When business groups began to object to various provisions in the Parsky Commission effort to upend the tax structure in California, including anything that even smelled like an increase (even though the plan had to be revenue-neutral to clear the Legislature), I figured the effort was dead and buried.  It appeared that the entire effort was a complete waste of time, and the effort to Latvia-ize the state by shifting the tax burden from the upper class to the lower class had been sniffed out and extinguished.  However, the recent secrecy on the part of the commission, after a pledge of transparency, has many wondering if the shock doctrine is alive and well.

The plan is that, just about 24 hours from now – or 11 a.m. Thursday, to be precise – a state commission will consider and potentially adopt a proposal for an entirely new tax system for the state of California.

It would be a radical undertaking, slashing some taxes, eliminating others and establishing a new tax about which no one in California is familiar. No one can say with anything approaching certainty how much it would cost businesses and consumers or how much revenue it would generate to finance state services.

Yet, despite the significance of the task, despite all the unanswered questions and despite the imminence of a decision, as of this writing – midafternoon Tuesday – the details of the proposed new tax plan have not been made available for public review.

A spokeswoman told me a little after 3 p.m. there was still hope that the detailed proposal would be posted on the commission’s Web site before the day was out.

The Legislature has made no indication that they would take up whatever plan the Parsky Commission votes out, even after the Governor orders a special session to deal with it.  And with both sides of the aisle condemning aspects of the plan, liberals for the tax burden shift, and conservatives for the unknown tax increases that may be part of any deal, I wouldn’t call the prospects likely for a Parsky Commission plan to become law.  But the secrecy is certainly troubling, as well as the revival of provisions voted down by the people on multiple occasions.

But members of the tax commission are reviving the rainy-day fund idea once again. Most notably, the idea has had some of its strongest support from Democratic-appointed commissioners.

Former Assemblyman Fred Keeley said recently that while many commissioners believe the state can reduce its budget volatility through changes in the tax system, he believes the tax system isn’t so much the problem.

“My belief is that volatility of the general fund, to the degree it’s a problem, is due to the governor and Legislature with regard to spending,” Keeley said. “That can be solved by way of an appropriately designed rainy-day fund or lockbox.”

Another Democratic appointee, University of Connecticut law professor Richard D. Pomp, reminded the commission this month that he has long believed the reduction of volatility was a spending issue.

“From the outset, I have argued, and continue to believe, that volatility, which is a feature of every state’s tax system, is a spending problem and not a tax problem,” Pomp wrote. (That comes awfully close to the oft-used GOP line that California’s budget problems are “a spending problem, not a revenue problem.”)

I think these Democrats are trying to argue that volatility in the tax structure is a good thing, which it is.  But the leap from that to a spending cap doesn’t follow.  There’s a difference between spending wisely in good years and a third-party mechanism that limits the ability to restore chronic budget cuts from bad years, which is what a cap would inevitably do. (A rainy-day fund without a cap would be different, but may end up serving the same purpose.)

I stick with my prediction that the commission is doomed, but it still bears watching.

…Kevin Yamamura has more.

In the wake of the latest, but by no means the last, budget mess in California, I continue to believe that the only way to break the deeply negative cycle of fiscal dysfunction and budgetary gridlock is through a Constitutional convention that restores democracy and provides sensible, workable government in the state of California.  You’ll be interested to know that this belief actually transcends party lines.  Tom Karako directs the Golden State Center at the Claremont Institute, one of the nation’s most conservative think tanks.  And even he agrees that the state’s Constitution needs to change to better serve the public.  I haven’t previously seen a conception of what a conservative vision for a Constitutional convention would look like, and so I think it’s worth analyzing it to see their preferred options.  Karako first says:

If Californians do rewrite the Constitution, it should be revised to resemble more closely the concise federal Constitution: more responsible legislators and executives, stronger control of the bureaucracy and less direct democracy.

Then he comes up with several issues that appear nowhere in the federal Constitution.  Here are his six proposals:

1. Part-time Legislature

2. Hard spending cap

3. Two-year budgeting cycle

4. Eliminate the two-thirds supermajority requirement for budgets

5. Unified executive branch

6. Repeal ballot-box budgeting

The first four are either irrelevant to the federal Constitution or in direct conflict to federal Constitutional provisions.  But I will soldier on and take them in kind.

Karako clarifies that his vision of a “part-time legislature” would not be a citizen legislature, and would include the same salaries and responsibilities as today.  With all due respect, then, we already have this.  State legislative sessions, in theory, open in January and end on August 31, and there are numerous recesses in between those dates.  The only reason it seems lately like the legislature is always at work is because four extraordinary sessions have been called in the past year and a half to deal with the budget mess.  Our legislature works around six months out of the year in less extraordinary circumstances.  That sounds part-time to me.

