CALIFORNIA LAWMAKERS WOULD TOP LIST OF IOUS

Controller John Chiang sends a letter to government agencies advising them who will not be paid if the state's cash runs out. Also on the list? Californians expecting tax refunds.

By Evan Halper | From the Los Angeles Times

December 31, 2008 -- The failure of lawmakers and the governor thus far to wipe out any of the state's projected nearly $42-billion deficit leaves California only weeks from running out of the cash needed to pay all of its bills. On Tuesday, State Controller John Chiang sent a letter to government agencies advising them of whom the state won't pay if coffers run dry.

Californians may not be so troubled by who is on the top of the list to get IOUs: state lawmakers, who haven't been able to come up with a budget solution that Gov. Arnold Schwarzenegger would sign.

Legislators aren't the only ones who would be stiffed. Any Californians expecting a tax refund from the state would be out of luck until the cash crisis is resolved. Some payments to doctors would also be put on hold, as would some grants to students.

Chiang's office said the state may start issuing the IOUs as soon as Feb. 1.

An $18-billion package of tax hikes and program cuts that Democrats pushed through the Legislature earlier this month would have kept accounts from running dry. But Schwarzenegger said he would not sign that package until it was modified to include more cuts in services, the privatization of government infrastructure projects, and other measures.

Repression?

Ted Rall | Universal Press Syndicate | 12/20/08

published LA Times 12/27/08

¿SCHWARTZENEGGER FOR PRESIDENT?

By Christopher Weber from AOL News

Filed Under: Republicans, Media, Viral Video

Dec 22nd 2008 10:38AM -- In a sprawling interview with 60 Minutes last night, California governor Arnold Schwarzenegger dropped a not-so-subtle hint to Republicans: get busy changing the Constitution because Ahnold has his eyes on the White House. Asked by Scott Pelley if he'd like to be president, Schwarzenegger responded in no uncertain terms:

"Yeah, absolutely," Schwarzenegger acknowledged. "I think that I am always a person that looks for the next big goal. And I love challenges. I always set goals that are so high, that are almost impossible to achieve. Because then, you're always hungry for climbing and climbing. Because it's always interesting. The climb is always interesting. When you get there you just have to pick another goal."

Schwarzenegger was, of course, not born in the U.S.A. so it would take some rule changing before he's able to launch a presidential bid. I'm sure Californians, myself included, would like to see the governor make good on his campaign promise to chip away at the Golden State's epic budget shortfall before he starts looking for a promotion.

In the CBS interview, Schwarzenegger discussed California's financial straits -- as well as his bold, decidedly non-Republican environmental policies, and even cheating at weightlifting. Check it out here.

AOL POLL: Would you like to see Gov. Schwarzenegger run for president some day?

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Vote

(OK, you can’t vote because the AOL app doesn’t work on 4LAKids. And you can’t vote because the US Constitution, Article II, Section 1 says: “No person except a natural born citizen, or a citizen of the United States, at the time of the adoption of this Constitution, shall be eligible to the office of President”.  It goes on to say that the President and the Vice-president can’t be from the same state …but that didn’t stop Dick Cheney, who was living in Texas when he anointed chose himself as Veep)

BUDGET STANDOFF CARRIES BIG RISKS, MARGINAL REWARDS FOR CALIFORNIA GOVERNOR: Arnold Schwarzenegger is putting the state's solvency in jeopardy while seeking largely symbolic concessions.

By Evan Halper | NEWS ANALYSIS From the Los Angeles Times

December 21, 2008 -- Reporting from Sacramento — Gov. Arnold Schwarzenegger's rejection last week of the tax hikes and service cuts the Democrats rammed through the Legislature seemed frivolous to many in the Capitol: He had put the state's solvency on the line over items normally considered too marginal to derail an emergency spending plan.

But the experiments in privatization, tweaks in environmental laws and trims to state welfare programs the governor has demanded are laden with symbolism. They have been on his agenda for years. Signing a budget without them would signal capitulation to Democrats, especially at a time when whatever standing the Republican governor has left in the GOP is being undermined by his support for billions of dollars in new taxes.

"I don't see how the governor could have signed that package and saved face with the people of California," said GOP political consultant Bill Whalen.

But rejecting the plan carries big risks for Schwarzenegger. It shifts responsibility to him if things get bad enough that the government has to shut down or go into default. He must get the Democrats to blink to keep the situation from careening out of control.

The governor hit the stump Friday -- a day after spurning the latest fiscal plan -- with rhetoric that positions him to declare victory if Democratic lawmakers get on board with his proposals, even if the things he wants do little to change the Democrats' package.

At a Fresno news conference, he complained of the lawmakers' incompetence. He said they are controlled by special interests. He groused that they live lavishly on the taxpayers' dime. He called the situation in Sacramento "sad."

"They passed legislation with a whole bunch of high taxes, to punish you, as if they didn't do anything wrong -- you did something wrong," Schwarzenegger told a group of students and supporters gathered at a high school. "But they passed a whole bunch of legislation of high taxes, but no real spending cuts, no real jobs package."

The governor gave no indication that the additional cuts he is seeking amount to less than 1% of state expenses. Nor did he let on that a day earlier, he had told the Capitol press corps the tax hikes were not what stopped him from signing the Democratic package; rather, he wanted lawmakers to incorporate more of his ideas.

The governor and Democratic leaders will return to the negotiating table in coming days. The governor has said publicly that he is prepared to sign off on the $9.3 billion in higher taxes that they seek on gasoline, retail sales and oil companies. And the Democrats say they have come too far to walk away.

They used audacious legal maneuvers Thursday to sidestep a requirement that new taxes be approved by at least two-thirds of the Legislature, which would have required some support from anti-tax Republicans. They rushed their tax bills through on simple majority votes, and now all they need to put them into effect is the governor's signature.

"The silver lining is he did essentially agree with our innovative approach to increase the state's revenues," Senate Leader Darrell Steinberg (D-Sacramento) said of the governor. "Sometimes the best deals, the best arguments, the biggest accomplishments . . . have to break apart two or three times before they come together."

State Treasurer Bill Lockyer reminded reporters at a news conference Friday how high the stakes are. About 2,000 public works projects for which the state suspended funds last week will not get their money absent an agreement. Lockyer said the state simply can't sell bonds for the projects amid deep fiscal uncertainty.

A downgrade in California's credit this month leaves California with the distinction of the lowest rating in the country, on par with some developing countries.

"I think right now Wall Street is believing that California is not a place you invest in," Lockyer said. "Until these things are fixed, investors are going to stay away."

Yet Democrats are under considerable pressure not to budge, especially from unions and environmental organizations -- their support base.

Turning over to private interests the construction and maintenance of roads, schools, courthouses and other public works projects, as Schwarzenegger wants, would threaten thousands of union jobs. And easing environmental restrictions would chip away protections guaranteed by the California Environmental Quality Act, which conservationists have fought for years to protect.

Additionally, the welfare reductions the governor seeks would further fray a safety net that Democrats and organized labor have spent decades stitching together.

Some rank-and-file Democrats say the governor is exploiting a crisis. Even if their leaders ultimately strike a deal with him, there are no guarantees that the caucus will fall into line. The governor Friday ordered mass layoffs in the state workforce and unpaid furloughs for tens of thousands of state employees, irking Democrats across the board.

The Capitol standoff may feel familiar to lawmakers. The governor rejected a budget they passed in September. But he quickly signed a nearly identical document after they agreed to bolster the state's rainy day fund, a concession unlikely to have much effect on state spending until after he leaves office.

Schwarzenegger, however, had positioned himself to declare a big victory.

The governor almost appears to relish these games of chicken.

