A California Republican

We all knew it was going to happen. The various redevelopment agencies threatened to sue the state if the state budget included a “raid” on their money: meaning the state takes their money with a “promise” to pay it back at a later date. The state included this in its budget package, and the redevelopment agencies sued.

And they have won the first round.

Last week the state dropped an appeal from a decision that said the 2008 raid of $350 million from the redevelopment agencies was illegal. The Sacramento Superior Court judge said the state’s reason for raiding the money - to provide funding for K-12 education - violated the constitutional provisions that redevelopment money only go to redevelopment. The redevelopment agencies won that round.

This latest budget included a $2.05 billion grab by the state from those same agencies.

The Department of Finance says that the latest raid was constructed to address the concerns of the trial court. The Legislative Analyst’s Office (LAO) says that the trial court judge focuses on where the money was being spent, not on how. It sounds, from the statement above, that the trial court was not only focused on where, but on how.

If using redevelopment money for things other than redevelopment violates the constitution, then it violates the constitution. Unless you change the constitution, then the violation continues - regardless of how you structure the raid.

What does this mean? This means the state has another $2.05 billion hole in the budget. October has not come yet, and the state is already having budget problems - again.

First, the furlough lawsuits that have been settled by the court are being settled in favor of the state employees, not in favor of the Governor and his furloughs. This means the savings that was anticipated are not going to be there. Second, tax receipts are lower. This is in part because state employees and other employees do not have money to spend because they are facing lower wages, lower hours and furloughs. Additionally, high-end income earners and capital gains taxes are dropping as the economy drops. Third, state expenditures are higher than estimated. This is a little confusing, since estimates are done by the state agencies, but the estimates are lower than the actual spending. State employees who are furloughed can - in some cases - receive unemployment. More people are on Medi-Cal and other state services.

What this all adds up to is a collapse of the state budget. It might not be as big a collapse as last year, but it will still be a collapse.

The state budget grows. It grows every year. It has not shrunk. So how does it grow? The budget grows because of an increase in service levels, case load and inflation.

Some people might think it grows because there is increased revenue and that revenue is spent. This is true. In times of increased revenue, the Legislature has decided to increase programs, which causes increased expenditures. These expenditures have no funding attached to them for the long term, and become an obligation to fund in out-years. This is one way the budget grows.

That type of change is a change to the level of services the state provides. The state can also simply choose to provide more services. For instance, Medi-Cal provides some sort of dental coverage, even though it is not required, by federal law, to do so. This is an increased level of service the state decided to provide. Increased level of service to education have accounted for a large percentage of the growth in the state budget.

The state budget also grows through case load growth. Case load deals with two primary areas - corrections and health/human services. In corrections, the case load is also called the population estimate. In effect, the more prisoners in the corrections system, the more growth that budget has. In the past few years, under the federal Receiver and with the other federal court cases, the corrections budget has bloomed - in no small part because they are providing an increased level of service as well as increasing the medical case load in corrections.

Health and Human Services also work on case load. Medi-Cal, Healthy Families, Welfare to Work, and those public assistance programs are provided funding on a case load basis. In years where revenues are down, those case loads tend to increase. This is because those programs provide support and services to people who have lost their income (which has caused state revenues to drop). The increased case load in recession system has been true for many decades. It is an acknowledged fact, however, it is one the people preparing the budgets do not take into account. In no year has extra money been put aside to handle increased case loads in bad years. This simply means that in bad years, there have to be cuts to these programs in order to balance the budget.

The last way the state budget grows is through inflation. When the cost of goods goes up, so does the cost of state salaries (they get a cost of living adjustment), the cost of state programs, the cost of gas for CHP cars and everything else. This means the state spends more in years when inflation is rising. The state will give increases to departments and agencies to spend more on operating expenses in these years. However, due to the strange California budgeting system, the state does not automatically re-evaluate the needs each year, but instead considers the prior year’s budget to be the baseline, and simply adjust upwards from there. In rare situations, it adjusts downward. However, the departments and agencies that were given increases for gas when gas was almost $4.50 a gallon have not had that increase removed, even though gas is down to $3.10 a gallon in most places.

These are three simple ways the state budget grows without having to even deal with the growth of each program and whether the programs are successful or not.

