The Airbrush Of Human Beings From The California Budget Crisis

Peter Schrag is one of the few columnists left in this state who consistently makes sense, and today he attacks that silly NYTimes article about California, in particular the elements of conventional wisdom:

In his passing references to California’s serious issues, many of which have major implications for the nation as a whole, Leibovich collects pieces of the conventional wisdom, even when, as in his facile summary of the causes of gridlock in Sacramento, it’s wrong. Since Democrats have again and again agreed to multi-billion dollar cuts, it is not, as he thinks, just a matter of “’no more taxes’ (Republicans) and ‘no more cuts’ (Democrats).”

And while Jerry Brown, in his prior tenure as governor was indeed labeled “Governor Moonbeam” (by a Chicago columnist) for his space proposals, as Leibovich says, the label applied much more broadly to his inattention to the daily duties of his office and, most particularly to his dithering while the forces that produced Proposition 13 began to roll.

Brown later acknowledged that he didn’t have the attention span to focus on the property tax reforms that were then so urgently needed to avert the revolt of 1978. But to this day, almost no one has said much of Brown’s role in creating the anti-government climate and resentments that helped fuel the Proposition 13 drive.

It was the Brown, echoing much of the 1970s counter-culture, who, as much as anyone, was poor-mouthing the schools and universities as failing their students and who threatened to cut their funding if they didn’t shape up. It is Brown who spent most of his political career savaging politics and politicians, even as he ran for yet another office. Now this is the guy who wants to be governor again. But Leibovich doesn’t tell his readers that long history. Maybe he doesn’t know it.

The line about how those who fail to learn from history are doomed to repeat it can be inserted here. But Schrag hits on the most important failing of the article, and indeed of a good chunk of the political media here in California - they airbrush out the people who suffer for the failures of the politicians.

Where are California and the people who are feeling the pain – the school kids and teachers in hopelessly underfunded schools, the children who are losing their health care, the minimum-wage working mothers struggling to pay their child care, the students who are losing their university grants? Is all this really about nothing?

To far too many, the answer is yes. It's politics as theater, as a sporting event, where winners and losers are checked on a board, and whether or not a leader will keep their position is made the story rather than the principles he or she represents. And yet it's not Governor Hot Tubs and Stogies who will feel the pain of an economic downturn and massive budget cuts, nor well-heeled consultants or columnists who make up the scorecards. It's people.

People like the students in the Cal State system who may see their fees raised 20%, just months after a 10% hike approved in May. This will effectively block higher education for a non-trivial number of students, as will proposed enrollment reductions of 32,000 students.

People like LA County homeowners who have defaulted at twice the rate in May as they have in the previous month, as a foreclosure backlog builds up due to various moratoriums and an increase in repossessed homes entering the market.

People like IOU holders who may have to turn to check-cashing stores to get less-than-full value for their registered warrants after Friday, when most major banks (who have all been bailed out by the federal government, by the way) stop the exchange of the notes.

And people like the elderly, disabled and blind, who rely on the in-home support services that the Governor is trying to illegally cut in contravention of a contempt-of-court citation, at least in Fresno.

These are the great unmentioned in this California crisis, the people who Dan Walters tries to smear in his column today by turning every Democratic concern for the impacts of policy as a sellout to "public employee unions." Behind those unions are workers, and the people they serve need the help the provide, in many cases, simply to survive. But it would be too dangerous to Walters' beautiful mind to consider those faces, so he chooses to make political hay out of the violation of people.

This is the point of the People's Day of Reckoning Coalition. They refuse to have their existence denied any longer.

Yes, Cutting Jobs And Services Does Affect The Economy

Dan Walters had a funny column a few days back, excoriating anyone who use "numbers" and "projections" to theorize about the impacts of budget cuts. As if it's some kind of novel idea that an economy dominated by government spending would rise or fall based on the amount of that spending. Mr. Walters, 1937 called and wants a word with you.

Anyway, let's look at the heart of Walters' complaint. First he says that we must have a hefty budget reserve because the economy is likely to go south, and because it will signal to bankers that "we're solvent so they'll buy our short-term notes." As I noted earlier, this is nonsense given the clear Constitutional duty to repay debt before practically everything else. Then he says this:

Democrats and Republicans are equally guilty, meanwhile, of emitting self-important nonsense about the impacts of their actions on the state's recession-wracked economy. While Democrats claim that cutting "safety net" programs and/or public payrolls will worsen the recession by taking money out of circulation, Republicans claim that raising taxes will retard recovery by discouraging investment and/or consumer spending.

Both practice voodoo economics. The entire deficit on which they are working, $24.3 billion including Schwarzenegger's desired reserve, is well under 2 percent of the state's economy. The lesser cuts and taxes they are debating would merely shift relatively small amounts of money from one form of spending to another, all within the state's economy, so the macro economic impact would probably be nil, no matter what they do.