"Put the pressure on the legislators," Schwarzenegger urged the public in Fresno on Friday. "E-mail them, call them, send them cards, really bombard them."

evan.halper@latimes.com

CALIFORNIA PRIVATE SCHOOLS RETHINK TUITION PRACTICES IN ECONOMIC DOWNTURN: One West Hills school is lowering tuition; others look at freezing fees or basing them on ability to pay.

By Carla Rivera From the Los Angeles Times

December 21, 2008 -- Mira Winograd attended a special parents' meeting recently at Kadima Hebrew Academy unsure what to expect but "flipped out" when she heard the news. The private Jewish day school in West Hills announced it would lower tuition by an average of 20% next year to encourage financially strapped families to keep their children enrolled.

"I was truly in shock," said Winograd, whose son, Toby, is a sixth-grader. "I wanted to stand up and say, 'Thank you.' Paying for a private education is always difficult, but this has made it easier, and there are few things in the current economy, or in life, making things easy."

Lowering tuition is almost unheard of in the private-school world, where the prevailing strategy is to increase annual fees each year but make more financial aid available. The current economic collapse, however, is causing some schools to rethink the status quo. They are concerned about middle- and even upper-income families who can no longer afford to pay full tuition but who resist applying for financial aid out of pride or because they don't think they're eligible. Still, some schools have reported increased requests for financial aid this year.

hopes to stem attrition and attract new families, with a goal of 300 total enrollment next fall, up from the current 260. Tuition for students at Kadima Heschel West Middle School will fall from $20,910 to $16,905 next year and in elementary school (grades 1-5) from $18,314 to $14,300.

"My concern has been that we're losing that middle class who don't feel comfortable asking for financial aid," said Barbara Gereboff, Kadima head of school. "For us, this is an investment in our future. These are the kids who are going to be contributing to the community, giving back."

The school will maintain programs and competitive faculty salaries with increased donations from families who can pay, along with foundation and community support. Tuition assistance will still be available for families who qualify.

Kadima administrators said they hope their action will serve as a model for other private schools.

"The reality is all of the old assumptions have to be looked at in the context of the current economy," said Kadima's Director of Finance Arnold Rudnick. "Schools have to begin thinking outside of the box."

But in Southern California's competitive private-school market, it remains to be seen whether other campuses will follow suit. St. Mary and All Angels School in Aliso Viejo recently announced that it will freeze tuition in the 2009-2010 school year at the current rate of $10,800 for pre-K-5 students and $11,050 for students in grades 5-8. Such a freeze is nearly as unprecedented as lowering tuition.

will depend on reserves to bridge the gap and is also seeking to boost fundraising to establish an endowment.

"Like a lot of other schools, we saw an increase of families asking for financial aid, which is especially crucial because a lot of families have two or three children here," said Head of School John O'Brien. "We did a thorough analysis, looked at contingency budgets needed to put this in place and made a very well-thought-out, but bold decision to hold tuition and at the same time to show that, as a Christian school, we really care. We want to be compassionate but also want to retain the families we have now."

Private schools are dependent on revenue from tuition to fund programs, staff salaries and other expenses that increase with the cost of living each year. Even then, school officials say, tuition alone rarely covers the total costs to educate a student. Los Angeles private-school tuitions are among the highest in the nation, with some annual rates topping $28,000.

The common wisdom is that experiments in lowering or freezing tuition typically backfire and necessitate hefty increases later. But that thinking may be outdated or at least overwhelmed today by the severity of the financial downturn, educators said.

James McManus, executive director of the California Assn. of Independent Schools, said he can't remember another school in recent times lowering tuition. Kadima's example probably will not have an immediate effect, as most schools by this point have completed months of number-crunching that can't easily be altered, he said.

Private schools have to be careful in discussing specific tuition rates before they are set to avoid anti-trust laws that prohibit price fixing, he noted.

"What it does do is open up discussion for the next two, three and five years, depending on how long this economic turmoil endures," McManus said. "I am hearing that the rate of tuition increase is probably going to slow to show sensitivity to families."

And the financial crisis has prompted school administrators to consider ways to head off enrollment declines and address increasingly stratified campuses made up of low-income students dependent on financial aid and high-income families who can pay full price.

Some schools are adopting individualized tuition rates based on ability to pay. At the Sequoyah School, a K-8 campus in Pasadena, a new program this year allows families to pay rates arranged along an index and based on financial means. Families with annual incomes up to $150,000 qualify for indexed tuition.

estimates that 30% to 40% of students are now paying below the top annual tuition of $15,200, said Director of School Josh Brody.

"The mechanics are similar to financial aid but the philosophy is different than having a top tuition and then giving a family an award," Brody said. "When we give talks to prospective parents, we can say the top is this and then it goes down from there. We're hearing from parents that it makes the school feel more accessible."

in San Francisco has used a similar concept of flexible tuition for nearly 20 years, based on the feedback of parents and one particular father who eschewed financial aid, said Head of School Al Adams.

"He said 'Al, I don't care how much financial aid you have, I'm never going to ask for it. To me 'financial aid' sounds like a handout and would make me feel like a second-class citizen.' "

For families that qualify, several factors are considered, including income, number of school-age children and the cost of Bay Area living. In an example on the school's website, a family with two children, a combined income of $154,000 and a net home equity value of $293,000 would be expected to pay about $17,214 for educational expenses -- or $8,607 per student. Full tuition at the school this year is $28,980 per student.

"Having a robust middle group is a literal and figurative bridge between the two extremes in building a school culture," Adams said.

"Looking at the coming year, we're adding money to the flexible tuition budget expressly for those on the margins, who are stretching really hard to have their children here."

A CALIFORNIA BUDGET -- YES, AND NO: Democrats do an end run on Republicans; then the governor threatens a veto.

Editorial from the Los Angeles Times

…in which Monty Python (hint, hint; nudge,  nudge; say n’ more) rakes a seat on the Time’s Editorial Board.

Not that they’re wrong!

Friday, 19 December 2008 -- The Legislature's Republicans had their nonstarter budget proposal; Thursday it was the Democrats' turn. Gov. Arnold Schwarzenegger promised to veto their budget not because it was just too clever and quasi-legal in circumventing the GOP and the state's two-thirds vote requirement to pass a budget, but because it didn't have, in his words, "exactly what we proposed" in an economic recovery package. Who's being obstructionist now, governor?

The Democratic road map to a majority-vote budget for California was, ahem, simple and (cough, cough) straightforward: Get rid of taxes on gasoline, raise sales and income taxes and add an oil extraction tax, but make sure all of those revenues combined don't exceed the amount lost from eliminating the fuel taxes. There's a legal opinion somewhere that says the Legislature can make revenue-neutral moves without the two-thirds threshold that otherwise would be needed to approve a budget.

Now replace the lost fuel taxes, this time calling them fees, which also can be adopted by a majority instead of a two-thirds vote. In fact, raise those fees to 13 cents a gallon more than the current level of gasoline taxes and enhance transportation programs.

Next, undo part of the "triple flip" -- don't ask -- by revoking the state's hold on a quarter-cent sales tax that Sacramento grabbed to pay off economic recovery bonds left over from the last fiscal meltdown, and in so doing allow counties to raise sales taxes by the same amount. Withhold income taxes from contractor payments. And slash deeply from schools, seniors and the disabled.

At least it was a budget, which is something the Legislature otherwise hasn't been able to come up with despite a fiscal emergency. It would have put some cash in state coffers, which in turn would have put people back to work on economy-stimulating projects, which California needs badly right now, even if it's not the full package Schwarzenegger wanted.

