Podcast: State of the State

January 15, 2009 · Filed Under Podcasts · Comments Off 

It was somber. It was serious. It was short.

Governor Schwarzenegger's 2009 State of the State address is now one for the history books... but not without a sifting through on this week's edition of the Capital Notes Podcast.

We're a day early with this week's podcast, but what the heck; everything's different this time around with the State of the State. Capitol Weekly editor Anthony York and I take a look at the overall tone, the challenge for the governor to speak to both legislators and the public and large, and where we go from here in discussions to solve the massive $40 billion budget hole.

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Part Motivator, Part Terminator?

January 15, 2009 · Filed Under CA Budget, The Governor · Comments Off 

Eleven minutes, 56 seconds.

Governor Schwarzenegger's State of the State address was short... pretty much focused singularly on the state's fiscal disaster... and vintage Arnold, with a pat on the back and a wagging finger all at the same time.

State of the State speeches are always some odd blend of an address to the legislators sitting in the Assembly chamber and a conversation with the presumed larger audience of average Californians listening or watching at home. That split audience has led many governors to paint with broad strokes, finding ways to blend a general message with specifics that almost everyone can agree are worthy goals.

But Schwarzenegger has often struggled with that balancing act, occasionally throwing out some populist red meat lines that bomb with his live, legislative audience.

Today's speech was more serious and somber than most (that in itself is likely challenging for the eternally optimistic guv). But just when Schwarzenegger had made it clear that now's not the time for fighting, he threw a bit of a jab.

"If you don't mind, let me just make a little suggestion," is how he began.

With that, the governor threw out the idea, already floated by some legislative critics, to enact a "no deal, no paycheck" system for the Legislature in the event of a summer budget impasse.

And then, silence.

"I thought that this line would get a great applause in this hall but I understand why not," said Schwarzenegger.

Democrats focused on that passage as the one part of the speech they thought was off track. And in fairness to the guv, it was a mild rapping on the knuckles. Even so, it reminded many of the Arnold of Days Gone By... the "outsider" who always reminded lawmakers he could go directly to the people for "action, action, action" if nothing happened in Sacramento. That's part of his legacy -- the payoffs and pitfalls of sometimes being a "party of one," to borrow the phrase.

And surely one pitfall is how hard it can be to get divided legislators to unite, even when angry interest groups take a whack at every proposal that's floated or debated.

With budget negotiations now in full swing, perhaps the best thing the governor did in his 2009 State of the State was make the event short and sweet, and get back to negotiating. On that front, it looks like the speech was a hit.

The Shelf Life of States of the State

January 15, 2009 · Filed Under The Governor · Comments Off 

2006 State of the State (Photo: Office of the Governor)

It's a big speech. But if you're the person delivering it, it may not be so fun to go back and examine the words that don't feel quite the same with the passing of time.

This morning, Governor Schwarzenegger delivers his sixth State of the State address from the Assembly chambers. (A plug: I'm anchoring a live broadcast of the speech, a special of The California Report, heard on various stations statewide, including KQED).

In preparation for this year's speech, consider the following snippets from the past. Some excerpts sound as though they could still be said this morning; others will no doubt raise red flags with the governor's critics of promises made but not necessarily kept.

Check back later this morning for some sense of what he said this time around, how it was received, and what's next.

"Every governor proposes moving boxes around to reorganize government. I don’t want to move boxes around; I want to blow them up." (2004)

“Our systems are at the breaking point now. We need more roads, more hospitals, more schools, more nurses, more teachers, more police, more fire, more water, more energy, more ports… more, more, more.” (2006)

"If we here in this chamber don’t work together to reform the government, the people will rise up and reform it themselves. And I will join them. And I will fight with them." (2005)

"Professor Schwarzenegger is going to explain now the economics of our budget problem. Our budget problem is not because California's economy is in trouble… I said it back during the recall and I'll say it again; we do not have a revenue problem, we have a spending problem." (2008)

"These huge budget deficits are aftershocks of past financial recklessness... We cannot tax our way out of this problem. More taxes will destroy what we’re trying to save -- which is jobs and revenue… A tax increase would be the final nail in California’s financial coffin… The people of California did not elect me to destroy jobs and businesses by raising taxes." (2004)

"Together, with the help of the Legislature and the people, we brought California back from the brink of bankruptcy. We balanced the budget without raising taxes, and record revenues are flowing into our treasury, and we are paying down our debt." (2006)