That's a strange opinion, especially because in the next sentence, he argued that a budget filled with gimmicks would threaten our economic future, even though such gimmickry would effect the same small amount of cash, from a macroeconomic perspective. But to his main point - cutting spending for state services, cutting jobs, cutting salaries for public employees and their related vendors, has a multiplier effect that in fact does weaken the prospects for economic recovery. You don't have to take my word for it. John Myers ran a story on this just today.

"It's hard to see how the country recovers if California does not," says U.S. Rep. Zoe Lofgren (D-San Jose). Lofgren says she thinks congressional authorization of loan guarantees for any state will happen. But no one thinks it'll happen in time for California, which needs to go to market -- assuming a budget deficit deal is agreed to in the state Capitol -- early next month.

Lofgren says she's particularly troubled that the national stimulus and recovery programs... which are expected to benefit California by as much as $80 billion... could be drained of their help by the cuts needed to balance the state budget. "It is contrary to the efforts that we're making," she says.

This is a fact neglected by Walters, the very real possibility that certain spending cuts would result in the forfeiture of stimulus funds as well as regular funding, multiplying the effect of the cuts. Many of the programs that Schwarzenegger wants to eliminate, like Healthy Families, CalWorks and Medi-Cal, have their funding matched by the federal government. Clearly any dollar cut there would mean $2 in practical cuts to Californians. And losing out on stimulus dollars could number in the tens of billions.

This UCLA Anderson Report also speaks to the impact of state spending on California and the nation at large.

According to UCLA Anderson Forecast senior economist Jerry Nickelsburg, there is nothing happening in California that will help pull the state out of recession in advance of the nation.

"California," Nickelsburg writes, "is in for a continued rough ride for the balance of 2009 and is not going to see economic growth return until the end of the year, shortly after the U.S. economy begins to grow."

The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report.

In his essay, Nickelsburg notes that Gov. Arnold Schwarzenegger is attempting to close the state's $24 billion budget gap with a combination of fee increases, forced borrowing from local government, the sale of state assets and, primarily, budget cuts.

Yet that the real risk for California, Nickelsburg writes, is the possibility that there will be no budget agreement at all and that the chaotic and inefficient spending cuts that would likely follow would have an even more severe impact on the ability of California to stem the downturn in economic activity this year.

The rhetoric has risen to the extent where a prolonged stalemate, like every year given our broken governmental structure, is possible. But clearly, Nickelsburg is demonstrating that state spending does have an impact on the economic picture at large, especially at a time when there's 11.5% unemployment and a growing dependence on state services.

That one of the top political reporters in the state would deny this economic reality is just baffling.

A Tale Of Two Polls

Dan Walters is touting a UC Riverside poll on budget issues that interviewed 276 respondents, 63% male, with a 42-38-11 split among Democrats, Republicans and independents. He does this with a straight face.

It barely matters what such a flawed poll shows, but I'll mention it anyway. According to 276 people, 57% support the 2/3 requirement for passing a budget, 24% preferred a simple majority, 6% in between, 4% other (?), and 6% don't know. Given the bad methodology, these numbers mean nothing.

But I'll tell you who has historically taken numbers like these as the gospel's truth and used them to mute themselves about any reform efforts for thirty years. That would be the leaders of the California Democratic Party. And they latch on to any poll numbers showing a view like this as a blunt instrument to kick hippies, not a starting point for the political advocacy and opinion leadership that can and should be done to change perspectives.

Meanwhile, the David Binder memo, with ten times the poll respondents and a clear majority favoring a broad swath of tax increases over spending cuts to deal with the deficit, goes unmentioned by virtually everyone in this state. And in that desert, voters go vainly on a futile search for leadership. They find nothing but shell-shocked politicians.

Where Are The Spending Cut Calculators?

In both the Friday and Saturday editions of the Los Angeles Times, right on page A1 above the fold, there was a graphic of a "tax calculator," which projected the additional taxes an individual would pay based on certain factors like income, number of dependents and values of vehicles. They have a corresponding tax calculator on their website where users can type in the data and get the precise tax hit coming to them. The Sacramento Bee has the same thing. Talk radio was having a field day with these calculators over the past couple days, getting people to call in and disclose their statistics and telling them how much money they will owe. This led to perverse complaints like the lady making $126,000 a year ranting about an $800 tax increase.

In my life, I have never seen a "spending cut calculator," where someone good plug in the services they rely on, like how many school-age children they have, or how many roads they take to work, or how many police officers and firefighters serve their community, or what social services they or their families rely on, and how much they stand to lose in THAT equation. Tax calculators show bias toward the gated community screamers on the right who see their money being piled away for nothing. A spending cut calculator would actually show the impact to a much larger cross-section of society, putting far more people at risk than a below 1% hit to their bottom line.

