Mike Genest, the Governor’s departing Finance Director (and fellow Goldman School Alum!), has brought a lot of tumult to the administration with his departure. Intentionally or not, the change has kicked off some other changes around the Horseshoe.

As Gov. Schwarznegger prepares for his final year in office, he has begun a major reshuffling of his senior staff. Meanwhile, the administration is trying to cobble together a pro-active agenda that will not be overwhelmed by a $20 billion deficit.

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He will also seek to institutionalize the role of inspector general, which he created earlier this year. Up until now, IG Laura Chick has been focused on overseeing the implementation of federal stimulus funds. But Schwarzenegger spokesman Aaron McLear said the administration will seek legislation next year to expand the scope of the job and make it permanent.

While the governor mulls his plans for 2010, some new players have come aboard. This week, Scott Reid was tapped as the governor’s sixth Cabinet Secretary, replacing Victoria Bradshaw, who held the job for 14 months. Bradshaw will return to her old job as secretary of the Labor and Workforce Development agency. Former Cabinet Secretary Fred Aguiar will return as a deputy chief of staff.  (Capitol Weekly)

I’m not sure who would voluntarily hop on that sinking ship. At this point, Arnold is persona non grata to Dems, Republicans, and even most DTS voters.  His base seems to be adolescent boys, too bad for him, they don’t vote.

Laura Chick is an interesting case here though. Chick had, and still has, a level of respect her time as LA Controller.  Unfortunately, she’s more of a political type than an actual auditor type. While I don’t mean to dismiss those with a History bachelor’s or a master’s degree in social work, it’s not exactly the education you would script for somebody who is supposed to spend the entirety of their time looking after the state’s money. That is not to say that she won’t do an excellent job, as I’m sure she will hire outstanding staff.  But, perhaps one of these days, we’ll hire Inspector Generals not for their past political experience, but for the fact that they are damn good at looking after money.

Of course, there’s always got to be a little drama, and Genest has already made sure there’s a little of that. But with the upcoming budget battles, the real drama will take place over some spreadsheets and the lives of a few million Californians.

Arnold Schwarzenegger’s right-wing Director of Finance, Mike Genest, is resigning from his post, after being the governor’s point man on the budget since 2005. And after being the governor’s point man on gutting the state these last few years, he is leaving with a few parting shots. Not at the current governor, but at one of the hopefuls looking to replace him: Steve Poizner. As Genest tells it to George Skelton, Poizner’s 10-10-10 tax cut plan is a political non-starter as well as economically and financially ruinous:

“Tax cuts do tend to improve the economy,” Genest says, “but it’s very hard historically to find where they result in a revenue increase. You could argue that the best thing for the economy is to have no taxes at all, but people depend on some government services. Without them, we don’t have any economy. If you don’t believe me, look at Somalia.”

Genest continues: “There’s no basis to believe that a tax cut now would be affordable given the budget situation the state faces. I know Rush Limbaugh is going to hate me.”

As for deeper spending cuts, Genest says: “You can always cut spending by 10%. The question is do you want to. We just tried to close parks, and that didn’t work out. We tried to take money away from women’s shelters and had to relent on that.”

I like Genest’s honesty here – he says they wanted to close parks and cause further harm to battered women, but that public outcry prevented this. One wonders if Democratic leaders will get the message: Arnold can be forced to back down if the Dems refuse to go along with his hurtful cuts by mobilizing public outrage. Skelton, for once, helpfully connected the dots and showed that the attack on government itself actually hurts instead of helps businesses and jobs:

There’s also a dispute about whether businesses and wealthy Californians really are fleeing the state to escape high taxation. Many think any fleeing has more to do with high property costs, traffic congestion and subpar public schools.

“If high income taxes were chasing away rich Californians, high-income households would be more likely than low-income households to move to states without income taxes, but they aren’t,” the Public Policy Institute of California reported in July. And two years ago, the institute found that “when California businesses relocate, most stay within — rather than moving out of — the state.”

This gets to a fundamental truth that most Californians understand, but that Poizner is determined to ignore: without strong public services, California is an undesirable place to live, work, create, and innovate. The best way to chase away businesses and jobs is to destroy our schools, wipe out our health care system, and let our transportation system become paralyzed through gridlock and dependence on oil.

In fact, a coalition of business groups have come together to fight for one of the big government spending programs designed to help California’s crisis – high speed rail. I fully expect Poizner to oppose the high speed rail project, so I would like to see him explain that opposition to the corporations that comprise the SF Chamber of Commerce, the Bay Area Council, and the Silicon Valley Leadership Group, who together founded the new HSR coalition.

Skelton also quoted from Lou Cannon, noted biographer of Ronald Reagan, who pointed out that the Republican hero himself supported several tax increases in California, including the largest ever (as a proportion of the budget) to close a budget gap in 1967. At least while he was governor, Reagan understood the role of government in providing for the California Dream.

It’s a role Poizner refuses to understand, even when a fellow right-winger like Mike Genest tries to explain it to him. Although I’m sure it will play well with the teabagger base.

