A California Republican

The water bond is headed to the voters. The price tag for the Legislature’s water reform … $11.14 billion.

It is amazing that the Legislature even agreed on a water reform package. $125 million of this goes to the California Department of Forestry for forest restoration. How is this related to water reform? It is not. That means that this bond is filled with pork. It doesn’t surprise anyone. This Legislature is incapable of acting in the best interests of the state. Instead, they present a “solution” and fill the solution with pork. Then they ask the voters to approve the bond, hoping that they won’t notice there is pork and money for unrelated projects in the bond.

There is a lot of money in the bond for watershed restoration. Watershed restoration? How is that water reform? The restoration of watersheds doesn’t lead to more water, or saving water. It simply restores things to the way they were years ago. There is money for water conservation, and restrictions on water use in the bill that authorizes the bond. None of these things have to do with water reform, and nothing with water storage.

Bonds mortage the future. Instead of paying as you go, bonds ask voters to approve loans to the state government. Then the state government has to pay high interest rates, especially because California’s credit rating is in the dumps, and must pay back the bond eventually. The average cost of a bond, the total cost once it is paid off, is almost three times what the bond was approved for.

What are people not understanding? Bonds cost more money than they state they will. The great thing about bonds is that there is a line in all bonds that the “Director of Finance can levy fees that he needs to inorder to pay for the bond debt,” or something to that effect. The Director of Finance should simply say, “if the bond is passed, I will levy a sales tax of x% across the state for repayment of this debt.” That should be done for every bond that passes between now and forever. Bonds cost a lot of money. If something needs to be done, let’s get together, fund it, and do it with money that we have, not money that we wish we had.

$11.14 billion. For what?

Part of the problem with the California State Legislature is that they don’t have effective budgeting experience. If you want to dispute this claim, think about what the Legislature does with budgeting. They wait until the state is in crisis to do anything, and even then they don’t always work to effectively stop the crisis, they wait as long as they can and longer to act. The Legislature spends windfall monies on spending increases and tax cuts, rather than putting it aside for a rainy day. The projections used to build the budget only look at that year, and the next year, without taking into account long term issues and economic forecasts. They use shoddy projections so that they can claim the budget is balanced. None of these things show effective budgeting experience.

The backlash against the Legislature is, in part, because they are so ineffective with budgeting. Instead of doing something that would be good, like creating fiscal reforms, the Legislature caves to public employee unions, special interests and self-interest. Instead of stepping up to the plate and making difficult decisions, they use spending and accounting tricks to push the bigger structural deficit off to someone else’s term. This is one reason why the Legislature is so disliked by the California public.

Does there need to be budget reform in California? Yes. Does it need to be done through a constitutional convention? No.

Instead of having outside reforms, the Legislature is capable of creating inside reforms. It would take a lot of guts - which the current legislators seem to lack - because any budget reform will hurt the interests of the CTA (teacher’s union) and the CCPOA (correctional officer’s union).

Any budget reform must eliminate Prop. 98 and reshape education spending - which takes more than 50% of the General Fund. The CTA lobbied hard for Prop. 98, claiming it would more than adequately fund public education. years later, the CTA is claiming that the state isn’t funding public education at a high enough level. This is a distinct retreat from their position with Prop. 98. If this is true, why wouldn’t they want to see Prop. 98 eliminated and education spending redone to be more effective for the teachers and students they claim to represent? Simply because the elimination of Prop. 98 would decrease their power. The CTA will be hurt by any education spending reform. Yet, with education taking up more than 50% of the General Fund, it is necessary to reform education spending if there will ever be a budget reform.

The CCPOA is the next biggest spending - with 10% of the budget being spent on corrections. Any budget reform is going to impact this because the reforms will take power away from the CCPOA and give it back to the lawmakers and the state - which is where it is supposed to be because the state is the employer of the correctional officers, not the CCPOA.

These changes will hurt the Democrats. But the Republicans need to take some punches too.

