A State Without a Budget, A Government Without a Clue

RED INK IN THE GOLDEN STATE

noreply@blogger.com (smf) — Sat, 21 Nov 2009 00:41:00 +0000

Letters to the LA Times 11/20

Re “State facing $21-billion budget gap,” Nov. 18
While California drowns in nearly $21 billion of red ink, its educational system goes to hell and its tax base keeps shrinking as businesses flee, the morons who run this state busy themselves by regulating big-screen TVs.
As for Los Angeles County, its imbecile district attorney bathes himself in self-aggrandizement and political posturing over Roman Polanski -- a case that even the victim wants no part of -- and medical marijuana clinics while real crime festers.
Is it any wonder that the citizens have given up on the once-Golden State?
Michael Seawell
Santa Monica

::
The eighth-largest economy in the world, the once great state-nation -- California -- is being run like a banana republic.
In the words of Cicero: "O tempora! O mores!"

●●smf's Hollywood High School Latin pays off!: "Alas for the times and the manners!"

M.T.Gyepes
Pacific Palisades

::
The news doesn't get any better for education with the announcement that California is looking at a budget shortfall of more than $20 billion next year. The Los Angeles Unified School District has already cut teachers and support staff, increased class sizes and eliminated many vital programs. Now there is talk that employees are facing a pay cut as high as 12%. Still, educators will be required to increase test scores and improve student learning.
When will we realize you get what you pay for in life? If we continue to shortchange education, we will continue to shortchange our future.
Tom Iannucci
Los Angeles
The writer is assistant principal, Paul Revere Charter Middle School.

CALIFORNIA FACES A PROJECTED DEFICIT OF $21 BILLION: "Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento" …and so it continues

noreply@blogger.com (smf) — Thu, 19 Nov 2009 16:10:00 +0000

The legislative budget analyst's projection, to be released Wednesday, threatens to send Sacramento back into gridlock and force more broad cuts to state programs.

Gov. Arnold Schwarzenegger will present his next proposed budget in January. Republicans vow to block new taxes; Democrats say they are through with cuts. (Eric Paul Zamora / Associated Press)

Chart: Projected deficit of $21 billion

LAO REPORT

2010-11 Budget

California's FISCAL OUTLOOK

By Shane Goldmacher reporting from Sacramento | LA Times

November 18, 2009 - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.

The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.

"Economic recovery will not take away the very severe budget problems for this year, next year and the year after," said Steve Levy, director of the Center for Continuing Study of the California Economy.

In fact, after two years of precipitous revenue declines, the new report projects relatively stable tax collections for the state, said those who were briefed. But that won't stop the deficit from climbing to nearly $21 billion.

Gov. Arnold Schwarzenegger, who will present his next proposed budget to Californians in January as he begins his last year in office, started sounding the alarm last week.

"I think that there will be across-the-board cuts again," he said at a San Jose news conference.

The task in 2010 could be even harder than it was this year, when record deficits and cash shortfalls drove California to issue IOUs for only the second time since the Great Depression. Lawmakers have already cut billions from education, healthcare and social services while temporarily hiking income, sales and vehicle taxes.

"I can't think of any good solutions," said Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the lower house budget committee.

The current budget year accounts for $6.3 billion of the deficit, the nonpartisan analyst projects. Prisons spending will outstrip what has been budgeted by more than $1 billion, and K-12 schools were underpaid by $1 billion under the complex formula that governs education funding, the report says.

Another $14.4 billion of the deficit is for the fiscal year that begins next summer, say those briefed on the report. The governor's next budget will have to account for both years.

The state Department of Finance in August predicted a shortfall of at least $7.4 billion for fiscal 2010-11. But California's financial picture has darkened considerably since then, largely because the shaky summer budget pact relied heavily on borrowing, fiscal tricks and overly optimistic projections.

It assumed receipts of nearly $1 billion from the federal government for Medi-Cal that the analyst questions. Another $1 billion was assumed from the sale of a quasi-public workers' compensation agency that has stalled.

Next year's budget fight is expected to be as contentious as this year's. Republicans vow to block new taxes; Democrats say they are through with program cuts.

Powerful interest groups are already girding for battle.

"There is no more to cut from our schools," California Teachers Assn. President David Sanchez said Tuesday. "There is no more meat on this bone. . . . The next step is amputation."

In higher education, Chancellor Charles Reed of the Cal State University system said this month that he will plead for $884 million in funds from Sacramento next year. The University of California will ask for $913 million more for its 10-campus system, President Mark Yudof has said.

"If ever there was a time to fight for and invest in the institution best positioned to power this state from recession, now is that time," Yudof said in a statement. UC students, meanwhile, are coping with a staggering 32% fee hike.

California's finances have been so bad that the governor's finance director, Mike Genest, told a budget forum in Washington last week that back in February he had combed through the U.S. Constitution to research whether California could legally declare bankruptcy -- or revert to some kind of territorial status. (Neither was realistic, he determined.)

The state's financial problems predate the current recession and the gimmicks used to paper over the deficit, experts say. Year in and year out, state government spends roughly $10 billion more than it collects in tax revenue.

Political divisions in Sacramento, where support from both parties is necessary to pass a budget, have repeatedly stymied efforts to plug that hole. The task probably won't be easier next year as various interests try to muscle one another to the sidelines.

Some have even drafted potential ballot measures to aid themselves in the budget fight and are preparing to collect signatures in an effort to place the initiatives before voters.

Among the ideas: raising tobacco taxes, curbing public pensions, repealing corporate tax breaks passed thisyear and last, splitting the tax rules for commercial and residential property, reducing the legislative votes needed to pass a budget and strengthening the firewall around local government and transportation money.

"There's a lot of people putting chess pieces on the board right now," said Jon Coupal, president of the anti-tax Howard Jarvis Taxpayers Assn. "The question is which of those chess pieces will be moving."

___________________________

California's budget woes will continue for years, report says

Tax receipts have leveled off, but revenue won't bounce back until the 2014-15 budget year, according to the chief budget analyst. Near term, the state faces a nearly $21-billion deficit.

By Shane GoldmacherReporting from Sacramento | LA Times

November 19, 2009 - Despite an economy on the mend, California's budget woes will drag deep into the next decade, according to a report released Wednesday by the state's chief budget analyst.

Tax collections have leveled off after one of the most precipitous drops since the Great Depression. But revenue is not expected to fully bounce back until the 2014-15 budget year.

State government faces a nearly $21-billion deficit over the next year and half, according to the report by nonpartisan Legislative Analyst Mac Taylor. Sacramento will be forced to muddle along, he says, unable to reverse the deep cuts that officials have made to K-12, universities, healthcare and social services.

A major reason the recovery will take so long, say many experts, is California's place at the epicenter of the real estate slide and the resulting foreclosure wave. Moreover, "the mess in Sacramento is going to affect the California economy," said Jerry Nickelsburg, senior economist at UCLA Anderson Forecast, "and not in a good way."

Californians must get used to a state that offers fewer services -- and has higher taxes -- than before the real estate boom, Taylor's report suggests. But it remains to be seen how much residents will accept.

On Wednesday, at least 14 people were arrested in a raucous protest as a University of California regents panel approved a 32% student fee hike. A day earlier, the president of the California Teachers Assn. had likened further K-12 cuts to "amputation."

"We cannot afford now what we're spending," said Taylor, whom both Democrats and Republicans look to for fiscal advice. More cuts and more taxes will be necessary to balance the books, he said, calling all the options "painful choices."

Budget shortfalls have reemerged less than four months after lawmakers and Gov. Arnold Schwarzenegger struck a summer deal, which contained accounting gimmicks and rosy assumptions that have failed to pan out.

"The thing about smoke and mirrors is they are usually short-term solutions, and they come back to bite you the next year," said John Ellwood, a professor of public policy at UC Berkeley.

Schwarzenegger, who last week predicted more across-the-board budget cuts, must unveil his plan to address the projected $20.7-billion deficit in January. Taylor urged that officials begin tackling the red ink "as soon as possible."

The deficit is expected to be worse in the years beyond 2011, as temporary taxes expire and raids on local government funds must be repaid by Sacramento. Taylor projected a $21.3-billion deficit in fiscal 2011-12 and a $23-billion shortfall in fiscal 2012-13.

Even those numbers could be conservative. They assume no raises for state workers and no cost-of-living adjustments for government programs. They also assume that California will win all pending court cases in which billions of dollars in service cuts are being challenged.

Republican lawmakers have vowed to block new taxes, which many Democrats advocate to balance California's books. Assembly GOP leader Sam Blakeslee (R-San Luis Obispo) issued a statement Wednesday calling on the Democratic-dominated Legislature to instead change the state's "punitive regulatory and tax climate that is driving jobs away."

The bleak numbers have also spurred calls to Washington, D.C., for help, as much of the federal stimulus package that somewhat blunted this year's state cuts is set to expire. Jean Ross, executive director of the California Budget Project, which advocates for low-income residents, said the state "needs a second round of federal aid as we face record unemployment and continuing economic weakness."

That may be a hard sell in the nation's capital, where conservatives have questioned the success of the first package.

"California clearly has mismanaged its fiscal house," Nickelsburg said. "It seems to me it would be very difficult to convince states that have not mismanaged their own fiscal house to come to the aid of California."

Lead line in Tucson TV story about the Arizona state budget” "At least we're not as bad as California".

noreply@blogger.com (smf) — Fri, 13 Nov 2009 05:39:00 +0000

At least California's budget problems are worse

KGUN TV9

12 NOV -- How doses his grab you as a new state motto: "At least we're not as bad as California."

Don't like it?

Brace yourself: when it comes to state budget deficits, the motto fits.

A new pew center report labels our state's budget mess as second worst in the nation.

Arizona's budget is about two billion dollars in the red.

Homes are still being foreclosed, people still can't find work and the state is gasping for breath trying to find money.

Republican state representative frank antenori told us these problems were handed down by the former democratic governor.

"We had a governor who failed to realize the revenue was dropping. She continued to spend," Antenori said.

democratic state senator Linda Lopez agrees with antenori in one sense but disagrees on who's to blame.

There was no debate from either side on the pew study. Lopez and Antenori agreed that Arizona is in big trouble.

That means, more cuts are coming.

You can probably expect a tax increase too.

Antenori's plan would create a flat fee property tax.

Instead of determining the fee by a home's value.

"Some property taxpayers will see an increase in property tax. Some may see a decrease," Antenori said.

Lopez wants to help pass a one cent sales tax increase and also create a whole new tax.

So what does the governor think about all of this?

We called Jan Brewer and left a message. Our call was returned but we were told she wouldn't be available to talk to us today (Thursday)

That would still leave about $1.5 billion unaccounted for they would have to deal with when the regular session starts in January.

The Arizona legislature is expected to cut the budget deficit down by $500-million during a special session this month.

SCHWARZENEGGER WARNS OF MORE ACROSS-THE-BOARD BUDGET CUTS

noreply@blogger.com (smf) — Wed, 11 Nov 2009 15:31:00 +0000

Michael Rothfeld in Sacramento for the LA Times

November 10, 2009 | 2:29 pm -- Gov. Arnold Schwarzenegger today predicted a new round of budget cuts, as the state’s finances remain shaky despite large spending reductions made by the governor and lawmakers in July.

Schwarzenegger, at a news conference today and at the Fresno Bee’s editorial board Monday, estimated that the current fiscal year’s budget is $5 billion to $7 billion in the red, on top of the $7.4-billion deficit projected by his aides for the fiscal year that begins in July.

The governor said he would reveal his specific plans to deal with the problems in January. But he said that, as in the past, no program would be immune to the budget knife. A wide spectrum of programs were cut as state leaders closed a deficit exceeding $20 billion over the summer.