Whatever budget the Legislature finally passes will necessarily be some version of ugly, given the state's economic circumstances and the unacceptable delay caused by the two-thirds vote requirement, the Republicans' intransigence on taxes, and now Schwarzenegger's hard line on his own wish list. Democrats are hardly blameless, given their refusal to deal on workplace and contracting rules, but they at least came forward with a short-term emergency plan.

If the three-way failure that the governor and both parties delivered this week is a sort of Grand Guignol precursor to a pre-Christmas budget package, well, Californians can watch in horror and relief.

So far, it's just horror.

LAUSD Statement on State Freeze on Funds for Public Works Projects

 

For Immediate Release	
Contact:  Shannon Haber 					Dec. 19, 2008
(213) 241-4575									
#08/09-178 


LAUSD STATEMENT ON STATE FREEZE ON FUNDS FOR PUBLIC WORKS PROJECTS

Los Angeles (Dec. 19, 2008)- Sacramento is betraying the children of the Los Angeles Unified School District (LAUSD) by freezing state funds that have already been approved for projects ranging from construction of new schools to upgrades of the oldest campuses. 

The District had planned to get $833 million in state funds for projects that have already been approved and construction started.  Without the promised funds, the District could be required to stop work on projects currently underway and the ability to go forward with the $1.5 billion in construction 
contracts planned for 2009 would be in jeopardy.  

"We absolutely need these funds, because turning off the spigot would paralyze the District's ability to complete these urgent projects," said Superintendent David L. Brewer III.

Based on the dire nature of this threat, the District is beingpro-active and making plans to try to sell more local bonds earlier than expected to avoid these catastrophic issues.  This will only work if there are buyers, given 
the nation's financial crisis.  The District will not know the answer to this until late January.

"Delaying our children's ability to get back the education they deserve in two semester neighborhood schools is unacceptable and we need to take action," said Guy Mehula, head of the District's facilities program.  

"These economic times are not the time to eliminate jobs," said LAUSD Superintendent-elect Ray Cortines.  "We should be encouraging our legislature to find other solutions for the students of the Los Angeles Unified School District and continue to infuse the local economy with jobs."

                    
#  #  #

Contributed by Facilities News

A message from Assemblymember Tom Torlakson (D-Antioch)

Thursday, 18 December, 2008

I am hopeful that the Legislature will act later today on legislation to respond to the grave budget and economic situation facing our state.

In addition to the variety of painful program cuts and revenue increases to be debated this evening, I wanted you to be aware of my effort to provide an additional revenue stream that could avoid some potentially disastrous cuts--ones I fear are inevitable if we do not take further action.

As we confront the difficult decisions facing us during this severe budget crisis, I believe we must look at additional revenue options as part of a balanced solution that protects the education and health of our children. Regardless of what the Legislature may do tonight, the depth of our state's financial problems will require billions and billions of additional solutions in the near future.

In addition to the other revenue measures I support to protect our schools and the health of our children, I am reintroducing a measure during the 2009 legislative session that has had surprisingly little discussion so far--a bill to increase the current tobacco tax by $2.10 per pack.

This tax could raise approximately $2 billion annually for education, children's healthcare, and tobacco-related disease, research, and cessation programs. Specifically, about $1 billion would go to our severely under-funded public education system--partially backfilling lost Proposition 98 dollars and "cost-of-living" cuts. And, a portion of this funding could go towards enrolling 700,000 uninsured children into the Healthy Families and dental care programs, fortifying the Medi-Cal program, reversing cuts already made or proposed for programs serving our state's developmentally disabled and autistic children, and restoring and preventing further cuts to protective services for children. Healthier children are absent less and learn much more.

Tobacco smoke has devastating effects on our children. Each year, smoke causes 31,000 asthma attacks in children and hundreds of thousands lower respiratory tract infections. At the same time, reports show that while smoking among teenagers was on the decline in California until 2004, the trend reversed course and increased from 13 percent in 2004 to 16 percent in 2006. Additionally, 11 percent of children, six years and younger, are regularly exposed to secondhand smoke in the home.

This tobacco revenue stream will not only save tax payers billions of dollars that go to treat tobacco-related medical conditions, but will also save lives by helping to prevent and reduce smoking. While we are aware this will be a declining revenue stream in the future, it is a revenue source that can be used to fund critical needs today. This measure is truly a win for California's schools, children, as well as our budget coffers.

You may recall in 2006, the backers of Proposition 86 were only narrowly defeated. This measure would have imposed an additional $2.60 tax per pack. Polling still shows growing public support for a tobacco tax. According to the Federation of Tax Administrators, 42 of the 50 states have increased their cigarette excise taxes since 2000, while California's levels haven't changed from 87 cents per pack since 1998. Thirty-three states have a higher tax.

I look forward to working with you on this opportunity to invest in education while lowering health care costs to the state. I hope you will publicly endorse and support this measure--and please let me know when you do so. You may contact me at (916) 319-2011 if you have any questions or concerns.

Sincerely,

Tom Torlakson

CALIFORNIA DEMOCRATS DEVISE WAY TO HIKE TAXES, BYPASS ⅔ RULE

By structuring them as fees, they would skirt GOP opponents and raise $9.3 billion. A court fight looms.

By Jordan Rau and Evan Halper | LA Times

 

December 18, 2008  -- Reporting from Sacramento -- California's Democratic leaders were planning a vote today on a brazen proposal to raise gas, sales and income taxes through a series of legal maneuvers that would bypass the Legislature's minority Republicans.

The Democratic gambit, announced Wednesday, would raise $9.3 billion to ease the state's fiscal crisis by increasing sales taxes by three-fourths of a cent and gas taxes by 13 cents a gallon, starting in February. The plan would add a surcharge of 2.5% to everyone's 2009 state income tax bill.

Schwarzenegger declares fiscal emergency

• California road, school construction projects could be halted or delayed

• State budget gap could reach $41.8 billion by 2010

• California fiscal officials try 'Scared Straight' approach with Legislature

It would also require businesses to withhold taxes on payments above $600 made to independent contractors, as they are now required to do with salaried employees.

In addition, the Democrats said they would cut $7.3 billion from schools, healthcare and other programs. Their package would total $18 billion and nearly halve the state's budget shortfall, projected to reach $41.8 billion in the next 18 months.

Both the Assembly and Senate planned to vote on the package today. Late Wednesday, Democratic lawmakers were negotiating with Gov. Arnold Schwarzenegger over items he wanted included in the proposal before he would support it.

Inside the Capitol, the strategy is considered revolutionary, because it would sideline the GOP. Though Republicans are a minority in both houses of the Legislature, they have repeatedly blocked tax increases and thwarted budgets they did not like, because California is one of only three states mandating a two-thirds vote for both budgets and tax increases. Achieving that threshold requires some Republican votes.

"I still believe in bipartisanship," Senate President Pro Tem Darrell Steinberg (D-Sacramento) said at a Capitol news conference. "But there is an even greater responsibility than practicing bipartisanship, and that is to govern. And that is what we intend to do here today."

Republican legislators and antitax groups promised legal challenges to derail the Democrats' plan.

"Raising taxes on people and playing funny math and calling it fees is not governing," said Assembly GOP leader Michael Villines of Clovis. "That's trickery, is what that is."

The plan hinges on a legal distinction made by judges that a tax is imposed broadly and used for general government purposes, while a fee is charged to users of a specific benefit provided by government, such as a road.

The proposal would employ an arcane loophole in state law that lets legislators pass a tax bill with a simple majority vote -- if the bill does not raise more revenue.

The Democrats intend to do two things: eliminate some existing fees, including those on gasoline, and substitute tax increases that would include a 9.9% levy on oil extraction and the income tax surcharge.