This notion of a hard spending cap has been soundly rejected by the voters twice in the past four years.  It is certainly not a feature of the federal Constitution, and it does not take into account emergency spending needs, the outpacing of inflation over wages in areas like health care, and multiple other provisions.  States with spending caps have seen their quality of life suffer and their state rankings plummet (see TABOR in Colorado).  This would in my view be disastrous, and obviously it’s the major bone of contention between liberals and conservatives.

A two-year budget cycle actually sounds prudent to me.  I would supplement it with an advisory long-term budgeting benchmark that would bring the concept of long-term planning back into state government, but anything that looks beyond the horizon could improve the quality of state budgets.

Conservatives have begun to relent on the 2/3 rule for passing a state budget, while keeping in the requirement for taxes, for somewhat selfish reasons.  I agree that the current system eliminates accountability for both sides of the aisle, and letting the majority rule on these issues would allow the people to decide the results of that course of action.  But Karako doesn’t take this to the logical conclusion, that a budget is composed of taxes and spending, and that only with a full repeal of both of these 2/3 provisions would we have representative democracy in this state.  He wants to hold one party responsible for budgeting while tying their hands on how to go about instituting that budget.

After citing positively how other states have part-time legislatures, and negatively how only two other states require a 2/3 vote to pass a budget, Karako calls for a “unified executive branch” without mentioning that practically no other state has its Governor appoint all additional Constitutional officers.  Some states have Governors appoint certain various members, but not the entire slate.  This and the next idea show a typical conservative contempt for the will of the people.  Democracy, even direct democracy, is not the problem with California.  (This “unified executive branch” is also a cover for vesting greater authority in the executive to engage in, as Karako says, “firing and controlling non-elected bureaucrats and public employee unions,” or union-busting, in the vernacular.)

And that leads us to Karako’s idea to repeal all ballot-box budgeting, where he does not specify between different types of ballot-box budgeting.  Those measures with funding sources provide no strain on the budget process because they do not impact the General Fund.  Unfunded mandates do represent a problem, and reformers have devised a solution, essentially “paygo” for ballot initiatives, requiring that they include a funding source before presenting them to voters.  Karako, instead, wants to repeal all voter-approved measures and place them under the General Fund.  I also believe in the indirect initiative, allowing the legislature a crack at either passing a ballot measure themselves in consultation with the proponents, or changing the language with amendments to better reflect current priorities.

On one thing I agree with Karako; “California needs constitutional reform before we can expect sustained fiscal reform.”  I don’t think his ideas hold to his belief in drawing on the wisdom of the US Constitution; however, I do see some common ground, on two-year budget cycles, on the need for democratic rule, on initiative reform.  My belief is that a Constitutional convention could bring together the entire rich diversity of the state to discuss, debate and decide on these issues, coming to a decision that will improve representative government in the state.  I’ll see Mr. Karako there.

UPDATE by Robert: For a progressive vision of a constitutional convention, the Courage Campaign’s Citizens Plan to Reform California (CPR for California) is a good place to start. I plan to write more about it this week.

Last week, Robert Cruickshank offered the special election advocates some pretty good advice – focus on Prop. 1C, which covers 83% of the short-term budget hole that can be gained from the passage of the ballot measures, because the state party approved it, because it’s the only measure that matters in the near term, and because they need to focus their energies, since very little good is likely to come of the election at this point.  Of course, Arnold Schwarzenegger controls the Budget Reform Now Campaign.  And he has shown himself to be completely indifferent to the short-term needs of the state in favor of writing a long-term, right-wing spending cap into the state Constitution.  Because instead of abandoning all the other measures in favor of 1C, Budget Reform Now has jettisoned everything in favor of 1A & 1B.  I saw this ad a couple days ago, out of nowhere, and Budget Reform Now dropped it without a press release.  The ad tries to use the 2005 special election imagery which killed Arnold’s Prop. 76 (substantially the same proposal) in favor of this spending cap, with the firefighter warning of “$16 billion in cuts” without bothering to mention that those “cuts,” really lost revenues, would be two years off.  And the new “Yes on 1A and 1B” logo makes an appearance.

I think we can finally figure out what Arnold Schwarzenegger wants from this election.  He could care less about the $6 billion in short-term budget solutions – but his corporate partners want that spending cap, and his new pals in the CTA want their out-of-court settlement locked in (it would’ve cost them less just to take the Governor to court for falsely calculating Prop. 98 revenues, with more of a chance of winning).  So all this talk about how we have to vote Yes or the budget hole will grow deeper was a ruse.  The Governor clearly supports the deeper budget deficit, or at least he could give a crap with coming up with a solution.  He and his Chamber of Commerce puppet masters want that cap.  They have wanted it for four years.  Anyone lining up with these interests should understand what they really support.  Good job, Democratic leadership.

