Dave Johnson, Speak Out California

The key to California’s successful business environment are education and infrastructure.  It is not an accident that our semiconductor and computer and Internet industries, and biotechnology and pharmaceutical and genetic engineering and our other world-class competitive industries developed in California instead of in “low tax” states like Mississippi and Alabama.  These industries thrived here because of our well-educated people and our modern, well-maintained infrastructure.

There has been a dramatic wealth-building return on our investment in education and infrastructure.  Investors could count on California as a good place to start and grow a business, and it has paid off.

But how much would it cost if businesses had to pay fair market value for use of the infrastructure that We, the People built?  What would it cost if companies had to pay the full education cost every time they hire someone who was educated at a California public school or state college or university?

What would it cost if companies had to pay to be provided with police and fire protection?  Should companies pay a fee to have the police investigate, catch the perpetrators, and then put them through the criminal justice system?

What would it cost if companies had to pay fair value to use our roads and air- and seaports.

What would it cost if companies had to pay for access to the legal system that We, the People set up.  We passed the laws and paid for the courts.  We set up the entire legal structure.  

We, the People pay to regulate (and apparently bail out) the banking and financial system.  What would it cost if businesses had to pay us for setting up this system that (used to) keeps our money sound?

This is what government and taxes are for.  We, the People built up California’s comprehensive physical, legal, cultural, education and societal infrastructure.  Businesses rely on that infrastructure, and we want them to thrive.  This benefits us all.  Many, many people became wealthy by betting on California as a great place to do business, and we are proud of that.  Now it is tome to give something back.

Building and maintaining that infrastructure does cost money, and that is where taxes come in.  For several years California has been cutting taxes and cutting back on our investment in education and infrastructure.  Businesses cannot continue to thrive as they have if we continue along this path.  We have reached a point where the tax-cutting has brought our state’s education spending to the second-lowest per-pupil of all the states!  We have been and are deferring maintenance on roads and other infrastructure.  We are cutting back on all essential services and we still have a $40 billion budget shortfall!  

Our companies are getting a good deal.  If we charged fees that were based on the actual value of the service that the infrastructure provides businesses would have to pay much, much more than any level of increased taxes companies and wealthy individuals might be asked to pay to help California meet the budget shortfall.  The businesses and individuals who thrived because of the infrastructure we built need to contribute to the future by agreeing to pay taxes to help invest in rebuilding that infrastructure.

The payoff is clear.  As I wrote above, there is a reason that Silicon Valley and genetic engineering and other wealth-creating industries developed in states like California and Massachusetts instead of “low tax” states like Mississippi and Alabama.

Click through to Speak Out California.

• The Senate Republicans have a slew of publications that they flood my inbox with every so often.  Mostly they are a series of missives based upon their ridiculous ideology. But on occasion they put a somewhat fact-based publication on balance billing. They still sneak some of their views in there, but in a subtle way.  But it is a fairly good concise discussion of the court decisions on the issue of billing patients for the difference between cost and insurance payments to hospitals.

• Larry Lessig and http://Change-Congress.org are doing a donor/supporter strike. You can join the strike right here.  The current leader is none other than our very own Dianne Feinstein.

• More horserace gubernatorial coverage, this time from SacBee.  And Newsweek.  Meanwhile, Rasmussen is running head-to-head matchups two years out showing Meg Whitman very competitive.  I’m going to wait until, I don’t know, people even recognize what party she belongs to, before putting any stock in a poll.  She isn’t even riding off her own name recognition, she’s riding off of eBay’s.

• Jeff Denham gets all nitpicky on rules.

• Some takes on the PPIC Infrastructure Report: Wildermuth of the Chronicle and Dan Walters of the Bee. As Robert mentioned today, we must create new revenue streams. I don’t know where they all come from, but we must look beyond simple gas taxes and user fees.  If we fail on infrastructure, our long-term business climate becomes increasingly bleak.

• Richie Ross, consultant to such notables as Carole Migden and Heather Fargo, has a pretty good take on Prop 8, comparing it to Prop 187.  While a lot of people thought Prop 187 was just good politics at the time, the GOP “Southern Strategy” isn’t really paying long term dividends.  Or, actually it is, but just for Democrats. Marriage equality will one day be the law of the land, and those who stood in the way will be nothing greater than a modern George Wallace.