California should rename itself. It should be renamed the “broke” state. No longer is California the “golden” state - it is simply the broke state.

California is broke in two ways. We are broken because the state cannot function. If you need any more proof of the state’s inability to function - think back to this last legislative session and the lack of progress on water issues. Water is a basic human need. For California, it is a huge need. However, the people elected to run this state cannot fix the problem. The state is broken.

The state is also broke in terms of money. There simply is no more. Professors at the UC and CSU systems are protesting over cuts. Where would they like the money taken from? The seniors? The children? Elementary education? While everyone would like there to be more money, the simply fact is - there is no more.

The voters are partially to blame for this broke state. It is the voters that have approved numerous ballot propositions that have tied the hands of politicians. The two largest are Prop. 13 (no raising property taxes beyond a certain amount each year) and Prop. 98 (which guarantees a minimal level of funding, each year, to the K-14 education system - it amount to approximately 50% of the General Fund).

The voters continually approve bonds - which require the General Fund to make payments on the interest of those bonds every year. Each time a bond is approved, the debt level for the state rises, and the obligations to pay back those bonds take more money out of the General Fund. This is money that could be used for other things, except now it is paying bond debt.

Voters have also mandated certain things through the initiative process. It was an initiative that reinstated the death penalty. The death penalty means the prisoners on death row cost more than 5 times what it costs, per day, for an average inmate. It was an initiative that put the three-strikes law into effect. These are all things that cost money. These are all things that are voter approved.

It is true that voters approve these things because the elected leaders do not seem to be taking care of business. The elected leaders are off fundraising while a budget deal is needed, or making sure their district has enough pork funding - while there are kids being taken off Healthy Families because of a shortage of funds. The situation has to get fixed.

The way to fix it is not at the ballot box - at least not with more budgetary restriction. Putting more restrictions in place will not allow there to be any freedom in using various monies in the budget. Instead, let there be a rainy day fund. If politicians had banked, or put away some, of the proceeds of the “boom” years - instead of spending it on new programs without guarantees that there would be funding for those programs in the out-years - then California would not have had to make such deep cuts in the “bust” periods. A rainy day fund - essentially a savings account - that cannot be raided by the politicians except in years of economic decline, is a good idea. More restrictions on where money can be spent - such a requiring a certain percentage to go to higher education as well as K-12 education - are not good ideas.

There is a problem with the health care debate that people are not truly discussing: Providing health care to cover all Americans only works if all Americans buy the insurance to cover their health care. Otherwise, there are still going to be people using the emergency rooms and going bankrupt because the costs are too high. Indeed, even under some of the plans being floated around Washington, the costs are too high. Without individuals getting the health care, providing access to it does nothing.

This means there would have to be an individual mandate - individual responsibility - to purchase some sort of health care insurance. Americans are not big on individual responsibility right now, and chances are many people would still rely on emergency rooms because they do not think they need health care right now.

If you are debating the statement that Americans are not big on individual responsibility - think about the current state of affairs. There is a housing market crash because people bought houses they knew they could not afford. Instead they gambled that they would be able to sell the house, or earn more money, at the time the loan reset. That turned out not to be the case, and now hard-working Americans are seeing their tax dollars, and their children’s future, mortgaged to pay for the mess.

A new study done by the University of California, Berkeley, found that college students expect A’s for doing the minimum the teacher asked. The same study found that parents are calling college professors for their students. Helicopter parents are being reported by recruiters who find parents coming to interviews with their children, or calling to make an appointment for their children. The job market is increasingly smaller, and instead of taking what job they can find - say at a restaurant  - people are going on unemployment. Disability fraud is a huge cost to all states and the feds - but no one is doing anything about it. When something goes wrong - say you aggravate a large cat at a zoo by throwing things at it and taunting it - the reaction is a lawsuit. Serena Williams yelled profanity at a line judge because she, Serena, did not accept responsibility for her actions. Professional sports players are amazed when they are given consequences for their actions, and take every step they can to fight the consequences instead of saying, “Yes, I did it, I will take my consequences.”