I’ve obtained a copy of the email sent to every California Democratic Party member from the Assembly Speaker and the Senate President Pro Tem, trying to scare the membership into supporting the special election ballot measures.  It’s really unconscionable for them to stretch the truth this much.  They conflate apples and oranges to make it seem like an immediate $31 billion dollar deficit is forthcoming if the measures fail, which is simply untrue.  They mostly discuss what failure would mean rather than what success would mean.  And they neglect the permanent damage that would be caused by the ballot measures in favor of the temporary tax increases.  I’ll put the whole thing on the flip, but here is the excerpt that kills me.  

There seems to be a great deal of misinformation about Proposition 1A, the spending reform measure. This is NOT a spending cap, but rather a mechanism to force savings in good years to protect funding for services when our economy sours.  If California had a rainy-day fund like most other states, $9 billion in cuts could have been avoided this year. In the long-run, Proposition 1A will stabilize state spending for critical services.

Um, actually, folks, that’s what a spending cap IS.  It caps spending and puts money into a rainy day fund.  Of course, the way this cap is structured, the rainy day fund would have to take money even in DOWN budget years, due to its stringent, restrictive nature.  The line about how $9 billion in cuts could have been avoided this year with rainy day fund money is offered without the knowledge that the money would have had to come FROM somewhere, and would have meant $9 billion in cuts in years prior.  Not to mention the fact that it would have had to be replenished almost immediately.  With this spending cap – yes, Madame Speaker and Mr. President pro Tem, sorry to burst your bubble but that’s what it is – spending will be forced $16 billion dollars below the Governor’s baseline budget next years.  That’s the ENTIRE gain of the $16 billion in temporary tax increases in just one year.  And the cap goes on and on and on.

Pathetic.  About the only good thing here is the shout-out to eliminating 2/3 for budgets and taxes.  I appreciate that, but would appreciate some honesty about the spending cap even more.

UPDATE: Funny, Steinberg and Bass’ pal Mike Villines, who has been going around the state with them promoting 1A, has some different thoughts about what the measure would do:

Proposition 1A represents a significant victory for taxpayers at a time when our state needs it most. Proposition 1A ties the hands of legislative liberals, and it forces our budget into a fixed formula and a hard spending cap. That means, for the first time in decades, that liberals will have to make tough spending choices and cut their pet projects.

It also means the taxpayers will no longer be treated like a giant ATM machine. Consider this fact: if we had Prop 1A in place today, our state would not be $31 billion in the red. Instead, our state would have a much more manageable $5.4 billion budget gap. That means that during the worst economic recession since the Great Depression, Proposition 1A would have ensured that our budget gap was manageable. That’s the proof that Proposition 1A protects taxpayers.

Villines is wrong about this being a good idea, but he happens to be right on the numbers.  With a spending cap, approximately $27 billion MORE would have had to been cut in the years leading up to the current budget.  That’s more than half of the entire education budget.

Did you guys think we wouldn’t notice the diametrically opposed arguments, depending on the constituency?

Dear Fellow California Democratic Party Member:

At this month’s California Democratic Party Convention in Sacramento, you will be asked to take a position on Propositions 1A, 1B, 1C, 1D, 1E and 1F that will appear on a special statewide election May 19.  We strongly urge you to support this package to provide California the short-term revenues to get through these difficult economic times, as well as the long-term reforms to stabilize our budget process and protect funding for vital services.    After months of difficult negotiations, we made some of the toughest decisions elected officials could ever make.  We closed a $42 billion budget shortfall that threatened to send California into fiscal collapse – halting thousands of jobs, devastating critical education, health, children’s and senior services, and plunging our economy into deeper meltdown.

The tough choices we made will begin the long process of getting California back on track and providing long-term stability to the programs and services we all value.

Make no mistake: the final budget agreement contains important victories that hold true to our shared Democratic principles.  In particular, we negotiated four years of desperately needed revenue increases, worth $12.5 billion this year alone.  We cannot overstate the significance of this achievement.  By doing so, we were able to protect education, health care and safety net services from even deeper cuts.

We were also able to stave off Republican demands to roll back hard-fought environmental and worker protections.  And, through Proposition 1B, we will ensure that schools are repaid over time for the painful cuts they have endured because of this budget crisis.