The economic recovery that is currently being bandied about in Congress, particularly in the House, would deliver $4.5 billion dollars for infrastructure projects to California.  That’s 10% of overall infrastructure spending, which is in line with our population, but the overall pot for infrastructure is too small nationwide, and that kind of relief is not enough to make a dent in the budget nightmare.  The fact that money for tax cuts designed to snare Republican votes is crowding out infrastructure spending and job creation contributes to this, but the other problem is the deteriorating nature of our infrastructure, which could cost half a trillion dollars to fix properly.  All that money doesn’t have to come from the Feds, but with the bond markets unwilling to deliver for California until a budget solution is made, $4.5 billion over two years is a drop in the bucket, and the problem will grow worse.  This shows why floating bonds is a horrible way to fund government.

The report cites California’s dependence on bond financing as a chief reason the state can’t meet its infrastructure financing needs. California has increasingly used borrowing through state general obligation bonds to finance infrastructure projects. But the need for infrastructure investment far exceeds the capacity of these bonds, according to the report, Paying for Infrastructure: California’s Choices. Years of declining investment have left the state with crumbling classrooms, congested roads, and an aging levee network that puts many homes and businesses in harm’s way. Problems in the government bond market are making it more difficult to sell the bonds already authorized, and in the long term, large projected budget shortfalls will limit the state’s ability to rely on these bonds to meet California’s future needs.

We can of course see this right now, and the effects are widespread.  With the bond markets frozen, environmental projects all over the state have to be shut down, having a very real impact on the environment and public health.  Forget the more innovative projects we’d all like to see strengthened with fiscal investment – like the growth of the solar industry and even wave harvesting, the type of green jobs that can save our economy – we’re not even going to be able to clean the ocean this year.

If swimmers in Santa Monica Bay bump into trash or bacteria this summer, one culprit will be California’s budget impasse.

Hundreds of millions of dollars worth of voter-approved projects have been halted because of the state’s financial problems. That includes $12 million that the Santa Monica Bay Restoration Commission was counting on to prevent dirty storm water and filthy runoff from draining into the bay.

“People expect to be able to enjoy the beach and not come home sick,” said state Sen. Fran Pavley (D-Agoura Hills), chairwoman of the state Senate Water and Natural Resources Committee.

The money freeze has immobilized construction of new biking trails along the Santa Ana River in San Bernardino and Orange counties. It has stopped plans to tear down the Matilija Dam in Ventura County and restore the sediment-filled Matilija reservoir. It has impeded efforts to boost the populations of salmon and steelhead trout off the coast of Los Angeles and Ventura counties.

These are not small inconveniences.  A new report from Brigham Young University scientists shows that cleaner air, for example, has a direct effect on increasing the lifespan of a population.  There is a cost to bad borrowing.  If we can’t fund infrastructure, the ports and the oceans don’t get cleaned.  Smog reduction projects may shutter.  The air gets dirtier.  And you die three years earlier.

California’s delegation needs to push for General Fund relief in the recovery package, as well as federal guarantees for our municipal bonds, which would frankly jump-start projects faster than anything.  If it’s good enough for the banks, it should be good enough for California.

UPDATE: OK, the CBPP has a more comprehensive report, and the numbers are much more in line with current needs.  They predict that California will get $11.1 billion in increased Medi-Cal spending, and $7.8 billion from a new State Fiscal Stabilization Fund, in addition to the infrastructure spending.  That approaches $20 billion over the next two fiscal years.

Now THAT’S better.

Look around you and you probably know somebody who had been affected by the economic slowdown, particularly here in California.  Maybe it’s someone you know in the construction industry:

State Controller John Chiang refused to make payments Thursday to contractors for work done on more than three-dozen public-works transportation projects. The action, the first of what are likely to be a series of blocked payments, was prompted by the state’s unprecedented budget shortage.

The move was required by the Pooled Money Investment Board, which on Dec. 17 ordered a halt to the payments to projects financed with a mix of voter-approved bond funds pending a resolution of the state’s fiscal dilemma […]

The projects are all being handled by Caltrans, which has objected to cutting off the money to the contracts. Some $33 million and 39 public projects are affected.

