CALIFORNIA’S DEATH THROES: A View From Sacramento

Joseph A. Palermo - Author/Associate Professor of History | The Huffington Post

 

June 15, 2009 10:51 AM -- California Governor Arnold Schwarzenegger and his Republican colleagues are using the trauma of the economic collapse and the record state budget deficit to implement policies they've been advocating for years. "This budget ought to be solved in one chunk, at one time," the governor says, "and let's do it quickly." As usual, the working poor are going to suffer the brunt of the Republicans' slash-and-burn fiscal policies aimed at decimating the state's social safety net. Arnold and his rich friends propose throwing one million children off CalWORKS, the state's primary welfare program, and they want to strip away health care for 900,000 children by ending the "Healthy Families" program. They'd rather destroy the state's services, including the higher education system, instead of raising taxes on big corporations and rich individuals.

The "supermajorities" needed to pass state budgets means that six Republicans (two Senators and four Assembly members) can hold hostage the nation's most populated state. "Cal-EE-Forn-Ya's day of reckoning is approaching," Schwarzenegger intones, (as if he's starring in another Terminator movie). No wonder voters rejected his and the Democrats' ballot propositions last month. The Governor says the vote means he has a mandate to gut the government, while the Democrats say it means that voters didn't understand the gravity of the situation. I think a lot of people were sending the message to these politicians that they should do their damn jobs instead of expecting voters to give them political cover.

With all the fiscal carnage you would never think that California's registered Democratic voters outnumber the Republicans by about 1.3 million and hold substantial majorities in both chambers of the legislature. California never gave a single electoral vote to George W. Bush and the trend lines show it is becoming more Democratic each election cycle. Yet for years now the Democrats' key constituencies have been taking it on the chin.

The origins of the current crisis go back to early 2001 when Dick Cheney and "Kenny Boy" Lay conspired with Cheney's "energy task force" to allow Enron and other renegade companies to plunder California's energy markets. Bush and Cheney blocked the Federal Energy Regulatory Commission (FERC) from stepping in to stop the hemorrhaging and California Republicans slammed Governor Gray Davis for causing the whole mess. They then tapped "The Terminator" to lead their charisma-challenged party. Arnold offered up his celebrity in a bid to topple Governor Davis by abusing the recall provision in the state's constitution.

Soon Arnold was out on the stump promising to "terminate" all new taxes. He even staged an event where his supporters dropped a car from a crane symbolizing their opposition to a vehicle tax that Davis had proposed to deal with the then relatively small (but growing) budget deficit. In 2005, Scharzenegger supported Bush's Social Security privatization scheme and tried to do the same thing to the state's pension plan CalPIRS, the biggest in the country, by pushing a set of failed propositions that were a frontal assault on California's working middle class. And throughout this entire spectacle the Democrats allowed Arnold to make them jump through hoops like trained circus dogs. And they continue to do so today.

The Democratic "leaders" in the state legislature have over and over again betrayed their most important constituencies -- working people, educators, public employees, etc. -- leaving millions of California Democrats to wonder why they were thrown under the bus only so their representatives can reach terrible "compromises" with a recalcitrant and retrograde Republican minority.

One thing that contributes to this dismal state of affairs is that in the legislature here in Sacramento the Democrats often carry out their governing duties differently than do the Republicans. For example, Senate President Pro Tem Darrell Steinberg (D-Sacramento), the typical California Democrat, values comity and decorum as he extends his hand across the aisle to reach compromises in good will with his Republican colleagues. While the Senate Minority Leader, Dennis Hollingsworth (R-Murrieta), the typical California Republican, tears out the Democrat's heart and pees on his lungs through the hole in his chest. You might say the two parties have different negotiating styles.

Californians concerned about the future of the state might think of forming "Progressive Democratic Clubs" at the grassroots level modeled on the California Democratic Clubs that kept the ideals of the New Deal going in California in the post-WWII era, especially during the administration of Governor Edmund "Pat" Brown who built up the state's educational and social services. Progressive clubs such as these (like a state-level Moveon.org) could link up local communities to press the Democrats to get off their knees and start fighting for the people who put them in office.

At a time when President Barack Obama enjoys a 62 percent approval rating, and the California Congressional delegation is stronger than ever with Speaker of the House Nancy Pelosi (D-San Francisco) in the driver's seat, it's curious that Democrats in Sacramento still cower from the bullying of "conservative" Republicans. A grassroots movement working within Democratic Party structures might break the cycle of abuse the Republican minority has inflicted upon the state for purely ideological reasons.

CALIF. AID REQUEST SPURNED BY U.S.: Officials Push State To Repair Budget

By David Cho, Brady Dennis and Karl Vick | Washington Post Staff Writers

Tuesday, June 16, 2009 -- The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy -- the state of California.

Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching "fiscal meltdown" caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

With an economy larger than Canada's or Brazil's, the state is too big to fail, California officials urge.

"This matters for the U.S., not just for California," said U.S. Rep. Zoe Lofgren, who chairs the state's Democratic congressional delegation. "I can't speak for the president, but when you've got the 8th biggest economy in the world sitting as one of your 50 states, it's hard to see how the country recovers if that state does not."

The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state's recession and further dragging down the national economy.

After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.

California is among several states that have asked for a bailout from the Treasury Department. A few have gotten some traction, notably Michigan, whose economy is among the country's weakest and is struggling to deal with the fallout from the bankruptcies of General Motors and Chrysler. To stave off mass layoffs, Treasury officials are considering helping the state's auto suppliers stay afloat and convert their businesses to support other industries.

California Controller John Chiang, a Democrat, warned last week that the state was "less than 50 days away from a meltdown of state government."

While its fiscal crisis is severe, experts say the state is unlikely to default on what it owes, even if it runs out of cash. It can raise money through taxes and other means to assure repayment of its debt. Most likely are massive cuts in public services.

"After June 15th, every day of inaction jeopardizes our state's solvency and our ability to pay schools and teachers and to keep hospitals and ERs open," Gov. Arnold Schwarzenegger (R) said Friday.

Problems unique to California have made it hard for the state to find a way out of its crisis.

The state entered the downturn burdened with an inflexible budgeting apparatus, constrained by a state ballot initiative approved by voters in 1978 that severely limited property taxes in California. The signature example of "ballot box budgeting" left the Golden State inordinately reliant on the personal income tax, which accounts for half of revenue to Sacramento.

California's budget is also heavily dependent on taxes paid on capital gains and stock options, which have been clobbered during the meltdown of financial markets. State budget analysts made their annual estimate of revenue a month before the crisis spiked in the fall and have been backpedaling ever since.

"Those revenue projections turned out to be wildly optimistic, but nobody was predicting the October collapse of the financial markets," said Michael Cohen, deputy analyst in the Legislative Analyst's Office.

Consider capital gains -- income from sales of stocks or other assets. In California, that income dropped to $52 billion in 2008 from $130 billion a year earlier. It is estimated to be $36 billion this year.

By February, the shortfall was projected at $42 billion over two years. Lawmakers stared at the figure for weeks, stymied by the state constitution's requirement that the budget pass with two-thirds of the legislative vote and their own profound partisanship. The deadlock broke when a moderate Republican defied his caucus's pledge against any tax hike, but it didn't end there.

In April, budget analysts revised revenue projections downward by another $12 billion. And in May, voters overwhelmingly rejected the portions of the February deal that legally had to be put before them, taking $6 billion off the table.

To close an annual gap now put at $24 billion, Schwarzenegger and leaders of the legislature's Democratic majority have put aside talk of tax increases to concentrate on cuts. Most dramatically, Schwarzenegger would eliminate the state's basic welfare program, which serves 1.3 million.

Facing gridlock and few options other than severe cuts, California began to look to Washington for help. State Treasurer Bill Lockyer sent a letter to Geithner in mid-May, urging him to consider helping cash-strapped municipalities.

"A fiscal meltdown by California or any other large state or municipality would surely destabilize the U.S., if not worldwide, financial markets," Lockyer wrote. If the state were to default, it could shake bond markets and undermine investor confidence in a still-fragile financial system.

Tom Dresslar, a spokesman for Lockyer, said California will not default on its general obligation debts. But by late July, the state conceivably could run out of money to operate, as revenue continues to deteriorate while costs keep mounting. "The problem is getting worse, certainly not getting better," he said.

In testimony before Congress, Geithner did not rule out aiding California. But he was far from enthusiastic about such a proposal, instead suggesting that Congress was better positioned to help the states -- and that states should balance their budgets.

"A lot of the burden," Geithner said, "is going to be on them to lay out a path that gets their deficits down to the point where they're going to be able to fund themselves comfortably."

Most members of California's congressional delegation have also been ambivalent about whether to press for federal help.

State officials are "not expecting any help from the federal government," Dresslar said. "At this point, we're on our own."

LAWMAKERS’ PLAN EASES GOVERNOR’S PROPOSED CUTS: Budget panel wants to keep parks open and keep healthcare for low-income children.

GOP leaders scoff at proposed tax hikes and criticize Democratic leaders for addressing only part of the deficit.

By Shane Goldmacher | LA Times

June 16, 2009  -- Reporting from Sacramento -- A state budget panel Monday rejected some of Gov. Arnold Schwarzenegger's most extreme proposals to close the state's deficit through cuts to government programs as the leaders of the Assembly and Senate announced their own plans for billions of dollars in additional taxes.