Parents are abdicating responsibility for raising their children to schools. This means that schools cannot teach the children academics because the teachers are too busy trying to get students to respect them - which is a concept parents are supposed to teach. Parents are abdicating all responsibility, thinking that once their children go to school, they do not have to help with anything. Instead of working with a child, parents agree to put their children on medication for ADHD or ADD (there are some students who need this, but it is increasingly becoming a scapegoat to deal with a kid who is, well, a kid).

This lack of personal responsibility is seen all over the U.S. in all areas of life. Not everyone is like this. Some people have personal responsibility and try to pass it on to their children. But when the response to being jailed for a crime is, “What I did shouldn’t be a crime,” that shows a lack of personal responsibility. It was a crime, you did it, you know you did it, and now you have to do society’s version of repentance for the crime.

So how will health care work? There will always be the young adults who say they don’t need it because they are healthy, and the money they would spend on health insurance they would rather spend elsewhere. There will always be the families who need to spend the money elsewhere - like food. There will always be people who don’t want to buy health insurance. The health care debate and overhaul will not work unless these people are also forced to buy some sort of health insurance. Otherwise, the health care debate is simply going to result in nothing.

How is California’s fiscal health doing?

It is now the missle of September, and the new fiscal year started July 1, 2009. Two and a half months later, and the picture is not looking good.

Tax receipts were lower than expected, and have been lower than expected all around. This should not be a surprise. In periods of unemployment, people have no income and cannot pay income taxes, or their tax burden is lowered because of the lower amounts they made. Sales tax receipts, which are due every quarter, are also lower than expected. This is in part because people do not have the money to spend on things other than necessities. If people do not have money for spending, then sales tax receipts are going to be lower.

The state has  aplan to fix this situation. Starting October 1, 2009, the state will take 10% from everyone’s paycheck in the form of income taxes. Then, come tax season, you can file and get your overpayment returned. If this was anyone other than the state doing this, it would be considered theft. It should still be considered theft.

People know how much the state takes from their paychecks now. People who are due returns every year increase the number of withholdings they can claim so they have more cash on hand. Peopl who end up paying extra every year reduce the number of withholdings so they do not have to pay extra at the end of the year. Managing how much the state takes from your paycheck has always been left up to the individual who is working.

Now, it is up to the state. Regardless of if you normally get a refund or not, the state is going to take 10% of your paycheck. This is theft. They are taking money that does not belong to them. 10% is higher than any of the tax brackets. This should not be happening. Why can the state take what is not theirs and it is okay? If a bank took 10% of all your deposits and said you could “reclaim” it after a year, the bank would be sued and charged with theft. The practice would be discontinued. But the state can do it an it is fine.

This is in addition to the $8.8 billion in RAWs the state needs to stay afloat until the end of the year.

Then, in April or so, when tax refunds are due, the state is going to lack the income to pay them and people are going to get IOUs. Then the state will have to pay those back, with interest.

This is simply a ridiculous proposition. The state needs to handle the money it has, not the money it wants to have.

This means there will be another budget fight next year, probably in January again. Which means there should be a solution in May.

It is the question of the day. Yesterday the Governor announced he signed an executive order that gave control to the Air Board, instead of the Legislature, of how California would be meeting the renewable energy goals by 2033.

Under current law, California must have 33% of its energy provided by renewable resources by 2033 (or so the story goes. The truth is this can be meddled with by various other sources). The Legislature had a bill, that has yet to go to the Governor’s desk, that enacted this plan into law. There are various provision in the law, including the creation of green jobs.

These green jobs would be paid for by tax revenue, which would be raised on utilities - which means consumers would be paying more. Renewable energy also costs more, so customers would be paying more for energy and energy-related taxes.

Should California’s tax revenue be subsidizing green jobs? Should the taxes you are forced to pay, subsidize the creation of green jobs?

Labor says yes (what a shocker). Labor wants green job creation because labor thinks the green jobs will have more staying power than current jobs. Labor unions also want green job creation so they can unionize the members in those jobs and raise their membership levels.

The Legislature’s Democrats want green job creation. They want green job creation because labor wants it. They want green job creation because green job creation sounds like a good thing to environmentalists - who also support Democrats.

The Governor wants it because he sees green job creation as the next “big thing.” The Governor thinks that green jobs will help pull California out of the economic slump it is in.

