos and Larry Summers went like this:

STEPHANOPOULOS: …does that mean the President prefers the Senate version to the House version?

SUMMERS: No, the President feels that above all, we need a major program enacted very quickly that would create 3 to 4 million jobs. He believes we need to perfect it in every way we can.

If the cuts are restored, suddenly the sense of urgency works back in the direction of passing a bill more like the House version.  The Republican business lobby is urging passage.  I don’t think the moderates signed on to the bill could break ranks on the final vote if the changes in conference are limited to, say, swapping the state cuts for the AMT patch, combined with an assurance from the President that they will make that fix down the road.

The action needs to be entirely directed at the Speaker, who has spoken out against these cuts and ought to appoint conferees that will get the House version at least partially restored.  Being from California, she knows exactly how hard-hit the states are and what the consequences will be.  

If Republicans in Washington are offering a united front for neo-Hooverism and against any real effort to save the economy and prevent a Depression, Republicans out in the state who actually have to govern are doing anything but.  Arnold Schwarzenegger and 18 other Democratic and Republican governors have come out in support of the recovery package, leading Dan Walters to call him Keynesian.  Actually Arnold is just slightly less than insane, recognizing that without massive investment from the public sector, California will never be able to cover its budget deficit and revitalize its economy.

We support the objectives of ARRA and welcome the partnership it offers us as governors. The support for a temporary increase in the federal commitment for public education, health care (including cost control through initiatives such as health records IT), and for rebuilding our public infrastructure will create and preserve jobs today, and represents a sound investment in our long-term economic interests as well. We look forward to working with Congress and your Administration to advance an economic recovery package that puts federal dollars to work in our states in the quickest and most efficient manner as possible.

But this is being threatened in a big way.  Yesterday we learned that enough moderates were blanching at the cost of the package to threaten its passage.  President Obama met with the ringleaders of this neo-Hooverist movement, Sens. Ben Nelson and Susan Collins, and talked them part of the way off the ledge.  They were planning up to $200 billion in cuts, but now have pared that down to closer to $100 billion.  And in exchange for meaningless tax cuts and stupid initiatives like tax breaks for home and auto buyers (reinflating the bubble at great danger to the economy), they want to screw the states:

Sens. Ben Nelson (D-NE) and Susan Collins (R-ME) have come up with a list of about $100 billion in programs they want slashed from the stimulus package, according to a working draft of a staff paper outlining the cuts.

Among the biggest cuts under discussion: $24.8 billion in state stabilization money for education, which was intended to plug existing budget holes; $15 billion in state incentive grants for education; and $1.4 billion for the National Science Foundation, which is wracked by a porn-viewership flap. Pell Grants were the biggest program to survive the debate over cuts, with $13.9 billion staying intact.

Senate Democratic leaders are likely to bring this package up for a floor vote today, aiming to achieve a filibuster-proof margin in support of these cuts before pushing to pass the entire stimulus by day’s end. Hang onto your hats.

Ben Nelson is now backing away from this draft, and it’s no wonder.  This would cripple states like California facing bug budget deficits.  They didn’t want to release these cuts until now because states having to fire cops and firefighters and teachers is deeply unpopular.  But that’s what slashing the stabilization fund would do.  Given that budget money is fungible, that wouldn’t just affect education but practically everything that states do.

This is typical of an anti-democratic body like the Senate, where the relative power of a state with 400,000 residents like Wyoming and one with 38 million like California is the same.  California has a budget deficit bigger than the expenditures of 39 states and has all sorts of needs that could be filled by this package, creating hundreds of thousands of jobs and acting as a backbone for economic recovery.  But you have small-state neo-Hooverist idiots like Charles Grassley who think their job is to sink the economy, apparently:

The House bill, written by the committee chaired by Rep. Henry A. Waxman (D-Beverly Hills), gives considerably more money to states whose unemployment rates have increased significantly. That would put California, with a 9.3% jobless rate in December, in the top tier of recipients — along with New York, Florida and others.

The House “took an approach that recognizes that in the current recession, all states need some help, but some need more help than others,” Waxman said. “It is only fair that the hardest-hit states with high unemployment receive more assistance than those with low unemployment.”

But senators in some smaller states say the House provision would shortchange their constituents. “The legislation is biased to big states,” Sen. Charles E. Grassley (R-Iowa) argued.

That’s like saying the legislation is biased to people.