"Our prisons are in crisis. We have inherited a problem that was put off year after year after year... Our prison system is a powder keg." (2007)

"I understand the concern that we have now a deficit, and that our plan is maybe too daring, or too bold, or expensive. But sometimes you have to be daring, because the need is so great." (2008)

Red Ink, Green Proposals, No White Smoke (Yet)

January 14, 2009 · Filed Under CA Budget · Comments Off 

The chatter continues over California's $40 billion budget hole, as Democrats pitch some new economic stimulus ideas, all sides continue to meet in private, and the Republican faithful start ratcheting up the pressure on the issue of a tax increase.

Talks continue today between legislative leaders and Governor Schwarzenegger. For those of you outside CapitolLand, these are closed door negotiations... open only to the occasional photo op to prove to Californians (and reporters, perhaps) that they're indeed talking.

Brian Baer/Sacramento Bee

Yesterday's photo op is worth noting, thanks to this instant classic from the Sacramento Bee and photographer Brian Baer. Again for you non Capitolites, that's the infamous Conan the Barbarian sword that Schwarzenegger keeps in his conference room.

The photo has been the source of many a good joke around the Capitol, and was especially poignant this morning with the appearance of a small bleeding nick on the chin of Senate President pro Tem Darrell Steinberg this morning. Okay, so he probably cut himself shaving. Still...

Steinberg and Assembly Speaker Karen Bass summoned reporters today to put forward what they call a "green" economic stimulus package... a rebuttal of sorts to demands from the governor in recent weeks for a package that allowed exemptions from the California Environmental Quality Act.

"There is no need to gut environmental laws, and risk public health and safety," said Bass.

So what's in the package? In short, it uses about $2 billion in borrowing approved by voters in 2006 for public works projects, and directs that money toward everything from wetlands restoration and flood protection to repair and building projects at state and local parks; the latter proposals, according to Democrats, would be geared toward putting some of the state's idled construction workers back to work.

Of course, selling bonds on Wall Street isn't a slam dunk these days... especially until lawmakers close the $40 billion budget gap. "For all of this to become successful, we need to finish the negotiations we are engaged in," said Steinberg.

That's also the assessment of the Legislative Analyst's Office, which says as much in the report released today on the state's cash flow crisis. That cash flow crisis is expected to kick in next month, forcing Controller John Chiang to either issue IOUs... to formally defer some state payments for a period of time... or some combination of both.

The LAO report covers some familiar ground -- global credit crunch plus evaporating tax revenues leaving the state with too little cash on hand. But it also suggests things could be getting worse.

For example, the LAO says that the state began January with $445 million less on hand than the governor's budget team expected when crunching numbers before the end of 2008. And a great comparison: California is expected to have $3.2 billion cash in hand at the end of this month to pay its bills... compared to the $10.6 billion the state had on hand at the end of January 2008. Yowza.

The LAO suggests that the Legislature may need to dust off a controversial action taken during the 1990s fiscal crisis: legislation that requires the state to reduce specific spending if there's any danger that some short-term loans from Wall Street might go unpaid.

"Given the current environment in the financial markets and investors' shaken confidence in California's credit quality," the report states, "such legislation may be necessary."

Such dire scenarios have led to new chatter about what it will take for Democrats and Republicans to agree on a budget fix -- and yes, chatter about what it might take for GOP legislators to approve a tax increase. GOP leaders did put some non tax-hike solutions on the table a month ago, but not enough to erase the full gap.

If... and that's a huge if... there are Republican votes for a tax increase, they will be votes in defiance of the party faithful, who either want no new taxes... or major concessions from Democrats in exchange for a tax hike.

That seems to be the dilemma posed by GOP blogger Jon Fleischman, who wrote today that Dems haven't explained why they can't just roll back the calendar and put in place a budget plan that spends, say, what the state spent a couple of years ago.

But he also says this:

"If Democrats really want to create an incentive for Republicans to violate the 'Holy Grail' of campaign pledges... perhaps they should offer up some equally painful reforms. They could include an end to collective bargaining agreements for public employee unions -- or better yet, why don't we just ban public employee unions all together? How about the state immediately end all defined benefit retirement programs, moving to a defined contribution program for all new state employees?"

No one knows for sure exactly what, if any, deals are on the table where Schwarzenegger displayed his sword. But chances are that someone ain't gonna be happy with how it all turns out.