The truth is that green job creation is a good thing. It is always a good thing when people move from harming the world we live in to making it a better place to leave our children. Theoretically, green job creation does this by relying on renewable energy resources that don’t create as much pollution and destruction as traditional energy resources. This is a good thing.

What is not a good thing is raising taxes to pay for it. If green job creation will lift California’s economy out of a recession, then some business will do it. If green job creation is really a great thing and meant to happen, the market will make it happen. Raising taxes is a bad idea, as it simply puts more burden on the tax payer. While, in the short run, it may mean more people are employed, raising taxes for green jobs, or raising taxes on utilities (who will just make their consumers pay more), means that people will spend less, save more, have less money, and leave California in the recession for a longer period of time.

Additionally, there is nothing in the past that should make anyone feel comfortable about the prospect of using tax revenue for a new program. Every-time California has used tax revenues for a new program, it has led to further debt. If the legislators had put some of the money away from the tax windfalls in the late 1990’sand early 2000’s, the state might have been bale to weather this downturn in economic times. Instead, they spent the money, and the state is hugely in debt.

California’s tax revenue should not be subsidizing anything else. The tax revenue cannot pay for what California has now, much less more programs.

California is going to ask Wall Street and other investors to buy $8.8 billion in Revenue Anticipation Warrants (RAWs) today so there is enough cash to get California through the rest of the fiscal year.

Does this sound suspicious? It should. The interest rates California is going to be paying on these RAWs is astronomical, especially because California’s credit rating is the worst in the country. It is no wonder why the Treasurer’s office says people want to buy the RAWs - the interest is going to be huge. And the interest is simply going to add to the budget problems next time around.

RAWs are a normal part of California’s fiscal situation. The state, routinely, does not have enough cash because of when taxes are paid. So the state goes and gets RAWs sold, and then pays them back - with interest.

If it is a routine part of state business, perhaps something should be done about that? It is silly that a state cannot balance its budget and keep its cash flow running smoothly. These are things households have to manage, businesses have to manage, and the state should have to manage.

This means, next year, at budget time, take a look at the interest the state must pay on RAWs, IOUs, and bonds. This is all money that comes out of the General Fund and must be paid before other things are paid for - like health care, water and transportation.

There is an important factor to balancing the budget, and doing it on time: It requires less severe cuts.

When the budget is done on time, there is a certain flow in the state - the cash flow is good, IOUs don’t have to be issued (and then interest paid on them later) and anticipatory warrants do not have to be issued (and interest paid on them later). This means that there is a certain flow to state government and state services.

When this flow is interrupted, drastic things happen. The interest on warrants and IOUs then has to be calculated into the new budget, and more severe cuts happen. When the budget is done on time, the cuts are less severe because there is a stable flow to the cash and the state services. Anyone who works with a budget at home knows this - when things are paid on time, things cost less. As bills mount up and things go unpaid, you have to cut more, and more severely, to make things work. This principle is as true for the state as it is for a household.

The Legislature failed dramatically this year. The interest on the IOUs is costing more than the savings from some of the various cuts. The third furlough day cuts into the state revenues by reducing what taxes are coming into the state. For some, the third furlough day was enough to make a bad mortgage crisis worse, and severely limit spending - which reduces sales tax income paid to the state. The Healthy Families program was decimated by cuts.  Sales tax rose by 1%, which might not seem like a lot until you realize that 1% of a $350 food bill is $3.50, and 1% of a gas bill, and 1% of school supplies bill, and 1% of anything else that is bought adds up. For some people, it is enough to unbalance budgets.

As for those who claim they are looking out for the poor and the middle class (the Democrats) they failed. The middle class, in Sacramento, is largely composed of state workers - who face a pay cut from 9% - 15% with the furlough days. The poor were hurt by the severe cuts that had to happen because the Legislature couldn’t balance the budget all year. Don’t blame the Republicans fully - the Democrats know they need Republican support to pass a budget, but did not start working with Republicans until the deadline for passing a budget had long since passed. The Democrats failed those people they claimed to support.

When t he budget is balanced on time the cuts have to be less severe. What is more, when the budget is balanced on time, cash flow is uninterrupted which means no IOUs and interest on IOUs - all of which makes the next budget out-of-balance and worse to handle than the previous one.

Balance the budget on time, and with care, and these things don’t have to happen so severely.