(It’s hilarious that the Governor objected to this after his own Finance Director voted to shutter all infrastructure projects a few weeks ago.  Did he not know that this would be the result?  Another Santa Claus Republican.)

Or maybe it’s that friend of yours who doesn’t have any health care or the ability to pay for treatment, or that other lady you know who works at the hospital:

California hospitals are threatened. With only 1.9 hospital beds per 1,000 population,3 the state’s residents are being placed at risk by the negative impact caused by inadequate Medi-Cal payments and California’s faltering economy. Currently ranked 49th nationally, hospital bed availability is likely to contract further in this environment, diminishing access to health care services even more. As a result of low Medi-Cal payments, the majority of california hospitals have already made cutbacks or anticipate reducing services, including closing subacute units and psychiatric units; eliminating skilled nursing beds and ER beds; reducing cardiology, obstetrics and other clinical services; and laying off staff or reducing pay.

The impact of the economic downturn is evident. Hospitals report a 73 percent increase in consumers having difficulty paying out-of-pocket health care costs, and 33 percent report an increase in ER visits for uninsured

patients. With the growth in unemployment, hospitals are experiencing the effects of more californians without job-based insurance. in fact, hospitals report a 30 percent decrease in volume for elective procedures – one of the few areas that provide hospitals an opportunity for revenue growth. In addition, the capital markets are providing a significant hurdle for many california hospitals. More than 25 percent report the inability to access financing for construction, remodeling, equipment purchases or working capital.  This has resulted in 41 percent of hospitals halting construction projects or equipment purchases. This has a significant impact on the state’s economy and jobs.

Or maybe your neighbor has a son or daughter who wants to go to college.

The University of California system may cut the number of in-state first-year students by 2,300, or 6 percent, as the recession squeezes the budget.

The proposal to reduce enrollment for the 2009-2010 school year, as well as a plan to freeze 285 salaries of administrators, will be presented Jan. 14 to the Board of Regents by President Mark Yudof, the Office of the President said today in an e-mailed statement. The system, based in Oakland, has 220,000 students on 10 campuses.

As an aside, health care and education were the only two industries to INCREASE jobs in today’s dismal employment report.  Here in the Golden State, we are going in the opposite direction.

The failure of leadership over the last decade at all levels of government is now coming due.  We are not prepared – nor are we taking seriously enough – the magnitude of this meltdown on the state of California.  We are about 3-4 weeks away from the state sending out IOUs.  That’s functionally bankruptcy, and the trickle down of that will be fast and painful.  Everyone in the state will either be affected or know someone close who is.  

California’s dysfunctional government has finally caught up to itself.  The general lack of urgency about this is stunning to me.

Good thing an old-politics hack like John Burton will lead us out of the abyss!

…let me add state employees into the mix…

California will close most state offices on the first and third Fridays each month starting in February, padlocking DMV outlets and other services while reducing state worker pay to help survive a massive budget problem, according to a state Department of Personnel Administration memo.

Only offices deemed critical, such as state hospitals and prisons, will remain open under Gov. Arnold Schwarzenegger’s twice monthly furlough plan.

Ugly.

Five top Democratic governors have called for a larger stimulus package than is presently being called for in Washington, precisely to fill in the gaps created by a loss of tax revenue in the states.

To help offset state budget cuts, a group of Democratic governors urged the federal government Friday to pass a $1 trillion economic stimulus package, significantly larger than the one under discussion in Congress.

The package would help states compensate for cuts to education spending that could cause long-term economic decline, as well as bolster infrastructure projects and benefits programs for the poor, the governors from New York, New Jersey, Massachusetts, Ohio and Wisconsin said in a news conference […]

The governors recommended that the stimulus plan include $350 billion for infrastructure, including transportation, wastewater and broadband projects; $250 billion for anti-poverty programs such as Medicaid, unemployment insurance, food stamps and child care; $250 billion in flexible education spending to maintain funding for programs from pre-kindergarten to higher education; and middle-class tax cuts.

The money, disbursed over two years, would offset cuts needed to balance state budgets and would serve as a “bridge” until 2011, by which time the governors hope the economy will have recovered, said Massachusetts Gov. Deval L. Patrick.