The joint legislative committee nixed Schwarzenegger's plans to borrow $1.9 billion from local governments, close adult day-care centers and eliminate a health insurance program for low-income children. The panel voted to shave $70 million from the Healthy Families program that serves those children, but that cut, like most others the members agreed on, was significantly smaller than the governor's.

• 

  Interactive: California budget balancer

• Full coverage: California's state budget crisis

Committee members also said no to cutting off state funds for roughly 220 parks, proposing to keep them open with a new annual $15-per-vehicle fee on California drivers.

At the same time, Assembly Speaker Karen Bass (D-Los Angeles) announced that she wants $1 billion in new taxes on the tobacco and oil industries. And Senate President Pro Tem Darrell Steinberg (D-Sacramento) said Democrats in his house will push next week to suspend $2 billion in corporate tax breaks that were passed in February but have not yet taken effect.

Both leaders said the revenue from such moves would soften the blow for the state's neediest, who rely on services that will certainly be reduced as the Legislature looks for ways to plug a projected $24.3-billion shortfall.

"Would you rather take 900,000 kids off the healthcare rolls or delay a corporate tax break?" Steinberg said in an Internet question-and-answer session with Californians on Monday evening.

Bass said she expects the Legislature to take "a balanced approach" combining new revenue and service cuts.

"The cuts will be deep and painful," she said, "but we will not eliminate basic safety net programs."

Bass said a 9.9% tax on oil pumped from California land is "absolutely on the table."

Democrats are also eyeing possible tax hikes on tobacco products and liquor, though they did not provide details.

Schwarzenegger and GOP lawmakers, some of whose votes would be needed, have said they would not support new levies to balance the budget.

Schwarzenegger's spokesman, Aaron McLear, said Monday that the governor was not prepared to go along with the proposals to raise taxes or roll back corporate tax breaks, and he said the legislators' efforts at cutting state programs so far have been insufficient.

"They are nowhere near solving the $24-billion deficit that the state faces," McLear said.

The jockeying comes as California faces the prospect of being unable to pay all its bills as of July 28, according to Controller John Chiang. Members of the panel, which includes both Assembly and Senate members, said they hope to complete their work and send a budget plan to the full Legislature for approval within the week.

Though lawmakers have raised the possibility of resolving only part of the deficit immediately and addressing the rest later, Schwarzenegger has insisted that they send him a plan to close the entire shortfall.

Republicans on the committee criticized the dominant Democrats for not tackling the full deficit.

"We're falling well short," said Assemblyman Roger Niello (R-Fair Oaks).

Schwarzenegger had said that eliminating the Healthy Families program would save roughly $368 million. The panel's proposal for a $70-million reduction in the program says panel members hope charitable donations will make up the difference.

The governor proposed shuttering any state parks that could not generate enough in visitor fees to operate without government money. Niello said Republican votes for the higher car fees the committee wants instead are about as likely as the "survival of a scoop of ice cream on the pavement in the middle of July."

"This is our best effort to save the parks," countered Assemblywoman Noreen Evans, the Santa Rosa Democrat who chairs the joint budget committee. "If the Republicans want to close the parks, then the Republicans want to close the parks."

Schwarzenegger would eliminate Adult Day Health Care programs, a $170.5-million savings. But the panel restored much of that money, lowering the savings to $26.8 million. Cutbacks to a handful of AIDS/HIV education, prevention and treatment programs were lowered by roughly $50 million, to $33.5 million.

The lawmakers agreed with the governor's proposal to shift $336 million away from transit programs to the state's general fund. And they supported his one-year suspension of state payments for an open-space program that gives property-tax exemptions to certain landowners. Under the program, the state reimburses counties, mostly in rural areas, for the exemptions. But counties would be on the hook for the $34.7-million tab in the fiscal year that begins July 1.

The panel also agreed to reduce a state requirement that local governments keep shelter animals alive for six days before euthanizing them, shortening the mandate to three days for a projected savings of $25 million.

The lawmakers rejected Schwarzenegger's proposals to save $28 million by indefinitely suspending a state law requiring local governments to give absentee ballots to any voter who requests one and to maintain lists of permanent absentee voters. And they dismissed his plan to save $14 million by putting on hold another law requiring local officials to intervene in child custody disputes, including the recovery of abducted children.

Meanwhile, on Monday evening Steinberg announced that he would voluntarily cut his salary by 5%. He urged all other legislators to follow his lead.

"We have to demonstrate we will share the sacrifice, share the pain as well," he said. Steinberg's salary is $133,639 a year.

 

Times staff writers Eric Bailey, Patrick McGreevy and Michael Rothfeld contributed to this report.