Waiting For Tonight's Budget Drama

December 17, 2008 · Filed Under CA Budget · Comments Off 

Late word that the Senate and Assembly are now not convening until 9:00 p.m. tonight to consider the controversial simple majority tax plan from Democrats.

Which leaves some time for odds and ends.

The delay is undoubtedly tied to the negotiations that multiple sources say have been going all day between Democrats and Governor Schwarzenegger. Those negotiations clearly have to resolve whether Schwarzenegger will get what he wants -- economic stimulus proposals, for one -- in exchange for signing on to a tax plan that's creative... and then some.
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Schwarznegger appeared at an event this morning touting the redistricting proposal, Proposition 11, that squeaked out a win at the polls last month. While the governor apparently made a very noncommittal comment on the plan, what was more interesting to me was the quip the guv made when thanking the folks who stood beside him in the Prop 11 campaign.

He thanked the man who leads the state's most prominent anti-tax group: Jon Coupal, president of the Howard Jarvis Taxpayers Association. And when he mistakenly thanked Coupal twice, the governor made the following joke: "I'm going to mention you twice, because maybe you don't attack me when we raise the taxes."

It drew a good laugh, but boy what timing. Hours later, with Schwarzenegger's position on the Dem tax plan unclear, Coupal came out swinging... arguing the plan is an illegal end run around the supermajority tax rule under Proposition 13.

"Anybody who votes for this [tax plan]," he said, "will be acknowledging a direct assault on Prop 13, and they will pay a political price."

Does that include the governor, I asked? "Absolutely," Coupal said sternly.
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And on the issue of legality, Senate President pro Tem Darrell Steinberg told reporters today that the "majority vote tax" idea was hatched back in 2003, when he wondered whether the best solution to the hot potato vehicle license fee ("car tax") debate was to completely cancel the tax, and replace it with another equally valued tax... thus being "revenue neutral."

Later, reporters were told Steinberg had a legal opinion from the Legislative Counsel's office that said the tax swap is kosher under the state Constitution. He does... and it's from 2003. The leg counsel opinion was drafted in response to the VLF question, not the current bill; but Steinberg's staff says it applies here, too, and that tonight's package -- whenever it's actually considered -- has been deemed a majority vote bill by legislative lawyers.
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The Dem package, among its many twists and turns, seeks to undo what heretofore held the record for most complicated detour-around-warring-tax-factions: the so-called "triple flip" of 2004. I won't try to completely describe it... though I always think of this when it's mentioned:

The "triple flip" was created to help pay off the Proposition 57 deficit bonds, and swaps state and local sales tax revenues with some additional swapping of property tax dollars and general fund spending thrown in for good measure.

It, too, was "revenue neutral." The new package's sales tax increase would undo this ghastly named law, and is the only tax in the plan that isn't permanent; once the Prop 57 bonds are paid off in a few years, a portion of it goes away. Finally.

Dems Go Around GOP. Et Tu, Arnold?

December 17, 2008 · Filed Under CA Budget · Comments Off 

And just when you thought the budget saga couldn't get any more bizarre. If this were the Olympics and even if you hated it, you'd have to score some style points on the acrobatic budget maneuver unveiled this afternoon.

Democrats, frustrated with GOP refusals to vote for any tax increase to erase any part of the state's fiscal problems, have now decided to push forward a budget plan that includes $9.3 billion worth of new revenues... revenues they say don't require a single Republican vote.

Fasten your seatbelt. Here goes:

Democrats say the plan (which legislative attorneys have reportedly vetted) is "revenue neutral," meaning that the bill to be considered is a zero sum game to the state. And that, they say, means any new revenue... even a new tax... can be enacted with a simple majority vote.

But it's not revenue neutral to most Californians; on the contrary, the plan would add 13 cents to the price of a gallon of gas, a 2.5% surcharge onto everyone's income tax bill, a three-quarter-of-a-cent sales tax hike, and a new 3% withholding tax to independent contractors (who technically own their own business).

So how does a revenue neutral bill solve the problem? Pop a Dramamine pill before reading on...

Because, say Democratic budget staffers, it creates new revenues in the state's general fund, and takes away a relatively equal amount of revenues that now go to the state's special fund. And because the current shortfall is revenue that's evaporated from the general fund... well, there ya go: new revenue... and... revenue neutral. Presto!