“I think there will be across-the-board cuts again,” Schwarzenegger told reporters today in San Jose, after signing legislation that is part of the water deal he reached last week with lawmakers. “We are not going to go and pick and choose" between programs. "I think that we always have to go and cut across the board."

Schwarzenegger downplayed the impact on state finances from the water deal’s proposed $11-billion bond issue, which will go before voters next year. He said the state would not borrow much of the money for several years, after it has paid down some of its current debt.

The governor said that though there are signs of a recovery in the housing market and strength in the green technology sector, “the economy is not coming back yet the way we want it.”

In a bit of positive news, California Controller John Chiang announced today that tax revenue for October was $285 million above projections, although for the current fiscal year it is still short by $854 million.

CALIFORNIA DEBT BINGE SHAKES UP MUNI BOND MARKET: Interest on state bonds up from 2.48% to 4% in two weeks. Rising market yields also devalue older fixed-rate muni bonds.

noreply@blogger.com (smf) — Wed, 11 Nov 2009 05:37:00 +0000

by Tom Petruno | Money & Co. | LA Times

November 10, 2009 | 8:48 pm -- The municipal bond market’s message to California: Enough with the borrowing already!

Over the last seven weeks the state has sold more than $21 billion of short- and long-term debt for budget-related reasons and to finance voter-approved infrastructure projects.

That flood -- in a period when muni bond yields nationwide already were rebounding after diving in summer -- has helped to boost yields more than they might otherwise have risen, some analysts assert.

"Yields are higher because California has so much paper in the market," said Matt Fabian, who tracks muni bond trends at Municipal Market Advisors in Westport, Conn.

The state has been its own worst enemy: Its borrowing costs have risen with each bond deal, which means taxpayers will bear a bigger hit to service the debt over time.

Rising market yields also have the effect of devaluing older fixed-rate muni bonds. If you own a California muni-bond mutual fund, chances are its share price has been sliding since the end of September as the market has suffered indigestion from the supply of new bonds.

In California’s latest offering -- a sale Tuesday of nearly $1.9 billion of bonds maturing in June 2013 -- the state had to pony up for a 4% annualized tax-free yield to lure investors to the deal.

Less than two weeks ago the state paid a yield of 2.48% on a bond with a similar maturity.

Investors’ ability to squeeze 4% out of the state in this week’s deal "is an expression of saturation of the market" by California, said George Strickland, a muni bond fund manager at Thornburg Investment Management in Santa Fe, N.M.

Demand for the bonds sold Tuesday also may have suffered because the deal stemmed from one of the gimmicks concocted by the Legislature and Gov. Arnold Schwarzenegger in July to close the state’s huge budget deficit: The proceeds will repay local governments for the $2 billion in property tax revenue that the state is borrowing from them to plug the budget gap.

The bonds become part of the state’s overall debt burden, but they’re a step below so-called general obligation issues, which have an iron-clad repayment guarantee in the state Constitution.

Treasurer Bill Lockyer obviously knows that he has dumped a lot of debt on the market this autumn. He didn’t have much choice, given the budget fixes ordered by the Legislature, and given the backlog of infrastructure bonds California has to sell.

The state’s borrowing plans had been put on hold for much of this year because of the deepening budget crisis. "We had a lot of work to do to get our financing program back on track" this fall, said Tom Dresslar, Lockyer’s spokesman.

Of course, for investors with money to put to work, rising muni yields are welcome.

Ken Naehu, who manages bond investments at Bel Air Investment Advisors in L.A., believes the state’s budget woes are far from over, which Schwarzenegger acknowledged Tuesday. Still, a 4% tax-free yield on a bond maturing in less than four years was too good an opportunity to pass up, he said.

"We gave them a large order," Naehu said.

-- Tom Petruno

Field Poll: VOTERS SUPPORT REFORM …BUT WHICH ONES?

noreply@blogger.com (smf) — Wed, 14 Oct 2009 19:51:00 +0000

By Lisa Vorderbrueggen from POLITICAL BLOTTER: Politics in the Bay Area and Beyond

Wednesday, October 14th, 2009 at 10:32 am in constitutional reform.

New Field Poll figures released this morning at a constitutional change conference in Sacramento show voters like the idea of reforming the way they govern themselves.

But they are reluctant to make the kinds of reforms that have been discussed such as reducing the two-thirds voting threshold to pass a state budget or raise taxes, modifying or eliminating term limits and altering the California tax system.

“The rub is, what are we going to reform?” said Field Poll director Mark DiCamillo. “It’s going to be a tall order to put a package before voters that they will support.”

Kimberly Nalder with Cal-State University compared it to the person who hires a trainer but says he will not exercise or east less. Then six months later, he complains about his trainer.

“That’s California voters,” she said. “They are confused.”

The poll was commissioned for today’s “Getting to Reform: Avenues to Constitutional Change in California,” sponsored by UC-Berkeley’s Institute of Governmental Studies, Stanford’s Bill Lane Center for the American West and California Stat’s Center for California Studies. Pollsters surveyed 1,005 registered voters between Sept. 18-Oct. 5. The margin of error was plus or minus 3.5 percent for the full sample and plus or minus 4.5 percent for subsets.

The daylong conference is being held at the Sacramento Convention Center, and I’m here all day.

The poll’s key findings:

51 percent believe the state needs to make fundamental changes to its constitution.
48 percent prefer to see a single package of reforms on the ballot rather than a piecemeal manner like the initiative process. 40 percent like the individual measure process.
51 percent support a reform process that uses a constitutional convention rather than a commission appointed by legislators and the governor.
63 percent support the appointment of a broad range of people to rewrite the constitution, including average voters, elected officials and experts.
60 percent would be willing to consider serving on a constitutional reform delegation.
If California is going to reform its constitution, 59 percent prefer limiting its scope to issues of governance and exclude social issues.
52 percent oppose a recent state tax commission proposal to flatten the personal income tax.
65 percent oppose a replacement of the corporate income and sales taxes for a broader tax.
52 percent oppose the elimination of the two-thirds voting threshold in the Legislature to adopt a budget. That figure goes even higher among Republicans — 69 percent.
69 percent reject the elimination of the Prop. 13 mandate that new taxes require a two-thirds vote. Among Republicans, that figure is 86 percent.
52 percent oppose splitting the tax roll, which would allow the state to increase taxes on commercial properties at a rate higher than that imposed on residential properties.
66 percent support the imposition of a requirement that ballot initiatives identify the source of funds for new programs.
56 percent would support requiring a two-thirds vote on all ballot initiatives that change the state constitution.
57 percent believe the state could continue to provide current levels of service without new taxes if it would strip waste, fraud and abuse from government.
49 percent disapprove of the idea of merging the Assembly and Senate into a single legislative body. 35 percent like the idea.

FIELD POLL: Schwarzenegger+Legislature hit new lows

noreply@blogger.com (smf) — Tue, 13 Oct 2009 13:30:00 +0000

from SacBee CapitolAlert

13 October -- Approval ratings of Gov. Arnold Schwarzenegger and the Legislature have hit new lows, according to the results of a Field Poll released today.

The governor's approval rating among voters dipped to 27 percent, according to a telephone survey of 1,005 registered voters conducted Sept. 18 to Oct. 5.

That marks Schwarzenegger's lowest approval ratings since he took office in 2003 (and puts him second only to Democratic Gov. Gray Davis when it comes to low job performance reviews for governors who served over the last 50 years).

Results were even more dour for the Legislature.

Just 13 percent of voters approve of the job lawmakers are doing. Job performance for both houses has been on a downward trajectory since it fell below 20 percent approval ratings for the first time last September.

The rate of voters who disapprove of the Legislature's performance -- 78 percent --is the highest recorded by The Field Poll in results dating back to 1983.

Well, they must be doing something right in the eyes of the electorate... right?

Voters surveyed by The Field Poll were keen on one thing: the governor calling the Legislature into special sessions for two front-burner issues: water and taxes.

The poll found that 73 percent of respondents favored a special session on water supply issues and 62 percent were behind bringing the Legislature back to face tax reform issues.

Here are the statistical tabulations for the Field Poll, prepared exclusively for Capitol Alert, on California voters' opinions of the governor and the State Legislature. The publicly released results of today's poll can be found here.

CALIFORNIA DEBT UNNERVES INVESTORS AS TAXES PLUNGE $2 BILLION

noreply@blogger.com (smf) — Mon, 12 Oct 2009 19:44:00 +0000

By William Selway and Michael B. Marois | Bloomberg.com

Oct. 12 (Bloomberg) -- A $2.1 billion drop in California tax collection is opening a hole in Governor Arnold Schwarzenegger’s budget only three months after lawmakers in the most-populous state slashed spending for the second time in a year.

General fund revenue in the state accounting for 13 percent of the U.S. gross domestic product dropped to $19.4 billion during the fiscal year’s first three months, according to figures Democratic Controller John Chiang released Oct. 9. The total for the period ended Sept. 30 trailed by $1.1 billion, or 5.3 percent, forecasts in the annual budget the Republican governor signed July 28.

“This reinforces that state’s budget problems aren’t over, and as the year goes on, we’re likely to see growing budget deficit projections,” said David Blair, an analyst with Pacific Investment Management Co. in Newport Beach, California, which invests $20 billion in municipal bonds. “This clearly is going to continue to put pressure on the Legislature and the governor.”

The latest report underscores how states including California, the largest municipal bond issuer in the U.S., are still dealing with fallout from the recession even as the economy begins its recovery. The state last week was forced to raise yields to attract buyers to a $4.1 billion debt sale, after cutting the issue from $4.5 billion.

California’s decision helped push up borrowing costs in the municipal market by the most in almost four months even as states prepare new issues of taxable Build America Bonds, whose sales already total $40.2 billion. The Treasury pays 35 percent of interest costs for the debt, part of the federal economic stimulus plan approved in February.

Losing Jobs

State governments are particularly hard hit by a continuing loss of jobs, which dampens the income- and sales-tax collections upon which they depend. From April through June, states and localities recorded a 12 percent tax revenue decline from a year earlier, the third consecutive quarterly drop, according to the U.S. Census. The national unemployment rate in September was 9.8 percent, the highest since 1983, according to the U.S. Labor Department.

In New York, Governor David Paterson on Oct. 6 ordered state agencies to cut spending amid predictions that the deficit for the year ending March 31 may grow to $3 billion, $900 million more than budget officials estimated in July. Pennsylvania, acting 101 days into the fiscal year, enacted a $27.8 billion budget on Oct. 9 that raises cigarette taxes and expands gambling to boost revenue. Ohio confronts an $844 billion gap, while Connecticut will borrow $2.25 billion over the next two years, beginning with a $1 billion debt sale in November, to balance its budget.

‘Somewhat Unique’

“California’s problems, while somewhat unique and self- inflicted, are really America’s problems,” said Bill Gross, co-chief investment officer of the world’s biggest bond fund wrote on Oct. 1. State and federal lawmakers, unable to comprehend the extent of consumer borrowing, “reflect a lack of vision to perceive that the strong growth in revenues was driven by the same excess leverage and the same delusionary asset appreciation that was bound to approach cliff’s edge.”

The state has been among the hardest hit and its Legislature, requiring a two-thirds vote to raise taxes or pass a budget, has struggled to respond swiftly as the state’s fiscal strains worsened this year. Since February, Schwarzenegger and lawmakers have slashed $32 billion from spending, cutting into funding for schools, universities and welfare programs. They also raised taxes by $12.5 billion to balance the $85 billion budget.

’ Court Decision

Chiang, the controller, said the state’s latest figures show that Schwarzenegger and the Legislature must prepare for “more difficult decisions ahead.” California was also handed a defeat on Oct. 2 by the state’s Supreme Court, which let stand a ruling that the governor and lawmakers illegally used $3.6 billion of money meant for local transportation agencies to balance the budget since 2007.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” Chiang said in a statement Oct. 9. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag state revenues down.”