Predictably, the Republican Governor’s Association called it a “bailout” of the general funds of the various states.

Well, yes.  The states, by and large, did not have the ability to get out from under the financial meltdown, and the consequent economic downturn that resulted shouldn’t disproportionately affect the least of their citizens.  Furthermore, given that the road to recovery is massive fiscal stimulus, having states cutting back on spending at this time, be it infrastructure, education or healthcare, is completely counterproductive and will do nothing but prolong the agony.

In the future, it will take more than backfilling state budget cuts in a downturn, but a more structured system, like a “Federal Infrastructure Finance Corporation,” to ensure that state assets aren’t sold off to private interests during a downturn.  The days of creative borrowing and the crossing of fingers are over.  We need new structures to manage economic volatility and avoid fiscal traps, PARTICULARLY in California, where the tax system too closely mirrors the boom and bust cycle.

In the near term, I imagine something like this will pass.  Barack Obama today put out a call for “strategic investments” to create jobs and improve the long-term economic outlook simultaneously.  The question locally is whether California’s plans will actually accomplish that.  CalPIRG is criticizing the state’s wish list, saying that it relies too much on increasing highway and road capacity and not enough on cleaner energy investments:

The California Public Interest Research Group reports that the state plans to spend 31% of road money on creating new capacity instead of addressing long-deferred maintenance and repair projects. By contrast, the group said, Massachusetts would commit 100% of its road funds to repairs.

“We can’t afford to waste precious resources on new highways at the expense of ready-to-go projects to repair and maintain existing roads and bridges and expand public transportation,” said spokeswoman Erin Steva.

The group also faulted the California Department of Transportation’s list, saying that only 37% of the funds would flow to public transportation. The group called for a higher percentage, citing the record ridership on California’s mass transit systems, which have been hit by severe cutbacks in recent years. The proposed percentage is less than what is being planned in Tennessee, Wisconsin and Massachusetts, CALPIRG said.

It is elemental that the stimulus spending cannot prop up an unsustainable growth model based on sprawl.  Experts up and down the state understand this, and one of the best examples is in this Merced Sun-Star editorial, which nicely explains the tension between speed and smarts:

The problem for the planners is that the stimulus must be geared toward putting people to work as fast as possible. That, many believe, argues for the traditional sort of public works, such as highways.

In many cases, plans are already in place to replace crumbling roads, highways and bridges. By contrast, plans for urban transit systems and intercity high-speed rail are less firm, meaning it may take more time to actually start turning dirt and generating paychecks […]

We’re confident that a solution exists that puts people to work right away and also lays the groundwork for a new approach to the nation’s transportation needs.

It won’t be easy, but it has to happen. We can’t continue to simply build more transportation infrastructure on a model that’s now more than a half-century old.

A new model for transportation is part of the change we need.

Read the whole thing.  One good idea calls for phased stimulus spending, giving enough for critical highway and road repairs at the start, with the bulk coming later for transit and rail projects.

We know that Arnold holds a grudge against unions, which he believes caused him that stinging defeat in 2005, and much of his goals on the budget lately have taken their aim at those unions.  In particular, Arnold is seeking to privatize major infrastructure projects, ostensibly for the sake of “efficiency” but as a practical matter to get the jobs out of union hands.  I thought that much of this was just a sop to Arnold’s friends on the Chamber of Commerce and just more of the conservative mantras of animosity toward unions and privatization equaling a universal good.  But there’s also a quid pro quo angle involved here in the form of David Crane, a top economic advisor to the Governor, who would stand to benefit financially from any public-private projects put forward by his current boss.

As Gov. Arnold Schwarzenegger demands that lawmakers allow private interests into California’s huge market for public works projects, a company with close personal and financial ties to the governor’s economic advisor is positioned to benefit.

The advisor, David Crane, has spent years promoting private-sector involvement in public construction projects — one of a few issues holding up a deal between Schwarzenegger and legislative Democrats to ease the state’s worsening fiscal crisis.

Babcock & Brown, the financial services firm where Crane worked for a quarter of a century, hired a Sacramento lobbyist last year to influence the governor’s office on so-called public-private partnerships, records show. Since joining the governor’s team in 2004, Crane has received hundreds of thousands of dollars of income from deals he made while at Babcock, a firm founded in San Francisco and based in Australia, according to financial disclosure reports.

