The big accomplishment in California's statehouse on Tuesday: the maintenance crew successfully finished decorating the historic building for the holiday season. At least they did their job.
On this week's Capital Notes Podcast, we examine the total collapse of this week's efforts to stem the flood of the budget red ink. From partisan warfare to a budget process that seems to have completely failed, Tuesday's activities closed another chapter in the annals of Capitol gridlock.
Capitol Weekly editor Anthony York and I discuss what happened, and what's next. We also check in on the handful of political races where votes are still being counted.
(You can read all about the incoming crop of new legislators in this week's Capitol Weeklyhere.)
Happy Thanksgiving to our readers and listeners... see you back here for the convening of the new Legislature on Monday.
There's a common perception inside the ornate walls of the Capitol that the public hasn't ever really been dialed in to the impending doom that is the state budget. They don't seem to feel a sense of urgency, goes the theory.
Well, after today's anti-climatic end of the legislative session, one might be compelled to say to the Legislature: right back at ya.
In the Senate, the late afternoon/early evening session on the Democratic budget plan produced a sizeable source of revenue... for Round Table Pizza. The tradition of legislators getting a taxpayer subsidized dinner for working past normal hours continued, with 36 pizzas stacked up in a hallway just off the Senate floor. At last count, there are 40 senators... which works out to just over 70% of a full pie for each one of them.
Meantime, the floor of the Assembly sounded more like a cocktail party than a legislative chamber. The sound system made it easy enough to hear the impassioned speeches, but there was a lot of inattention by those waiting to vote. Several lawmakers seemed to spend much of the debate surfing websites at the laptops on their desks.
If all of this sounds, well, snarky... perhaps it's because the proposal, debate, and outcome were all ones seen before.
In the end, the Democratic proposal failed to garner enough GOP legislative votes to clear the supermajority hurdle in either house -- although Senate Republicans did vote for some of the spending cuts contained in the package.
However, even if the proposal had somehow made it out of the Legislature and downstairs to the desk of Governor Schwarzenegger, he would have rejected it. At least, that's what he told reporters tonight just after both houses adjourned.
Schwarzenegger said the Democrats didn't put up an economic stimulus package in tandem with the spending cuts and tax increases. "You cannot go and raise taxes without having an economic stimulus package," he said. "It's not fair to business. It's not fair to the people. We've got to go put people to work, and we've got to ease off some of the regulations that makes it tough to do business here in California."
Moments later, incoming Senate pro tem Darrell Steinberg said Schwarzenegger's stimulus ideas still wouldn't have been enough of a sweetener to get any GOP votes on the budget proposal. Plus, he said, there were things in it Dems didn't like. Even so, he said the issue of the economy doesn't solve the state's immediate problems.
The floor debates featured some familiar points: for Democrats, it was the notion that Republicans won't lay out a comprehensive plan to solve the shortfall. For Republicans, it was criticism that the Dem spending cuts were actually worth much less than advertised, and that no one would listen to GOP revenue ideas before moving on to tax increases.
For his part, Schwarzenegger told reporters that legislators had "failed the public" by not getting the job done in this 19 day special session. Likening them to kindergarteners, the governor claimed the session was never taken seriously... a far cry from his usual optimism.
You can hear his critique below.
And yes, as you could hear, the governor plans to use his voter approved power to declare a fiscal emergency when the new Legislature convenes on Monday. Whether that inspires a sense of urgency, though, remains to be seen.
One of two things will happen as the Legislature convenes today to consider solutions to the state's big budget mess: either a handful of Republicans will cross party lines and do something they've never done before... or we'll be right back at square one tomorrow morning.
That's the overview, in a nutshell, of what to watch for as Democrats in the Assembly and Senate put up a $17.1 billion proposal to deal with the budget gap now projected over the next 18 months.
The proposal, outlined for reporters in a background briefing with Democratic budget staffers, is split down the middle between cuts and taxes. The $8 billion in cuts relies on a $4 billion whack to proposed K-12 education spending, and a number of cuts to higher education, social services, transportation, and state employees.
The $8 billion in new revenues relies in a full restoration of the vehicle license fee (VLF), the infamous "car tax" of yore, and a suspension of this year's scheduled indexing of personal income tax rates; the latter means that most taxpayers would not see the lower state income tax rate they're scheduled to get when filing for 2008 (is that a tax increase, or the cancellation of a tax cut? Ah, semantics). For people whose adjusted gross income (AGI) is $50,000 a year, the reported cost is about $79, rising to $200 for those whose AGI is $100,000 a year.
The vehicle license fee hike, a tripling of the current rate from .65% of a vehicle's value to 2% (which is where it stood until 1998), would reportedly bring in about $5.7 billion over the 18 month budget period. The income tax indexing plan would bring in about $2.4 billion.