California isn’t at immediate risk for running out of cash as it did in July, when it resorted to issuing IOUs to pay some vendors and tax refunds as lawmakers fought over how to shore up finances. Last month, it borrowed $8.8 billion by selling notes, an advance on the tax it will collect later in the budget year.

Plugging Gaps

Schwarzenegger’s administration said it’s too soon to tell whether the slide in tax receipts through September foretells a worsening trend. Should revenue continue slipping, California lawmakers may find it difficult to make up for the gaps, given how deeply they have already cut and resistance among Republicans to further tax increases.

Schwarzenegger, 62, who can’t seek re-election because of term limits, doesn’t have to present his budget for the next 12- month fiscal period until January, and he has given no indication that he is planning to call an emergency session beforehand, as he did last year.

“Clearly, the numbers are cause for concern but the issue now for us is to determine if this is a one-time event or whether it has one more long-term implications,” said H.D. Palmer, a spokesman for Schwarzenegger’s finance department.

The tax collection figures were released after the conclusion of a $4.1 billion bond sale, which was trimmed by about $400 million after investors demanded higher yields than the state was willing to pay on some of the securities. The sale came after a rally in demand for municipal bonds pushed state- and local-government borrowing costs to a 42-year low.

Watching for Deterioration

David Blair, the Pimco analyst, said the pullback was caused by the low yields California offered amid lingering investor concern that the state’s fiscal condition may deteriorate further.

“They just got a little aggressive in where they wanted to price it,” Blair said. “Most people still recognize that there’s budget deficits the state is trying to deal with this year and going forward.”

The difference between a 10-year California bond and a top- rated municipal security reached as much as 1.71 percentage points on July 1, when the California debt yielded 5.21 percent, according to Bloomberg data. The difference slipped to 1.06 percent on Sept. 11 before ending at 1.21 percent on Oct. 9.

Future Debt Sales

California plans to sell as much as $15 billion more in bonds this year and its deficits, while not projected to reach the $60 billion it dealt with in the two years that end in July, are persistent. The state will face a $7.4 billion gap in the fiscal year beginning on June 30 and about $15 billion in each of the following two fiscal periods, California Treasurer Bill Lockyer said in his annual report on the state’s debt, released ahead of the bond sale.

Tom Dresslar, a spokesman for the treasurer, said his office has alerted investors that the fiscal troubles are far from over and the latest tax data did little to alter the outlook.

“The state has been very clear that our budget problems aren’t behind us,” Dresslar said. “This shouldn’t be a big surprise to anybody.”

To contact the reporter on this story: William Selway in San Francisco at wselway@bloomberg.net; Michael B. Marois in Sacramento at mmarois@bloomberg.net

Last Updated: October 12, 2009 00:01 EDT

CALIFORNIA BUDGET IS AREADY IN THE RED 10 WEEKS AFTER PASSAGE

noreply@blogger.com (smf) — Mon, 12 Oct 2009 01:22:00 +0000

By William Selway and Michael B. Marois | Bloomberg.com

Oct. 10 (Bloomberg) -- California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said.

Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.

“The culprit here appears to be estimated quarterly personal income tax statements,” H.D. Palmer, the governor’s budget spokesman, said yesterday. “The numbers are cause for concern, but the issue now for us is to determine if this is a one-time event or whether it has more long-term implications.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1.

Schwarzenegger must present a budget for the coming fiscal year in January. The state’s Franchise Tax Board will deliver new data to the governor in November.

Debt Sales

The budget news comes as the most populous U.S. state prepares to sell as much as $15 billion of bonds in the next nine months to refinance debt and fund public-works projects, and as a surge in fixed-rate municipal issuance sent benchmark rates up by the most in almost four months.

California, already the largest borrower in the municipal market, may offer $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, state Treasurer Bill Lockyer said. The exact sale amount hasn’t been decided.

“If the market is inhospitable, we won’t go,” Lockyer said in an interview yesterday. “We’ll just have to wait and see how the feelings are when we get ready to think about it again.”

Additional bond sales by California would follow an offering of $4.1 billion of general obligation bonds this week.

Scaled-Back Offering

The state was forced to scale back the size of the deal by almost $400 million as benchmark yields surged. The yields climbed after gains in the tax-exempt market last week pushed them to a 42-year low.

California’s sale follows a two-month rally in municipal bond prices, fueled by a record flow of money into mutual funds that outweighed lingering fiscal strains on localities, said Craig Elder at Milwaukee-based Robert W. Baird & Co.

U.S. Treasuries also fell, sending two-year notes toward their first weekly loss since the period ended Sept. 18. Federal Reserve Chairman Ben S. Bernanke said the central bank is ready to tighten monetary policy once the outlook for the economy improves.

California, a state that’s been among the hardest hit by the recession, had already issued $22 billion of debt since March, including $8.8 billion of notes that provided the state with an advance on taxes collected next year.

Even after increasing what it would pay, California still borrowed more cheaply than during previous offerings. A taxable California bond maturing in 2039 yielded 7.23 percent this week, down from a yield of 7.43 percent during a sale in April.

“Everybody thinks there’s still an appetite for California bonds,” Lockyer said. “There’s certainly a continuing need for long-term investments in schools, high-speed rail, stem-cell research centers and so on.”

To contact the reporter on this story: William Selway in San Francisco at wselway@bloomberg.net; Michael B. Marois in Sacramento at mmarois@bloomberg.net

FUNDING THE CALIFORNIA BUDGET CRISIS

noreply@blogger.com (smf) — Fri, 25 Sep 2009 06:42:00 +0000

By Daniel Johnson in New University on Oct. 13, 2008
September 24, 2009 | Volume 43

Following a record setting 85-day stalemate over the state budget, the financial situation for California looks nearly as downtrodden as it did two weeks ago when state officials were seemingly still in a deadlock deciding the budget. Because the budget was planned too optimistically and state revenue has been unable to meet original estimates, the deficit, which Gov. Arnold Schwarzenegger has been aiming to close, looks like it will get a lot worse before it gets better.

In fact, Schwarzenegger has been working with his brain trust to analyze the budget deficit through an emergency meeting in which they may or may not plan to decide to ask for emergency funds from the federal government. However, rather than working with his team, planning, waiting and planning to wait, Schwarzenegger, along with friends and enemies alike, needs to appreciate the timeliness of the situation, suck up his pride and reach for those emergency funds.

It could be argued that the abundance of bureaucratic red tape and the stalemate is just politics as usual. However, with the economic crisis confronting Californians on both a state and national level, it is tough to argue that California’s budget is anything but at its breaking point.
According to data collected from “The Economist,” state revenue in the form of sales tax receipts and corporate taxes have been 9 and 16 percent lower than state estimates. Furthermore, income-tax receipts, which make up the majority of state revenue, have only done marginally better.

Rather than arguing over how to allocate money, state officials should first consider whether or not they have the money at all, which can only positively be done through borrowing money from the federal government. This must be done as soon as possible for three primary reasons. First, as long as doubt drifts over the budget at the highest level, this will trickle down in budget matters concerning all levels of employment. Second, as the world’s eighth largest economy, California is positioned to be a trendsetter among the states, as far as balancing budgets is concerned. Thus, the longer the state is in the red, the longer the smaller economies that surround it will follow. Third, the national economy is in ruin and any financial assistance the federal government can offer will lessen over time.

According to one report that appeared in the Contra Costa Times, the state budget crisis affects not only politicians, but unions as well. An example cited in the report showed that teaching unions could not negotiate with school distracts because a three-year revenue projection is required to come to an agreement. Because the state budget is not concrete, these projection numbers have no solid basis, which in turn casts doubt on agreements being reached between teacher unions and school districts.

While California’s trendsetting status is impressive for a state that is currently in turmoil, it is also a responsibility. According to a recent Wall Street Journal article, the basic moneymaking system is the same in California as it is in other states, with one exception. It is on steroids. Through such factors as exporting businesses, manufacturing capabilities and professional services, California’s economy accounts for roughly 15 percent of the U.S. gross domestic product. So when waves are made on California’s financial coast, they resonate throughout the other 49 states.

Finally, while the effects of the Emergency Economic Stabilization Act of 2008 (the bailout plan) have yet to completely settle, it is tough to argue that the national economy is anything but worrisome. As long as this turmoil exists, both federal and private sources offering funds will have no choice but to become more conservative in their lending habits. Thus, if California is in need of emergency funds, it is best to aim for them while this safety net is outstretched rather than tucked away.

Daniel Johnson is a fourth-year literary journalism and film and media studies double-major. He can be reached at dcjohnso@uci.edu.

THE CALIFORNIA FIX: Tax commission report falls flat, but it's a start

noreply@blogger.com (smf) — Tue, 22 Sep 2009 00:05:00 +0000

Proposals to eliminate the sales tax and levy an experimental business tax are said to have 'zero percent' chance of passing. But an overhaul is needed, and the ideas may provide a jumping-off point.

By Eric Bailey in the LA Times - Reporting from Sacramento

September 21, 2009 -- It was to be the sort of big-game victory that California political leaders rarely pull off. Gov. Arnold Schwarzenegger and legislative chiefs set out to shake the roots of the state's tax system to spur the business climate and resuscitate the treasury.

But as the commission they formed for that purpose prepares to release its final report this week, business leaders are grumbling, labor unions have turned wary and once-bullish lawmakers are backing away.

The recommendations from the Commission on the 21st Century Economy, which include some revolutionary ideas such as scrapping the sales tax and imposing a broad and untested new business levy, have been met with shrugs and even a few snickers.

"It's not cooked," said state Treasurer Bill Lockyer, who was a tax lawyer for decades. "It probably needs years of work."

Republicans like some of what they see, such as the plan's call for a flatter income tax, but they don't expect to make much headway in a Capitol dominated by Democrats.

"This is the most significant tax policy proposal in three decades," said Assemblyman Chuck Devore (R-Irvine). "But the chances of this getting approved, as is, are zero percent."

Such conclusions have not completely derailed the prospects for change in a state that Forbes magazine ranks 50th out of 50 for its big tax bite and other high costs of doing business.

Schwarzenegger is expected to call a special session of the Legislature to address the commission's findings.

Assembly Speaker Karen Bass (D-Los Angeles), an early proponent of the commission, has backed away from a vow to hold a yes-or-no vote on the package. But she calls the commission's principal suggestions "intriguing."

While that is not a warm embrace, she and other lawmakers see the package as a worthy starting point for debate on changes considered long overdue. They say the commission report should spark a full reappraisal of California's tax structure, and possibly a push toward a bipartisan compromise that might actually take flight in the fickle political winds of Sacramento.

"The issue is not going to go away," said Senate President Pro Tem Darrell Steinberg (D-Sacramento). "But it's important to get it right."

Sacramento has long been an epicenter of debate about taxation.

The state's tax system was fashioned during the Great Depression, when small manufacturers churned out retail products subjected to a sales tax. As recently as 1950, the sales tax provided nearly 60% of the state's revenue.

But in the years since, California's economy has shifted to one dominated by service industries -- lawyers, engineers and other professionals whose sales are not taxed. Although the state has the nation's highest sales tax, it now accounts for barely a quarter of revenue.

The result has been an increasing dependence on income taxes, which grew from 11% of state revenue in 1950 to more than 53% in 2008. In recent years, the wealthiest 1% of the state's population has generated a big percentage of that.

Liberals say the tax burden borne by the wealthy simply reflects the astronomical rise in incomes of the super-rich in Silicon Valley, Hollywood and other enclaves. But that revenue, too, has proven volatile, soaring or stumbling with the rise or fall of the economy and the stock market.

