A California Republican

 The desire of power in excess caused the angels to fall; the desire of knowledge in excess caused man to fall; but in charity there is no excess, neither can angel or man come in danger by it. -Francis Bacon

Who doesn’t love a charitable contribution? Charitable contributions are gifts of goods, money, or in-kind services to certain non-profit organizations. You receive a reciept for your gift, and then you get to deduct it on your taxes. The most frequent charitable contribution is to religious organizations - since many people still pay a tithe offering to their church.

Charitable contributions are great. A person gets to select an organization that helps a cause they are interested in. For some people, this is their only way of giving back to their community. They many not have the time, skills, or resources to volunteer - but they have a few extra dollars each month. For others, they may be interested in cancer research, but they simply cannot conduct it themselves. Still others are interested in causes around the world but aren’t able to travel there and help out themselves, so they fund those who can.

Charity knows no bounds. For some it means buying extra canned goods at the dollar store and donating them to food pantries. Charity comes in a variety of ways, and it is essential to our society.

Being charitable, acting for the well-being of society as a whole rather than yourself, is what keeps our communities together. It helps provide for those who desperately need help. In older days, when states didn’t have low-income health-care help, doctors were expected to take on a certain amount of charitable work and complete it. It was an expectation. Today, many law firms and organizations have pro bono requirements for their lawyers - where lawyers have to do charitable legal work for those who cannot afford an attorney. Charity has been a part of many professions for many years, and a part of many people’s lives.

There is so much to say about charity. Without it our society would surely fail because we would become even more self-centered than we are.

Charity has its rewards. It has, associated with it, the good feeling we get when we help others. But it also has the nice feeling when we put our charitable donations into the tax forms and get the deduction. It feels really good (as everyone who has completed their taxes already knows).

So why is this important? Congress and the California State Legislature are considering limiting charitable donations, or even removing the tax break all together. Why would they do this? Sometimes, the reason people give money for important causes is because they get the tax break. Sometimes people give for the good feelings, but the tax break is always welcome. Why eliminate it? Because the federal government and California are drowning in deficits. The federal deficit is over 9% of GAP this year, and will rise of 11% of GDP next year. The California deficit is so big that eliminating all discretionary programs probably wouldn’t fix it. So the only option that these lawmakers see is to fnid new revenue.

Erasing the charitable deduction has certain perks for lawmakers. They don’t have to “raise taxes” per se, they simply get to “eliminate a tax loophole.” But for most people, this would have a negative effect. For lots of organizations this would have a negative effect. For society this would be negative.

Why do it? Because they don’t want to do other things and this seems easier.

The LAO has released a report that says if the state reduces some of the mandates on schools, it will save the state money. What the LAO report also needed to say was that it would save the schools money and allow the local school districts to make more decisions about what their children need.

Requiring local districts to do things - mandates - requires the state to pay money. The total estimated cost of educational mandates is $3.6 billion. That is $3.6 billion the state should pay for things it requires the local school districts to do. Not all of these things serve a purpose. One of the examples cited by the LAO is the state requirement for physical fitness testing. Instead of imposing that requirement, the state could eliminate it and save money. Then the school districts could focus their physical fitness programs on things the students like to do so that students would participate. This is a win-win for all concerned.

 The less mandates the state imposes on local districts, the less money the state has to spend on paying for mandates. The less mandates a school district receives, the more flexibility it has to meet the needs of its students.

This is a win-win situation for all concerned, and the Legislature should take this suggestion and run with it. The Governor did not make these suggestions, and is simply proposing postponing payment for the mandates. All postponing payment for mandates does it create a harder budget year later on. It doesn’t solve the underlying problem.

The LAO says that rescinding some of the mandates can save the state over $350 million a year. This figure doesn’t include the costs associated with fighting the mandates in court, and paying interest on back payments. It is simply the straight savings that can , reliably, be counted on in the year. $350 million may not seem like a lot, but the millions add up to billions - which is important when you are dealing with a $20+ billion hole in the budget.

Under Proposition 4, which voters passed  in 1979, the state must pay for new programs or higher levels of service that the state imposes on school districts and local governments. The job of determining whether a statute or program constitutes a mandate falls to the six-person Commission on State Mandates. However, this system is confusing, long, and not consistent. One of the problems is that the locality must file a claim saying that something is a mandate before the Commission will consider it. Then, if it is determined to be a mandate, the state has to pay for it - from the time the mandate was instituted. It costs a lot of money for the state to mandate things for education, but it still does, and this would be a good step forward to eliminate some of the mandates.