Business property taxes need to be uncoupled from residential property taxes in Prop. 13. This will make the Republicans wildly unpopular with their biggest supporters. However, if Prop. 13’s goal is really to keep people on fixed incomes (seniors) in the houses they bought when they had flexible income, then why is the commercial property tax also subject to Prop. 13? It doesn’t make sense, and needs to be redone in a way that creates more fiscal stability for California, and makes sense.

California also need to look at long term projections when dealing with budgeting. This will allow California to set aside money in a rainy day fund so that windfalls are not used to ramp up state spending, but instead can be put aside to spend in recession years. The Legislature can make all these reforms themselves, without needing an outside party - like a constitutional convention - to do it for them. All it takes is some guts and a willingness to put what is best for California ahead of party affiliation and re-election.

There is some slow progress on the water situation in California.

Water is essential to life. Water is essential to growth, industry and commerce. Water needs to be able to be stored, transported and used in the same way that goods are stored, transported and used. So California needs some more water storage, water treatment and water movement infrastructure. If only there was a way to pay for it that didn’t involve more bond debt.

There is - it is call “pay as you go.” Instead of selling bonds to finance the project, if water is a priority, it should be paid for as you go. There is no need to pay the $9.99 billion up front. Instead, spread it out over the 20 years (or so) that it will take to create this water “solution”(it is a “solution” because by the time it is built, there will be another water crisis).

Alternatively, regulate land use. Instead of allowing people to build big cities in the middle of the desert, and then look to others to provide water for them, why not require new development, and redevelopment of old developments, to be self-sufficient for water purposes? Sure, it may mean that L.A. cannot build more huge subdivisions in the desert surrounding the city, but that is not a bad thing. Water is scarce in a desert, so maybe people shouldn’t be living there.  Just like agriculture shouldn’t be a big business in the desert.

But instead of considering these options, the Legislature is going forward with a HUGE bond package that adds an unsustainable amount of debt to the budget. When facing choices in the coming years between education, children’s health and services to the elderly, it would be wise for legislators to remember that if they hadn’t approved such huge bonds, there would be more money available for services.

As a side note, the Legislature says that water is a priority. But instead of solving the Delta issue, they are passing it off to a commission that doesn’t have to have a solution until 2012. That doesn’t signal “priority” to anyone.

It is clear that this Legislature likes to pass the buck to future generations. Using bonds for anything passes the buck because the interest, payments and debt on the bond will not be due under these lawmakers’ terms. Instead, future lawmakers are going to have to deal with the debt crisis the state faces.

When the cost to produce something increases, that means one of two things will happen: either the production levels will go down, or the price to consumers will increase. It is simple economics. When production costs increase, production goes down or prices go up. When production costs increase, the cost to consumers doesn’t go down - that is backwards.

What does this have to do with California finances? Want-to-be-attorney-general Nava is proposing that California add a 10% severance tax on oil taken out of the ground in this state, and dedicate 9.9% of that tax to higher education. This proposal was floated in the late budget rounds before the latest budget cuts were put into place and was, wisely, defeated then. It should be dropped now too.

Gas prices in California are already high (read about why, here). Most of the oil taken out of the ground in California stays in California. It helps keep transportation costs low. The blend of gas that California uses is made in very few places. If the oil supply in California constricts because of the new tax, then oil will have to be imported - or gas will have to be imported. If gas is imported, the transportation costs will be huge since the only place that makes the blend California uses is in Europe. If oil is imported, then we are just increasing our dependence on foriegn oil. These are both huge problems that might occur if the cost of oil production rises.

Of course, the other alternative is that Californians simply pay higher gas prices. We already pay some of the highest prices in the country, why do something that would raise this? When there is talk of raising the gas tax, it is always the Democrats who cry foul - saying that a higher gas tax will hurt those who most need access to the gas - the poor. Why then, do they suddenly seem so willing to do something that would almost certainly cause gas prices to increase? It is contradictory to support the oil extraction tax but not support raising the gas tax.