Those deals included projects in areas such as telecommunications, in which he served as a financial advisor; personal investments in real estate from Babcock’s public-private partnership projects in England; and partnerships he formed with other Babcock executives to invest in oil wells and an Italian restaurant chain.

Crane is claiming that he cannot possibly benefit financially from any future deals, but one wonders whether, even if Crane is telling the truth, it really matters.  The network of friends and former business associates to which Crane’s advice could directly or indirectly steer business is vast.  This is how government-by-profit-taking typically works, rewarding friends and punishing enemies.  Whether or not Crane gets his profit now, as an economic adviser, or later, when he returns to Babcock & Brown or some other destination, is in many ways besides the point, just a clever way to avoid violating the letter of the law.

Jessica Levinson, the director of political reform at the nonprofit Center for Governmental Reform in Los Angeles, said Crane appears to be operating within the letter, though perhaps not the spirit, of the law.

“It starts to have the appearance of doing political favors for old friends, and that is not something that I think is illegal, but it still may not be fully ethical,” Levinson said. “I think it all comes down to, is he making this decision for public good or is he making it to help his old business friends?”

By the way, Crane is a Democrat, or at least that’s what it says on his voter registration card.  The issues are the same.  He’s a free market fundamentalist who probably thinks he’s advocating on behalf of a good solution for California.  After a while, the theft becomes so commonplace that the thieves don’t even see it as stealing anymore.

Paul Krugman has a good column today about how state balanced budget needs lead to perverse outcomes during an economic crisis that demands fiscal stimulus.

But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers – state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

These state-level cutbacks range from small acts of cruelty to giant acts of panic – from cuts in South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six months.

As Krugman notes, it’s crazy to cut public spending at the same time that private spending is drying up.  It’s a recipe for a Hoover-esque depression with no investment or economic activity, and no way to increase consumer spending or create jobs.

Krugman acknowledges that balanced-budget rules are only a part of this problem in the states.

The answer, of course, is that state and local government revenues are plunging along with the economy – and unlike the federal government, lower-level governments can’t borrow their way through the crisis. Partly that’s because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren’t, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.

Are governors responsible for their own predicament? To some extent. Arnold Schwarzenegger, in particular, deserves some jeers. He became governor in the first place because voters were outraged over his predecessor’s budget problems, but he did nothing to secure the state’s fiscal future – and he now faces a projected budget deficit bigger than the one that did in Gray Davis.

That’s absolutely true.  And the suffocating 2/3 requirement is most of the problem here.  But once we get out of this crisis, hopefully with some assistance from the federal government for Medicaid and public works, we need to think a little more creatively about how to reduce the risk of a state’s fiscal trap on the greater economy.  One idea is allowing state governments the ability to deficit spend, perhaps through the creation of some federal Stimulus fund that states facing certain deficits can tap.  This is the framework behind the National Infrastructure Bank proposed by Sens. Dodd and Hagel last year, but I would broaden it out.  There’s also the option of federal guarantees for state bond markets to increase investor confidence, or allowing states in a fiscal emergency to borrow at lower federal rates in the short term.  These are steps similar to those being used to bail out banks, with the Fed intervening in the commercial paper market, and they should be tools for the states as well.

With structures like this in place, just maybe we can phase out the balanced budget amendments that force these bad choices on the states.  Ultimately, California can’t ask for help until they help themselves.  The bond market will simply not improve until investors are assured that the state can manage its own affairs.  But after the failed Schwarzenegger Administration, the next governor should think seriously about giving the state flexibility in an economic downturn, rather than going along with the necessary steps to making things measurably worse.

The national media is starting to pick up on the developments with the California budget, and their potentially devastating impact on the larger economy.  Bloomberg has an article on the shutdown of infrastructure projects and the impact statewide:

Just $5 million of work is needed to complete a new California Court of Appeals building in Santa Ana. The state may not have the money, and come July judges may be writing opinions in their living rooms.

“I’ve been on the bench for 23 years, and I’ve never seen anything like this,” said David G. Sills, the presiding justice for the Fourth District Court of Appeals, Division Three, in a telephone interview.