The package also includes an oil severance tax that conforms with a plan proposed last month by Governor Schwarzenegger. And overall, it's estimated that it would bring in $1.5 billion in the current fiscal year, and $7.8 billion in the budget year to come.

The revenues are paired with $7.3 billion in cuts, which Democrats say are the same proposals they offered late last month.

All of this begs two questions: if it's such a great idea, why didn't Dems do it sooner? And what will Schwarzenegger do if this lands on his desk?

I asked the first question in today's news conference with Democratic leaders. Senate President pro Tem Darrell Steinberg's reply can be heard below.

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(By the way, the "pledge" he refers to is the pledge almost every GOP legislator signed to not raise taxes.)

The answer to the second question -- what will the governor do -- may be the only other real news.

After all, this does seem to be at least a first step away from financial collapse. On the other hand, it would probably cement the frosty relationship with Republicans. And you can probably put a stopwatch to attorneys for a few interest groups who will no doubt run to court and try to block its implementation.

No matter what you think of this, it has re-energized the story for reporters... who've labored to write the same story with the same dynamics day after day.

Stay tuned, this one's a long ways from over.

[4:13 pm update -- Reaction on the other side of the aisle so far has been as expected, with an extra dash of outrage. Assembly GOP Leader Mike Villines describes the Democratic proposal as "trickery." As for the governor... a spokesman says Schwarzenegger's reviewing the proposal, but also insists on a series of economic stimulus plans -- including more public-private partnerships, and less lengthy environmental review for some public works projects.]

Assembly Adjourns, Without Progress

December 16, 2008 · Filed Under CA Government · Comments Off 

10:45 pm: The Assembly has called it a night, after a more than four hour delay, which followed the failed vote for the Democratic budget proposal.

And in true Capitol fashion, even that vote was surprising, as all Democrats removed their votes from the bills once the quorum call was lifted this evening. Which means we end the day where we began it.

[11:30 am Wednesday: My brief coverage of yesterday's saga can be heard below in this morning's edition of The California Report (it's the first story).]

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All Nestled, Snug In Our... Assembly Chamber?

December 16, 2008 · Filed Under CA Budget, CA Government · Comments Off 

As the old saying goes, watch this space.

We know the Assembly is convening this afternoon to take up a new, or rather modified, budget deficit proposal from Democrats. We know it's a $19 billion proposed solution, per comments to reporters from Assembly Speaker Karen Bass.

And we know there's a chance the session could go into the night. And perhaps a formal lockdown of the Assembly chambers? "I'm so concerned about the [state's fiscal] situation," said Bass, "it just might have to get to that."

But the package, as of this writing (2:15pm) hasn't been made public. Bass says it has $11.3 billion in revenues, including a sales tax hike, and almost $7 billion in cuts.

Stay tuned. And if you're headed to the Capitol, bring a book. And maybe a pillow.

[update 3:30 pm: Some details of the proposal coming up for a vote are now out... and almost all of its revenue ideas seem similar to those pitched last month by Governor Schwarzenegger, including a sales tax hike, a new oil severance tax, and a nickel-per-drink alcohol tax.

It proposes $2.5 billion in current year cuts to public schools -- a figure equal to Schwarzenegger's plan -- but trims the spending in different areas. And it proposes a $657 million cut (over 18 months) in state worker pay, without specifying how to achieve the savings.

It's doubtful this is a plan the GOP will vote for, but apparently Dems think it's worth the effort.]

GOP Budget Plan: $22 Billion, No Taxes

December 15, 2008 · Filed Under CA Budget, Political Parties and Independents · Comments Off 

Legislative Republicans have crunched the numbers on their proposal for erasing some, but probably not all, of the shortfall facing the state over the next 18 months -- a $22 billion proposal that suggests more than $2 in cuts for every $1 in new revenues.

First, those revenues: the GOP plan would grab $6 billion in revenues generated from the state's 10-year-old tobacco tax (Proposition 10) and about $4 billion from a 2004 initiative that hiked the income tax on millionaires. The tobacco tax dollars are designated for childhood development programs; the millionaire's tax dollars are set aside for mental health programs (Proposition 63).

But don't call the plan the "B" word: borrowing.