To see the full LAO report go to: http://www.lao.ca.gov/reports/2010/edu/educ_mandates/ed_mandates_020210.aspx

Sorry for the lack of posts relating to the fiscal world of California. There has been a lot going on: The Governor released his budget, the LAO has released some preliminary analysis of the budget, there have been informational hearings in the Capitol, the President gave his State of the Union (which included budget information). Overall, I have simply been disgusted.

There has been a lot going on, but the same things seem to get rehashed by everyone. The federal government - so says the state - should give us more money. In reality, this just brings the federal deficit higher, which means higher taxes. The state shouldn’t cut the social services budgets - so say the Democrats in California. Well, where else can thes tate cut money? The Republicans are no better; instead of coming up with ways to fix the problems in California they just say “No new taxes.” The Governor, as always, just seems to ignore the problem and think his movie-star status will solve problems.

So the truth is ugly. There isn’t enough money. The normal budget tricks have failed, and now the hard choices begin. People decry the California Legislature as ineffective, but I can guarantee that at election time the inclumbents will be back. No one thinks they are so ineffective as to vote for someone else in the primary or the general election - instead the same crop of ineffective legislators will be back in the next legislative session.

The President wants to freeze all spending not related to national security or entitlements. Great - that saves about $250 million over 10 years. What about the crushing deficit? It wwill be over 11% of GDP next year and will continue to grow until the federal government ceases to spend more than it takes in. The deficit is estimated to be $1.4 trillion this year - which means about $100,000 per person in the U.S. Can you afford to pay that to the government? If not, think about what you want the govenment to do to reduce spending and get involved. Otherwise, taxes will go up on everyone. There simply are not enough rich people in the U.S. to foot this bill.

Overall, this is a grim and disgusting picture of the government. When deficits have been high in the past, the government has paid them off. This time, the government is selling our children, and their children, to spend money now. Do you know who holds all those debt notes the US sells so it can continue operations without cuts? The majority is held by China. Yes, the country that doesn’t have freedom, civil rights, or civil liberties. The country where dissenting can get you thrown in jail, where families are limited in the number of kids they can have. This is who the US wants to owe its future to? China?

Time to get out there and do something. Write to someone, email someone, vote for someone new. Participate in a rally - it doesn’t have to be a tea party, but a rally. Conduct a letter writing campaign in your neighborhood. Hold a town hall meeting, invite a speaker, and talk about the debt and spending problems. Do something.

There is a movement to place a $29 parcel tax on all parcels (property) in the City of Sacramento. The money would help raise $4.3 million to fund a youth jobs program; providing job training and education for the youth. The supporters of the measure say that this will ensure that the youth of Sacramento have access to the education and training they need to get jobs.

Isn’t this called high school? Or community college? Or a four-year college? Don’t people already pay taxes, parcel taxes, and other taxes to cover these things? The fact that the tax money isn’t enough, or that the tax money isn’t spent wisely, is a different issue. Why provide job training aimed at youth? Get them to stay in high school and learn the material there. It isn’t such a tough decision - stay in high school. Learn there. Take the career-technical classes that are offered there. When you are done with high school, go to a technical school or a community college if you want more. Or even go to a four-year college and earn a degree. Taxes are already going to fund youth job programs.

Part of the problem with youth finding jobs in a down-economy is simply that employers can get more qualified people for less. Who would you rather hire; the teenager or the father who has to support a family of four with a bachelor’s degree? Both will work for the same pay - and most businesses will hire the father because he will take less time to train and will be more reliable.

At the same time, the youth don’t want to do well in high school, to focus, to work hard, and then go to a technical school or a community college. Instead, they feel there should be a special program for them, so that they don’t have to do high school. Rubbish.

Finish high school, work hard, and go from there. Don’t impose a new tax on people simply to fund jobs for youth when the youth don’t take what opportunities they have now, for job training and education, and do well with them.

Assemblymember Garrick has been chosen as the new Republican leader for the California State Assembly. He promises that there will be no new taxes, and no rises in current taxes, to help close the budget deficit California is facing. Garrick believes, like most Republicans, that raising taxes in a recession is a bad idea. Instead, he wants to find cuts and streamline government in order to close the budget deficit.

Garrick’s stance promises a long budget battle this year. There is a $19+ billion hole to fill, and with the Democrats opposed to more cuts and te Republicans opposed to more taxes, it promises to be a long fight. Getting the Republicans to move from their “no new taxes” position will prove close to impossible, as they simply have to look at what happened to Asm. Adams and the recall election (although it failed) to see what the consequences are if they vote to raise taxes.