Lastly, there is a legal problem. It is unclear whether 9.9% of this tax could go to higher education. The Prop. 98 formulas are so complex, it is unclear if this tax could be divided that way. And why should it? What is special about higher education that they deserve 9.9% of the revenues for this tax? Aren’t there other groups that would like their share of state funding increased as well? Why shouldn’t this money go to the General Fund and be used to pay off debt? Why not spend it on programs that are proven to work, and contribute to California society - like career technical education? Why higher education? Simply because they lobbied hard for it? That is no excuse. When state money given to higher education is traced to athletics (as it can be at the U.C. system) or to remedial classes (as it can be at the CSU system); why should they get more? Prove you can spend it on actual higher education and maybe more sympathy would be shown to you.

Higher gas prices, or less oil production, is not what California needs. Drop this “oil severance” tax idea, and simply put your energy to working with what the state has now.

Have you looked at the various versions of the water bonds that are being floated around the California State Legislature? I did. There is actually money in the bonds to buy dirt. $1.5 billion of the bond is to buy dirt - $1.5 billion!!!

The building of water storage and water conveyance (the politically correct terms for dams, reservoirs, and canals) probably does need some dirt. But, to build those things, don’t you have to displace dirt? Why not use the dirt you displaced instead of buying new dirt? Why not use the dirt that is existing around the state rather than buying new dirt? Why is the state buying dirt at all? With all the construction projects going on around the state, CalTrans cannot manage to transport dirt form one site to another? Dirt has to be bought?

This is simply an example of the ridiculousness of the water bond packages. Besides money for dirt, there is money for other materials. It is unclear what the market price for these materials are, but when you look at the Home Depot and Lowes websites, it is clear that the state is paying more than what it would cost to buy materials at these places. This is simply wrong. When you have market power - as the state does because it buys so many quantities of materials, you should leverage that market power to get a cheaper price.

The water bond needs to be something that the people can understand, support, and there needs to be a guarantee that the costs will not run over the limit of the bond. Otherwise, the people of California are not likely to approve a multi-billion dollar project that simply adds to the debt load California already has. Any money that is added to the debt load has to be taken away from somewhere else. In a situation where people are asked to make the choice between debt load payments and, maybe, health care for children - it is unclear that people will support the choice for more debt load (although common sense should tell anyone this is the case). And this assumes the state is going to be able to sell the bonds.

$1.5 billion for dirt?

That simply says all that needs to be said about the ridiculousness of the situation and the ineffectiveness of the state legislature.

The backers of an initiative to call a constitutional convention have passed the first hurdle - they have the measure approved by the Secretary of State and are on their way to collecting signatures so the measure can qualify for the Nov 2010 ballot.

Then there is  whole secondary issue - whether the voters will pass it.

Whether the voters are going to pass the measure, whether they even pay attention to the measure, will depend on a lot of factors. If there are a ton of other, more socially or economically charged issues on the ballot, chances are that is where the money is going. The money will not flow to the constitutional convention measure if this is the case. People give money to the “hot” political topic of the moment.

There have been threats of a paycheck protection measure to be placed on the November 2010 ballot - which the unions are against. This means union money will go to the campaign against that, rather than to a campaign about governmental reform - which by contrast is not a sexy political topic. If a measure to over-turn Prop. 8 gets placed on the ballot for November 2010, that issue will take a lot of the focus away from the possible constitutional convention. Remember the fight over Prop. 8 the first time around? Imagine the fight the second time around. These are all issues that would detract from a constitutional convention measure.

To make matters even more confusing, there are two measures that have to pass in order for the constitutional convention to happen. The first is the measure which gives the voters power to call the constitutional convention, now or in the future. The second is the measure to actually call the convention now. Both have to pass in order for the constitutional convention to occur.