Under the proposal, the Democrats would then reimpose the gas fees at higher levels; fees can be raised with simple majority votes. The gas money would go to roads and transportation. The net effect would be billions of dollars in new revenue for the state.

Similar proposals have been considered in past budget crises but never acted on out of concern that they would unravel in court. The Democrats said Wednesday the plan had passed muster with the nonpartisan Legislative Counsel's office, which provides legal advice to lawmakers. But the only opinion from that office that Democrats released was from 2003.

Democrats said this plan was the only way they could see of breaking the current budget impasse, which has stretched on for more than a month since Schwarzenegger called lawmakers back into session.

"Sen. Steinberg and I are committed to getting this job done with or without our Republican colleagues," said Assembly Speaker Karen Bass (D-Los Angeles).

Matt David, a spokesman for Schwarzenegger, said the Republican governor would not sign the measure unless it included cuts to the state's workforce, which public employee unions are resisting.

David said Schwarzenegger also is insisting that lawmakers include measures for mortgage relief and provisions allowing private contractors to perform more state construction and even take over some government facilities, such as roads.

"If it doesn't have these components, then the vote . . . is nothing more than a drill," David said in an interview.

Jon Coupal, president of the Howard Jarvis Taxpayers Assn., said the Democrats' bid violates tenets of Proposition 13, the 1978 initiative that capped property taxes and required that all other tax increases be approved by two-thirds of the Legislature.

"If they proceed with this proposal to raise taxes with a simple majority vote, they will be sued and they will lose," Coupal said. "So we're very confident this is more of a ploy than anything else."

Legal experts said no one can know how the courts would rule. Judges might be reluctant to take an action that could send the state spiraling into insolvency. On the other hand, the experts said, judges -- particularly those afraid of recall campaigns -- might be afraid of a populist uprising akin to the revolt that led to Proposition 13.

"It is absolutely a shell game," said Kirk Stark, a professor at UCLA School of Law. But "in the 30 years since Prop. 13 was enacted, the courts have been accommodating of legislative ingenuity."

Or, said another UCLA law professor, Jonathan Zasloff: "The court may just say, 'We are not dealing with this; it is not our job' " to run the state's finances. "It will be a galvanizing issue that tests the independence of the judiciary."

If the plan were to survive legal tests, the state would still face a debilitating budget gap and a cash crisis so severe that California's top three financial officials -- the state treasurer, the controller and Schwarzenegger's finance director -- voted Wednesday to freeze financing on road, levee, school and housing projects.

State fiscal experts said lawmakers would have to erase the entire budget gap before they would resume issuing the bonds that finance such projects, which number more than 2,000. They said state bonds are not selling while financial speculation grows that California may become insolvent.

"In a market where investors are looking for quality, we do not feel they are going to want to buy the bonds of the state of California" until the state's finances are righted, said Paul Rosenstiel, a deputy treasurer. "We don't hear from the investment bankers at all these days."

more:

California Dems push billions in higher taxes to fix deficit as...
San Jose Mercury News,  USA -By Mike Zapler SACRAMENTO — On the same day state finance officials voted to halt nearly $4 billion in infrastructure spending — one of the first tangible ...

Calif. Dems plan vote on deficit-cutting plan
San Jose Mercury News,  USA -
By JUDY LIN AP Writer SACRAMENTO, Calif.—Democrats are trying to break a weekslong impasse over California's multibillion-dollar budget deficit by making an ...

Calif. Dems try to pass budget without GOP votes
The Associated Press -
SACRAMENTO, Calif. (AP) — Democrats were trying to break a weekslong impasse over California's multibillion-dollar deficit by making an end run around ...

Dems' new budget plan adds $9 billion revenue
San Francisco Chronicle,  USA -State lawmakers are expected to vote today on an $18 billion budget, put forth Wednesday by Democrats, that contains more than $9 billion in added revenue ...

California Democrats devise plan to hike taxes
Los Angeles Times, CA -
By structuring them as fees, they would skirt GOP opponents and raise $9.3 billion. A court fight looms. By Jordan Rau and Evan Halper Reporting from ...

Editorial: California leaders deepen the economic disaster
San Jose Mercury News,  USA -
It's been maddening to watch the Legislature make a bigger mess of the California economy. Having done nothing to fix the state budget, lawmakers were ...

California Cuts Off $3.8 Billion Funding Over Budget Crisis
Bloomberg -
By Michael B. Marois and William Selway Dec. 17 (Bloomberg) -- California officials cut off funding for $3.8 billion of construction on schools, ...

New budget plan creates revenue, requires simple majority vote
San Francisco Chronicle,  USA -
(12-17) 13:08 PST SACRAMENTO -- Democratic state lawmakers have crafted a new package of nearly $19 billion in budget fixes that include more than $9 ...

‘OBSCURE’ STATE BOARD CUTS SPENDING ON PUBLIC WORKS PROJECTS WHERE OBAMA SAYS “SPEND”: Top state financial officials vote to halt $3.8 billion in spending for projects including emergency repairs at L.A. and Compton schools/200 LAUSD projects potentially halted

 

Rich Pedroncelli / Associated Press - The obscure Pooled Money Investment Board talk with reporters after their vote today. At left is Finance Director Mike Genest, with Controller John Chiang and state Treasurer Billl Lockyer, right.

Jordan Rau and Evan Halper, Los Angeles Times Staff Writers

1:24 PM PST, December 17, 2008 - -REPORTING FROM SACRAMENTO -- The state's top three financial officials voted unanimously today to freeze $3.8 billion in financing on road, levee, school and housing construction projects throughout California in the most drastic fallout yet from the state's cash crisis.

Among the efforts that will be idled or postponed are a carpool lane on the 405 Freeway between the 10 and 101 freeways and $373 million in repairs and overcrowding relief for Southern California schools, including emergency repairs at nine Los Angeles Unified School District high schools and five Compton schools, according to lists compiled by state agencies.

• State Democrats plan to increase taxes

• complete list of halted projects  (search by “Los Angeles Unified” produces 200 hits

The financing moratorium also imperils the construction or relocation of California Department of Forestry and Fire Protection stations throughout forested areas; a new veterans home serving western and northern Los Angeles and Ventura counties; a career center and technical education complex for a school for the deaf in Riverside; and a Cal State University library in Monterey Bay.
The delay in one project, an appeals courthouse in Santa Ana now under construction, could leave the judges homeless when the lease of their current court runs out in the spring, a court official told the board. The court had planned to be in its new building by then.

More than 2,000 other projects include park improvements, environmental restoration and repairs to state prisons. Many of them were authorized by voters in 2006 and championed by Gov. Arnold Schwarzenegger in his reelection campaign that year.

All of them rely on funds that are nearly depleted because the state has been unable to sell the routine bonds it uses to keep cash flowing. The state's finance experts said the credit markets will not buy these short-term bonds until the Legislature has agreed on a plan to completely erase the state's budget gap, which is expected to reach $41.8 billion by July 2010.

"Today's action was extremely regrettable but the responsible and right thing to do," state Treasurer Bill Lockyer said after the vote by the obscure Pooled Money Investment Board, which he runs with state Controller John Chiang and Schwarzenegger's finance director, Mike Genest.

"We had no other option to keep crucial public services operating as long as possible," Lockyer said. "But it's now official -- the failure to solve our budget problem has put in grave danger billions of dollars in revenue for our businesses and thousands of jobs on which our workers and families depend."

Halting public-works projects would have a ripple effect through California's economy, costing private companies $12.5 billion and eliminating 200,000 jobs, according to the treasurer.

The cost of shutting down a project in midstream is enormous, said Jim Earp, executive director of the California Alliance for Jobs, a construction industry-backed nonprofit group that advocates for public-works spending.

