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Archive for May, 2009

Didn’t Think It Could Get Any Worse? Think Again

As though the state’s fiscal condition weren’t dire enough, Controller John Chiang sent a letter on May 29 to the governor and legislative leaders saying that on July 31 the state will be $1 billion short of meeting its payment obligations to schools, local governments and vendors.

“Based on the May Revision revenue and expenditure estimates provided to us late last week by the Department of Finance and taking into account the actual cash receipts and expenditures my office tracks, it is clear the health of the State’s treasury has significantly deteriorated since the adoption of the (budget), a mere three months ago,” Chiang wrote.

And, Chiang says, the situation only gets worse.  In April 2010, the state will be $22 billion short of cash to meet its payments.

“That is more than four times the $5.1 billion cash deficit we faced this past spring,” the letter says.

Lawmakers and the governor need to act well before the end of July, Chiang points out.  

The controller is preparing to sell Revenue Anticipation Warrants to cover some of the cash flow problem but “without credible budget and cash flow solutions in place, the rating agencies and potential investors who will be evaluating the credit risk of these securities will be highly skeptical about investing in California.”

Failure to act “can compromise the success of this sale or further increase what is expected to be the largest financing costs in the State’s history.”

In short, Chiang says “the state will not be able to borrow its way out of this crisis.”

Chiang “strongly” urges lawmakers and the governor act by June 15.  

“Inaction would create an even greater fiscal hardship for Californians, especially those businesses that provide goods to the State and those vulnerable individuals who depend on public health and social services.”

A chart accompanying the letter lays out the situation.

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Is the Fate of La Jolla’s Seals Sealed?

On May 27, a San Diego Superior Court judge reiterated his 2005 ruling that the city removes seals from a La Jolla cove that is supposed to be a children’s bathing area.

The judge, Yuri Hofmann, scheduled a June 15 hearing to consider the city’s proposed plan to chase the seals off through recordings of dogs barking and jets of water. The city estimates its strategy will cost $700,000. It has already spent more than $1 million in legal fees on the issue.

Hofmann’s ruling that the seals must go is the opposite of that of a federal judge who in 2008 issued a restraining order against their removal, while determining whether the seals are protected under the 1972 Marine Mammal Protection Act.

The seals, the conflicting court rulings and how the city copes with the issue are the subject of legislation.

The measure, SB 428 by Sen. Chris Kehoe, a San Diego Democrat, would amend the 1931 trust giving the city the property. Hofmann based his ruling on the document which says the cove  is to be used as a coastal park and a children’s pool. The property is a called, “Children’s Pool Beach.”

Introduced at the request of San Diego’s City Council, Kehoe’s bill would amend the tidelands grant to read that the cove is a “marine mammal park for the enjoyment and educational benefit of children.”

That would allow the city to decide the seals’ fate rather than the courts.

The bill has been approved by the Senate and is pending in the Assembly.

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Don’t Cry No Tears Around Me*

Assemblywoman Noreen Evans, a Santa Rosa Democrat, is the chair of a two-house conference committee stitching together a solution that closes a $24 billion gap between spending commitments and revenue.

Evans appeared close to tears as she haltingly delivered opening remarks during the committee’s May 26 hearing.

She said that she had just been briefed on Governor Arnold Schwarzenegger’s latest cost-savings proposals which include eliminating CALWORKS, the acronym for the state’s welfare program, ending state funding for state parks and phasing out CalGrants, the state’s program to help students pay for college — regardless of economic circumstance.

Respectively, the proposals would save $1.3 billion, $70 million and $173 million.

With respect to the chair, a good friend of California’s Capitol, her response to the GOP governor’s proposal is wrong.

First, there is no reason to get emotional over a plan that isn’t real.

During his tenure as governor, Schwarzenegger has proposed numerous cost-savings ideas– and then backed away.

How many boxes went KA-BLOOEY?

A proposal to close a slew of state parks in a previous budget was abandoned within 48 hours.

There is a rich vein of empirical evidence in every budget the governor has put forward showing actions that balance the budget but are solutions he knows Democrats will never embrace, such as eliminating welfare.

In brief, the governor’s team has run this play before.

The governor is merely required to present a balanced budget; he is not required to have his plan reflect what a Democratic majority will ultimately support.  

The governor proposes, the Legislature disposes, as the cliché goes.

Another common political cliché is never let an opponent see fear.

One of George Deukmejian’s strengths – and they are quite a few – was greeting proposals by political allies and foes with a stony countenance of almost Spock-like inscrutability. An all-world poker face.

When he grew tired of hearing Democrats criticize him as cold-hearted — he’s anything but — Deukmejian simply asked his secretary to remove the squakbox from his office so he didn’t have to listen anymore. he never let the Democrats know they had gotten under his skin.