California’s worst budget crisis has held up $3.8 billion in spending on public works, possibly including the courthouse adjacent to Santa Ana City Hall. Sills and his seven fellow jurists had planned to move in before the lease on their temporary offices expires June 30.

“Everyone will have to work from home,” said Sills, 70, “and we’ll have to rent a place for when we hear arguments.”

The story ticks off all of the projects lying unfinished – highway improvements, bridge and levee repairs, a hospital at San Quentin, a middle school in South Gate.  The delays are not only a threat to the soaring unemployment rate and the state’s economic future, but public safety.

South of downtown Los Angeles, a delay finishing a school building could put children in danger, said German Cerda, principal of South Gate Middle School. About a third of his 2,900 students are scheduled to move into the new building a half-mile away in 2012, relieving overcrowding inside and making nearby streets safer, he said.

On Dec. 2, a 14-year-old South Gate student was killed when a car stuck him a block away, an accident Cerda attributed to congestion.

“The biggest complaint we get from parents is what happens when the bell rings at 2:42 p.m. each day,” Cerda said. That’s the time that his students are dismissed and 3,000 more are leaving a high school down the street. “They don’t want to see another tragedy.”

Then there are the expected cuts to state Medicaid programs, at precisely the time when more Californians qualify for services.

Among the states with the gravest financial problems — and pressures on Medicaid — is California. In July, Medi-Cal, as the program there is known, slashed by 10 percent the rates it pays hospitals, nursing homes, speech pathologists and other providers of health care. It tried to lower payments to doctors and dentists, too, but they have sued to block the decreases.

Gov. Arnold Schwarzenegger (R) has asked the state legislature to approve other cuts, including an end to dental care for adults, about 1 million of whom use it now, and a sharp reduction in care for recent immigrants.

At two hospitals run by NorthBay Healthcare, midway between San Francisco and Sacramento, about one patient in five is on Medi-Cal. The rate cuts translate into a $4 million loss this year. In September, the health system closed a rehabilitation program for children that provided physical therapy, speech therapy and other help to about 300 young patients at a time — with 100 more usually on the waiting list.

“It was heart-wrenching to have to go out and announce,” said Steve Huddleston, NorthBay’s vice president of public affairs.

The Obama campaign is weighing options for both backfilling Medicaid for the states and jump-starting infrastructure spending through cash infusions.  However, the biggest thing the federal government could do right now is what John Chiang describes in a letter to the Obama transition team and California’s congressional delegation – guarantee the financing for infrastructure projects.  The reason they cannot be funded right now is that the market for revenue anticipation notes and bonds is locked.  Though California has never defaulted on these securities, investors are nervous that the careening budget crisis will cause them to do so.  So putting the full faith and credit of the US government behind the notes, which if California does repay its creditors would cost the feds next to nothing, would immediately allow the infrastructure projects to begin again.  That’s the short version – here’s Chiang with the greater plan, including incentives for banks to lend.

This proposal is simple, straight forward and cost effective:

1) Develop a federal guarantee program of limited duration for state and local debt issued to fund new infrastructure construction and renovation. Each state could designate a state commission or agency to disburse the state’s allocation of federal guarantees in accordance with the program guidelines;

2) Allocate these benefits, or guarantees, in the amount of $500 to $1,000 per capita to states. The allocations can be based on unemployment or 2000 census population, with a minimum “baseline” allocation to low-population states; and

3) Furthermore, the proposal would greatly benefit from abolishing the limit on the amount of deductible interest costs for commercial banks related to the purchase of these particular state and local infrastructure bonds during the term of the program. This restriction has been in place since enactment of the Tax Reform Act of 1986.

This would mean the restoration of up to 200,000 jobs in California alone, as well as $16 billion in economic activity.  Those are numbers that an incoming Obama Administration cannot afford to lose as they begin implementing a recovery package.

Obviously, the biggest remedy to show confidence to the markets and gets the lending flowing again would be to pass a budget and prove to investors that California is getting its financial house in order.  That is up to the Governor to decide, and 200,000 jobs hang in the balance.

You don’t have to constantly refresh or check your RSS feeds for the next couple days – budget talks have been called off for Christmas.  There is a meeeting between the Big Three tentatively scheduled for Friday.