"It gives the contractor cause to file suit for damages," he said. "It is incredibly disruptive. It can cause major safety problems. We are going to be putting thousands of people out of work."

School districts that have signed construction projects will be legally liable for the costs, and education officials said they fear a rash of lawsuits from contractors and architects. Others will have to dig into their own funds to pick up the expenses.

"They are basically shifting their cash problem onto us," said Sandy Silberstein, executive director for the Riverside County Schools Advocacy Assn.

Schwarzenegger spokesman Aaron McLear said in a statement: "It's outrageous that Republicans and Democrats would continue to play politics while tens of thousands of hard-working Californians face the possibility of being laid off this holiday season. Californians have seen enough politics and posturing from the Legislature, it's time for them to negotiate and reach a compromise."

At this morning's meeting, finance experts from the state treasurer's office laid out a despairing picture of California's financial situation. Paul Rosenthiel, a deputy treasurer, said the troubles in the international credit markets have made investors skittish about all but the safest bonds, making them uninterested in anything the state has to offer.

"In a market where investors are looking for quality, we do not feel they are going to want to buy the bonds of the state of California," Rosenthiel said. "We don't hear from the investment bankers at all these days."

Instead, he said, there is a thriving market in investors betting that the state will go bankrupt. That has driven the interest rates on credit default swaps -- contracts that promise to pay investors off if the bonds become worthless -- from 0.2% to 4%, higher than what similar items fetch in protecting investors in Turkey or Mexico.

"There's an active market in people betting against the state," Rosenthiel told the board.

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California panel halts $3.8 bln infrastructure loans
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California Board Halts Financing for Infrastructure Projects
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STATE’S HEALTHY FAMILIES PROGRAM GETS A LAST-MINUTE LIFELINE

A $16.8-million check from First 5 California would allow the children's health insurance program to keep enrollment open through June. GOP leaders suggest $15.6 billion in cuts to schools, healthcare

By Jordan Rau | LA Times

Tuesday, 16 December 2008 -- Reporting from Sacramento -- The state's healthcare program for the working poor received a temporary reprieve Monday when First 5 California's board voted to provide $16.8 million to avert imminent enrollment restrictions that were expected to leave 162,000 children without medical coverage in the next six months.
The money will allow the Healthy Families Program to continue enrolling children through the end of the fiscal year in June instead of capping enrollment, as state officials planned to do Wednesday.

• State budget gap could reach $41.8 billion by 2010

• Orange County cuts 210 workers

• California fiscal officials try 'Scared Straight' approach with Legislature

But the unexpected intervention, hailed by children's advocates, is only a stopgap measure as the Legislature remains deadlocked over how to erase a budget gap that is projected to reach $41.8 billion by mid-2010.

The severity of that problem was highlighted as Republican legislative leaders, who have been under attack for not offering their own solution, endorsed cutting $15.6 billion in funding for schools, healthcare for working-class families, and welfare, reducing many of these programs nearly to the minimum levels allowed by law.

The plan includes a $10.6-billion cut in school spending over the next 1 1/2 years, increases in class sizes at the state's universities and community colleges, and a 10% reduction in welfare grants.

The GOP plan would also seek voter approval to take $6 billion from pots of money the electorate set aside to bolster healthcare for children and the mentally ill -- including $2.1 billion from First 5, which voters created in 1998 and funded with a portion of the tobacco tax. Republicans want to divert that money to help pay for existing programs in those areas.

The $22.1 billion in combined savings from the GOP proposal, while larger than alternatives offered by either the governor or the Democrats who hold the majority in the Legislature, would still address only a little more than half of the anticipated budget gap.

Assemblyman Mike Villines of Clovis and Sen. Dave Cogdill of Modesto, the Republican leaders, said that they continue to oppose raising taxes, and that the plan would go a long way toward dealing with the state's long-term budget troubles. "If we had any of this in place, the problem wouldn't be as bad as it is today," Cogdill told reporters at an afternoon news conference.

The GOP plan also included some of their longtime priorities, including tax credits for businesses, but did not include the costs to the state's treasury. It listed other breaks for businesses, including delays in requirements for companies to meet new rules intended to limit greenhouse gas emissions, "regulatory flexibility" for the agriculture industry, and allowing schools to hire private contractors to handle transportation, cafeterias and other services.

The Republicans said they wanted to avoid future budget crises by limiting future state spending growth to inflation and population increases, which currently amount to about 5%, and expanding the state's reserve account to help the state in tough times.

Aaron McLear, the governor's press secretary, said the plan was "not a negotiated compromise" but a "rehash" of past GOP ideas.

Democratic leaders said they would hold hearings on the proposal, but made clear they found the GOP's ideas unsatisfactory. Senate President Pro Tem Darrell Steinberg (D-Sacramento) said the plan relied on "phantom revenues that may never materialize," and Assembly Speaker Karen Bass (D-Los Angeles) said that "at first glance it appears this proposal is not the serious response this crisis requires."

The enrollment restrictions for Healthy Families was expected to be one of the first concrete effects of the budget crunch. The Managed Risk Medical Insurance Board, which runs the program, had scheduled a meeting Wednesday to limit new enrollments in the program, which provides medical insurance for 900,000 children whose families are slightly above the federal poverty line.

The money from First 5, which is charged with improving healthcare for young children, will be used for enrollment of children under 6.

Kris Perry, executive director of First 5 California, said the idea came about after her group was approached by Healthy Families leaders looking for a way to avoid the cuts. The board is expected to accept the financing offer Wednesday.

"If this goes through, it would be a lifeline to tens of thousands of kids who wouldn't be able to see a doctor otherwise because they don't have health insurance," said Wendy Lazarus, co-president of Children's Partnership, a Los Angeles-based advocacy group. "It is just critical that we protect kids whose parents need to turn to our state's health insurance programs because they're losing their jobs or they can't pay."

Rau is a Times staff writer.

GOP BUDGET PLAN: SLASH $10 BILLION FROM SCHOOLS

 

Senate Minority Leader Dave Cogdill, R-Modesto, right, discusses a Republican state budget proposal at a Capitol news conference in Sacramento on Monday. (AP)

Matthew Yi, San Francisco Chronicle Sacramento Bureau

Tuesday, 16 Dec 2008 - Sacramento- Republican state lawmakers unveiled their answer Monday to the state's budget crisis - a $22 billion plan that would avoid raising taxes, cut deeply into education spending and dip into voter-approved funds intended to pay for mental health services and children's health care.

The plan is the Republicans' first comprehensive proposal since Gov. Arnold Schwarzenegger called a special legislative session last month to try to solve the state's fiscal crisis. That special session ended without any action by lawmakers, prompting Schwarzenegger to declare a fiscal emergency Dec. 1, the first day on the job for newly elected legislators, and to call another special session to fix the budget.

Senate Republican leader Dave Cogdill of Modesto insisted Monday that raising taxes was not the answer to California's problems. Republicans have refused to consider tax increases as California's money problems piled up, and they can block any budget that includes increases because both the Assembly and Senate must muster two-thirds votes to approve a spending plan.

"We have said time and time again that because California taxpayers, quite frankly, are more burdened than the average taxpayer in this country, and the fact that we are ground zero as it relates to the economic realities that this country and the world face right now, we've got to find a better way," Cogdill said.

The GOP budget plan would raise $6.5 billion of new revenue for the general fund and reduce spending by $15.6 billion over the next 18 months, about two-thirds of it from K-12 schools. The proposed cut in education is far deeper than Schwarzenegger and legislative Democrats have called for in separate plans for reducing the deficit.