But the package and revenues we negotiated will all be for naught if we don’t pass Propositions 1A-1F in May. Unless Prop. 1A is approved, California will lose $16 billion in revenues from the sales, vehicle license and income taxes beginning in Fiscal Years 2011-2013.  Prop. 1A also provides the mechanism to restore $9.3 billion in funds to schools.  And without Propositions 1C, 1D, and 1E, we will lose another $7 billion in funding.

Losing $23 billion in revenues, on top of the $8 billion deficit projected by the Legislative Analyst, will result in renewed demands for catastrophically deep cuts to schools, hospitals, essential children’s services and senior programs for the foreseeable future.

There seems to be a great deal of misinformation about Proposition 1A, the spending reform measure. This is NOT a spending cap, but rather a mechanism to force savings in good years to protect funding for services when our economy sours.  If California had a rainy-day fund like most other states, $9 billion in cuts could have been avoided this year. In the long-run, Proposition 1A will stabilize state spending for critical services.

Passing Propositions 1A-1F is the first step in restoring our state’s fiscal health and voter confidence in state government.  This is essential for us to move forward with our shared priorities such as expanding healthcare to all Californians, further reforming the budget process to eliminate the destructive 2/3 requirement for budgets and taxes, protecting against climate change, and ensuring necessary education, health and social services for the people of California.

We hope you will join us in supporting Propositions 1A-1F.

The Los Angeles County Democratic Party held their endorsement meeting for the May 19 special election yesterday.  The Yes side brought out all the big guns to talk up Prop. 1A: four State Senators, including President Pro Tem Steinberg, Attorney General candidate Ted Lieu, State Superintendent for Public Instruction candidate Gloria Romero and Lieutenant Governor candidate Dean Florez.  The No side had two union members from the SEIU and the California Faculty Association and a 2008 Assembly candidate. (UPDATE: It was Carol Liu, not Ted Lieu.)

And the LACDP went neutral.

It’s quite remarkable to see practically the entire establishment of the Democratic Party selling fear and so few people buying.  My fear is that they will chalk up their failure to the typical right-wing anti-tax bias, when the real indictment here is a failure to lead, to articulate an actual solution instead of the same nonsense that does nothing to effect structural reform.  The first ads for 1A and 1B only have one unequivocally true statement in them – that the budget is “A total mess, and we all know it.”  And yet the prescription for solving the mess is nothing more than making people afraid of some amorphously bigger mess, while neglecting the clear disaster that would arrive with the passage of a spending cap.

This is not about an aversion to two years’ worth of sales taxes.  It’s about an aversion to more demonstrably awful solutions to layer onto an already dysfunctional system.  Maybe instead of dictating to their constituents, the leadership in Sacramento could bother to listen to them.

I think we’re certainly close to finding out, with respect to the May 19 special election.  While recent polling shows the electorate predisposed to opposing it, the money race is extremely lopsided in favor of the Yes side, and I suspect that will not change.

Led by Governor Schwarzenegger and a strange bedfellows coalition of big business and educators, the main campaign committee now reports donations of almost $3.7 million over the last six weeks.

Tops on the donor list is former Univision CEO Jerry Perenchio, a longtime Schwarzenegger campaign donor, who dropped $1.5 million into the campaign late last month. But more recent big players are also worth noting. Last Friday, official campaign finance reports showed a $500,000 check written by Chevron and a little more than $250,000 from political switch-hitter Reed Hastings. Hastings, the founder of online video rental giant Netflix, is a former member of the state Board of Education and has a track record of contributions to both the GOP governor’s causes and to a bevy of California Democrats […]

Meantime, there’s pretty much zippo reported so far in the way of money in opposition to any of the six budget-related ballot measures. Tops in cash seems to be the campaign opposing Proposition 1E, the temporary transfer of mental health money to the state’s general budget needs. That campaign reports a little more than $120,000 on hand.

The use of the Prop. 1B bribe (I really don’t know what else to call it) to split the labor coalition, and the co-opting of the legislature through predictable fearmongering has made this a virtual clean sweep for the Governor in the fundraising battle.  

Additional support for the Yes side will be provided by the bipartisan fetishists in the media, whose “not too hot, not too cold” approach to problem solving should be completely discredited by the absolute and total mess made of California in its name, but which somehow still has some cachet.  Dan Weintraub, good little centrist that he is, decides that a spending cap will – by itself – save the state from boom-and-bust budget cycles, when the history of such measures clearly shows that they ratchet down state spending to an unsustainable level that ruins quality of life for the broad mass of citizens.