In my view, just that we’re talking about a Big Three instead of a Big Five is progress, suggesting that the Gov will go along with the work-around budget if he can save face on a few “stimulus” items (like, you know, taking people’s overtime and meal breaks away.  They can eat while working!).  The Governor never appeared in a movie about schizophrenia, but that’s how he’s been acting the past few days, holding press events at key sites where infrastructure improvements are being shuttered (a levee in Sacramento, the 405 Freeway in Karen Bass’ district in LA) blasting the legislature, while at the same time claiming that progress is being made toward a budget solution.

During a press conference along Interstate 405 in Los Angeles, the Republican governor said he and Democratic leaders made “some great progress” Sunday and that it may only take two more meetings of the same sort to reach a compromise this week. Schwarzenegger had been calling for a solution by Christmas, though he acknowledged Monday that a legislative vote would not take place until next week at the earliest.

“It could easily be that before Christmas Eve or Christmas Day that we have an agreement, that the legislators can be brought back between Christmas and New Year’s to vote on it,” Schwarzenegger said.

(UPDATE: Kevin Yamamura reports that the negotiations have come down to three issues: “rollback of environmental review for construction projects, greater use of private investment and contractors, and deeper spending cuts, including those affecting the state work force.”  These have almost no impact on the budget as a whole – you’re talking about cutting two state worker holidays – and are designed only to reward private business interests.  Arnold has always been in the pocket of the Chamber of Commerce.)

You’ll notice that none of these press events are being held in front of any state employee offices.  That’s because, in general terms, people don’t look kindly on mass layoffs and cutbacks right before Christmas.  It gives them the impression that the person making those layoffs is kind of a Scrooge.  Of course, the immediate halt to all public works projects, at a time when we should be encouraging stimulus projects of this type, also have an impact on jobs.  Not only does every contractor working on those projects get fired, but vendors get stiffed for work that they’ve already completed, leaving the state open to lawsuits.  The Governor should kind of be ashamed to stand in front of any backdrop with cancelled projects behind him, considering his epic mismanagement is partly to blame.  This is particularly true when considering that the voter-approved infrastructure work is vital to public safety and the state would undoubtedly be liable in the event of catastrophe.

Communities nationwide have repaired fewer than half of the 122 levees identified by the government almost two years ago as too poorly maintained to be reliable in major floods, according to Army Corps of Engineers data.

State and local governments were given a year to fix levees cited by the corps for “unacceptable” maintenance deficiencies in a February 2007 review that was part of a post-Hurricane Katrina crackdown. Only 45 have had necessary repairs, according to data provided in response to a USA TODAY request. The remaining unrepaired levees are spread across 18 states and Puerto Rico – most in California and Washington.

The Governor is cleverly casting this as a problem of “the legislature” hoping nobody will notice that he performed the veto, he blocked the very plan that could get these projects restarted.

Fortunately, grassroots Californians are noticing, and you can see the contours of a coalition forming, perhaps resembling the 2005 special election coalition only with more staying power.  Groups like Courage Campaign and the local blogosphere have the reach to engaged communities starving for information.  The California Budget Project provides the statistical heft.  Labor and environmental groups have the ear of the legislature.  And there’s a new member of the coalition – former Obama organizers in California who are moving with unusual speed to support a sane budget solution and slam the Governor for his intransigence.  At Schwarzenegger’s 405 Freeway presser, you can hear a small band of protesters in the background noise.  That was organized by Obama volunteers through their new Facebook-like application, CommunityOrganize.com.  Pam Coukos distributed a letter-writing tool urging a budget solution.  California for Obama has done the same in an email blast, asking it to be distributed to the various volunteer teams.  And there is already talk about veterans of the Obama movement running for state and local office.

This is pretty new and early.  But you can see how this network of committed organizers can gradually become a state political force, especially if the coalitions are built and networks made between the groups mentioned above.  I have long said that what is missing in California is a popular grassroots movement that can go around the media filter and whip up support for progressive values through direct action.  It is said that California is too big for such a movement to catch fire, but in political terms, we all know that the state is very small, and a committed movement can make an outsized difference.  This won’t happen overnight, but we’re moving in the right direction.  Now we just need a gubernatorial candidate to ride the grassroots wave…

I appreciate Bob’s sentiment that the time is now to fight the Governor and the Yacht Party and bring some sanity into the fiscal process, but my fear is that the time for that was three years ago, when the successful fight against the special election should have been built upon, and at this point, we’re already swirling in the bowl.