None of these people are explaining WHY the price tag has to shrink; it just does.  And if it needs to go down, there are useless, not-multiplier tax cuts for businesses and people that can afford new cars and homes that have little to no stimulative value.  They didn’t have to insert them in the first place.

It would be absolutely absurd to cut off states – who are not to blame for the financial meltdown, and who cannot deficit spend – in exchange for giving away more tax cuts, with the same failed philosophy that got us into this mess.  Now that these cuts are out in the open, there should be outrage.

Not sure where the LA Times is pulling this figure from.

A $5-million plan to replace 78 wood piles that support the pier is among the hundreds of California projects that stand to benefit from the federal stimulus measure. In fact, the first major initiative of the Obama administration could deliver as much as $63 billion to the state.

Some of the money would help ease California’s budget crisis, although officials in Sacramento say it would cover only one-quarter of the nearly $42-billion deficit […]

The $63-billion projection for California — provided by the Center for American Progress, a liberal think tank with ties to President Obama — includes about $44 billion to help pay for things such as infrastructure projects, healthcare for the poor and increased unemployment benefits.

The remaining $19 billion would cover the cost of the individual tax cuts to Californians.

To be fair, the story does make clear that state and local government relief would only directly impact about 1/4 of the budget hole.  But I think it’s dangerous to throw around $63 billion when there’s still going to be a need for tough solutions on revenues and cuts in the budget.  That number throws in the kitchen sink – it includes tax cuts to individuals and businesses, unemployment insurance extension, food stamp benefits, everything.  The fact that more people have money to spend may positively impact the bottom line if California catches some of that cash in sales taxes, but the story – and really the projection by CAP – makes it sound like California will be handed a $63 billion dollar oversized novelty check.  This will only serve to aid the radical Yacht Party agenda, allowing them to say that California just got a bailout so there’s no need for tax increases.  Every sane person knows that the federal windfall will help but not fix the budget, and talk of $63 billion like it’s a sugar plum fairy really hurts the ability to make that fix happen.

For example, when citizens all over the state don’t get their tax refunds in the coming months, with taxpayers on the low end of the income scale feeling the greatest effect, and they read stories about $63 billion flowing to the state, who do you think they’re going to blame?  And I’m sure the Yacht Party will be around to direct that blame, too.

It’s fairly irresponsible to headline “$63 BILLION!” when we know only $10 billion of that will directly hit the budget.

The accounting gimmicks and clever tricks have reached their end.  Sacramento is out of money.

(John) Chiang, whose office writes the state’s checks, says California is about out of stopgap tricks to pay its bills and keep all its programs running.

The controller says California is down to Plan D on its checklist of paying bills. Its cash reserves are piddling; the special funds it borrows from are tapped out, and no one in the private sector is going to lend it any cash at a reasonable interest rate.

That leaves what in state government circles are called “payment deferrals” and what in real life is called “stiffing your creditors.”

In this case the creditors include income taxpayers expecting refunds, college students waiting on state aid, counties that operate public assistance programs, and companies that sell goods and services to state agencies.

Chiang has said he won’t write $3.7 billion worth of checks for those and other state programs if legislators and the governor haven’t reached a deal by next Sunday to close the budget gap.

The overarching problem here is a tax system that is too closely aligned to the boom and bust cycles of the national economy.  That is protected by the 2/3 rule.  And the result is a state that lurches from one crisis to the next, seemingly without end.

Well, the end is pretty much near.  The state may not declare bankruptcy, but that will be functionally the case.  And while IOUs may be a couple months down the road, the payment deferrals are going to put a lot more people out of work.  The counties and various agencies aren’t in the financial position to float by until some revenue floods in.

Of course the fact that IOUs still may be a few months away is of limited consolation to those who will be out of luck if Chiang pulls the no-payment trigger next week.

“For the first time in my career, there are counties facing the reality of just not being able to front the state the money to keep these programs operating,” said Frank Mecca, executive director of the County Welfare Directors Association.

Mecca, who has been in the human services field for 20 years, said counties are facing a double whammy: Revenue is withering while needs are blossoming.

This is at a time when we’re seeing jobless rates as high as 15% in some counties, and over 10% in 31 of the 58 counties in the state.

That stimulus spending from the federal government, perhaps $21.5 billion over two years, can’t come fast enough.  But if there’s not a solution in the next week, it may not matter.  The damage will be done and the pain will spiral out of control.