"We don't consider that borrowing," said Senate GOP Leader Dave Cogdill. The proposal would, however, have to be ratified by voters because that's how the current designations were created. Cogdill says the $6 billion is sitting "idle" in the bank, and could be used to solve the state's short-term cash woes. Assembly GOP Leader Mike Villines calls the money "surplus," adding: "I don't think taxpayers realized they paid money into programs that are surplus. Let's put the question to them: would you rather that [money] go into the budget crisis?"

More on the revenues in a moment.

As for cuts, the proposal includes a trim to the Legislature's own budget (which, in the end, may be the one element that no lawmaker can defend not including, given the low esteem in which the body is held by the public); that proposal calls for a 5% across-the-board cut, including a cut in lawmaker salaries.

But the big cuts come in education (about $905 million beyond plans offered by Democrats and Governor Schwarzenegger) and an additional $86 million in social services programs. The education cuts are mostly in K-12, with about $75 million cut through GOP demands for repeal of the state law allowing in-state college tuition for undocumented immigrants.

The biggest education cut, by the way, is a polite jab to the governor: a $550 million cut in Proposition 49 funding, the afterschool initiative the guv championed in 2002.

(And jab #2 to the guv: a zeroing out of the budget for Schwarzenegger's famed "hydrogen highway," to the tune of $6 million).

The GOP plan also calls for loosening some of the state mandates on how education dollars are spent, as well as some of their pro-business demands that they say will stimulate the economy.

"If we do this today," Villines said to reporters, "it won't be as bad next year."

Back to those revenues... the advocates for Prop 10 and Prop 63 programs say the GOP legislators lack an understanding of how those programs work. In particular, they say the seemingly "surplus" dollars have been committed to valuable programs that are funded through two and three year grants, not annually.

"You might not think the [tobacco tax] dollars are not allocated, or earmarked, but they are," said Kris Perry, executive director of the California First 5 Commission.

"This proposal is like a Trojan Horse," said Rusty Selix, one of the authors of Prop 63, in a written statement. "While it looks like there is a lot of revenue available, inside that package are the costs of caring for thousands of people with severe mental illnesses who are currently succeeding in county programs." Selix says using this money elsewhere would just lead to mental health patients ending up in other state supported programs. "The savings are illusory," he said.

So now what? Hard to say. The proposal released today is not unexpected, and neither is its bottom line position on how to get out of the state's fiscal mess. That being said, it does seem to put the ball back in the court of Democrats to say if any of these ideas are ones they'll consider... in exchange for something else. It also allows GOP legislators to now dismiss criticisms that they haven't come forward with a plan.

[update: Assembly Speaker Karen Bass says in a statement the GOP plan will be vetted tomorrow by her chamber's Budget Committee. "The Republicans have to show they are finally serious about accepting real revenues as well," she said in a statement. "We'll learn tomorrow just how serious they are."

And even less enthusiasm from the governor. The GOP plan "is not a negotiated compromise," says gubernatorial spokesman Aaron McLear, "it's simply a [political] drill."]

Podcast: Arnold Comes Out Swinging

December 12, 2008 · Filed Under Podcasts · Comments Off 

This week's news on the state budget saga saw some new tough talk from Governor Schwarzenegger. But will it be enough to shake things up?

On this edition of the Capital Notes Podcast, we examine the impact of the joint legislative session on the fiscal crisis, the governor's deficit clock, and more.

Capitol Weekly editor Anthony York and I also examine the budget tie-in to this week's big environmental news on California's landmark global warming law.

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[By the way, thanks to a listener there is cyberproof of Count Cartaxula! Click on this link and squint at slide #2... he's on the corner of the stage. --JM]

$41.8 Billion Deficit: A Closer Look

December 11, 2008 · Filed Under CA Budget · Comments Off 

Governor Schwarzenegger and his budget advisers today projected a $41.8 billion deficit between now and the end of June 2010. That's easily one of the state's biggest fiscal holes ever, and only seems to have raised the sense of gloom and doom inside the state Capitol.

The events of the past 24 hours have left everyone a little... well, frazzled. By this afternoon, Schwarzenegger's criticisms of yesterday were returned in kind from the GOP leader in the Senate.

All that aside, the new $41.8 billion estimate merits some examining... using data provided by the governor's budget team.

First off, the shortfall is actually projected at $39.8 billion; on top of that has been lumped a desired $2 billion reserve that gubernatorial budget director Mike Genest said today must be counted, given the need to have some kind of padding in light of the seemingly comatose economy. Probably so, but for now let's stick with the shortfall itself.