Now that you’re truly titillated, allow me to explain.  Today, Director of Finance Mike Genest and Treasurer Bill Lockyer meet to discuss the amount of money California can expect to receive from the federal stimulus package.  The meeting is public and will begin at 10am.  Some of our Twittering favorites like Anthony Wright and John Myers will be on hand.

Why is this important?  Well, if you’ve been following things, at issue is the budget “trigger” that would be reached if the state meets a threshold of $10 billion dollars collected from the federal government that can offset General Fund spending.  That trigger would reduce tax increases and eliminate some of the worst cuts from the budget deal in February.  While there lurks the spectre of a continuing deficit for FY 2010, meaning that any cuts and taxes saved by the trigger would just increase that deficit, the consequences of particularly these cuts are very real as well.  They are almost all focused on health care for the very neediest members of society.  The aforementioned Anthony Wright explains:

More directly, about three million low-income California parents, seniors, and people with disabilities will lost dental, optometry, podiatry, psychology, and other benefits. A full run-down of the lose benefits, and their economic and human impacts, is available in a handout on our website.

As the chart shows, the list of Medi-Cal benefits to cut share one striking characteristic: elimination of these benefits is not cost-effective and instead is likely to cost the state more to provide care to the same population. For example, the elimination of optometry services means that Medi-Cal beneficiaries will go to ophthalmologists.

The elimination of podiatry means more expensive and less expert care from physicians. The elimination of incontinence creams and washes will lead to Stage 3 and 4 bedsores—bedsores that would be reportable as adverse events or “never events” if they occurred in a hospital. But because they will happen to persons with disabilities trying to live in the community, they will result in the institutionalization of those who could otherwise have remained in the community. Penny-wise and pound-foolish does not begin to describe these cuts.

Those cuts could be entirely offset by the massive corporate tax cut which could go as high as $1.5 billion dollars a year, so I suggest the legislature look elsewhere for their pound of flesh.  Not to mention that a failure to get the most out of the stimulus funds would do a disservice to the state.  It is unacceptable at this critical time that any money gets left back in Washington.  And the tools are in place to cross the $10 billion dollar trigger point, as The California Budget Project has ably shown.  

It sets up to be an interesting meeting, as the Treasurer has not made many public comments about the trigger, while Finance Director Genest’s reports show the state falling short by $2 billion dollars.  Thanks to the poor drafting of this provision, there’s no telling the outcome if Lockyer and Genest disagree.  Don’t expect a resolution today – the participants have two weeks before a final solution.  

There was much to like in the Governor’s Weekly Radio Address this week, at least to the untrained eye.  It was presented by the Governor’s Finance Director Mike Genest and includes an open plea to the Legislature.  It spoke of the dire situation our state is facing, in end of the world like terms.  A snip:

So, bear with me a moment while I speak directly to your state legislator.

Sir or Madam, I know that you didn’t run for office so you could vote to raise taxes or cut spending for vital programs. I too wish there was another way. But, we have to do what is needed to bring this state back from the fiscal brink. You are a leader. In times like this leadership requires compromise. Your state needs your help.

You can save it from disaster, but only if you reach across the aisle. Time is up. Please act now.  

The problem of course? It’s all propaganda that ignores the $18 Billion package that is facing his veto. While the state dawdles away its general fund, the Governor’s team dishonestly ignores the fact that the Democrats have compromised, and the Republicans refuse to move an inch.

And that veto.  So, Mr. Genest, if you want to point a finger, perhaps that finger should turn right back upon the current Administration.

• I’ll be on the Bay Area’s Green 960 tonight with Angie Coiro to talk about the budget mess. I should be on around 7:15. You can stream live here.

• There’s a nice back and forth between Mike Genest, Schwarzenegger’s Finance Director, and the WSJ Ed Board. Genest is a decent enough guy (and fellow GSPP Alum), but we don’t necessarily see eye to eye on a world of revenue issues.  However, he did a fair job of responding to a ridiculous piece of garbage that emanated from the Wall Street Journal Editorial Board, which they called Arnold’s Ishtar.

Beyond the bald-face lies (“Democrats refuse even to trim the budget.”) that riddle this junk, the notion that Villines is anything other than an ideologue leading other ideologues is an anathema to the truth. You have to love when national papers delve into the weeds of state politics, especially when they don’t even bother to do any damn research.

Genest responds back that we have both a spending and revenue problem. Not the greatest framing ever, but a start. And as for Arnold’s Ishtar, hardly. He always has End of Days.

• Interesting story here about one of CARB’s scientist possibly lying about a PhD. Nonetheless, the science is sound, and the ruling on trucks should stand.

• CalPers losses could be another major hit for the town of Pacific Grove.  Pacific Grove is on a Vallejo-esque run the last few months, and it wouldn’t shock me to see several more municipalities flirt with bankruptcy.

• SDG&E gets its nearly $2B power line from the desert into San Diego. Many had opposed it, saying that it won’t be able to deliver the requisite power to make it cost effective. Plus there’s the whole uglying up the mountain thing.

• More people are moving out of California than are moving into the state.  

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?