Former President Pro Tem of the Senate, John Burton, would commonly begin meetings with lobbyists by growling or screaming or shouting or offering a cacophonous, invective-filled medley of the three.

Over time, lobbyists divined the San Francisco Democrat’s strategy of trying to throw them off their game and would simply yawn, patiently waiting for the verbal storm to pass so real business could be conducted.

A corollary to remaining placid in the face of adversity is recalling that politics is a brutal contact sport played in nice threads.

In essence, as Sean Connery’s character says to Kevin Costner’s Elliot Ness in The Untouchables:

“They pull a knife, you pull a gun. They put one of yours in the hospital, you put one of theirs in the morgue.”

As Costner says later in the movie, “Let’s take the battle to them, gentlemen.”

The governor wishes to eliminate welfare to save $1.3 billion. Write legislation to do so and bring it to a vote on the floor of both houses.

It will fail and the public will be educated as to the consequences of backing the plan.

Would California not lose nearly $4 billion in federal dollars by getting rid of welfare?

Would it not be a tad bit inhumane, particularly in this economic climate, to consign to oblivion those struggling to climb the lowest rungs of the economic ladder?

Are not 1 million children recipients of welfare? Is that what this state stands for?

And so on.

If the governor is pretending his proposal is real, let him defend its merits.

Indeed, as suggested in this space previously, there is value in bringing the governor’s entire revised budget to a vote on the floor to gauge its chances of success.

Another part of the Connery/Costner corollary is to offer more palatable alternatives.

Dedicating sales tax on gasoline to transportation projects is nifty but the plight of California’s poorest citizens trumps. Repeal Proposition 42.

Similarly, the $1.5 billion tax break given to companies, the beneficiaries being mostly located out-of-state, seems something the state can ill afford and far less of a necessity than helping human beings become economically self-sufficient or get a college education.

Does it take a two-thirds vote to rescind it? Sure. So what? Make its supporters defend it publicly.

There are dozens of tax breaks and credits that pale compared to providing modest protection and aid to the state’s most vulnerable citizenry.

See this Legislative Analyst report for numerous candidates worthy of repeal or modification.

And if the state is to “rebuild smartly,” as Treasurer Bill Lockyer encouraged the conference committee at a previous meeting, there is no question maintenance of a safety net for children – poor or otherwise – and those Californians incapable of caring for themselves is far more of core governmental function than subsidizing multinational corporations by letting them use a more generous formula in computing what they owe under the unitary method of taxation.

In short, don’t get sad. Get mad. Call the bluff. Change the conversation. Take off those sweats and go win the ballgame.

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*(Editor’s Note: With apologies to Neil Young.)

 

 

 

Correction

(Editor’s Note: Once again, we are forced to place a reprimand in the personnel file of our chief correspondent who inaccurately stated in a May 26 post that the spending threshold to qualify a measure for the suspense file of the Assembly Appropriations Committee is $50,000. It is actually $150,000 and has been $150,000 since the distant time when John Vasconcellos chaired the committee. Therefore, the minimum cost if all 420 bills on suspense became law would be $62 million, not $21 million. However, sources tell California’s Capitol that the actual cost of allowing all those measures to become law – something that will not happen – is in the low billions. We regret the error.)

Suspense Over the Assembly Suspense File

The state is grappling with something teetering darn close to fiscal Armageddon.

On the heels of closing a $43 billion gap between spending commitments and revenues in February, a new $24 billion gap has emerged thanks in part to further sinking of the economy over the past few months and voter rejection of three ballot measures on May 19 that accounted for $5.8 billion in budget solutions.

In light of that record-setting cash crunch, the Assembly Appropriations Committee has held back a hefty number of bills on what’s known as its “suspense file.”

Legislation on suspense has a price tag of over a certain amount. The measures are parked in the committee awaiting an assessment of the state’s fiscal condition before determining whether the bills should move forward.

The suspense file also serves a political purpose. It is a convenient place to dump Republican measures that Democratic leadership wants killed so their members aren’t confronted by a difficult or potentially politically harmful vote. To avoid that, the measures just stay on suspense.

Similarly, the Democratic leadership can use suspense to hold legislation by their own membership, measures which would either embarrass the lawmaker carrying the bill or place fellow Democrats in the awkward position of having to vote for it.

In the past, the chair of Appropriations has been a lawmaker from a safe legislative district capable of saying “no” with relative impunity to fellow lawmakers desperate to see their measures released to the Assembly floor.

Commonly, measures that have a large cost are cut down to lower cost versions, sometimes pilot projects or even reduced to intent language – a statement of what the Legislature would like to see happen on a particular issue someday.