Additionally, with the election of a Republican Senator from Massachusetts, a traditionally Democratic state, the California Republicans can say that the majority of people in the state of California are like those from Massachusetts; they want the government to stop interfering in the economy and their lives with more taxes. Republicans are going to draw strength from this position, and hold out until the budget has no new taxes.

Of course, it would be nice to see a compromise from both sides; with serious cuts (not just accounting maneuvers) from the Democrats and a look at the business tax breaks and eliminating some of them by the Republicans. It would also be nice to see the commercial property taxes uncoupled from the residential taxes and make Prop 13 inapplicable to commerical property taxes.

If wishes were fishes….

The Governor’s 2010-11 Budget includes a triggers list. This is a list of all the actions that will be taken if the $6.9 billion in federal aid does not come through; it’s the cuts that will go into effect to balance that additional $6.9 billion in revenue loss.

This list is long. It is on pages 7-8 of the Governor’s 2010-11 Budget proposal. It includes such things as eliminating Cal-Works, eliminating Healthy Families, and eliminating funding for enrollment growth at the UC and CSU colleges. Why were these triggers not included in the budget proposal? Why does the Governor try and hide these cuts in a triggers list?

The suspicion is that the Governor wants the federal government to look at these cuts and have a “we cannot let that happen” reaction. He hopes that, by having that reaction, the federal government will see the dire situation in California and give the money the state requests.

However, if the Governor really wanted to do something, he should have included these triggers as actual proposals in the budget. If this is where his priorities are, if this is how he wants to prioritize state spending, then that should be presented as such in the budget. Instead, it is hidden in a triggers list.

The triggers list includes $4.6 billion in cuts and $2.4 billion in revenues. This would cover the full amount $6.9 billion that is asked of the federal government.

There are other options that are not considered in this list. Why not force the museums to be self-funding? Instead of continuing to grant money to the Military Museum and the California Science Center; why not require that those museums be self-funded? Why not eliminate programs that don’t work? One of the few programs the state runs that has been shown to work, Cal-Works, is on the triggers list to be cut entirely. Why not eliminate other programs that do not work? Can the Governor even identify the programs the state runs that don’t work? Probably not, which is they that is not a proposal. Instead, he cuts programs that are shown to work because he knows what those programs are, and they have a definable cut.

The triggers list is a harsh pill to swallow. Much of it would come under lawsuits - the elimination of Health Families, of In-Home-Support-Services, the reduction of state worker salaries - and probably would be blocked from occurring. However, some of it would probably pass. The triggers list seems like a lot of razzle-dazzle, a noise-maker to draw the federal government’s attention in hopes of getting some additional federal funds.

Keep hoping, because the triggers list will probably become reality.

The Governor is constitutionally required to present, on January 10th, his “fiscal plan” - a.k.a. the Governor’s Budget - for the coming fiscal year. The plan must be balanced - the expenditures cannot be more than the revenues. In order to make it happen for the 2010-11 Governor’s Budget, the Governor used false revenues.

False revenues are a combination of (1) faulty revenue assumptions; (2) federal asks that may or may not materialize; and (3) transfers, new fees and taxes, and other accounting slight-of-hand tricks. The Governor’s 2010-11 Budget has all of these in it.

The revenue assumptions are based on a recovering economy. The Legislative Analyst’s Office estimates that the revenue assumptions are $3.1 billion in excess of what revenues (sale’s tax and personal/corporate income tax) will actually be. This is because the Governor’s office is banking on the economy recovering, people gaining jobs (and paying taxes), and more people coming off the state’s welfare/assistance rolls because they have jobs. This may or may not happen. It likely will not. California is suffering from the downward economy. Major businesses are moving to a more business-friendly state (one with less taxes, workplace requirements, and regulation), are shutting down, are outsourcing, or are simply working with less people. The likelihood of this changing anytime soon is small to none. However, the Governor is banking on a recovery.

Additionally, there is $6.9 billion in federal asks. This money is unlikely to materialize, as the federal government is suffering from a budget deficit that will crush the generations to come if it is not stopped, payed off, and never run up again. It is very good to run up a deficit that helps people when there is a depression; but only if that deficit is IMMEDIATELY paid off. This is not the federal government’s track, and so they are unlikely to give already scarce resources to California; particularly because California is not now, and has not been for some time, a swing state. If any of the money included as federal asks materializes, it will be a miracle. There is also $1.1 billion in savings assumed from gaining waivers of federal law - this will also be highly unlikely to occur.

