State Budget

Here a report and video on the Zocalo Public Square panel I moderated last night in Los Angeles. The subject was the human cost of state budget cuts. We were joined by Mike Herald of the Western Center on Law & Poverty, journalist and activist Marta Russell, parent and advocate Michelle Wolf, Community Clinic Assn. of LA County chief Gloria Rodriguez, and state Sen. Gilbert Cedillo.

And here's a link to my story in Saturday's Wall Street Journal on the possibility of major tax changes in California.

Richie Ross, the Sacramento power broker, lays out his plan for fixing California's budget system -- the baseball arbitration system is his model -- in George Skelton's column in today's Los Angeles Times.

The gist: just as players and teams submit salary proposals to an arbitrator when they can't agree on a contract, Democrats and Republicans would submit their own budgets to voters. Whichever drew more votes would become the budget.

Problems with this idea? Several. But given the fondness California voters have shown for spending far more than they're taxed, it's a good bet that voters would choose -- over and over -- the more fiscally irresponsible of the two budgets they were presented.

Writing at the very progressive Calitics blog, Robert Cruickshank calls the Obama administration "clueless" when it comes to California and makes the case for federal loan guarantees for the state. Expect to hear more anger from the left if Obama leaves California to twist in the wind.

I believe that the state should get those guarantees. They come at very low risk (and no cost) to the Treasury. In fact, the state is likely to pay a substantial fee for the guarantees. But as I argue in today's New York Times, the Obama folks should -- for political and policy reasons -- attach serious strings to the guarantees, which would help the state with cash flow problems this summer and fall. Essentially, the administration (and Congress for that matter) should only help California with its cash flow if the state puts forward a real plan to fix its long-term structural budget problems. Such a deal would be good for the state and for the country.

Those of you in the Bay Area may want to check out a lunchtime event this Thursday at the San Francisco State downtown campus. My New America colleague Mark Paul and Noel Perry, founder of Next 10, will offer a detailed budget briefing of the state's options. The event is free, but be sure to reserve a seat (and find out more details) here.

Former LA Mayor and state education secretary Richard Riordan is getting a lot of attention, here and elsewhere, for his screed against Gov. Schwarzenegger and the budget measures on the May 19 special election ballot. What no one seems to have noted, however, is that Riordan doesn’t seem to have a clue about California fiscal realities.

In just 777 words Riordan manages to leave no California budget canard behind.

More taxes on the rich “will be economically disastrous for California,” Riordan (“and I am one of them”) writes. It is perhaps a sign of how little taxes matter to the rich that Riordan seems not to have noticed that California has spent the last three decades lowering his taxes.

Since 1978 California has slashed property taxes. It eliminated the inheritance tax and lowered the top income tax rates on high incomes. It has lowered both the nominal and effective corporate income tax rate, and in 2011 will let multinational and multistate companies reduce their payments even more. Economists may quarrel about who bears the burden of the corporate income tax, but to the extent it falls on wealthy shareholders and owners –– and they always insist it does –– the rich now pay less.

If anyone needs further proof that California is not quite a republic, look at the budget deal that appears to have saved the state from a fiscal disaster. (At least for now -- we could be at the brink again if the economy continues its downward march and state tax revenues slip even further below the current estimates).

The deal requires citizens to pass judgment on seven related ballot measures (At one point, a possible deal looked like there might be eight ballot measures, but in last-minute negotiations, it was decided that one measure--that would have involved docking the pay of lawmakers when they don't pass a budget on time -- was unconstitutional).

John Myers is doing the play by play via Twitter here. And you can check out the Assembly and Senate debate via the web at calchannel.com

Want more proof that the initiative process is too powerful in California? All the recent talk about lawmakers reaching a budget deal is bunk. The deal, even if it passes, requires the voters to sign off on multiple ballot measures later this year. That's right -- California simply can't handle a budget emergency without a vote of the people.

Details have not been released, but I count at least five separate ballot measures that would be needed to complete this deal: 1. a measure authorizing the modernizing of the lottery and borrowing against future funds. 2. the approval of some sort of new spending limit that Republicans insisted upon in negotiations. 3. Changes to the state's education funding formula. 4. A measure permitting the state to raid money that voters approved for early childhood programs and 5. A measure permitting the state to raid money that voters approved for mental health programs.

Given the extreme costs of delays by the legislature, and their inability to do much without the voters OK, the real question is: why bother having a legislature at all?

Last night in LA, I moderated a panel with State Controller John Chiang, Barclays Capital managing director Peter J. Taylor (a public finance expert), and New America senior scholar Mark Paul on California's cash crunch. A report on what was said is here. One message: even if the tentative deal that legislators and the governor appear to have reached in the last 24 hours won't end the cash crunch. The state still has serious cash flow problems, said Chiang, comparing a state with a budget deal to an unemployed person who has suddenly found a job and income -- but still has to deal with the debts and bills he delayed paying while he was unemployed.

I'm in San Jose this morning, at a bakery across a boulevard from the Winchester Mystery House, and thinking about state government. The Winchester, for those who don't know the story, was built over 38 years by a Winchester Rifle heiress, over 38 years. Bit by bit, she and her builders created a maze, adding room after room, fireplace after fireplace (there are 47 in all). creating a mystery box that's so big and confounding that you can't help but get lost inside. Whatever the reasoning behind each addition, the whole thing is madness.

Yes, as a metaphor for California's state government, the house is perfect.

One might think that a budget and cash crisis of the size that now faces this state would present an opportunity for reform, for simplifying a governing structure that surpasses understanding by all but the most informed citizen. The state's Rubik's cube system of education funding might be unscrambled, with a simpler system that ensures equal funding for district and tries to match money with needs. Overlapping boards and commissions might be eliminated. The state's crazy quilt initiative system mighty be brought under control.