Franco Is Still Dead

January 13, 2009 · Filed Under CA Budget · Comments Off 

If you don't get the reference, then you're not reading the blog enough!

Seriously, though... budget talks continue, but there doesn't yet appear to be any kind of deal to discuss. Others in cyberspace see ways that such a deal could come together, but both Monday and Tuesday have featured long Big 5 talks with only "we're still working on it" as the news to report.

Stay tuned.

Podcast: Once More With Feeling

January 9, 2009 · Filed Under Podcasts · Comments Off 

A new year, the same budget crisis. Such are things here in Sacramento, as the fiscal dilemmas of California state government live on... even as the clock ticks towards doom and gloom.

On this first Capital Notes Podcast of 2009, we catch you up on Governor Schwarzenegger's new budget plan, his veto of the Democratic plan, and everything in between.

Capitol Weekly's Anthony York and I also take a quick look at the early rumblings in the 2010 race for governor.

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Leg Analyst: Guv's Math Ok, Solutions... So-So

January 8, 2009 · Filed Under CA Budget · Comments Off 

Legislative Analyst Mac Taylor's new quick look at Governor Schwarzenegger's budget says the calculations seem reasonable, but that there are some better ideas out there for solving the $40 billion shortfall.

The nonpartisan budget guru (relied on by those of us in the press corps as the annual budget battle equivalent of Switzerland) says that Schwarzenegger's plan is a little too reliant on borrowing and a little too vague on how to achieve some of the projected savings.

First, the borrowing. The LAO says about $1 of every $5 of the governor's deficit solutions is achieved through borrowing. That includes about $5 billion in costly revenue anticipation warrants (RAWs) that would be sold to Wall Street investors, and about an equal amount (in the short term) of borrowing against future revenues from the California Lottery. Those two big requests from the financial markets are on top of what the LAO says is another $13.3 billion needed from lenders/investors to make the books balance.

Taylor's analysis (read it here) also points out that the governor hasn't defined some of the ways he proposes to save money, like a $334 million savings in money spent on services for the developmentally disabled. "The budget provides no specifics as to how these savings would be achieved," the report states.

So what does the Leg Analyst suggest? First and foremost, the report calls for swift action to set the date of the anticipated special election; you'll remember that last September's budget deal included two items to be approved by voters, but no date was formally set. The conventional wisdom is that the election would be held on June 3 of this year... but the Legislature has yet to set the date. The LAO recommends more items be placed on that ballot to save money, including one Schwarzenegger vetoed in September's budget deal -- a call to voters to amend the guv's 2002 initiative on after-school programs, Proposition 49. The LAO says voters should also be asked for approval to borrow against gas tax revenues to speed up needed transporation projects.

Today's overview probably isn't big news, but it does seem to point out just how much work remains to be done. As such, the report is probably a good starting place for the Big Five meeting scheduled for this afternoon between the governor and legislative leaders.

Not that they've asked for my advice.

[update 12:50 p.m. -- Taylor highlighted two other things worth noting in his Q&A with Capitol reporters this morning. First, his office believes there could be serious legal issues with the Schwarzenegger plan to use those RAWs to help solve the budget deficit. Taylor says that appears to be taking what's traditionally been a cash flow device (RAWs are almost like a bridge loan), and making it a budgetary device... which might run afoul of 2004's Proposition 58, the balanced budget amendment championed by the guv.

And second, the LAO is recommending legislators call the all-budget-all-the-time special election for late April, rather than wait for June. That's certainly going to get tongues wagging among county registars, the people who actually conduct elections. State law traditionally sets the deadline for calling an election at 131 days in advance. The LAO suggestion would shrink that to probably less than 100 days. It should be noted that legislative staffers believe they could make the decision as late as 80 days before election day.]

"Turn The Page," Says Schwarzenegger

January 7, 2009 · Filed Under CA Budget, The Governor · Comments Off 

C'mon, guys. You can do it.

That's pretty much the message to the Legislature from Governor Schwarzenegger, whose news conference this afternoon including a plea to legislators to reach a bipartisan budget deal, as the likelihood of the state issuing IOUs grows by the day.

But it was also a little pushback as to where the blame lies for what's happened so far.

Not surprisingly, the governor rejected characterizations made by Democratic leaders of his reasons for vetoing their $18 billion fiscal fix.