The current chair, Kevin de Leon of Los Angeles, has ambitions of becoming speaker of the lower house, which might cause him to say “no” somewhat less often.

In recognition of the state’s fiscal condition, the cost threshold of a bill warranting it being sent to suspense has been lowered from $120,000 to $50,000.

There are 412 measures on suspense. Listing them consumes 19 pages in the Assembly Daily File. (Scroll down to Page 29.) They will be dealt with May 28 – one way or another.

The bills span virtually every topic. Some small; some more significant:

Car washes, dog fighting, invasive mussels, human trafficking, pesticides, arson, health care, shorthand reporting, fire engines, foster care, global warming, public contracts. There’s even a bill on Eating Disorders Awareness Week.

If all 412 were to be freed by the committee, approved by both houses and signed into law by Gov. Arnold Schwarzenegger – which they won’t be – it would cost at least $21 million – and probably much more.

That would be $21 million the state’s general fund sorely lacks.

The committee’s staff is one of the best in the Capitol and has a long track record of artful handling of suspense.

But it’s still a political process.

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Not Sure He’s Joking

“We don’t have to worry about going off the cliff, we’re already there.”

                         — Sen. Bob Dutton

The Rancho Cucamonga Republican, vice-chair of the Senate Budget Committee, made his comment May 22 in the two-house conference committee trying close a $24 billion budget gap and cope with California’s bleak cash flow situation. The comment followed a presentation on California’s fiscal woes by Treasurer Bill Lockyer and Controller John Chiang.                              

Take This Cup, Senator. The Bathroom is Around the Corner

A fair number of Californians believe politicians should have their heads examined but Dorothy Cummings and Gary Ellis of Lake Arrowhead want state officeholders to have their blood and urine examined too.

Under a proposed initiative filed May 20 with the Attorney General’s office, on the first day of each legislative session state senators and Assembly members would be tested for the use of controlled substances and “the habitual use of alcohol” by the California Highway Patrol.

If a legislator tests positive or refuses to take the test they would not be allowed to serve until completing a substance abuse treatment program, at their own expense. There would be no salary or per diem paid until the program is completed.

After the treatment program, the legislator would be tested again. A positive test for controlled substances or “habitual use of alcohol” or refusal to take the second test would cause the lawmaker to permanently forfeit their office – “after being afforded notice and an opportunity to be heard.”

The only exception: lawmakers who test positive for marijuana whose use of it was “approved and recommended by a licensed physician.”

The initiative amends the Government Code, which requires the signatures of 433,971 voters to place it on the ballot. 

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Press Release: California Continues to Lead the Way in Edible Garden Movement

(Editor’s Note: Good to lead the way in something although academic achievement, charitable giving and affordable health care might be better areas in which to excel. Not that Edible gardens aren’t good though.)

Memo to Democratic Legislative Leaders

To: Democratic Legislative Leadership

From: Students of California Political History

May 21, 2009

As you know, the May 19 special election was a political ass-whupping. 

Had such an ass-whupping occurred during Willie Brown’s tenure as speaker he would be readying or, possibly have already readied, the governor’s budget plan for a vote by the lower house.

While the outcome of bringing the governor’s plan to close a $21 billion gap between revenues and spending commitments would not be in dispute — it will fail passage — bringing it to a vote quickly after the election is anything but a “drill” as some of Brown’s successors dismiss such actions.

Bringing the GOP governor’s plan to a vote accomplishes several things.

It establishes how many initial votes exist for the plan. Not many, presumably. Will Republicans vote for it or are the cuts too deep even for them? Or should they choose to dismiss the action as a “drill” and not participate, an opportunity is presented for Democrats to score some coup on their political opponents.

A somewhat simplistic example: “All we hear from Republicans is that they want to cut state spending. Well, here’s a chance to do so and yet they sit on their hands.”

Bringing the proposal to a vote also attracts the media spotlight. Parents might be interested to know about the $6.3 billion in payments to public schools the governor would defer for one year, a figure that doesn’t include the $8 billion the state already owes schools.

What the plan does to immigrants, the developmentally disabled, the elderly who receive in-home care also might be of interest to the public which so recently decided to make the fiscal problem worse. 

The public might also like to know that $12 billion of the governor’s $21 billion worth of actions are one-time and that embracing them makes it harder to solve future budget messes.  

Bringing the budget to a vote creates the illusion of activity: The People have spoken, let’s get the J-O-B done.

Finally, and maybe most importantly, to use a favorite Brownism, a floor action such as this “runs them through the soft dirt,” a horse-racing expression describing how to tire thoroughbreds.

Tuckered out thoroughbreds– and lawmakers — can’t get into a lot of mischief.