Lastly, there are the traditional accounting slight-of-hand tricks. Each year, the Governor has proposed raiding transportation funds, changing the gas tax to a fee, taking money from locals, and “borrowing” money from special funds. This year is no different. However, these types of maneuvers have always been locked up in court with lawsuits, and the Governor loses. For some reason, the Governor thinks that this time around he will win the lawsuits, and he can do these things. This is very unlikely to occur.

So this means the Governor’s budget is not balanced - it is unbalanced. However, the Legislature can choose to drink the same KoolAid the Governor is drinking and pass a budget with a large amount of federal asks - which only pushes the problem to the next budget cycle, or later in the same budget cycle.

False revenues = fake budgets. This budget is certainly fake.

What is more important to you: California State Parks, or preventing off-shore drilling at Tranquillon Ridge?

That is the question the Legislature has to ask as they look at the Governor’s budget. The Governor, having failed twice to get the Tranquillon Ridge project passed through normal legislation, has now tied it to the future of the state parks. In the Governor’s 2010-11 Budget, the $140 million General Fund that goes to state parks will be cut if the off-shore drilling at Tranquillon Ridge is not approved. So the question is: How much do you care about state parks? Does the Legislature care enough about them to allow off-shore drilling?

The off-shore drilling proposal is not all bad. Calbuzz did a great series of pieces here and here about the pros and cons of the proposal. Essentially, the drilling would continue for a span of years on a platform that is already built. Then the drilling would cease, and the company would have to make the rig a “reef” to benefit the ocean area. The proposal would bring in an estimated $10 billion, which would help close the budget gap over the next few years.

But the Governor, in a horrible decision, has linked the future of state park funding to the drilling. The environmentalists - who all want state parks - oppose, bitterly, the drilling project and will fight against it with everything they have. The Legislature can decide to uncouple those two items, but that means the Legislature would have to find substitute General Fund revenue to pay for the parks, or increase fees on various items - like park entrance, camping in the parks, off-road vehicle permits - to cover the lack of General Fund support for the state parks.

This is one of many issues to keep an eye on as the budget development process unfolds.

Governor Schwarzenegger asked, in his State of the State address, and in his 2010-11 budget, for “federal fairness.” He wants California to stop being a donor state, sending more dollars to Washington D.C. then it gets back in federal money. In fact, this is a corner piece of his budget. Without the federal funds, the Governor’s 2010-11 budget starts almost $10 billion in the hole.

What is federal fairness? For the Governor, and lots of other lawmakers, it means that California should get back the money it pays the federal government. The Governor wants the money that Californians pay in federal income tax repaid to the state in the form of federal grants and investments. There’s one problem - what then pays for the federal government?

The federal government does lots of things. It has a federal legal division - the FBI - it has a lot (too many) counter-intelligence and security operations. It has the military. It has food, health, and consumer protections and quality standards. It has Congress and the President. It also has health programs, a department of education, farm subsidies, the federal judiciary and more. And it has the military and foreign aid. So who pays for this? Who pays so that the residents of Nebraska don’t have a lower standard of living than Californians? Who pays so that the poor in Wyoming can receive federal welfare, just like the poor in Alaska, Texas, New York, and California? The answer: everyone.

Sometimes states get more money than other states, and sometimes states don’t get all the money the invest in the federal government back because the federal government, like the state government, has to run. I am sure that Placer County, Contra Costa County, and other “rich” counties in California would like to stop being “donor” counties. They would like their residents’ state income taxes reinvested in their county, in their area. However, most of the money goes to L.A. - they have the largest piece of funding in the education system and other designated things. San Diego gets a lot of the state money invested back through the firefighting CalFire provides for their residents - who refuse to pay for a firefighting system.

The Governor’s issue is that the state has no money because of various things the voters have approved, spending approved by the Legislature, and the general unwillingness of the Legislature to really look at programs for effectiveness, to fight the teacher’s union on Prop. 98, and to uncouple commercial real estate from residential real estate in Prop. 13. These are all big problems for the state, all of which could help solve the budget problem.

Instead, the Governor is looking for an easy out. He wants the easy thing. So how do you, easily, balance a budget on paper? You include federal money that you are asking for. And include a “triggers list;” a list of cuts that will occur if the federal government doesn’t give the money, in hopes that the cuts appear so draconian that the federal government will hand over the money.

It’s not the federal government’s responsibility to provide for California. It is California’s responsibility to provide for itself. That’s why we are a state, and not simply a “subject” of the federal government.