The budget signed into law in late September projected $103.4 billion in general fund expenditures and about $102 billion in general fund revenues; the difference was to be made up with money carried over from the 2007-08 fiscal year.

But as of this month, current year revenues are expected to total only $87.5 billion; that's a whopping $14.5 billion that's evaporated into thin air. For the budget year that begins next July 1, revenues are now expected to be $16.3 billion below earlier forecasts.

On the expenditure side, current year general fund spending was budgeted at $103.4 billion, but is now projected to be almost $104.6 billion. Reasons for that, say the governor's advisers, include firefighting costs and growth in client caseloads for social service programs.

But that's nothing compared to next year, where projected expenses are now estimated (absent any fixes) to be $111.2 billion. That's almost 7% more spending than this year... while revenues, if the estimates are accurate, will be almost 16% below this year's level.

And next year is the bigger problem, representing about $25 billion of the $39.8 billion problem.

There's more info about those missing revenues. Personal income taxes this year are expected to come in 16% under budget; corporation tax revenues, 22% under budget. All other sources of revenue are also off.

Schwarzenegger advisers say these are the numbers usually kept quiet until the governor's budget is released in early January. But this is a far from usual year, and it's clear that these kinds of numbers, a (for now) worst case scenario, are being publicized to try and spark some action by legislators.

The administration's bad news also comes with what they think is a lifeline: projections that the governor's special session budget plan, if enacted, would cut the $41.8 billion gap by more than half... to $19.3 billion.

But as of now, such action is a long shot... and there are an awful lot of folks around the Capitol holding their collective breath about what bad news might come next. Holiday cheer is in short supply.

18 Month Deficit: $40 Billion

December 11, 2008 · Filed Under CA Budget, The Governor · Comments Off 

That's the bleak news you can expect to hear more about today.

An administration official, speaking on background, says that Governor Schwarzenegger will tell legislative leaders today that the new deficit estimate through June 2010 is a whopping $40 billion.

That's up significantly from the last official estimate for the 18-month gap, which was $28 billion from Legislative Analyst Mac Taylor.

As we found out yesterday, almost $15 billion of the $40 billion shortfall is in these final six months of the current fiscal year. And for the first time, the estimates now include both missing revenues and higher-than-expected expenses.

While it still isn't as deep as the 2003 deficit, which at the time was pegged at about $38 billion (estimates varied, and still do), that gap was closed with a lot of one-time gimmicks that are no longer viable, either for policy or political reasons.

The bad news comes on the heels of Schwarzenegger's jabs at legislators in a news conference yesterday. One wonders how the juxtaposition of those two factors will affect the mood inside today's planned Big Five meeting.

Arnold Deficit Clock Now At $14.8 Billion

December 10, 2008 · Filed Under CA Budget, The Governor · Comments Off 

Arnold The Showman is back.

With Monday's joint legislative meeting on the state's fiscal crisis seemingly failing to thaw the frozen partisan fight on budget solutions, Governor Schwarzenegger today unveiled a ticking budget deficit clock and announced the current year shortfall has now grown to $14.8 billion.

That's up $3.6 billion since his estimate of $11.2 billion was released about six weeks ago. And the clock he unveiled in classic Schwarzeneggerian style today (and which will sit outside his Capitol office) is ticking away at $470 every second.

The governor called the Legislature's performance in dealing with the fiscal crisis "shameful," and pledged to stay in Sacramento as long as it takes to strike a deal. "I will do anything to move the agenda forward," he told reporters this morning.

Advisers say Schwarzenegger has summoned legislative leaders for a Big Five meeting tomorrow, and plans to give them a new... and worse... estimate for the deficit facing California between now and July 2010; current estimates have put that problem at $28 billion.

The new projection, according to gubernatorial budget director Mike Genest, accounts for both missing revenues and higher-than-expected state expenses. That's a departure from the November projection, which we were told was just the revenue side of the equation.

One lingering question of late around the Capitol has been whether Schwarzenegger can, or will, reach out to rank-and-file legislators to solve the problem, rather than relying on Big Five leadership meetings which have clearly produced zilch in results. You may remember the guv once said he doesn't particularly like Big Five meetings.