As part of their proposal, Republicans also suggested measures they said could stimulate the economy, such as granting tax credits to businesses, and relaxing environmental and labor regulations. Those would include extending deadlines to retrofit diesel engines in trucks and changing the rules on overtime pay and meal breaks.

Schwarzenegger had expressed frustration with Republicans for bringing little to budget negotiating sessions other than a refusal to raise taxes. In a sign of how frayed relations between GOP lawmakers and the Republican governor have become, Schwarzenegger's office was as critical of the Monday's proposal as legislative Democrats were.

"It's simply a rehash of the tax cuts that have been on the table for months with some borrowing on top of that," said Aaron McLear, Schwarzenegger's spokesman. "It's not a negotiated compromise. Until Republicans and Democrats negotiate with one another, our problem continues to get worse."

Assemblywoman Noreen Evans, D-Santa Rosa, chairwoman of the Assembly Budget Committee, said the GOP plan balances the budget "on the backs of poor children and the mentally ill."

Evans plans to convene a committee hearing today to consider the Republican plan. If and when a vote is held, the Democrat-controlled panel is certain to reject it.

Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County), said she would hold a floor session this afternoon to vote on a separate budget proposal, even though there wasn't a deal in sight Monday.

Bass did not spell out what exactly was in the proposal, but she said it would include elements of plans put forward by Schwarzenegger and Democrats.

The governor has suggested nearly $10 billion in cuts and temporarily increasing the sales tax to help close the deficit, along with other revenue increases that would total around $12 billion. Democrats have proposed a $17 billion mix of spending cuts and tax increases, including increasing the vehicle license fee.

Under the Republican lawmakers' plan, the bulk of the new revenue - $6 billion - would be siphoned into the state's general fund by asking voters to alter Proposition 63, a 2004 measure that funded mental health services for homeless adults, and Proposition 10, a tobacco tax approved in 1998 that pays for health care and education programs for young children. A special election would be called to consider the changes.

The rest of the revenue would be generated by delaying certain loan payments and transferring money from other special funds.

The largest chunk of spending cuts, nearly $10 billion over the next 18 months, would come out of K-12 education. This year, the state is spending $58 billion on public schools.

Republicans also want to cut monthly payments for supplemental security income recipients - to $830 from $870 for singles, and to $1,407 from $1,524 from couples.

The Republican proposal also would reduce the Legislature's operating budget across the board by 5 percent, including lawmakers' salaries, and eliminate $6 million for Schwarzenegger's plan to build an infrastructure to support hydrogen-powered cars.

The budget crunch is so bad that, unpleasant as they are, none of the proposals set forth by Schwarzenegger, Democrats and Republicans would eliminate a deficit now expected to hit $40 billion by June 2010.

State Treasurer Bill Lockyer warned last week that budget problems were making it hard to sell voter-approved bonds that pay for public works projects. Lockyer, state Controller John Chiang and Schwarzenegger's finance director, Mike Genest, will decide Wednesday whether to halt spending on all such projects until lawmakers reach a budget solution.

With the state rapidly running out of cash, the need to find budget solutions quickly was one area that all sides seemed to agree on.

"If you keep doing business the way we're doing business in California today, we're heading for the cliff," said state Sen. Bob Dutton, R-Rancho Cucamonga (San Bernardino County), vice chairman of the Senate Budget committee. "We've got to change."

Competing plans

California's fiscal crisis is expected to create a nearly $40 billion budget deficit by June 30, 2010. Here's how Gov. Arnold Schwarzenegger, and legislative Democrats and Republicans would reduce that total:

-- Schwarzenegger has suggested a $22.4 billion plan that includes $9.8 billion in cuts and $12.5 billion in revenue increases. He would raise the sales tax by 1 1/2 cents on the dollar, broaden the sales tax to include certain services, add an oil severance tax, add an excise tax on alcoholic drinks and increase the vehicle registration fee.

-- Democrats have come up with a $17 billion plan divided almost equally between cuts and new taxes that include restoring the vehicle license fee that Schwarzenegger cut when he took office and increasing the income tax by eliminating this year's inflation adjustment.

-- Republicans want a $22 billion plan that includes $15.6 billion in spending cuts and $6.5 billion in new revenue for the general fund, most of which would be taken from money that now pays for mental health care for homeless adults and children's health care.

Sources: state Department of Finance, Chronicle research

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IS CALIFORNIA UNGOVERNABLE? As the state faces fiscal crisis and partisan gridlock, some wonder if this nation-state is so oversized, Balkanized and polarized that it is destined for dysfunction no matter who is in charge.

 

Rich Pedroncelli / Associated Press - FRUSTRATION: Gov. Schwarzenegger says there is only so much he can do to resolve the state’s problems.

News analysis By Evan Halper and Michael Rothfeld | Los Angeles Times

"There is no center," former state Senate Leader Don Perata (D-Oakland) said. "I'm not talking about political center. There is no action center, or moral center, or anything else left in Sacramento."

Monday, 15 December 2008 -- Reporting from Sacramento -- Gray Davis had just landed in Pennsylvania on a trip last June when he was struck by the differences between that state and the one whose voters drove him out of office early in his second term, blaming his leadership for state government failures that included deep debt and legislative paralysis.

Pennsylvania roads were clean. The state's budget was balanced. Lawmakers had socked enough away in a rainy-day fund to build what was then a decent surplus. Government seemed to run effectively.

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"It's not like other people can't do this," the former governor said recently.

But California government is arguably more dysfunctional now than it was when Davis, a Democrat, got the boot. The budget deficit has grown so huge that a shutdown of government services looms. Partisan gridlock grips the Legislature, and lawmakers bicker as the state plunges into crisis.

"The recall absolutely hasn't helped at all," said Gary Jacobson, a professor of political science at UC San Diego.

The state's latest collision course with insolvency has renewed the question in the Capitol: Has California become ungovernable?

Gov. Arnold Schwarzenegger, who ousted Davis with a campaign built on the premise that the state simply needed the right leader, said last week that there is only so much he can do to tame Sacramento.

"Look, I'm frustrated," the governor told reporters. "I'm sitting here and we have a system where we rely on the 120 legislators to make those decisions. I cannot make them stay here. I cannot lock them into the building. I don't have those kinds of powers. Believe me, I would do it otherwise."

The governor has no shortage of critics who say the fault lies with him. If he were a more effective, engaged leader, they charge, the lawmakers would follow.

"There's only 120 people in the state who don't care when Arnold Schwarzenegger calls them, and it's the members of the Legislature," said Democratic strategist Jason Kinney. "The fact that he has forfeited his relationship and influence over the Legislature has hurt him."

Others say this nation-state is so oversized, Balkanized and polarized that it is destined for dysfunction no matter who is in charge. They cite its influx of immigrants, its constant tensions over water supply and its large, self-contained regions that bear little resemblance to one another.

It has even been suggested that the state should break into multiple, more manageable pieces. More than two dozen attempts at that have been tried over the years, the latest by a Northern California lawmaker in the early 1990s. More recently, a blog called Three Californias [blog|website] was created to advocate carving California out of the union and turning it into a new country with three states.

The state's Constitution also makes governing a challenge. California is one of only three states that require two-thirds of the Legislature to agree on a budget. A few lawmakers from the minority party can derail a spending plan -- and they do, sometimes to the point of preventing the government from paying its bills.

And California's heavy use of the initiative system, intended to let voters solve problems when lawmakers don't, has created conflicting mandates that experts say undermine rational policymaking.

Some of the political leaders who for years have been engaged in efforts -- largely unsuccessful -- to make state government run better fret that the current dysfunction creates a fertile environment for more shortsighted ballot measures.

