May help resolve long-term credit rating issues

by Brian Leubitz

S&P has never had much faith in the California legislature. Even after the majority vote budget amendment passed, and after Prop 30’s additional revenues, S&P never really had faith.

Earlier this week, in a memorandum supportive of a budget reserve, the Wall Street credit-rating agency Standard & Poor’s said that “when it comes to reaching a legislative supermajority on fiscal matters, California has a weak track record,” raising concerns about the possibility that Brown and lawmakers might fail to reach an accord.

S&P called the negotiation “a test of sorts for the state,” adding that “if the Legislature succeeds in assembling the consensus necessary to move the measure forward, it could mark another step in California’s ongoing journey toward a more sustainable fiscal structure.”(SacBee / David Siders)

Now, despite voters continually supporting revenue and large Democratic majorities, the late 2000s budget fights never really went away. Sure, the players are completely different, but that kind of madness leaves a mark. Yes, we’ve made wholesale reforms to the system, we’ve never actually missed any debt payments, and we have a constitutional requirement to pay debt before anything (save Prop 98 requirements). But, the credit bureaus like to see reforms that make them and their Wall St. friends happy.

That brings us back to the rainy day fund. California has always struggled with boom-bust cycles, and the idea was to stash away some of that boom money to spend during the busts. In general a good concept, but the very ominous devil is in the details. And with the recent indictments and subsequent suspensions, the Senate Republicans are relevant again. But, Brown’s framework brought a little bit of something for everyone to build off, and today we get this:

But on Thursday, following several weeks of private negotiations, Brown and the legislative leaders of both parties announced an agreement on a proposal to set aside 1.5 percent of total general fund revenue every year, plus revenue from capital-gains taxes when the economy is especially robust. (SacBee / David Siders)

Republicans get their rainy day fund and something to list as an accomplishment. (Giving them an extensive list of…1 accomplishment). Steinberg and the Senate Democrats got a commitment to use half of the 1.5% to pay down debt, rather than having to argue that issue later in the budget fight. That could have been a huge problem down the road, and the inclusion here is a big victory for Steinberg and could be enough to get a much broader base of support.

With the upcoming University of California walkout, we asked our Facebook community recently how the impending UC and CSU cuts were affecting them. The response was overwhelming:

Stephanie from SF State needed only two classes to graduate with her bachelor’s degree. But one of the courses was eliminated – graduation will have to wait until next year.

A mother from the East Bay worried that her daughter couldn’t enroll in a single class she needs and is about to lose her student status, her financial aid, and health insurance.

Sarah from UC Davis saw her tuition increase almost ten percent, while her mother, a state employee, just took a 15 percent pay cut.

UC Berkeley will be eliminating approximately one out of every ten courses this coming year. UC San Francisco will potentially have to reduce their faculty by fourteen percent because of the recent cuts. UCLA has reduced support to research centers by fifty percent. UC Irvine has completely stopped admitting students into their education program.

All across the state, we are choking off opportunity for hundreds of thousands of young Californians to build a better life for themselves and a better future for California.

And it’s our fault. We’ve allowed our system of governance to de-fund and de-prioritize higher education, putting our state’s economic future in jeopardy.

Let me be clear: I favor fully funding the UC system. Cannibalizing our state’s future through cuts to education is the exact opposite of the kind of reform and long-term thinking we need from our leaders in Sacramento.

But the current resource-constrained situation forces us to make difficult choices about our shared priorities. We must protect our environment, provide universal health care and invest in infrastructure development. And therein lies our statewide dilemma.  

We have a system in California that discourages thoughtful budget and financial planning, requiring a two-thirds majority every year to pass a budget that paralyzes our state. We have a complex web of ballot initiatives that further complicates the process.

Walkouts like the one currently planned will become more frequent unless we undertake systemic reforms and truly take California in a new direction.

We need to convene a constitutional convention and get serious about changes to the system. Until we do, we’re jeopardizing our ability to be competitive in the global economy. Preparing our children for success in the 21st century necessitates investment in higher education not cuts to it.

In San Francisco, we have a robust rainy day fund. We drew down on our reserves to make sure not a single teacher in San Francisco was laid off when the recession hit. We created a partnership between SFSU, the school district, and the city to guarantee a college education to every public school 6th grader who wants one. And if their families can’t afford tuition, we help with that too.

We operate with a limited budget in San Francisco, just like the state. But we managed to keep teachers in the classroom and promise every student a chance to go to college.  We didn’t raise taxes – we reformed the budget process and used resources in a smarter way.

It’s time to shake up the system that’s put our state in this mess. We need come together to fundamentally rethink how we govern California.