But of course, people who are perceived to depend on state services probably don't log on to the LA Times and the Sacramento Bee websites very often to calculate their tax burden. In reality, we all depend on the state for roads and law enforcement and libraries and schools and county hospitals and on and on. And in Los Angeles County, one in five residents - almost 2.2 million people - receive some form of public aid. So wouldn't it make sense to portray the real cost of spending cuts in the same way that tax increases are portrayed?

Contra Dan Walters, it is completely untrue that "liberal Web sites" are unilaterally condemning cuts to education and health & welfare spending. We fully understand that a $42 billion dollar hole cannot be filled by revenue alone. We certainly condemn corporate tax cuts at a time of massive deficits, or counter-productive actions like selling the lottery, which will produce net losses in the long-term. But there is no question that the media mentality is to highlight the tax side of the equation over the spending side, and dramatically portray the tax increases - splashed across the front page - while relegating the spending cuts to further down the page. It feeds the tax revolt and distorts the debate. And it's completely irresponsible.

High Punditry Consensus On Ditching 2/3

I really don't know where this came from other than the shrinking class of California political pundits just understanding common sense, but they are all gradually coming on board with the notion that what's killing the state is the 2/3 requirement, and that until it's fixed, nothing in the Capitol will materially change.

Most of George Skelton's column today concerns the "dance of death" - a ritual slaughtering of budget proposals through the normal legislative process until one survivor comes out on top. There is too much of a top-down approach in the legislature, with the Big 5 making the determination on the budget instead of the relevant committees having a crack at it. But near the end, Skelton reveals the truth:

My nomination for additional budget reform: Eliminate the ludicrous requirement of a two-thirds legislative vote for passage of a budget. Only two other states suffer the same straitjacket. California would have had a budget weeks ago if it could have been passed by a simple majority vote. The governor still would have the final say with his paring knife.

This mirrors exactly what conservative Dan Walters said in his column the day before. Walters wants to keep the requirement for tax votes, but he does seem to understand that without the accountability that a majority budget vote provides, there's no way to peg the fortunes or failures of the state on any one political party. Not only does it hinder legislators from doing their jobs, it impedes the opportunity for voters to determine the cause and effect. It's the "killer app" for governmental reform, and must be the first, last and only step in the short term to end the perpetual crisis at the heart of a broken system.

Now, this reform will not come easy. Republicans will caterwaul at losing the only leverage they currently own. The only path to this solution comes with actually getting a 2/3 majority in both chambers, and then offering the solution up for a vote in time for the next governor to reap the rewards. The Drive for 2/3 is monumentally important (and it's likely to be a two-cycle process) to restore functionality to Sacramento and allow legislators to do the work their constituents sent them to the Capitol to do.

Revenue Solutions Even Dan Walters Can Live With

I think it's notable that the budget gap is so wide this year that the SacBee's house conservative Dan Walters felt the need to actually come up with a proposal himself rather than carp and gainsay everyone else's. That alone shows you the gravity of the situation and the wideness of the budget hole. And I have to say, I think Walters came up with some half-decent ideas, or rather bit off some of them from elsewhere:

We devote too much money to prisons, with eight times as many inmates and 20 times as much spending as when we launched California's massive prison-building program a quarter-century ago. Schwarzenegger is on the right path in suggesting the release of low-security inmates, especially those with drug problems, into treatment and transition programs. Spending $40,000-plus per year to keep a drug addict or a geriatric inmate in prison is ludicrous.

We spend too little on K-12 schools, and we spend it badly. We should raise per pupil spending to at least the national average, which might cost $4 billion to $8 billion more a year. We should also eliminate or consolidate billions of dollars in so-called "categorical" programs and redirect funds toward the kids and schools needing them most and toward proven educational strategies [...]

We should expand Hill's modest recommendations on tax loopholes, ruthlessly closing those whose only bases are political pull or bad habit, to finance what we really need and/or reduce overall tax rates to encourage economic investment.

A $10 billion-plus loophole-closure effort would be justified. But to overcome special interest resistance, we may need an independent commission, such as the one Congress created to close unneeded military bases. While we're at it, we should rework the tax system to align it with the real economy, such as extending sales taxes to services and reducing the sales tax rate [...]

Finally, we should stop financing infrastructure with bonds to be repaid from a deficit-ridden general fund. We should raise gas taxes, impose levee improvement fees on property owners and bill water users for the costs of supplying their needs.

Mostly, we should accept the reality that there's no free lunch and if we want something from government, we must pay for it.