None of these proposals are new. Many of the cuts are smiliar in dollar amounts to those proposed by Governor Schwarzenegger earlier this month. The VLF is a perennial favorite when it comes to revenues. Even the income tax indexing idea, or at least a version of it, was pitched by Democrats this past summer during budget negotiations.
And the "usual suspects" nature of the plan brings us back to the first paragraph above; something truly unseen in recent years -- Republicans bucking their party leadership for one reason or another -- will have to happen if we're not going to all be right back here tomorrow... or next week... or in January.
If that wasn't depressing enough, then here's one more body blow: approval of this package would still leave the state budget in a big hole... another $10 billion over the next 18 months.
Legislative leaders say they expect to vote tomorrow on some kind of proposal to address the $11.2 billion breach in the state budget, but they won't confirm what is... or is not... in the proposal. And at this point, it seems unlikely that an actual deal is at hand.
After a private meeting with Governor Schwarzenegger this afternoon, the legislative leaders that emerged to a waiting throng of reporters said virtually nothing. Will there be a vote? Yes. What's going to be voted on? Can't tell ya. Will Republicans vote for any kind of proposal offered by Democrats? Who knows.
There are days when the press corps... and by extension, the public... knows very little about how elected officials, paid by taxpayers and generally required to deliberate in public, actually plan to act. (With every year, by the way, this phenomeon grows stronger.)
The incoming leader of the state Senate, Sen. Darrell Steinberg (D-Sacramento), later came back out to address a few questions, though again without any real specifics. Last week, Steinberg was identified as the man reportedly behind a deal that would both increase the vehicle license fee and place a new budget spending cap on the statewide ballot; the pro tem-in-waiting didn't comment on any of that today, choosing instead to only speak in general terms about tomorrow's proposal.
"The problem is of such significant magnitude," he said, "that we feel it is vital that we at least give it our best shot tomorrow, that we put up a responsible, balanced package."
One thing Steinberg did clear up, however, was that there is not currently a "deal," per se, between Democrats and Republicans.
That would seem to mean one of two things: either the push is now on to pick off the mininum number of GOP votes needed for a two-thirds majority, or the outcome of tomorrow's late afternoon debate is already a foregone conclusion.
Since we began the Capital Notes Podcast last year, one topic is far and away the most talked about: California's screwed up finances.
So why should this week be any different?
Fresh off the diversion of campaign coverage, we're back on the money beat. And as Capitol Weekly editor Anthony York and I surmise, it looks like it's going to get a lot worse before it gets better.
It's kind of hard to be surprised by bad economic and budget news in California these days. After all, there's virtual unanimty that we're in deep you-know-what.
And yet, today's full analysis by the Legislature's nonpartisan budget watchers is still shocking... probably for its opinion that the problems stretch across almost every single aspect of state revenues and expenditures.
The annual fiscal outlook, the first under newly minted Legislative Analyst Mac Taylor, adds some details to the gloomy projections the LAO released just nine days ago. That projection focused on a $28 billion gap by July 2010.
Ready for some more bad news?
The Five Year Flu: The LAO report concludes the current economic storm, which could easily keep blowing into the next fiscal year, will result in a prolonged period of revenue problems. Analysts now predict it will take until the 2013-2014 budget year for state government revenues to surpass those received just last year -- in total, a five year recovery.
And It Could Be Worse: The report, with a nod toward the fact that no one really knows how much worse things will get, includes a scenario where personal income grows only half as much as the LAO now predicts for 2009 and 2010. The result: another $4.5 billion less in state government revenues in the short term.
Capital Gains Collapse: The outlook for capital gains revenues really helps tell the overall story. Profits on stocks and real estate are a major component of personal income tax revenues for the state, and thus a major component of government revenues. The LAO outlook now projects capital gains will decrease from $125 billion in the 2007 tax year to just $65 billion in 2008... almost a 50% drop in one year. In 2009, the LAO believes capital gains will fall to just $41 billion -- that's a 66% evaporation of capital gains revenues in just two years.
Housing, Unemployment: Two more signs of the meltdown... while more than 200,000 new residential building permits were issued in both 2004 and 2005, the annual totals this year and next are expected to only be about 70,000. Meantime, California's unemployment level was about 4.9% in 2006; by next year, the LAO believes it will be 9%... or higher.
Expenses: Lest anyone think the problem is strictly too little cash, the LAO projects an ongoing rise in state government expenses (but to be fair, the projected problems seem to be much more severe on the other side of the ledger). Some biggies -- public schools (K-12) spending to rise by 2.2% a year; Medi-Cal spending to rise by an average of 6.1% a year; in-home supportive services (IHSS) to average 7.9% more a year; and prison spending to increase an average of 2.6% a year.