"Democrats could not stand up to the special interests," he said. And he said he told them that "if you're willing to step over that [ideological] line, then I'm willing to step over that line."

The governor later broadened out the ideological problems to both parties.

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So what's the governor's ideological line? Tax increases, one would assume. But maybe more telling, at least for anti-tax forces, was his comment about the majority-vote tax proposal from the Dems: "I was not that concerned about the two-thirds versus the... majority vote and all of those kinds of things."

Also worth noting was the discussion of his relationship with Republicans. For months, Democrats have argued that Schwarzenegger can't get a single GOP vote in the Legislature for a budget agreement that raises taxes.

Today, he turned the tables -- saying this about the Democratic budget proposals: "I cannot go out and get Republican votes when I wouldn't vote for it," he said. "I would never do that."

(Of course, to be fair, there never appeared to be any GOP votes in the Legislature for the governor's budget plans, not just those from Democrats).

Schwarzenegger also suggested he's no longer willing to chip away at the state's fiscal problem. "We're not talking anymore, let's just carve out a little bit here and a little bit there," he said. "We have to address the $42 billion dollars."

There was very little discussion of the governor's 2009-2010 spending plan that was unceremoniously unveiled last week by his budget director, except for Schwarzenegger's analogy of the plan being like a stool with four legs -- spending cuts, tax increases, economic stimulus, and government reform.

And in the end, the event seemed a little odd in the message department: was it supposed to be a put down, or a pep talk?

Okay, maybe not that kind of pep talk.

In the meantime... as reported here yesterday... Franco is still dead. And state government is still alive. But just barely.

No Budge In Budget CrisisStandoffChaos

January 6, 2009 · Filed Under CA Budget · Comments Off 

Generalissimo Francisco Franco is still dead.

If you missed that cultural reference, then here's the straight ahead approach: the budget impasse is still an impasse.

Democratic legislative leaders summoned reporters this afternoon to announce that have now sent their recently approved budget package downstairs to the office of Governor Schwarzenegger (along with this letter).

You thought they'd already done that, right? Nope. The package of bills, including the now legally challenged majority-vote-tax increase, was being held in hopes that Dems could strike a deal with the guv to avoid him making good on his promise to veto the proposals.

Apparently, that plan of attack is now over. "We have agreed to virtually all of the governor's demands," said Senate President pro Tem Darrell Steinberg. "If he vetoes the bills, we'll await for him to tell us exactly what he will sign."

Steinberg claimed that an agreement was in the works this past weekend (a "common framework," said Steinberg), only to fall apart last night in talks with Schwarzenegger.

That's not how the big guy remembers things.

"We're not sure what they're referring to," said gubernatorial spokesman Aaron McLear. "We've not moved any more close with the Democrats in the negotiations the past several weeks."

As reported many times before... many... many... you get the point... the clash continues to be over whether the Democratic proposal goes far enough on jump starting the state's weak economy and whether it offers enough spending cuts to justify the corresponding tax increases. Dems insist the governor keeps, in their words, "moving the goalposts" or that he getting "cold feet" about the tax increases.

You can imagine the administration's response to that. Enough said.

In which case, we're still where we were. Franco is still dead. Now back to our regular programming.

Speaking of the Budget...

January 5, 2009 · Filed Under CA Budget · Comments Off 

There's a palpable sense around the Capitol that the budget saga is entering a phase probably best described as "time to fish or cut bait."

In other words, the negotiations between Governor Schwarzenegger and Democratic legislative leaders on a budget solution can only last so much longer... before one or both sides chooses a new route.

For the governor, such a route would probably mean returning to some kind of revenue raising proposal that requires GOP votes. The current saga, featuring a novel majority-only-tax-package, seems stuck on Schwarzenegger's demands for an economic stimulus package more to his liking, and on additional spending cuts than those agreed to by Democrats. And with last week's new budget proposal, the governor clearly signaled he's prepared to move on. And sources say he has been meeting with Republicans, including Senate GOP Leader Dave Cogdill.

And that may be why Senate President pro Tem Darrell Steinberg seemed to offer a deadline of sorts today. In brief comments with reporters before stepping into a private meeting, Steinberg said the following: "Give us 24-48 hours."

He didn't elaborate on exactly what that means... a deal? a stalemate? Either way, it's hard to see the current chapter of "California Fiscal Doom 2008-2010" lasting much more than another few pages.

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