I asked him whether it's time to change his approach, and he said he would. You can hear that below.

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Also worth noting from today's news conference -- the not-so-subtle dig that Schwarzenegger took at his fellow Republicans. When asked by a reporter about GOP demands that Democrats approve a set of business friendly proposals before taxes are even discussed, the GOP governor said such proposals have never been presented in leadership negotiations.

"None of those things were discussed," he said. And then he went even further: "It's always very vague, and nothing specific." And if anyone still missed the point, Schwarzenegger kept going: "I have felt many times that Republicans did not come [to meetings] prepared, and Republicans have not been specific of what they need."

The Senate began its micro examination of fiscal issues this morning, by convening the first budget subcommittee hearing, but it's clear the governor wants to up the ante. And in his ongoing struggle to balance the carrot with the stick when it comes to the Legislature, there was nary a whiff of the orange vegetable to be found this morning.

[update: Unsurprisingly, Republicans don't seem impressed. The official written statement from Senate GOP Leader Dave Cogdill reads, in part: "Bullying the Legislature to adopt tax hikes won't make the ticking clock the governor unveiled today go away, in fact it will only make our budget problems worse. Raising taxes doesn't solve the underlying problem of California's budget, which is the state spends more than it takes in."

We Need New Ideas. From 2004.

December 9, 2008 · Filed Under CA Budget · Comments Off 

Like every good state Capitol denizen, I still have the yellow books sitting on a shelf here in the bureau. It's a handsomely bound set dominated by two volumes each the size of a San Francisco phone book, emblazoned with a memorable title: "A Government For The People For A Change."

"It" is the California Performance Review, the somewhat quixotic adventure of 2004 that attempted to make good on Governor Schwarzenegger's promise to "blow up the boxes" of state government.

It's back. Sort of.

The CPR was a three month endeavor, carried out by a few hundred state employees and endorsed by the governor, to find places for saving money in state government. "This report is a top-to-bottom look at how to improve our government," said Schwarzenegger at an August 2004 event staged inside a state surplus warehouse.

But by that fall, the commission appointed by the governor to review the CPR suggested it needed more work. The bipartisan group, as a story in the Orange County Register reported, "said several aspects of the 2,500 page plan commissioned by the governor need to be done over or delayed because they don't address the state's true problems."

That's not to say the CPR produced zero change; a few of its suggestions, like the creation of a state public health officer, were carried out.

But many more were deemed either not ready for prime time or declared DOA by powerful interest groups. Schwarzenegger himself dropped a high-profile push to abolish 88 state boards and commissions.

Now, during what appears to be one of the worst budget crises in state history, the CPR is back -- with the governor's fellow Republicans using every opportunity to urge folks to dust off those yellow books.

The buzz seemed to begin a few weeks ago after one of the infamous Big Five budget meetings, when Assembly GOP Leader Mike Villines told reporters that government reform should be back on the table. He and other Republican legislators have repeated these demands almost daily ever since.

At a meet-and-greet with new GOP legislators last week, Villines said he knows the CPR ideas aren't worth enough in savings to make a sizeable dent in the projected $11.2 budget this year, but that it's not the point.

"Things like [the CPR recommendations] are symbolic," he said. "I know it won't be a huge cut, but when you start doing those things, then Californians can say, 'Okay, we're open to a discussion on other things.'"

Other things, one presumes, would mean tax increases.

Sen. Dave Cox (R-Fair Oaks) took his own shot at yesterday's joint convention, using his alloted question time to lift the big books up for the cameras and suggest someone re-open them.

Democrats, though, seem unimpressed.

“It is not an answer," said Senate President pro Tem Darrell Steinberg last week, "to say, 'Well, government needs to just be more efficient, therefore we're not going to solve the [larger] problem."

But in the battle over messaging, Republicans must think that they've found a winner. Every GOP freshman I interviewed at last week's gathering mentioned the need to ferret out waste, fraud, and abuse. And their state party took up the cause this afternoon.

"Lawmakers need to find the waste and fraud," screamed a press release from the California Republican Party. "Democrat calls for even higher taxes to fund more of this waste only adds insult to injury."

Will the yellow books come back into play? Are there a few of the proposals that deserve a second look? Is the governor interested in trying again to blow up the boxes? Tough to say at this point; both sides admit these aren't big dollar items, but disagree on whether that matters.

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