TABOR, a (Colorado) state constitutional amendment adopted in 1992, limits the growth of state and local revenues to a highly restrictive formula:  inflation plus the annual change in population.  This formula is insufficient to fund the ongoing cost of government.  By creating a permanent revenue shortage, TABOR pits state programs and services against each other for survival each year and virtually rules out any new initiatives to address unmet or emerging needs.

Declining services since TABOR’s enactment have become increasingly evident in most major areas of state spending:  K-12 education, higher education, public health, and Medicaid.

“”[Business leaders] have figured out that no business would survive if it were run like the TABOR faithful say Colorado should be run — with withering tax support for college and universities, underfunded public schools and a future of crumbling roads and bridges.”” Neil Westergaard, Editor of the Denver Business Journal

This fanciful notion that you can just sock money away for a rainy day and not then be restricted by the complete refusal to raise taxes, combined with tying long-term future growth to the worst three fiscal years (this year and the next two) in the state’s history, and the fact that the rainy day fund would have to be replenished even in DOWN fiscal years, does not comport with the facts.  We have verifiable data showing what happens when you artificially limit the size and scope of government and it’s neither pretty nor desirable – before Colorado repealed TABOR, they were last or nearly last in spending in almost every major category across the board, with disastrous real-world effects on quality of life.  The rainy day money never gets spent, it becomes another part of the budget out of the hands of lawmakers, and will only increase the deficit while crippling Californian’s ability to cope with the downturn.

But one guy making that argument on a computer doesn’t have the impact of a phalanx of glossy ads warning “Vote for this OR DIE!!!!”  Given the paid media and earned media blitz on the Yes side, we really will see how much money can buy.

For several months, I have noticed a lack of context from the press when discussing California’s housing situation.  Sales of new and existing homes were rising, yes, but for a very good reason – all the bargains created by a spate of foreclosures.  In fact, the correlation matches up perfectly – the regions with the highest sales also have the lowest prices.  An example is the High Desert region, with a 203.1% increase in sales year-over-year, but a median price of $121,970, the lowest in the state.    The latest data on home sales shows a 41% decline in price year-over-year.  Bloomberg’s story reinforces the theory that only foreclosures are selling.  Does this mean that property values have decreased by a concurrent amount?  Not necessarily.  But it does mean that a non-foreclosed home in this distressed market has virtually no chance of selling, making it impossible to find the bottom of the market.  The price of foreclosures does affect the price of all homes, which is why stopping foreclosures is so important.

But that effort will be stymied by the continued erosion of the job market, leading to more unemployed and more people losing their homes.

California unemployment will peak at just over 12 percent late this year, setting a modern record, according to the latest forecast from the University of the Pacific.

Recovery will come slowly. Unemployment won’t sink back into single digits until late 2011, or some two years after the recession is expected to officially end, according to a forecast released Tuesday by UOP.

There’s typically a considerable lag between the beginning of an economic recovery and a drop in the unemployment rate, as companies are slow to re-hire even after business perks up.

We’re talking about two more years, at least, of significantly reduced revenue collection rates.  All the homes selling for pennies reduce the overall property tax revenue.  No projection of future revenues can reasonably be believed in this environment.  And so we’ll continue to see yawning gaps, with a governmental structure woefully equipped to deal with them.  The so-called “reform” of Prop. 1A, to hoard revenue in positive economic years to use in down years, will be inoperative for the foreseeable future, and even when the economy retains balance, the revenue forecasts for any spending cap will be increasingly based on these horrible years, leading to a disaster without end.

In years when revenues fall short, the state could use the reserve to cover spending up to the prior year’s level, plus an adjustment for growth in population and the Consumer Price Index.

But increases in the state’s senior population and health care costs have been outpacing both those measures, said Jean Ross, executive director of the California Budget Project, a nonprofit organization that focuses on the effect of budget policies on low-and middle-income Californians.

Moreover, Ross noted that under Proposition 58, the 2004 ballot measure, the state will continue to send 3 percent of revenues to the reserve, which would be subject to the tighter controls of Proposition 1A.

“It takes 3 percent off the top of the budget, and we don’t have that,” Ross said.

Ross and Michael Cohen, a deputy legislative analyst who studied the measure in depth, both said Proposition 1A could force revenue into the reserve even in years in which the state faced deficits.

My guess is that this is why the AFSCME local 2620 voted to support the measure and others on the ballot, while the overall union called for rejection.  The lure of easy money might sound nice for the locals, but unions with experience with spending caps in other states know that they accompany disaster.

Simply put, the state’s in an enormous amount of trouble and has no structures to deal with it.  This argues strongly for blowing up the boxes, for real this time, and starting over, by repealing the rules that subject the budget to tyranny and building a new vehicle for reform.