As the economy slumped and tax proceeds plummeted late last year, Bass and Schwarzenegger got together to form the 14-person tax commission and sidestep the usual Capitol bickering.

But the commission -- attempting to do in months the kind of wholesale reconstruction some states have taken years to accomplish -- slogged along. Partisan fissures cracked open, and the group's ideas fell well short of unanimous approval from participants.

Still, Schwarzenegger believes the panel's proposed changes in the tax system are "the most significant action we can take in ending our perpetual budget crises," said Aaron McClear, the governor's spokesman.

Under the plan, the state's current half-dozen income tax rates would be replaced by two -- 2.75% for those making up to $56,000 a year and 6.5% for those earning more. Sales and corporate taxes would be replaced by a single new business levy that would spread the burden -- at a tax rate of about 4% -- more broadly and would include service professions.

The proposals have drawn heavy fire from all sides.

Business leaders are worried it could make things worse for their bottom lines and the broader economy.

"There is simply too much at stake to adopt this proposal before the implications for jobs and the economy have been fully assessed," said Allan Zaremberg, president and chief executive of the California Chamber of Commerce.

With some tax experts saying the changes would favor the rich and could cost jobs, labor leaders don't like what they see.

"This feels like a dangerous experiment," said Courtni Pugh, executive director of SEIU California, the state's largest union with more than 700,000 workers.

Among the most pointed critics are nine tax experts from Stanford, UCLA, Rice and other universities. They rose up earlier this month to oppose the bid for a broad new business levy, saying in a Sept. 5 letter to Commission Chairman Gerald Parsky that there are "numerous reasons to believe that this is the wrong course for the state to take at this stage."

They cited potential administrative difficulties, legal challenges and competitive disadvantages to California businesses compared to out-of-state firms not hit by the tax.

"The problem with this is it's a poorly designed substitute for a sales tax," said Kirk Stark, a UCLA tax law expert who signed the letter.

Lockyer and other Democrats, meanwhile, say the commission's mandate to ease the volatility of state revenue -- a boom-and-bust cycle that has sent the state spinning into deep deficits -- seems to have masked a hidden agenda.

"What they really wanted to do, in my opinion, was lower taxes on rich people," Lockyer said.

Republicans counter that their foes across the aisle had their own motivation -- to raise taxes.

Still, lawmakers from both parties insist they will fully analyze the proposals and come up with alternatives.

One strategy suggested by Democrats is to broaden the existing sales tax to include more service industries rather than impose a whole new business tax. They also want to look at tapping Internet commerce, hiking the gasoline tax to help fund the fight against global warming and adopting a levy on oil extracted from California, the only petroleum-producing state in the nation without one.

Republicans will probably push for a bigger rainy day fund to help the state better survive slumps. But they draw the line at any proposal to boost taxes overall. Nearly every GOP lawmaker has signed a no-new-taxes pledge.

In addition to ideological opposition, attempts to increase taxes would face a gantlet of special interests with something to lose.

"Any revision of the tax code is a Herculean undertaking," conceded Assembly GOP Leader Sam Blakeslee (R-San Luis Obispo).

But the commission's report -- along with the Legislature's abysmal legislative approval ratings and an election year sure to be dominated by the cry for California government to fix itself -- could still provide enough impetus for change.

"The bottom line is we've got a tax system designed back in the 1930s, when we were building widgets," said Assemblyman Charles Calderon (D-Montebello), chairman of the lower house tax committee. "We need reform. We need a system for the information age."

…Nothin' t' read while you're waiting for th' Commission on the 21st Century Economy report?

Start here:

Government Reports

State of California Department of Finance (DOF)

Summary Document for the 2009 Budget Act (.pdf, <1 MB, www.dof.ca.gov)

Tax Expenditure Report, 2008-09 (.pdf, <1 MB, www.dof.ca.gov)

Legislative Analyst's Office (LAO)

Proposition 1A, State Finance (.pdf, <1 MB, www.lao.ca.gov)

Informational Hearing on Tax Expenditures, February 2008 (.pdf, <1 MB, www.lao.ca.gov)

California's Tax System: A Primer (www.lao.ca.gov)

Revenue Volatility In California (.pdf, <1 MB, www.lao.ca.gov)

California's Fiscal Outlook: LAO Projections — 2008-09 Through 2013-14 (www.lao.ca.gov)

California’s Changing Income Distribution (.pdf, <1 MB)

Other Governmental Organizations

California State Assembly: California State Assembly Committee on Revenue and Taxation Reference Book 2007 (www.assembly.ca.gov)

California State Board of Equalization: Sales and Use Taxes: Exemptions and Exclusions (.pdf, <1 MB, www.boe.ca.gov)

State of California Franchise Tax Board: California Income Tax Expenditures, Compendium of Individual Provisions (.pdf, <1 MB, www.ftb.ca.gov)

Reports by Non-Governmental Organizations

Center for Continuing Study of the California Economy "Are Businesses and High-Income Residents Fleeing California?" (.pdf, <1 MB)

"Manufacturing 2.0," Milken Institute. June 2009. http://www.milkeninstitute.org/pdf/CAManufacturing.pdf
Interactive data site :
http://www.milkeninstitute.org/manufacturing/

"Lone Star rising," Economist, July 9, 2009. Overview of the report, a section on California/Texas rivalry and another on the Texas economy.
http://www.economist.com/specialreports/displaystory.cfm?story_id=13938917
http://www.economist.com/opinion/displaystory.cfm?story_id=13990207
http://www.economist.com/surveys/displaystory.cfm?story_id=13938859

California Forward: Report to the Commission on the 21st Century Economy: Discussing Tax Reform (.pdf, <1 MB)

American Institute of Certified Public Accountants, Tax Division: Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals. (.pdf, <1 MB, ftp.aicpa.org)

California Forward: It’s about trust: A state budget process that restores public confidence (.pdf, <5 MB, news.caforward.tv)

Stephen M. Sheffrin and Marla Dresch, California Policy Seminar: Estimating the Tax Burden in California (.pdf, <10 MB)

Joint Venture: Silicon Valley Network: Statement of Principles: California Budget and Tax Reform Initiative (.pdf, <1 MB, www.jointventure.org)

Michael J. McIntyre & Richard D. Pomp: A Policy Analysis of Michigan's Mislabeled Gross Receipts Tax (.pdf, <1 MB)

Thomas S. Neubig & Robert Cline: Future State Business Tax Reforms: Defend or Replace the Tax Base (.pdf, <1 MB)

Next 10: California's Budget (www.next10.org)

Silicon Valley Leadership Group: California Tax Policies and Business Expansion, "Tough Choices — Real Solutions" (.pdf, <5 MB, svlg.net)

Steven M. Sheffrin, Professor of Economics, UC Davis: Economic Aspects of a Split-Roll Property Tax (.pdf, <1 MB)

Tax Analysts: Repeal State Tax Breaks for Capital Gains (.pdf, <1 MB)

Tax Foundation: Background Paper: 2009 State Business Tax Climate Index (.pdf, <5 MB, www.taxfoundation.org)

The Urban Institute: Tax Expenditures and Tax Reform: Issues and Analysis (.pdf, <1 MB)

California Budget Project

To Have and Have Not (.pdf, <1 MB)

Available Data Do Not Support Claims That High-Income Californians Are Leaving the State (.pdf, <1 MB)

Budget cuts or tax increases: Which are preferable during an economic downturn? (.pdf, <1 MB, www.cbp.org)

The number of high-income tax payers increased … (.pdf, <1 MB, www.cbp.org)

Who pays taxes in California? (.pdf, <1 MB, www.cbp.org)

California Tax Reform Association

Commercial Property Assessment in California: Bad Law, Bad Economics, Bad Fiscal Policy, Bad Land Use (.pdf, <1 MB)

Recommendations on California’s State Budget Crisis (.pdf, <1 MB)

Council on State Taxation (COST)

Total state and local business taxes — 50 state estimates for fiscal year 2008 January 2009 (.pdf, <3 MB)

(With the Tax Foundation): Gross Receipts Taxes in State Government Finances: A Review of Their History and Performance (.pdf, <5 MB)

Sales Taxation of Business Inputs (.pdf, <1 MB)

The Best and Worst of State Tax Administration (.pdf, <1 MB)

LECG LLP

LECG Economic Jobs Report (.pdf, <1 MB)

LECG Economic Jobs Fact Sheet (.pdf, <1 MB)

LECG State Tax Comparison Report (.pdf, <1 MB)

LECG State Tax Comparison Bar Graph (.pdf, <1 MB)

Public Policy Institute of California

Are the Rich Leaving California? (.pdf, <1 MB)

California's Tax Burden (.pdf, <1 MB)

THE CALIFORNIA FIX :: Taming the California Beast: So many problems, so many competing interests -- only rewriting the Constitution will do.

noreply@blogger.com (smf) — Tue, 22 Sep 2009 00:04:00 +0000

LA Times Editorial

September 20, 2009 -- It's not always easy to identify the tentacles that are strangling California and keeping it from fulfilling its promise for 38 million residents.

Who wrecked our public school system, which was once the envy of the world?

Who ruined the nation's premier network of highways, …the most ambitious and reliable water delivery system, …the best state parks?

Who killed the spirit of opportunity and innovation that once made California the headquarters for banks and oil companies, for makers of surfboards and electric guitars, for computers and communications?

Even if we can't identify the culprit, people here intuitively know that some kind of monster has wrapped itself around the Golden State. Well over two-thirds of registered voters said recently that they would vote yes on two key ballot measures to pave the way for a constitutional convention to wrest back control of the state for Californians.

The numbers were compiled by a pollster for Repair California, a coalition of organizations from across the political spectrum that believes a convention is the best way to make the state work again. The group has set Friday as its deadline for submitting ballot language to the attorney general. If current numbers remain strong, voters would call a convention in November 2010. The convention would take place the following year, and a constitution would go to voters for an up-or-down vote in November 2011.

But once the convention is called, then what? It's easier to agree on a fix if there's agreement on who, or what, the monster is.

Once, it was easy. Reformers and demagogues of the 1870s argued that California was being strangled by twin demons: Chinese immigrants and the Central Pacific Railroad. Anti-Chinese provisions were grafted onto California's second Constitution in 1879. But reformers believed things were still awry, and increasingly, they identified the enemy as the Central Pacific's successor, the Southern Pacific. As the state's biggest corporate presence, the railroad selected the candidates who ran for office and bought their votes to assure control over any attempt to regulate freight rates or impose taxes. As one of the state's largest landowners, it ruled agriculture and water.

The Southern Pacific became known as the Octopus, to describe the numerous corporate tentacles that worked their way into the statehouse, the voting booths, the farms, the cities. An 1880 land dispute between the railroad and settlers that grew violent and resulted in several killings became the basis of the 1901 Frank Norris novel “The Octopus: A Story of California.” The Southern Pacific's nickname stuck.

To break the railroad's iron grip on the Capitol, Progressive era reformers wrote, and in 1911 voters adopted, constitutional amendments to allow for the initiative, referendum and recall. The Southern Pacific might still have been able to bribe lawmakers into doing its bidding, but Californians now had a way to fight back. They could overturn bad laws, pass new ones and throw out politicians they believed were not serving their interests.

By 1996, when the Southern Pacific was absorbed by its ancient rival, the Union Pacific, the railroad Octopus was long dead. But there is a new multi-armed monster, more pernicious than any outside corporation ever was.