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Bad Budget Problems Made Worse

There are lots of thoughtful – and disturbing – observations by the Legislative Analyst about Gov. Arnold Schwarzenegger’s revised budget plan, which seeks to close a $21 billion gap between spending commitments and revenues.

In a report issued May 21, the Legislative Analyst says that while the GOP governor’s estimate of a $21 billion problem is “reasonable,” it is actually $3 billion higher.

In the report’s third paragraph it says that even if lawmakers adopt all of Schwarzenegger cost saving proposals there will still be gap between expenditures and revenues of $15 billion in the fiscal year beginning July 1,2010 “with higher annual operating shortfalls in the subsequent three years.(Emphasis added)

Issuing $5.5 billion in revenue anticipation notes, RAWS, as they’re called, is “very risky,” a “terrible precedent,” and a “poor fiscal policy.” The RAWs are 20 percent of the governor’s proposed solution.  The report points out that RAWs are used to address temporary cash flow problems, not an annual budget deficit.

Apparently the governor agrees. He issued a statement shortly after the Legislative Analyst’s report came out that he was now abandoning the idea of borrowing and seeks $5.5 billion in further spending reductions.

(Editor’s Note: There is a marked tone change in the Legislative Analyst’s reports under Mac Taylor. His predecessor, Elizabeth Hill, tended to be more understated and reserved, preferring to illustrate why selling RAWs is terrible rather that saying it is.)

Several pages later, the Legislative Analyst reveals that $12 billion of the $21 billion in actions the governor proposes to close the budget gap are one-time. “Most of these solutions would make solving future budget problems even more difficult.” At the moment, after abandoning the RAW borrowing, the governor has lowered the one-time solutions to $6.5 billion although that may rise depending on how the governor ultimately fills the $5.5 billion the borrowing would have represented.

And, the report continues, reliance on these one-time fixes “along with the non-recurring nature of federal stimulus funds…and the temporary nature of the tax increases adopted in February” is why the future budget gaps are so big.

Nor does the Analyst believe the governor can sell $1 billion in business from the state-backed workers compensation insurance fund or obtain federal approval to cut Medi-Cal, the state’s health care program for the poor, by $750 million.

As for public schools and community colleges, the Legislative Analyst notes that the governor would defer $6.3 billion in payments until the next fiscal year.

“In essence, the administration is expecting districts to run a program (in the fiscal year beginning July 1) that the state cannot afford. This “credit card” debt does not include the state’s obligation to pay about $1.3 billion in … outstanding mandate claims or about $6.6 billion in revenue limit payments that the state has committed to pay at some point in the future.”

As is its custom, the legislative Analyst also offers some alternative actions the Legislature can take to balance the budget:

Among them:

*Save $120 million by having California State university faculty teach one additional class.

*Save $135 million by University of California professors teaching one additional course.

*Save $26.6 million by reducing state support of University of California research by 10 percent.

*Save $50 million by releasing inmates who have no current or prior serious, violent or sex offenses 30 days early.

*Save another $9 million releasing any inmate over the age of 55 with the same criminal record.

*Save $51 million by not admitting anyone to prison that will serve less than six months.

*Save $270 million by charging a fee to homeowners and businesses that are protected by state firefighters.

*Save $451 million by adding a third monthly furlough day or reducing state employee salaries by 4.6 percent.

*Save $465 million by eliminating the sales tax exclusion for animal feed, seeds, plants, fertilizers, drugs and medicines administered to animals and medicated feed and drinking water.

*Save $100 million by ending the exclusion of subsidized parking benefits from taxable income.

Missing from the analyst’s long list is eliminating the $700 million increasing to $1.5 billion tax break contained in a bill accompanying the February budget. Republicans sought this change in tax calculation. Some Democrats believe it hurts businesses located in California and benefits multi-state businesses not located here.

Currently, multi-state businesses are taxed based on an average of its proportion of sales, property and payroll in California. For most businesses, the sales factor is double-weighted.

Under this new law, which takes effect in 2011, most multi-state businesses can determine what income is subject to taxation by California by choosing either the current method or just basing it on a percentage of sales.

Businesses who derive more than 50 percent of their gross receipts from agriculture, mining or drilling, savings and loans, or banks and financial activities currently have their sales factor single-weighted. They would continue to use the three factors to determine state tax liability.

One category of California business whose taxes would be reduced by this change is those with lots of property and employees in California but with most of their sales outside the state.

Also missing are reducing or eliminating some of the long list of tax expenditure programs under income tax, business tax and the sales tax. A previous report by the Legislative Analyst catalogues them.

Just as an example: Applying the sales tax to prescription drugs, as half the other states do, would generate $1 billion, an amount likely to increase as Baby boomers continue to age. 

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