"If this continues, there is the danger that the public will again express itself through an initiative or some kind of constitutional convention or something that will become a vehicle for their anger with elected leaders," said Leon Panetta, a former California congressman and White House advisor who co-chairs California Forward [home|on budget], a bipartisan think tank focused on solving the state's problems. "God knows where that will take us. The danger is it will lead to the wrong steps being taken."

Panetta said the political process has broken down.

"For whatever reason, democracy is not working in Sacramento right now," he said. "I am convinced it can be fixed. But people have to make sacrifices" -- in politics and policy.

Davis concurred that, in theory, the state is governable. But "in reality," he said, "it hasn't been governed properly for a long time."

In his view, the problem stems from extremist politics that began three decades ago with the anti-tax movement that led to Proposition 13 and has continued with gerrymandered legislative districts that make lawmakers accountable only to the party faithful who vote in primary elections.

Analysts say that if Schwarzenegger had the ability to make California more governable, it has declined substantially since the recall, when his immense popularity gave him political capital. Now he is a lame duck with a financial crisis that he can no longer argue was inherited from another administration.

He has championed multiple efforts to reshape government. But the public did not embrace his vision for how to do so. Voters rejected most of his plans at the ballot box, and there was no uprising against lawmakers when they left his legislative proposals to grow moldy on the shelf.

Last month, voters did heed his call to change the way legislative districts are drawn by passing Proposition 11. The new rules governing that process take effect next year, and supporters of the measure, including Schwarzenegger, say it will ultimately lead to fewer ideologues in Sacramento.

The governor also managed to push through the Legislature some limited restraints on spending, including a requirement that the state put more money in a rainy-day fund when revenues are up.

But special legislative sessions that Schwarzenegger called on the state's fiscal crisis, water supply and healthcare all ended without resolution. The latest special session on the budget is ongoing.

This year, the governor has threatened and cajoled the Legislature -- even gone to court -- over money management, but his strategies have been met with shrugs. On Tuesday, as he handed out medals of valor to state employees he said were great examples of "service and selflessness," the governor cracked: "I wish that the legislators have just a little bit of that."

Former state Senate Leader Don Perata (D-Oakland), who has on more than one occasion accused Schwarzenegger of lacking in that department, concedes that the governor may have a point. He said the state's term limits law, which forced him from office last month, has created a group of lawmakers who are well-intentioned but lack the institutional knowledge to deal effectively with the state's outsized problems.

In recent months, he said, he witnessed lawmakers failing to recognize the severity of the crisis and unable to respond to it; they lacked the grounding that comes with years of learning how to govern the state.

"There is no center," Perata said. "I'm not talking about political center. There is no action center, or moral center, or anything else left in Sacramento."

Halper and Rothfeld are Times staff writers.

CONSTITUTIONAL CONVENTION IS NO QUICK FIX FOR CALIFORNIA

By Dan Walters | Columnist | The Sacramento Bee

●●smf’s 2¢: C’mon Dan!  Quick fixes are the problem …hard, difficult,  challenging work is the solution – even Democrats can figure that out!  If it was easy the politicians, media types and academic circum-interlocutors  would’ve done it already.

The Bay Area Council > Take Action > California Constitutional Convention

Sunday, 14 Dec 2008  -- Political, media and academic circles have heard more buzz about a state constitutional convention in the past three months than in the past three decades, reflecting growing concern about political dysfunction that the perpetual budget deficit crisis has laid bare.

According to poll after poll, Californians are disgusted with the Legislature and only slightly less so with a governor who was elected five years ago on a pledge to close the budget deficit and make state government work, but who has utterly failed on both counts.

Arnold Schwarzenegger's failure has driven home to many a realization that California's system of governance is unworkable and that merely changing the name on the governor's Capitol office or switching legislators doesn't solve the problem.

The Bay Area Council, a consortium of business leaders, got the ball rolling, but now it seems everyone in and around politics is talking about convening the first constitutional convention since 1878 to overhaul our governmental structure.

Constitutionally, it may be the only way to do it since only the Legislature and a constitutional convention could propose a "revision" of the constitution, and the Legislature is incapable of mustering a two-thirds vote for fundamental change.

Initiative measures, placed on the ballot by petition, can propose only "amendments." Fundamentally, however, a constitutional convention is only a process, not a product. And there isn't even any agreement on the process – how many delegates would be selected, how they would be chosen and how they would go about their work.

The state constitution is silent on those issues, leaving it to an ideologically polarized Legislature to set the ground rules with a two-thirds vote required.

Some legislation calling for a convention or setting forth its procedures has already been introduced, which is a clue to the pitfalls of the process. If the Legislature is incapable of dealing with California's burning political issues, including the budget, how could we expect it to agree on how a constitutional convention would work – especially the partisan or ideological makeup of convention delegates?

Democrats would want a convention likely to embrace removing impediments to raising taxes, for instance, by containing a strong majority of their colleagues, while Republicans wouldn't go along with that – thus mirroring their essential conflict over the budget.

Moreover, even if legislators, by some miracle, were to agree on operational details of such a convention, and voters were to give it their blessing, delegates would still reflect the essential conflicts that already beset the Capitol, stemming from California's infinitely cultural, economic and geographic complexity. Thus, they could find themselves in the same political gridlock as the Legislature.

A constitutional convention may be California's best hope for civic salvation, but it doesn't come with a guarantee.

GOP HANGS TIGHT ON TAXES AS RED INK RISES

by Jim Sanders | Sacbee / Our Region / Top Stories

Sunday, 14 Dec. 2008 -- California is bleeding Republican red as the state's minority party tries to squeeze a spending cap and pro-business policies from fiscal chaos.

Badly outnumbered and often ignored by the Democratic-dominated Legislature, the GOP is not getting sand kicked in its face these days.

California is hurtling toward a financial abyss, projecting a $40 billion shortfall by July 2010, and no deal can be struck without at least three Republican votes in both the Assembly and Senate.

GOP officials clutch that trump card with relish as the state braces to pull the plug on $5 billion in public works projects and warns it won't be able to pay all its bills by February or March.

Democrats and Republican Gov. Arnold Schwarzenegger want to shrink the gap through a combination of program cuts and tax increases – but Republican lawmakers adamantly oppose raising taxes and nearly all have signed national pledges to hold firm.

Democrats say the GOP is holding California coffers hostage.

But Jon Fleischman of the state GOP's board of directors said time is on their side.

"At some point, I have to think (Democratic leaders) are going to say, 'OK, the Republicans are serious,' " Fleischman said.

"If nothing happens, then government spending is going to stop because they're going to run out of money, so really, the Democrats need to step forward."

Republicans say their goal is to end boom-and-bust budgeting cycles, bolster a reeling economy, and to make state government more efficient and less costly.

"The point is, if you don't make structural reforms now, I don't know when we can ever do it in this state," said Assembly Republican Leader Mike Villines of Clovis.

Garry South, a Democratic strategist, said the "end game could be that the state goes into default and shuts down financially, and we have no way to pay our bills."

"Right now, we have a crisis, and it's been caused in large part by the fact they tried to play this extortion game all summer," said Sen. Denise Ducheny, a San Diego Democrat who chairs the Senate Budget Committee.

Schwarzenegger and Democrats agree on bridging at least part of the budget gap through a mix of cuts and tax hikes, but they disagree on approach – and Republicans support neither.

The GOP is scheduled to unveil its own proposal Monday, with no tax hike. The plan is expected to identify about $11 billion in budget cuts and, among other things, propose asking voters to redirect money designated for mental health programs and preschool programs and services.

State Treasurer Bill Lockyer, a Democrat, characterized the high-stakes showdown between legislative Democrats and Republicans as political "chicken," with each party expecting the other to blink.