One tentacle belongs to public employee unions. Although Californians should reject the foolish notion that there is something intrinsically destructive about workers in public service, it is undeniable that their unions have gained enormous clout in Sacramento. They have the influence to select Democratic Party primary candidates in urban areas, and the money and foot soldiers to ensure their election. Then, at contract time, those unions sit across the table from officials they put in office -- officials who realize they are bargaining with people who have the power to end their careers. The greatest barrier to affordable and sensible prison reform has been the California Correctional Peace Officers Assn. -- the prison guards union. Ballot measures are made or broken by the California Teachers Assn.

Another tentacle belongs to big business. Less powerful, perhaps, than when the Southern Pacific ruled the state, business interests nevertheless exercise a remarkable degree of clout through lobbyists. Disgraced ex-Assemblyman Michael Duvall (R-Yorba Linda) may have just been telling stories earlier this month when he described trysts with a business lobbyist, but it's hard to distinguish between his supposed antics and those of lawmakers all too anxious to get, well, close to big-moneyed business interests.

Add two more arms: The state Democratic Party, in alliance with labor, and the Republicans, supported by business, seem locked in an eternal contest. But they are so invested in their game that they unite in resisting any attempt to change the rules. The parties and (more tentacles) their lawyers, political consultants, pollsters, signature gatherers, fundraisers -- effectively, a political/industrial complex -- are bent less on winning than on being able to continue playing the game.

One more tentacle of today's monster is the very weapon used to slay the last one. The initiative process, which loosened the Southern Pacific's grip on California, has been co-opted by the forces it was meant to control -- the tendency of power to seek any means to perpetuate itself.

The new Octopus is different from a single, all-encompassing railroad; this time the tentacles wrapped around California also are wrapped around one another in a knot so tight it can't be untied. It has to be cut.

That's where a constitutional convention comes in. Instead of removing one arm with a ballot initiative or shackling another with a regulation, a convention has the potential to remove all the arms at once. It can fail, of course, but it also might create a governance system that again puts Californians in control of their state, at least for a while -- until a new Octopus presents itself and a new generation of Californians rises to the challenge.

CALIFORNIA’S BUDGET: AN EXPENSIVE NEEDLESS DELAY: Missing the deadline on a budget has cost California billions and undermined confidence in the state.

noreply@blogger.com (smf) — Fri, 17 Jul 2009 15:40:00 +0000

Editorial From the Los Angeles Times

July 17, 2009 -- Maybe you've seen the TV commercial. "Sacramento" is asking Gov. Arnold Schwarzenegger to sign a budget that "raises your taxes and spends money we do not have." Schwarzenegger is "standing firm." It's an act, and not a very good one.

The governor and legislative leaders are in what Californians can only hope are the final days of negotiations to close a $26-billion budget gap. Democrats went through their empty gesture a month ago, seeking to fill the hole with taxes on oil extraction and tobacco sales. But they knew those wouldn't fly -- and they didn't -- and there is currently no tax proposal being discussed in budget talks, regardless of Schwarzenegger's claims to the contrary.

What he's trying to do instead is to portray the three additional post-deadline weeks that the state budget has been out of balance as time well spent. That's debatable at best.

If those three weeks really helped the state crack down on supposed waste, fraud and abuse, we'll gladly take it, but we have several serious qualms. First, the savings from many of these reforms may, with luck, just offset the $1.5 billion to $3 billion the state lost by blowing its June 30 deadline, stopping cash payments to vendors and issuing IOUs with interest. So what was gained? The governor might answer that savings kick into future years as well, and that's great -- if there really are such savings to be had. County welfare officials have rejected Schwarzenegger's blithe assertion, for example,that many people in the state's welfare-to-work program aren't really looking for work and, without reforms, never will. CalWorks clients in Los Angeles County are lining up to grab the temporary and part-time jobs made available through the state program.

Are welfare programs chock-full of cheaters? We're left to rely on the word of the governor -- the same man who is raising special-interest money to run commercials pretending that he is in the midst of a fight over taxes.

Meanwhile, reforms in other areas, such as In-Home Supportive Services, were making their way through the Legislature. It is there, in public, where law and policy should be crafted, not in closed post-deadline budget sessions.

It would be merely annoying if the Kabuki, to use the governor's word for it, came during a typical budget disaster year. But this one isn't typical. This year, as its credibility erodes, California is nearing default, in which the state doesn't merely fail to pay its bills but shows no prospect of ever being able to do so. Then it would be too late for reform; no one would do business with California, and other states on the edge -- and finally all states -- could fall.

Schwarzenegger and the Legislature were on the verge of closing the budget gap and backing away from default at the end of June. Delay, ostensibly in the name of reform, deepened the problem and swept away much of the remaining confidence in California's ability to meet its obligations. It's hard to see that as worth the wait.

BUDGET MESS MAKES CALIFORNIA VULNERABLE TO CRIPPLING CREDIT DOWNGRADE, OFFICIAL WARNS: Treasurer Bill Lockyer says the state could find funding sources for crucial programs cut off if its credit rating is dropped to junk status. Lawmakers and the governor vow to keep negotiating.

noreply@blogger.com (smf) — Fri, 17 Jul 2009 15:40:00 +0000

By Evan Halper and Eric Bailey | From the Los Angeles Times

2:50 PM PDT, July 16, 2009 -- Reporting from Sacramento — State Treasurer Bill Lockyer warned today that state leaders' failure to reach a budget deal has put California at risk of a credit downgrade that would cut off access to funds needed for building schools, roads and other public works projects.

"With every passing day, the state's credit rating moves closer and closer to the junk pile," Lockyer said in a prepared statement. "If our credit rating sinks to junk status, the state will find the door to the infrastructure bond market locked shut."

The warning came as budget negotiations remained stuck amid simmering frustrations, although legislative leaders and Gov. Arnold Schwarzenegger vowed to forge ahead in hopes of settling on a package to close California's $26.3-billion deficit.

Speaking at a midday news conference, Schwarzenegger characterized the state of negotiations, which halted Wednesday night.

"It wasn't a breakdown," he said, "but I think a stall. . . because some new issues came up."

No time has been set to resume talks, though Assembly Speaker Karen Bass (D-Los Angeles) said more bargaining sessions would take place. And the Legislature has postponed its summer recess, scheduled to begin Friday, pending a budget agreement.

"The legislative leaders plan on working through the weekend, and we hope to get a deal soon," said Jim Evans, a spokesman for Senate leader Darrell Steinberg (D-Sacramento).

The prime obstacles to an accord are in the areas of education and welfare. One major sticking point is how to tweak voter-approved school-funding guarantees so the state can cut billions of dollars it needs to balance its books -- while still guaranteeing that school funding will be restored when the economy rebounds.

Aside from disagreements over education funding and welfare, Schwarzenegger spokesman Aaron McLear said, Democrats remained "unwilling" to make deeper cuts to create a healthy reserve so the state can weather an economy that could get worse before it gets better.

Democrats are pushing for the budget package to include changes in state law that would assure repayment of roughly $11 billion diverted from education when the economy improves and create new guarantees that schools would not lose money in future downturns. The governor said he would support repayment of the $11 billion but will not allow permanent changes to the funding formulas.

"I think we are not going to do that," Schwarzenegger told reporters, "because Proposition 98 can only be changed by the people."

Schwarzenegger says the changes he wants to state government operations would produce long-term savings by making various programs more efficient. Democrats have resisted, saying there is not enough evidence that they would be effective, and they have not been properly evaluated through normal legislative hearings.

One contentious proposal, some participants said privately, would change the state welfare program to increase penalties for recipients who do not meet minimum federal work requirements. Currently, emergency cash is available for children of parents in that category; those grants could be eliminated under Schwarzenegger's plan.

THE SALLY RAND OF LEGISLATURES: “The Democrats want some guarantees and protections for education funding, and the governor’s evidently saying nix to that”.

noreply@blogger.com (smf) — Thu, 16 Jul 2009 16:20:00 +0000

By Patt Morrison - Patt Morrison Blog KPCC 89.3 FM

Thursday July 16th 08:26 AM -- Oh, that legislature is such a tease, with the peekaboo budget – it’s off, it’s on, we have a deal, no we don’t.

By ten pm, the deal that looked good eight hours earlier – as Assembly speaker Karen Bass told us – was stalled and everybody went home to think it over for the night.

Whatever budget we wind up with, it won’t be any oil painting. Schools? Cut. Health services for poor kids and homebound elderly? Cut. Prison budget? Cut. The sad part is that even though this budget may straggle across the finish line, bleeding from $26 billion in cuts, it’s no triumph; as is so often the case, some cuts will wind up costing more than they save. The elderly whose adult day care is cut will wind up in bogglingly more expensive nursing homes. Poor kids who don’t get health care coverage will still get sick – and end up in bogglingly more expensive emergency rooms. Penny-wise, billion-foolish, maybe. In exotic-dancer terms, services could be stripped. But you can still read someone's lips, because they're saying ''no new taxes.'' You could still hope for a ten-spot in the g-string, though.

And then there's burlesque-like tease. The state Board of Equalization goes and dangles the prospect of a billion plus dollar tax bonanza in front of the state. It’s calculated that taxing the marijuana trade could raise as much as $1.4 billion a year. It arrived at this figure in response to a proposal by a San Francisco assemblyman to handle dope the way we handle booze: regulate it and tax it.

But don't count your buds before you pick 'em, bud.

Yesterday we heard about two breakthroughs in Alzheimer’s disease: a Duke University finding that a certain genetic biomarker could flag a coming case of Alzheimer’s anywhere from five to seven years before symptoms actually show up – and a UC Irvine study found that a drug rather like one used to treat the inflammation from rheumatoid arthritis could likewise reduce brain-cell inflammation that exacerbates Alzheimer’s. Lab mice treated with the drug didn’t suffer the same memory loss that untreated mice showed.

And how did Goldman Sachs manage to make a humongous $3.44 billion profit in the second quarter of this financially wretched year? We spent time with two guests on that topic – and one of them concluded pretty much what I would hear a few hours later, when one member of my book group said that as soon as he heard those numbers, he figured something or someone got finagled.

Today – could California really stage another constitutional convention? And I mean, make some really serious changes? Like to the initiative process? Proposition 13? Hey, if the guys in powdered wigs and buckled shoes could do it, why can’t we? Okay, then – what power would YOU be willing to give up? And to whom?

See? Harder than it looks.

IN SACRAMENTO, THEY ALL DROPPED THE BALL

noreply@blogger.com (smf) — Thu, 16 Jul 2009 15:51:00 +0000

The state could have had a budget weeks ago and avoided the embarrassment of IOUs, but various actors -- especially the top one -- wouldn't let it happen. Now, everyone loses.

George Skelton | LA Times Capitol Journal

Rich Pedroncelli / Associated Press -- Senate leader Darrell Steinberg and Assembly Speaker Karen Bass talk with reporters as they head to a budget meeting Wednesday. Bass recently accused the governor of “moving the goal posts.”

July 16, 2009 -- From Sacramento -- They whiffed a fat batting practice pitch. Blew a gimme putt. Inexplicably clanked a slam-dunk.

Pardon the sports jargon, but it's a civil way to characterize incompetence and failure in Sacramento. It avoids invective language already too prevalent in California's Capitol.

Three weeks ago, as I left town on vacation, the politicians seemed poised to close a $24-billion deficit hole, which would have saved the state from issuing costly IOUs and suffering national ridicule.

Whatever budget deal ultimately is passed -- and in this economy it'll only be a temporary fix, at best -- virtually the same agreement could have been reached weeks ago.

What happened? For one, Gov. Arnold Schwarzenegger swung for the fence -- not willing to settle for a run-scoring single -- and didn't seem to know where the fence was.

But there were errors all around.

Democrats wasted too much time fumbling with tax increases that they knew never were going to connect and that many voters had made clear they hated.