Let’s just get you up to date.  All infrastructure projects are currently shut down.  Unemployment nudged up to 8.4% in November, the state lost 41,700 jobs last month, and up to 200,000 more jobs are on the chopping block from the public works freeze if it continues.  Meanwhile the Governor is ordering up layoffs and furloughs for state workers, so just add those on top of the pile.  You’re likely to see a 10% cut in state employees, and a 10% reduction in the salaries of those who remain.  More job loss means less income tax and probably less sales tax, as well as more need for public assistance.

And that’s before a budget which could have further reductions to state employee paychecks, elimination of overtime and meal breaks, etc., is signed.  Not to mention the billions more in cuts that the Democrats included in their work-around plan which the Governor threatened to veto.  Schools, which were slated for $4 billion in cuts in that budget, have already gotten the jump on the state by cutting back their local budgets.  After-school sports, libraries, and new teachers are probably all going to go.

This is a nightmare beyond the ability of many, even myself, to comprehend.  It’s so big that it’ll affect everything, and the idea that a ragtag band of liberals have the power to stop the freight train from coming down the track is precious, but I think wrong.  This is the accumulation of 30 years of bad policy and worse government structure, and that’s not going to be turned around in the time it needs to be to avoid catastrophe.  Even George Skelton, poohbah of all poohbahs, admits that the Yacht Party is so nakedly ideological that they have made the state dysfunctional.  This work-around budget is good for the time being, but Schwarzenegger is clearly committed to hijacking that process.  It’s a large game of chicken that none of us can afford.  And as I’ve noted, even balancing the budget – which the work-around does not do – will not necessarily restart infrastructure spending, and even federal help might not be able to do that.  

Changing the constitution with a convention is a nice idea, but not so easy in practice, as we all know.

Talk of calling a constitutional convention has been banging around California for at least the last few decades – maybe since 1851, for all I know – and it’s gotten a lot louder recently. Here, however, is the rule for calling a convention:

The Legislature by rollcall vote entered in the journal, two-thirds of the membership of each house concurring, may submit at a general election the question whether to call a convention to revise the Constitution. If the majority vote yes on that question, within 6 months the Legislature shall provide for the convention. Delegates to a constitutional convention shall be voters elected from districts as nearly equal in population as may be practicable.

In plain English: you need a two-thirds vote of the legislature to put an initiative on the ballot and then you have to get it approved by the voters. The problem is that no matter how sweetly liberals might croon about what a convention could do, conservatives all know the truth: the whole point of the thing would be to get rid of our insane two-thirds requirements for passing budgets and raising taxes. Unfortunately, our whole problem is that Republicans control (slightly more than) one-third of the legislature. And if we can’t get them to vote for a tax increase in the first place, what are the odds we could get them to vote for a constitutional convention called for the express purpose of making it easier to increase taxes? About zero.

OK, but how about a simple initiative? We could get rid of the two-thirds rule just by collecting signatures and getting a majority vote, right?

Right. And we tried that just a few years ago. Prop 56 was supported by all the usual good government groups and would have reduced the majority needed to pass budget and tax measure from two-thirds to 55%. A bunch of other fluff was added to make it more popular (“rainy day” funds, no pay for legislators if they don’t pass a budget, etc.), and in the end…..

….it got whomped 66%-34%. No one was fooled for a second. Everyone knew the whole point was to make it easier to raise taxes, and so it lost in a landslide.

I think a similar proposition to 56 wouldn’t crash so hard today, but it would certainly go in as an underdog, because the majority of the state still doesn’t understand the consequences of all this failure.  It’s a “dysfunctional electorate,” as K-Drum puts it, as well as a dysfunctional government.

Do we need to fight?  Yes.  But we need some arms shipments from Washington (metaphorically speaking) before we can do that.  A rescue package for the state is desperately needed, and it got a whole lot more so yesterday when the Governor vetoed the work-around.