But the winner... debt service. The LAO predicts payments for all of the state's borrowing through bonds will rise an average of 9.9% a year. That increase includes the bonds approved by voters just two weeks ago.
This kind of sober assessment would presumably shake up the cuts/taxes soap opera that's been playing out in the Legislature these past few years. For now, it hasn't; another leadership meeting today apparently didn't move the ball over the goal line.
Plans for a weekend budget vote in one or both houses have been scrapped... with the best case scenario now being some sort of budget action taken just before that Thanksgiving turkey gets popped into the oven.
From the "It Only Seems To Get Worse Department"... budget advisers to Governor Schwarzenegger say the cost of fighting wildfires since July now totals almost $305 million. That's about $235.8 million more than was set aside in the budget Schwarzenegger signed into law less than two months ago.
The firefighting pricetag is current as of this past weekend, and reflects not just the struggle to contain the still burning blazes... but of the state to adequately set aside money for disasters.
The official 2008-2009 budget included just $69 million for emergency fire suppression. And it seems safe to assume that just about everyone knew that wouldn't be enough, given this past summer's wildfires.
And now, for some particularly troubling context: state government spent $518.4 million on firefighting in the 2007-2008 fiscal year. That dwarfed the costs in any recent year... and yet, we've already spent more than half that amount in just the first five months of this fiscal year.
While gubernatorial advisers won't say so, it may be fair to tack the $236 million in unbudgeted firefighting costs to the already large revenue gap announced this month of $11.2 billion... thus making the problem inch ever closer to $11.5 billion. (Some in the Capitol will no doubt quibble with this fast math, arguing that it mixes a lack of revenues with an excess of expenses... others will proclaim that's a distinction without a difference.)
Schwarzenegger budget spokesman H.D. Palmer says the governor's line-item vetoes when signing the budget... totaling around $510 million in the general fund... were made with an eye toward socking away cash for just these kinds of expenses. That, of course, was before the bottom dropped out of the revenue forecasts in that budget.
You may remember Schwarzenegger pushed for a new fee in this past year's budget debate to help fight fires... a fee hike that died in the Legislature. The governor has said he intends to re-introduce the proposal in January.
Last month, when responding to a question about then-burning fires (which are part of the $305 million pricetag), the guv said the following:
"We need to raise the insurance fees, the homeowner insurance fees, by a certain extent. And, of course, there are going to be debates, is it a tax? It doesn't matter what it is. Let's increase it, let's create the extra revenues and keep people safe. Public safety is the most important thing."
update: Schwarzenegger budget guru Palmer says the cost of SoCal firefighting since just last Wednesday is now near $11.1 million... that's part of the bigger numbers mentioned above.
The big immediate news in California these last few days has been the devastating wildfires burning through the Southland. Even so, the inferno that is the state budget crisis appears ready to rekindle here in Sacramento.
The state Senate has now scheduled floor session for this coming Sunday, ostensibly for a vote on some kind of fiscal crisis solution. As you know, the state is staring down an abyss that's $11.2 billion deep in the short run. The 4:00 p.m. session was announced this afternoon, thus giving incumbent lame duck senators ample notice for their travel back to the state Capitol.
You'll remember that Sunday is the deadline mentioned by outgoing Senate President pro Tem Don Perata for legislative action before the new Legislature is seated on December 1.
The real question, of course, is whether there will be a deal in hand by week's end? It's become clear that Democrats want a list of new revenues GOP legislators are willing to raise... in exchange for a list of items they are willing to cut. And given the severity of the problem, it seems that both lists need to be substantive. And serious.
Meantime, Governor Schwarzenegger's budget office has released the latest revenue data. The report shows that October revenues were about $2 million better than expected in the analysis Schwarzenegger unveiled just 11 days ago, while the fiscal year revenues are now about $20 million worse than expected. Relatively speaking, those are small numbers. Of course, when you match up actual revenues with the projections contained in the official budget signed into law back in September... the gap is much, much larger. Hence the call for immediate action.
It would be an oversimplification to say that nothing's happened since the governor called the special session; legislative leaders have met several times, and the Assembly Budget Committee debated Schwarzenegger's proposals last week. But there's also not what you'd call a palpable buzz inside the Capitol. Instead, the odds makers would probably say the safe money is on limited action now, with more substantive issues postponed until the newbies take office next month.
John Myers is Sacramento Bureau Chief for KQED's "The California Report," heard on 24 public radio stations including 88.5 FM in San Francisco and 89.3 FM in Sacramento, weekdays at 6:50 a.m. and 8:50 a.m.