The state of California has until the end of the week to deliver its plan to reduce the prison population, over two years, by 40,000 inmates. The federal court set the deadline and the demands for the reduction based on the premise that overcrowding is the primary cause of the unconstitutional conditions in the California prisons.

There are three class action lawsuits (Perez, Plata and Coleman) that say California has unconstitutional levels of care in dental, medical and mental health care (respectively). These cases were involved in a recent three-judge panel hearing on overcrowding. Based on the testimony in the hearing, the three-judge panel (of federal judges) said that California had to reduce its prison population by 40,000 over the next two years, and demanded a plan for that reduction. The plan is due Friday.

Any such plan need legislative action because it will involve changing laws and reducing sentences. However, the Legislature did not act on such a plan before session adjourned. This means there can be no plan submitted…or at least no plan that has a chance of being put into action. In all three cases; Plata, Perez and Coleman, the courts have demanded various plans to raise the levels of care in the prison system. The Governor has a history of submitting a plan, without it ever having been approved by the Legislature. Then when it comes time to get money for the plan from the Legislature, the plan hits a road block, and then the court gets mad because the plan is not being put into action. This is, in no small part, what landed the state in front of the three-judge panel to begin with.

Now all the Governor can take, legitimately, to the three-judge panel is the small inmate reduction plan the Legislature passed - which means only half the required number of inmates are going to be reduced.

The Legislature is immune from being sued, and as such, are not a party to the law suit. The Governor is, and he can be held in contempt if the state refuses to hand a plan in on  Friday. The three-judge panel has already said they will give no extensions on the timeline.

This is both a good, and bad, thing for California. When inmate costs are rising, it is a good thing to cut down on inmates. With prison spending topping $9.5 billion for this fiscal year, it is important to cut spending. On the other hand, it means that several crimes, which are currently crimes, will have no punishment attached to them. It also means that rehabilitation and education programs are the first things cut in the prisons.

Studies have shown that education and rehabilitation - in effect, providing a way for the inmate to work legitimately - are the best ways to prevent breaking parole and having inmates return to prison. These are the first programs cut when costs are cut, and the programs are not figured into the cost per inmate in California. This means the actual spending on prisons is much higher than the “cost per inmate” figure would have you believe.

Why is California’s cost per inmate so high? Ask the CCPOA (correctional officer’s union). They have enormous costs and contracts, even though they have a back log of applications for positions. There are huge overtime costs because the CCPOA cannot get through enough background checks to allow enough cadets into the academy to become correctional officers. If the background checks were completed, there would be more candidates, more officers, and lower overtime costs.

California prisons are also more expensive to run because of where they are located - in the middle of no where. A prison requires all kinds of things to support it (wastewater treatment, food services, electricity and water) and these things are higher in the middle of nowhere.

Reducing the prison population is a good thing. Having it federally mandated is a bad thing. California needs to step up and get costs under control for prisons, and get the prison population under control.

Sen. Steinberg (D) promised that the Legislature would meet the Tuesday deadline for having a package of bills that dealt with California’s water problem. Wednesday morning came and went and there was no bill package dealing with water. Thursday came and went, and so did the end of session. There is still no bill dealing with the water situation in California.

Part of this was that Republicans did not get to see the bill until it was to be voted upon. The bill was over 170 pages long, and there was not enough time to read it and consider its consequences. Democrats did not like the provisions about water storage, and some even felt the environmental protections were not strong enough. This happened even though there was a Joint Committee, with Republicans and Democrats, who created the bill.

The problem was trust. The Republicans did not trust that the bill was written the way they had been promised and wanted to read it. Strange that someone who votes on a bill would actually want to read the bill - but there it is. They wanted a chance to read it an look at the consequences. Democrats did not trust that the bill contained what they wanted, and wanted a chance to look it over as well. Compromise between the Democrats and Republicans was no where in sight, and so no water solution was passed.

Speaker Karen Bass (D) asked for a Special Session to deal with water. The Governor is considering the Special Session. However, having a soultion to the water problem relies on Democrats and Republicans trusting each other enough to reach a compromise that can be enacted into law.

So water, once again, is the casualty of a dysfunctional Legislature. Part-time Legislature anyone? If they are not going to solve the big problems that face the state, why should they have full-time jobs?