The loudest message from the California electorate while rejecting the governor and Legislature's budget propositions in May was that it wanted Sacramento politicians to fix the state's fiscal mess themselves and not dither. Just do it!

So much for that notion.

But accompanying that overarching message was a strong chorus of: "Stop taxing us. Live within your means."

Schwarzenegger and Republican legislators heard the "no tax" gospel, even if some public employee unions and liberal activists closed their ears.

Democratic legislative leaders understood the political reality: They had few options. Deeper slashes had to be made in healthcare and welfare programs. Education would take a big hit, although there'd be some help from federal stimulus money. More cuts would be needed in virtually every state program, from prisons to parks.

Moreover, voters had granted Democrats a license to whack away.

The electorate's verdict had plunged the state $6 billion deeper into debt, cut off $16 billion in future tax hikes and denied schools $9 billion in eventual restoration of previous cuts. Before casting their ballots, voters had been warned about the dire consequences of rejecting the props.

Additionally, the measures had been opposed by labor and social groups that despised the ballot package's key feature, a modest spending cap. So the Legislature's majority party owed these traditional allies practically nothing when they began yelping about the program cuts -- and trims to state employees' pay -- forced, in part, by the propositions' demise.

Politically, signing off on the inevitable budget butchering should have been a slam-dunk. A gimme putt. A soft pitch.

But philosophically, Democrats couldn't handle it. They did cut sharply, but also decided to play out the game fighting, by pushing tax increases on oil companies, smokers and motorists. That losing effort took up valuable time right before the July 1 deadline for avoiding IOUs.

Democrats produced a stop-gap plan supported by Assembly Republicans that would have staved off IOUs. They proposed $3.3 billion in cuts to education and other programs that would have kept the cash flowing, at least for a few weeks. It would give them time to negotiate more cuts. Schwarzenegger rejected the idea and persuaded Senate Republicans to follow.

That's where the governor began bobbling the ball, although his coaches figured he was playing to his fan base, what's left of it.

Issuing IOUs will cost the state roughly $26 million in interest for July, the state controller's office estimates. The IOUs also prompted Wall Street bond rating agencies to lower California's credit to near junk status. That potentially could cost the state $7.5 billion over 30 years, according to the treasurer's office.

Schwarzenegger, aides say, calculated that Democrats wouldn't negotiate seriously without facing a deadline, such as the latest: most banks refusing to accept IOUs. Negotiating piecemeal would get nowhere, the governor believed.

But he might have dodged IOUs completely. Guess it doesn't rankle much that the state he has governed for nearly six years must now pay bills with scrip.

Schwarzenegger rankled Democrats by producing a packet of "reform" demands just before the IOU deadline. Most made sense, but they entered the game late.

"Moving the goal posts," Assembly Speaker Karen Bass (D-Los Angeles) called it.

She also theorized that the governor was going down his "legacy list" -- striving for achievements he can point to after leaving office in 18 months. That's fine, Bass says, but more thought and deliberation are needed. "You shouldn't use the budget process to jam through public policy."

Senate leader Darrell Steinberg (D-Sacramento) says Schwarzenegger returned to "the Terminator zone" after the May election and resumed bashing legislators, making negotiations more difficult.

Typical rhetoric: "I don't want to kick that can down the alley anymore. I've given them enough chances and now I say, let's fix the problem. . . . It's easy for the politicians to keep promising things, but they can't deliver. They live way, way beyond their means."

You'd think this guy hadn't been the head coach and superstar for all these years.

Both sides should have called the game long ago. There'll be no winners -- just bigger losers the longer it lasts.

WSJ: CALIFORNIA CLOSE TO NEW BUDGET DEAL

noreply@blogger.com (smf) — Thu, 16 Jul 2009 00:31:00 +0000

By STU WOO | The Wall Street Journal

JULY 16, 2009 - California leaders say they are near a compromise on fixing the state's $26 billion budget shortfall, signaling the end of a weeks-long impasse that has forced officials to issue IOUs to keep the state out of default.

Gov. Arnold Schwarzenegger and legislative leaders have held negotiations late into the night this week to work out the last details of a budget plan, which staffers said could be finalized as soon as Thursday morning. "We're close," said Matt David, a spokesman for the governor. "There are still some details to be worked out."

Mr. Schwarzenegger and legislative leaders have agreed on $14 billion to $15 billion in spending cuts, with about a third of that in education, said staffers for the two sides. The remaining $11 billion gap would be closed through one-time fixes and accounting gimmicks -- such as issuing state workers' paychecks in July 2010 instead of June 2010 to save money for the current fiscal year -- despite the Republican governor's repeated demands for a lasting overhaul of spending.

Several controversial plans are still on the negotiating table, Mr. David said. Among them are the governor's proposals to scale back welfare programs, eliminate a college-scholarship program, close all state parks and borrow $2 billion from local governments.

The nation's most-populous state faces a $26 billion deficit in its $92 billion general-fund budget through June 2010. In February, lawmakers closed most of a $42 billion gap for fiscal years 2009 and 2010 through steep spending cuts and new taxes.

Budget stalemates are familiar in Sacramento, which has seen only a handful of spending plans passed on time in the past 30 years. But with the state on the brink of insolvency this year, this impasse has been far more costly.

Lawmakers missed a June 30 deadline to pass spending cuts, preventing them from reaping $3 billion in savings during the fiscal year that ended that day. That also forced the state controller to begin issuing IOUs to keep the state from running out of cash by July's end. The controller's office said it had issued 130,501 IOUs, worth a total of $588.1 million, by the end of Tuesday. The state will have to pay interest on the IOUs, while investors will charge California more for its annual short-term borrowing.

Dan Walters: Out-of-staters gleefully delve into California's woes OUT-OF-STATERS GLEEFULLY DELVE INTO CALIFORNIA’S WOES

noreply@blogger.com (smf) — Thu, 16 Jul 2009 00:30:00 +0000

By Dan Walters | Sacramento Bee

Wed, Jul. 15, 2009 -- National Public Radio is running a series of broadcasts this week called "California in Crisis”. And NPR is not alone.

Network and cable television news shows, public broadcasters, major out-of-state newspapers and countless magazines are taking turns recounting and analyzing California's economic and fiscal travails. The tone of many reports is found in the German word "schadenfreude." It means taking pleasure from the distress of others.

The state's periodic social and economic upheavals have always generated that kind of media attention, something along the lines of "tarnish on the Golden State." But the current spate has an even edgier tone, suggesting that this time, it's worse and at least semi-permanent.

One example is California journalist and futurist Joel Kotkin, writing in Forbes magazine: "But the fundamental problem remains. California's economy – once wondrously diverse with aerospace, high-tech, agriculture and international trade – has run aground. Burdened by taxes and ever-growing regulation, the state is routinely rated by executives as having among the worst business climates in the nation. No surprise, then, that California's jobs engine has sputtered, and it may be heading toward 15 percent unemployment."

The Economist, a sober-sided British magazine, compares California to Texas, noting that the Lone Star State's economy has weathered the national recession nicely and suggesting it may have replaced California as the place creative and ambitious people flock to for opportunity.

The Economist cites "dysfunctional government" as a major California problem. It adds, "No state has quite so many overlapping systems of accountability or such a gerrymandered legislature," and describes the state's ballot measures as the "crack cocaine of democracy."

The New York Times surveys those who want to run for governor next year and wonders whether anyone can run an evidently dysfunctional state.

The carping tone and occasional inaccuracies aside, it's difficult to fault what the out-of-state media are saying about us. They see dysfunction because there is dysfunction. They wonder about our head-in-the-sand attitude about the state's economy, an assumption that everything will turn out all right, because that's exactly how we act.

Even as the state's economy continues to falter, state officials – including those in the Schwarzenegger administration – continue to add new layers of regulation, not to mention new fees and taxes, that contribute to the widespread belief that we are hostile to job-creating investment. And that doesn't include the psychological effects of chronic budget deficits, IOU payments to creditors and a credit rating much lower than that of any other state.

We desperately need to straighten out our laughingstock government, balance the state budget and demonstrate to the rest of the world that we're still in the game. The alternative is economic and social decay.

HOW DID CALIFORNIA GET INTO THIS MESS?

noreply@blogger.com (smf) — Fri, 10 Jul 2009 22:28:00 +0000

Former longtime legislator John Vasconcellos (D-Milpitas) analyzes the ingredients that went into making the state budget crisis so bad (Hint: Proposition 13 gets dragged in by its tax-restricting toes), and offers his personal recipe for climbing out of the hole.

There's plenty of blame to go around in the budget crisis. Fingers can be pointed at Gov. Arnold Schwarzenegger, Democrats, Republicans -- and you and me.

By John Vasconcellos | Opinion From the Los Angeles Times

July 10, 2009 -- I was recently hospitalized with a life-threatening illness that it took doctors several days to accurately diagnose. Until they fully understood the problem -- which turned out to be an antibiotic-resistant staph infection -- they couldn't prescribe the medication that would cure me.

The experience got me thinking about California.

Our state's protracted budget crisis sometimes seems unsolvable. But part of the problem may be that those who are trying to solve it don't fully understand its cause.

I represented the Silicon Valley for 38 years in the Legislature, and I chaired the Assembly Budget Committee for 15 of those years. As a result, I have some insights into our current crisis that may be useful.

The immediate problem, of course, is a $26-billion shortfall, which we must now plug if California is to pay its bills. But before we can fix things, we have to understand how we got to this point.

A good place to start is with the slew of revenue reductions that have hit the state since 1978, when Californians passed Proposition 13. The initiative dramatically reduced most property taxes and resulted in a 57% reduction in property tax revenue during its first year, and its effects continue.

Another revenue drop came in 1982, when voters passed an initiative abolishing the state inheritance tax. Before that, California had taken in nearly $1 billion a year in estate taxes.

And there are vehicle license fees. Starting in 1998, the fees were reduced incrementally until Gov. Gray Davis raised them to close a budget gap in 2003. When Arnold Schwarzenegger came into office later that year, he immediately reversed the hike -- at a cost to state coffers of about $4 billion each year since then.

Add to that the collapse of the dot.com bubble in 2004 -- which resulted in a drop of several billion dollars in state revenues from capital gains taxes -- and the current global economic downturn and you start to see how state revenues have suffered.

Next, consider a series of structural complications that hamper the Legislature's ability to come up with solutions. First among them -- again -- is Proposition 13, which requires a two-thirds vote of both legislative houses to raise taxes. This has meant that a small minority can keep the majority from enacting tax hikes that would help balance the budget.

Term limits, enacted by voters in 1990, were designed with good intentions. They would, their backers said, allow for more turnover in state government and more opportunity for worthy candidates who wouldn't have a chance against incumbents. But term limits have also meant that many legislators don't have deep experience in the state issues facing them. They also don't have enough time in office to develop collaborative relationships with their fellow legislators.

The 2002 reapportionment deal further exacerbated matters by creating "safe" districts for Democrats and Republicans, which have largely ensured that people at the liberal or conservative extremes of their party are seated.

So, if those are the basic problems, whom should we hold accountable? Each and all of the following bear responsibility.

* Schwarzenegger: Despite his good heart and mind, our governor seems to be lacking proficiency in basic mathematics. While he has said the budget can't be balanced by cuts alone, he hasn't proposed solutions that would close the gap. And many of the cuts he has proposed would cost the state more in the long run.

* The Democratic majority in the Legislature: There is no denying that Democratic lawmakers failed to create a sufficient rainy-day fund, preferring to spend money when times were flush -- often using one-time revenue sources to fund ongoing projects. They did this both to protect services for needy Californians and because they are overly responsive to public employee unions, especially those in public safety.