I excised the more dodgy ideas about increasing student fees on four-year colleges and reining in "out-of-control" public pension obligations. But there's a decent amount of common sense here, and it brings into balance the conversation needed about the budget by focusing on services instead of taxes, at least as related to education and water and infrastructure improvements. The day that a conservative writes "we should accept the reality that there's no free lunch" is a rare day indeed.

At the same time, there's a lack of focus here on economic growth and in more innovative budget solutions that would make California a proper 21st-century state. Judy Chu's proposal to apply the sales tax in the same manner as New York, Texas and Florida would wipe about $10 billion dollars off the books at the drop of a hat. The services in question, including health club dues, landscaping, and taxidermy, are in general utilized by the higher-income residents of the state, and thus the taxation will be somewhat progressive. Moreover, the services California could provide would have a substantial economic impact to practically everyone who lives here.in

Yacht Party Follies

Judy Lin at the SacBee took a look at the Yacht Party's bankrupt arguments about how we simply have to enable tax evasion or poor people are going to starve.

"The immigrant who sprays fiberglass on a boat will lose his job. The small-business owner who installs avionics on an airplane will lose his business," state Sen. Dennis Hollingsworth of Temecula told GOP members during a Feb. 15 floor debate. "Those are the people who are going to be affected by this. It's not the rich."

You know, never does a day go by that the Yacht Party doesn't show its deep respect and concern for immigrants. Somehow, though, I have the sneaking suspicion that they're being, what do I call it, completely disingenuous. The Legislative Analyst has correctly described this as tax evasion, the Governor has correctly described this as tax evasion, even the TAX EVADERS have correctly described this as legalized tax evasion.

Chuck Lenert, 57, of Sacramento saved nearly $30,000 in taxes when he bought a used 58-foot Kha Shing motorboat near Victoria, Canada, three years ago. It came with a docking slip in Canada, he said, so it was cheaper to leave it there and pay an attorney $2,500 to ensure his tax status was in order with the state.

"I was just following the rules of the state of California, so why should I pay sales tax?" Lenert said. "I wasn't trying to do anything but follow the law."

For a year, Lenert, who sells hardware for a living, would travel every few weeks with his family and friends and take the $376,000 vessel, named Knots and Bolts, around the waters off Vancouver Island to catch crabs, salmon, oysters and shrimp. After a year, he moved the boat to Washington state.

"I would say that the 90-day guys are more cheaters," said Lenert, who has since brought the boat down to Sacramento. "I had a bona fide use."

Not that it should even be a question, but contrary to the Yacht Party's protestations, actually making yacht owners pay their sales tax would have no material effect on sales whatsoever.

The analyst's report found that a longer exemption period had little impact on manufacturers and sellers because their products sell nationwide.

Tim DeMartini, owner of DeMartini RV in Grass Valley, said the length of the exemption doesn't affect his business because two-thirds of his orders come from outside California. The average 40-foot big diesel, he said, sells for $150,000.

"It won't make that much difference to us," DeMartini said, adding that the impact might be greater for the buyer.

Due to this "conflicting" information, Yacht Party members are just so gosh darn confused about the issue that they'd rather just walk away from it, which has the added benefit of, you know, saving Commodore Ackerman's yacht tax.

"I haven't been able to conclude which argument makes the most sense," said Assemblyman Roger Niello, R-Fair Oaks, who abstained from the vote.

As for Dan Walters' predictable media "he said, she said" argument, I think there's a slight difference between yacht owners avoiding sales tax and income tax credits for children for working-class families. Call me nuts.

Robbing From The Voters

Last night on Warren Olney's Which Way LA?, which everyone should be podcasting, Dan Walters from the Sacramento Bee made a very interesting point about the budget that has been somewhat unremarked-upon to this point. I'm not generally a fan of Walters, but it's hard to argue with this.

The budget that passed the Assembly took $1.2 billion designed to go to transit and put it back into the general fund, with the reason given that the infrastructure bonds are financing transit improvements so there would be some duplication there. That's not what voters approved in November at all. Not even close. The infrastructure bonds on transportation were meant to be additional funds that the state could use to start new projects. It was in no way meant to stand in for the regular finances received from the state regarding transportation.

So we now have a situation where bonds have been floated to finance existing projects and maintenance. Is this a preview of things to come, a get-out-of-the-deficit-free card by using Arthur Andersen-style creative accounting tactics? Voters approved those bonds because they wanted to see new mass transit options and new carpool lanes. They did not approve an addendum to the state budget to solve the fiscal mess.

(We of course see this also in the cut to Prop. 36 funding for drug treatment in prisons, also approved by voters, which I guess doesn't matter. It's a good thing nobody covers this state in the media, or there would be some howling going on)