"I think they're going to run off a cliff," Lockyer said.

Republican leaders object to any implication that the GOP is holding up a budget deal. To them, Democrats are the roadblock.

"What we see is a gun being put at the head of the California taxpayer, they're being told, 'All right, look, it's time for you to dig deeper, pony up more or you're going to suffer even more pain,' " said Senate Republican leader Dave Cogdill.

Villines said the GOP is willing to discuss revenue increases – not specifically tax hikes – after a deal is struck on a state spending cap, permanent budget cuts, trimming waste, and amending some environmental regulations and labor laws to bolster business.

The GOP wants to expand flexibility in work schedules to reduce overtime payments, increase contracting for state services, simplify rules on workplace meal and rest breaks, loosen deadlines for greenhouse gas regulations and provide various tax credits to stimulate business, according to a list released last week by Villines.

Republicans have pushed such proposals in the past, but they were killed by Democrats in both good times and bad, he said.

"Democrats have been every bit as recalcitrant about reform as Republicans have been about raising taxes," said Assemblyman Roger Niello, R-Fair Oaks.

Schwarzenegger and state fiscal officials say there is no practical way to bridge the state's massive budget gap without new revenues – doing so, for example, could eliminate funding for the University of California, California State University, welfare payments, mental health programs, services for the developmentally disabled and in-home support services.

Assembly Speaker Karen Bass said her "frustration with my Republican colleagues is that I know they understand that we need revenue, but they can't tell us what revenue they can support."

Republican lawmakers' decision to sign a no-new-tax pledge en masse has torpedoed negotiations, Steinberg said.

"It's a bit of a charade in terms of a real negotiation," he said. "It just isn't one."

Steinberg said the loss to jobs and businesses caused by allowing the fiscal crisis to grow would outstrip any financial benefits from the GOP's economic stimulus proposals.

Allan Zaremberg, president of the California Chamber of Commerce, said his group has not taken sides. He wants a deal that stems red ink, eases business overregulation and revitalizes construction – but does not curb consumer spending with tax hikes.

"We're trying to find a road map that gets the votes, finds a way to stimulate our private-sector economy and, at the same time, makes sure the public sector has resources to provide important and necessary programs," Zaremberg said.

Leaks from closed-door meetings, accusations, blame and public posturing are escalating tensions as the holidays approach.

Schwarzenegger installed an electronic slap in the face in the Capitol – a signboard blaming lawmakers for inaction and providing second-by-second tallies of the massive shortfall.

Sitting in for Schwarzenegger at the weekly radio address Saturday, Finance Director Mike Genest blamed both parties.

Genest criticized the GOP for engaging in "hostage negotiations" without committing to approve tax increases if their demands are met.

"In this case, Republicans would only be willing to consider letting the hostage go," he said.

Genest said Democrats are "just as bad" for refusing to support adequate, long-term cuts or to consider economic stimulus measures such as giving employers more flexibility in employee scheduling.

"In other words, they're more worried about the labor bosses and the special interests than about solving these problems," Genest said.

John J. Pitney, government professor at Claremont McKenna College, said it would "stunning if they came to an agreement before they absolutely had to."

"Sometimes games of chicken end in a crash," Pitney added.

California Forward: LISTENING TO HOW CALIFORNIANS WOULD FIX THEIR STATE BUDGET

Public research shows widespread support for ‘results-based process’ and ‘multiyear’ budgeting as improvements to state fiscal system

California Forward Press Release

FOR IMMEDIATE RELEASE – December 1, 2008

Contact: Ryan Rauzon – cell: (916) 599-2911

SACRAMENTO — Californians on a bipartisan basis want to see a more open state budget process that ensures tax money is well spent on the highest priorities, according to research commissioned by California Forward.

While confirming deep mistrust of the current budget process, the day-long dialogues with a cross-section of Californians also revealed steps that would begin to rebuild the public’s trust in government. In particular, people wanted reforms that would enable them to see how their tax money is being spent and whether programs are working. And in all of the dialogues held across the state, rebuilding trust in state government was a prerequisite for broad support for higher taxes or lowering the two-thirds threshold to pass the budget.

The research, conducted in six day-long sessions in different parts of the state, presented Californians with information on the fiscal crisis and the budget process. Participants used as a starting point a set of values-based alternatives for reforming the state budget process. Among these wide-ranging options, two elements consistently received widespread support in all dialogues across all demographic categories:

• Focusing on priorities and results. The public recognized that public programs are important, but were not convinced they are working efficiently and being effective. They want to know more about the choices to be made – in terms of cuts and tax increases – and they want more opportunities to influence them.

• Looking to the Future: Extend the Fiscal Horizon by Using Multiyear Budgeting. The participants believed that budget decisions should be based on long-term goals and take into consideration the implications of fiscal decisions on future generations.

The discussions were conducted by Viewpoint Learning, a California-based firm that specializes in civic engagement and dialogue-based methods that probe deeper than public opinion polls or focus groups. Viewpoint Learning’s methods help participants identify common ground, particularly as they learn more about specific problems and choices. California Forward, a bipartisan public interest organization, commissioned the research to better understand which budget reforms would meet the public’s expectations for a better system.

“California Forward is making progress on its efforts to promote public understanding and support for fiscal and governance reforms. This research confirms that in the mind of the public we aren’t just struggling with the budget because of the fiscal crisis. The first crisis is one of trust,” said Leon E. Panetta, co-chair of California Forward. “California cannot be a leader in the 21st century if its budget-making process is dysfunctional. Our future is dependent on whether we are willing to enact the kinds of fiscal reforms that will restore public trust in state government.”

Thomas McKernan, who co-chairs California Forward with Mr. Panetta, said it is clear that the public wants government to be successful, but it needs to focus on results and take the long-term view if it is to regain the public’s confidence.

“The public wants its leaders to win back their trust,” McKernan said. “They want to believe that these reforms can happen, and that our budget system will work for everyone. The time is right, to once and for all provide a guarantee to the public that our leaders are fixing a broken budget system and ensuring we never wind up in this fiscal crisis ever again.”

Each of the six dialogues involved 35 to 45 randomly recruited Californians and took place in six different cities around California. The total sample was diverse and demographically representative of the state population. In each session, participants spent the day in small groups and in plenary working through the choices and tradeoffs involved in reforming the budget process. Participants learned about the current budget process, but more importantly learned from one another, and at the end of the session identified the sorts of budget and tax reforms they would likely support, and the conditions for that support, as well as reforms they were unlikely to support without a significant effort to re-establish trust between Californians and their government.

Most participants concluded that investing in programs that benefit Californians is more important than keeping taxes low. They agreed that all Californians must pay their fair share, without an undue burden on the poor. They favored taxes dedicated to specific purposes. And they had strong reservations about modifying Proposition 13, the 1978 ballot measure limiting property taxes.

At the state level, most participants came to view vote thresholds to approve the budget and tax increases as a necessary evil. Participants understood the argument against them, but described the threshold as an important protection in a highly polarized political environment. Most participants did not trust either side with so much power, and they believe the two-thirds requirements forces the two sides to talk to each other.

The major and recurring theme in the dialogues was the need to change the relationship between Californians and their governments. Participants repeatedly expressed their mistrust of government and called for greater accountability and transparency. As the dialogues proceeded it became clear that these were really calls for more effective and honest two-way communication.

In the coming days, California Forward will put forth a proposal for a new state budget process with the potential to help legislators make difficult choices in ways that over time can improve the value of public expenditures and begin to restore public trust. This proposal is predicated on the principles for reform published earlier this year, refined by conversations with thousands of insightful state, regional and community leaders. For more information visit www.caforward.org.