* The Republican minority in the Legislature: Unlike their predecessors, who joined Govs. Ronald Reagan and Pete Wilson in meeting Democrats halfway, the current crop of Republicans in Sacramento seems unwilling to compromise. All but one has signed the "no new tax" pledge of Washington crusader Grover Norquist, whose stated ambition is to shrink government to "a size where we can drown it in the bathtub." This may make for good rhetoric, but it produces little in the way of sound public policy.

* We, the people of California: Voters in our state have repeatedly passed initiatives lowering taxes and earmarking funds for pet programs, thereby inhibiting the ability of legislators to make rational decisions about state spending. Voters seem to want an unsustainable combination of increased services and lower taxes.

That, in a nutshell, is how we got into this mess. It is the job of our current Legislature and governor to lead us out of the disaster, but it's the responsibility of all of us to understand the issues they face and demand a sound, long-term solution.

California is an economic powerhouse -- the eighth-largest economy in the world. And it is home to a wonderfully diverse, talented and creative population. But we now have some tough decisions to make. In the end, we will get the kind of government services we are willing to pay for. And we all need to participate in the discussion of what kind of state we want to have.

John Vasconcellos is a former state senator and assemblyman. His longer analysis of the budget crisis can be found at politicsoftrust.net.

California’s B-B-Blues in the Night: FITCH DOWNGRADES CALIFORNIA GENERAL OBLIGATION BONDS TO ‘BBB’; MAINTAINS WAITING WATCH NEGATIVE

noreply@blogger.com (smf) — Tue, 07 Jul 2009 05:08:00 +0000

THE DOWNGRADE TO 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis

THE RATING WATCH NEGATIVE reflects the short-term risk that institutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges and weighing on the state's credit.
“The riskier a bond is, other things being equal, the lower its rating. The highest-rated nondefaulted bonds are rated AAA or Aaa, and the lowest are rated C, with defaulted bonds rated D; thus, junk bonds can be rated anywhere between Baa (BB) and D.” -from the concise encyclopedia of economics

From Fitch Ratings via Business Wire

July 06, 2009 03:49 PM Eastern Daylight Time -- NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded the state of California's (the state) long-term general obligation (GO) bond rating to 'BBB' from 'A-'. The bonds remain on Rating Watch Negative. The rating action affects the state's GOs and lease appropriation and related bonds as detailed at the end of this release.

The downgrade to 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis. Since no agreement was reached by the June 30, 2009 fiscal year (FY) end, the state's controller has now begun issuing registered warrants (IOUs) for certain non-priority payments to preserve cash, and the budget gap to be addressed has increased to $26.3 billion from $24.3 billion. The use of IOUs for non-priority payments would offset cash shortfalls into September 2009 as now currently projected.

The Rating Watch Negative reflects the short-term risk, in Fitch's view, that institutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges and weighing on the state's credit. Resolution of the Negative Watch will depend on actions taken to address the cash flow imbalance. The 'BBB' rating indicates that expectations of default risk remain low, although the rating is well below that of most other tax supported issuers. GO debt in California has a constitutional prior claim on revenues, although after education; appropriation debt has a lesser legal claim, but the controller prioritizes payment directly after GO debt service, ahead of other mandatory payments.

With issuance of IOUs for non-priority payments, margins for meeting constitutional and court-required contractual commitments are narrowing. After September 2009, absent any proposed budget and payment adjustments, cash deficits will expand dramatically. Cash flow solutions, including the ability to access short-term borrowing, are inextricably tied to reaching timely agreement on effective and credible budget solutions.

The state's budget revision released in May had forecast a $24.3 billion budgetary gap through June 30, 2010, the end of FY 2010, before proposed solutions; $3.1 billion of proposed solutions were in FY 2009, with the remainder in FY 2010. By failing to reach agreement prior to June 30, 2009, the end of FY 2009, a portion of the $3.1 billion in proposed FY 2009 budgetary solutions has been forfeited; notably, such solutions would have alleviated the cash flow stress forecast in the early months of FY 2010 by reducing or deferring scheduled statutory disbursements, primarily to education. Moreover, under the state's constitutional spending formula for education, foregone FY 2009 proposed solutions lead to higher required spending in FY 2010 and beyond, and pushed the FY 2010 baseline budget gap to $26.3 billion.

The inability of the state to reach agreement has prompted the controller to begin issuing IOUs for non-priority payments, primarily disbursements to vendors, for certain social services, and for tax refunds, in order to ensure payment of priority payments, including GO and lease debt service. The controller's office estimates that $3 billion in IOUs will be issued during July 2009; priority payments of $10.8 billion will be made for education, debt service, Medicaid, payroll, pensions and other mandatory contractual obligations. Projections will be revised to reflect June revenue performance and other changes but as currently estimated, cumulative cash deficits of $3.7 billion are projected through August, offset by $4.5 billion in non-priority payments that could be covered with IOUS, excluding tax refunds. However, by the end of October, the projected cash deficit expands to $16.1 billion, well beyond non-priority spending of only $10.6 billion, excluding tax refunds.

Today's further downgrade to 'BBB' on Rating Watch Negative affects GOs, GO veterans, economic recovery and Cal-Mortgage Loan Insurance Division bond ratings.

Moreover, the following appropriation bonds of the state are also downgraded to 'BBB-' on Rating Watch Negative:

--Public Works Board (except for those issued for the Regents of the University of California);

--East Bay State Building Authority;

--Los Angeles State Building Authority;

--Oakland State Building Authority;

--Riverside County Financing Authority;

--Sacramento City Financing Authority;

--San Bernardino Joint Powers Financing Authority;

--San Francisco State Building Authority;

--Golden State Tobacco Securitization Corporation (series 2005A);

--California Infrastructure and Economic Development Bank state school fund apportionment lease revenue bonds;

--California Judgment Trust;

--Shafter Joint Powers Financing Authority;

--Taft Public Finance Authority.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Contacts

Fitch Ratings, New York
Douglas Offerman, +1-212-908-0889
Richard Raphael, +1-212-908-0506
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

Permalink: http://www.businesswire.com/news/google/20090706005808/en

News Analysis from China: WHO IS TO BLAME ON CALIFORNIA’S BUDGET CRISIS?

noreply@blogger.com (smf) — Mon, 06 Jul 2009 21:00:00 +0000

…in which the Chinese explain the California Budget Mess while simultaneously suppressing the ethnic Uyghur minority

by Wang Yan Editor, ChinaView [Xinhua News Agency] www.chinaview.cn

LOS ANGELES, July 5 (Xinhua) -- As California has to operate on IOUs after failing to solve the budget crisis, Californians are asking who is to blame on all those problems facing this Golden State, a leader in the U.S. economy.

Governor Arnold Schwarzenegger, himself a Republican, blamed Democratic state legislators on failing to make necessary spending cuts.

But Democrats attacked Republicans and Governor Schwarzenegger for their refusal to raise taxes as a way to get new revenues. They also criticized Republicans for cutting services to the poor and needy, such as social services, health care and welfare for the poor, senior and disabled.

If the governor had the money, he would certainly not ask for any spending cuts. But the problem is, the state government can get no new revenue if raising tax is not an option.

It seems that the governor, both Republicans and Democrats in the state legislature are to blame. But some analysts say that voters in California are to blame too.

Schwarzenegger was elected governor in 2003 after former Governor Gray David (sic), a Democrat, was ousted in a recall campaign following a state budget crisis. Schwarzenegger promised voters he would fix the state's broken finances.

Schwarzenegger knew why Davis was ousted because voters in California did not want more taxes. So he took the easy way out by cutting taxes by billions of dollars, backing off a tough spending limit, unilaterally adding spending to placate Democrats and blowing through a one-time surge in revenues.

After he took office, Schwarzenegger sought and voters approved a 19 billion dollar bond issue that allowed the state to borrow heavily just to meet its annual operating expenses. Now the state has to pay the principal and interest of the bond.

He also put a vehicle license fee cut of 6 billion dollars to make the voters happy. But soon in February this year he had to partly restore the revenue by temporarily raising the vehicle license rate from 0.65 percent of a vehicle's value to 1.15 percent.

About 55 percent of California's general fund revenue comes form the personal income tax. The state depends heavily on the very rich to pay taxes. The top 5 percent of all income earners combine to pay 68 percent of income taxes.

But the very rich are largely dependent on capital gains for incomes, which are most commonly realized through the sale of real estate and stocks. Tax revenues from capital gains have virtually disappeared following the crash of both the real estate and stock markets.

Another reason is the failure of the governor and the legislature to cope with the dramatic drop of revenue after the bubble in Silicon Valley burst.

During the late 1990s, revenues soared as California benefited more than any other states from the tech-stock boom that was centered in the Silicon Valley. But the state spent billions expanding and creating state programs and passing out billions more in permanent tax cuts.

When such revenues dried, the state still refused to raise tax or cut spending as most of the U.S. states did during the 2002 recession. Instead, California relied heavily on borrowing and accounting maneuvers to balance its budget.

Traditionally, Democrats are supported by unions and other civil rights organizations. Schwarzenegger accused Democratic lawmakers of ignoring "waste, fraud and abuses" and said that Democrats are "just beholden to the unions and the special interests."

The governor also tried to shift the blame on the Democrats alone by saying that "the legislators' failure to act on those proposals sent a message to the California voters and to the taxpayers that says we want you to make the sacrifices but we in Sacramento don't want to make any sacrifices whatsoever."

"Protecting the special interests who benefit from our dysfunctional system was more important to the Legislature than protecting the taxpayers and dealing with the entire 24 billion-dollar deficit," he added.

Democrats are the majority in the California legislature. In normal conditions, it is easy for the Democratic controlled legislature to pass their version of budget. But California is one of the three U.S. states which require that the state budget should be passed with two thirds of majority, not simple majority. Republicans make use of the situation to kill any budget they disagree with.

While saying the state legislature is to blame, some Californians also blame the voters. In 1978, Californian voters passed Proposition 13 to cap property taxes at 1 percent of assessed value and mandated that increases would require a two-thirds majority at both the state and local level. That proposition greatly limited the state's ability to get more revenues.

That can explain why the Golden State has no money to support its welfare and social services.

The California education system has deteriorated to the point where it is now ranked 47th in the United States. For the past 30 years, governors and legislators have tried to keep California's financial house together by a series of tricks, most often borrowing in anticipation of future revenues. That worked as long as the California economy was strong, but the recession drove California to the verge of bankruptcy.

It seems that the California budget crisis is mixed with impacts of the recession, the struggle between legislators from different parties, structural problems of the state legislature, decisions from the voters and ability of the governor to lead.

CALIFORNIA GOVERNOR SIGNALS KEY BUDGET CONCESSION ON EDUCATION CUTS: Schwarzenegger sees possible compromise + GOVERNOR BACKS OFF PLAN TO SUSPEND PROP 98

noreply@blogger.com (smf) — Sun, 05 Jul 2009 06:03:00 +0000

Gov. Arnold Schwarzenegger said Friday he is willing to reconsider his most recent proposal to help close the state's $26.3 billion budget shortfall by suspending state constitutional rules that control education spending in order to make deep cuts in school funding. View Larger Image

Sat Jul 4, 2009 3:56pm EDT

By Jim Christie - Reuters

SAN FRANCISCO, July 4 (Reuters) - Governor Arnold Schwarzenegger, optimistic California can finish its budget negotiations in a few days, is willing to reconsider his proposed cuts to education in hopes of averting a cash crisis, the San Francisco Chronicle said on Saturday. (ARTICLE FOLLOWS)

A compromise between the Republican governor and Democratic lawmakers may help clear the way for an agreement on an overdue state budget and avert a cash crisis for the government of the most populous U.S. state. California already is issuing billions of dollars in "IOUs" and, without a deal, is on track to run out of cash this month.

The San Francisco Chronicle reported that Schwarzenegger, in a Friday meeting with its editorial board, said he would be willing to reconsider his proposal to help reduce California's $26.3 billion budget deficit with cuts to school spending that would require suspension of constitutional rules on education expenditures.

"We are not stuck ... about the suspension," Schwarzenegger said during the meeting. "We've got to analyze all this."

He said budget negotiations are moving fast. "I think if we continue this way we can get this done in the next few days," he said.

Backing off on education spending cuts would go a long way with Democrats who control the state legislature.

On Thursday Democrats said they would no longer hold out for increasing taxes to help raise revenues to fill the budget gap. That was a major concession to Schwarzenegger and Republican lawmakers, who had opposed tax hikes and pressed for balancing the state's books with deep spending cuts.

That helped Republicans gain confidence that a budget deal could be reached soon.

"I think there is at least a 50-50 chance that we'll find a solution that is acceptable to all parties within a week," Assembly Republican Leader Sam Blakeslee said.

Democrats see backing off on education spending cuts as an important concession by Schwarzenegger.

"While taxes may be off the table, education cuts also have to be off the table," Democratic state Senator Leland Yee told Reuters.

GRIM REVENUE OUTLOOK

Lawmakers failed to agree on balancing the state's budget on Tuesday and the state government began its fiscal year on Wednesday without a spending plan in place.

In response, state finance officials began issuing "IOUs" in lieu of payments for tax refunds owed to taxpayers to preserve cash from higher prior payments, including payments to investors holding the state's debt. They warned that local agencies overseeing health programs and a variety of recipients of state financial aid, including the disabled and college students, could be in line for IOUs.

The state controller plans to issue more than $3 billion this month in registered warrants promising payments if Schwarzenegger and lawmakers fail to agree on a budget.

California is experiencing a severe revenue downturn as a result of the recession, rising unemployment and the lengthy housing downturn that will leave the state's government with an austere budget. It likely will force additional spending cuts throughout the fiscal year.

"The reality is that the revenues are not looking good," Yee said. "We just simply don't have the money to keep up the pace of services we're providing."

California finance officials hope a budget deal is reached soon so they can stop their IOU effort, which aims to reassure the municipal debt market that the state will honor its bond payments ahead of nearly all other obligations.

Finance officials also want to reassure the market in anticipation of having to sell short-term debt for cash-flow purposes once a budget deal is reached.

California's budget turmoil has made Wall Street nervous. Standard & Poor's warned in a statement on Wednesday that if California's budget is not settled soon, the state's A-credit rating, already the lowest of any of the 50 states, is at risk of falling.

GOVERNOR BACKS OFF PLAN TO SUSPEND PROP 98

Matthew Yi, sAN Francisco Chronicle Staff Writer

Saturday, July 4, 2009 -- Gov. Arnold Schwarzenegger said Friday he is willing to reconsider his most recent proposal to help close the state's $26.3 billion budget shortfall by suspending state constitutional rules that control education spending in order to make deep cuts in school funding. That concession may help him avoid a political battle with the influential California Teachers Association. Although the powerful union has been largely quiet during budget talks, it could sway lawmakers who are desperately needed to pass a budget. A source told The Chronicle on Friday that the union is preparing a statewide television advertising campaign to fight any attempt to ignore the education spending rules that voters passed in 1988 as Proposition 98.

On Wednesday, Schwarzenegger had proposed suspending Prop. 98, which among other things requires that school funding be based in part on what was spent the previous fiscal year. The requirement can make it difficult, if not nearly impossible, to make large cuts in education - an expense that makes up about half of the state's discretionary spending.

Such cuts became even more inevitable when the state's gaping deficit grew overnight by $2 billion because the Legislature failed to approve a budget fix by midnight Tuesday, the end of the 2008-09 fiscal year.

Still, the governor, who has proposed cutting this year's education spending by $3 billion, said he was willing to consider other solutions.

"We are not stuck ... about the suspension" of Prop. 98, he said in a meeting Friday with The Chronicle's editorial board. "We've got to analyze all this. ... We have to figure out how to deal with it."

Democratic lawmakers said they are encouraged by Schwarzenegger's willingness to reconsider the Prop. 98 issue. Yet Senate President Pro Tem Darrell Steinberg quickly pointed out that the issue would have never surfaced had the governor on Tuesday supported three budget bills that would have saved $3 billion.

"This problem was completely avoidable. The administration is stuck because of its own ... strategy," said Steinberg, D-Sacramento.

The governor has refused to support partial budget fixes. But the budget impasse has caused a cash crunch that on Thursday forced the state controller to begin issuing IOUs to some taxpayers, businesses and creditors.

That impasse would become even more complicated by an enraged California Teachers Association and other education groups.

"They had not declared war on this governor who had made billions of dollars in cuts to education in his budget proposals ... and to have additional rounds of cuts proposed by him on top of the huge reductions they've already made have gotten them very, very upset," said Kevin Gordon, an education lobbyist.

Gordon noted that the California Teachers Association, which led the effort to torpedo Schwarzenegger's ballot measures to reform government in 2005, had supported the governor's budget-related ballot measures that failed in the May 19 special election. That could spell trouble for the governor, who is one of the biggest proponents of next year's ballot measure that would create an open primary system.

Telephone calls to CTA representatives were not returned Friday.

Nevertheless, despite this new wrinkle in the budget negotiations, Schwarzenegger said talks with Democratic legislative leaders have been progressing and he's hopeful that a resolution is near.

The governor said there has been a greater sense of urgency since Tuesday. Since then, the bulk of the budget negotiations have centered on how much to cut spending in health and human services.

"There's more willingness to look at our proposals more seriously - to look at reforms more seriously ... and to look at cuts more seriously," said Schwarzenegger, who has backed away from outright elimination of popular state programs such as health care for poor children, a welfare-to-work program for single mothers, and in-home support services for the elderly and the disabled.

The governor said "there's movement" in budget negotiations. "I think if we continue this way we can get this done in the next few days."

CALIFORNIA’S DEATH THROES: A View From Sacramento

noreply@blogger.com (smf) — Tue, 16 Jun 2009 22:55:00 +0000

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

noreply@blogger.com (smf) — Tue, 16 Jun 2009 22:42:00 +0000

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.

noreply@blogger.com (smf) — Tue, 16 Jun 2009 15:04:00 +0000

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.

A State Without a Budget, A Government Without a Clue

RED INK IN THE GOLDEN STATE

Letters to the LA Times 11/20

CALIFORNIA FACES A PROJECTED DEFICIT OF $21 BILLION: "Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento" …and so it continues

The legislative budget analyst's projection, to be released Wednesday, threatens to send Sacramento back into gridlock and force more broad cuts to state programs.

LAO REPORT

2010-11 Budget

California's FISCAL OUTLOOK

By Shane Goldmacher reporting from Sacramento | LA Times

California's budget woes will continue for years, report says

Tax receipts have leveled off, but revenue won't bounce back until the 2014-15 budget year, according to the chief budget analyst. Near term, the state faces a nearly $21-billion deficit.

By Shane GoldmacherReporting from Sacramento | LA Times

Lead line in Tucson TV story about the Arizona state budget” "At least we're not as bad as California".

KGUN TV9

SCHWARZENEGGER WARNS OF MORE ACROSS-THE-BOARD BUDGET CUTS

Michael Rothfeld in Sacramento for the LA Times

CALIFORNIA DEBT BINGE SHAKES UP MUNI BOND MARKET: Interest on state bonds up from 2.48% to 4% in two weeks. Rising market yields also devalue older fixed-rate muni bonds.

by Tom Petruno | Money & Co. | LA Times

Field Poll: VOTERS SUPPORT REFORM …BUT WHICH ONES?

By Lisa Vorderbrueggen from POLITICAL BLOTTER: Politics in the Bay Area and Beyond

FIELD POLL: Schwarzenegger+Legislature hit new lows

from SacBee CapitolAlert

CALIFORNIA DEBT UNNERVES INVESTORS AS TAXES PLUNGE $2 BILLION

By William Selway and Michael B. Marois | Bloomberg.com

CALIFORNIA BUDGET IS AREADY IN THE RED 10 WEEKS AFTER PASSAGE

By William Selway and Michael B. Marois | Bloomberg.com

FUNDING THE CALIFORNIA BUDGET CRISIS

THE CALIFORNIA FIX: Tax commission report falls flat, but it's a start

Proposals to eliminate the sales tax and levy an experimental business tax are said to have 'zero percent' chance of passing. But an overhaul is needed, and the ideas may provide a jumping-off point.

By Eric Bailey in the LA Times - Reporting from Sacramento

Government Reports

State of California Department of Finance (DOF)

Legislative Analyst's Office (LAO)

Other Governmental Organizations

Reports by Non-Governmental Organizations

California Budget Project

California Tax Reform Association

Council on State Taxation (COST)

LECG LLP

Public Policy Institute of California

THE CALIFORNIA FIX :: Taming the California Beast: So many problems, so many competing interests -- only rewriting the Constitution will do.

LA Times Editorial

CALIFORNIA’S BUDGET: AN EXPENSIVE NEEDLESS DELAY: Missing the deadline on a budget has cost California billions and undermined confidence in the state.

BUDGET MESS MAKES CALIFORNIA VULNERABLE TO CRIPPLING CREDIT DOWNGRADE, OFFICIAL WARNS: Treasurer Bill Lockyer says the state could find funding sources for crucial programs cut off if its credit rating is dropped to junk status. Lawmakers and the governor vow to keep negotiating.

By Evan Halper and Eric Bailey | From the Los Angeles Times

THE SALLY RAND OF LEGISLATURES: “The Democrats want some guarantees and protections for education funding, and the governor’s evidently saying nix to that”.

By Patt Morrison - Patt Morrison Blog KPCC 89.3 FM

IN SACRAMENTO, THEY ALL DROPPED THE BALL

George Skelton | LA Times Capitol Journal

WSJ: CALIFORNIA CLOSE TO NEW BUDGET DEAL

By STU WOO | The Wall Street Journal

Dan Walters: Out-of-staters gleefully delve into California's woes OUT-OF-STATERS GLEEFULLY DELVE INTO CALIFORNIA’S WOES

By Dan Walters | Sacramento Bee

HOW DID CALIFORNIA GET INTO THIS MESS?

There's plenty of blame to go around in the budget crisis. Fingers can be pointed at Gov. Arnold Schwarzenegger, Democrats, Republicans -- and you and me.

By John Vasconcellos | Opinion From the Los Angeles Times

California’s B-B-Blues in the Night: FITCH DOWNGRADES CALIFORNIA GENERAL OBLIGATION BONDS TO ‘BBB’; MAINTAINS WAITING WATCH NEGATIVE

THE DOWNGRADE TO 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis

THE RATING WATCH NEGATIVE reflects the short-term risk that institutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges and weighing on the state's credit.

From Fitch Ratings via Business Wire

Contacts

News Analysis from China: WHO IS TO BLAME ON CALIFORNIA’S BUDGET CRISIS?

…in which the Chinese explain the California Budget Mess while simultaneously suppressing the ethnic Uyghur minority

by Wang Yan Editor, ChinaView [Xinhua News Agency] www.chinaview.cn

CALIFORNIA GOVERNOR SIGNALS KEY BUDGET CONCESSION ON EDUCATION CUTS: Schwarzenegger sees possible compromise + GOVERNOR BACKS OFF PLAN TO SUSPEND PROP 98

By Jim Christie - Reuters

GOVERNOR BACKS OFF PLAN TO SUSPEND PROP 98

Matthew Yi, sAN Francisco Chronicle Staff Writer

CALIFORNIA’S DEATH THROES: A View From Sacramento

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

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

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

Interactive: California budget balancer

Full coverage: California's state budget crisis