Delegates must be sent to the constitutional convention to represent the people of California in the decision making. How those delegates are chosen is very confusing, and very eliminating. If you have been involved in politics, you aren’t eligible. So instead, people who will be delegates are those who haven’t been involved in government and probably haven’t been involved in politics, and probably don’t have any education on the issue. That’s exactly who I want involved in creating a new constitution. Most people won’t understand this issue, and many will vote no on the measure because this is too confusing.

The constitutional convention is a pipe-dream. It won’t happen. No one will be able to agree on what the new constitution will look like, those people who know what they are talking about won’t agree because they cannot be involved in the process. The whole issue is too confusing and people won’t vote for it. In addition, there are too many people who don’t want it because of the issues that might be opened up in the convention.

It simply won’t happen.

It’s that time of year again - the budget cycle has begun and we await the Governor’s release on January 10th.

During the fall, agencies and departments submit BCPs (Budget Change Proposals) to the Department of Finance (DOF) to change their budgets. These BCPs are supposed to include taking away money for temporary positions that are expiring, removing temporary programs and funding increases, and any other increase or decrease the department/agency sees for their budget. In reality, the departments do not submit decreases. If they were given a temporary increase, unless the DOF analyst realizes it, they won’t submit the proposal for the decrease. Instead, they just close their eyes and hope no one notices.

Right about now, the analysts at DOF are finalizing recommendations. They have already sent questions about the BCPs to the departments, and hoped for some sort of response. Often times, the departments don’t even respond to the question. Sometimes, the DOF analyst doesn’t get what he needs to make an informed decision, and so he has to deny the proposal. Other times the department is so political or so sensitive to the Administration, that it doesn’t matter what the proposal looks like, you are told to find a way to approve it (this happens with OPR and CalFire the most). The DOF analyst doesn’t always get to analyze, which means that all the proposals which get approved aren’t the best.

There are other things being done with the budget as well. Increases for employee compensation are being worked out, and figured out per department or agency. Increases in operating expenses and equipment are being worked on, based on inflation. How much money each department gets for personnel is being worked on (this is called the 7A - a listing of what positions the department/agency has in each category), and temporary position salaries - but not operating expenses and equipment associated with the position - are being removed from budgets.

But what isn’t being looked at is what the department or agency is doing with their current money. If the department or agency had to justify each dollar they were getting, and each staff position they had, it would be a long process. But it is a necessary one. When the state is spending money without knowing what it is going to, or what programs are being funded that are unsuccessful, the state cannot function. The state government is so large that programs cannot be evaluated objectively, because there is no one who knows what all the programs are supposed to do. Some programs are supposed to submit reports to the Legislature, but those reports are prepared by the department with statistics compiled by the department and are, generally, exactly what the department wants you to see. Nothing objective about that.

Why not have everyone justify their money? When a person, or a business, is in an economic slump, they go through their budget with a fine tooth comb. Many people make decisions about things they like to do versus what they have to do. Is there enough money to pay for new car tires and go out to eat three times a month? These are tough decisions. Is there enough money to fund after-school activities and provide teachers to help students read? These are tough decisions too, but they have to be made.

Instead of spending this time worrying about what departments and agencies think should be done with their budgets, DOF should comb through the budgets with a fine tooth comb. A million dollars saved in one program, a million saved in another - pretty soon that adds up to real money that can be used to help balance California’s budget.

After all, DOF is supposed to be the professional fiscal advice to the governor. It is about time they start acting like it.

The closed-door meetings with the Governor Legislature on the water issue has finally produced something - a water bill.

There is no indication whether this is the true water bill, as nothing has arrived on the www.leginfo.ca.gov website. However, the Sacramento Bee obtained a copy of the water bill. You can view it here. 

There have also been committee hearings on the water bill, which indicates this might be a possible solution that might come to a vote. The committee hearings can be viewed here. Press conferences about the water issue can also been seen at that link.

The problem with  water is, in order to fix the situation, it costs money. There is nothing “free” about water. In fact, creating a solution for the water problem will anger many people. For Republicans, they will anger the agri-business and agriculture lobbies - both of which are big constituencies for them. This is true because a water solution cannot be found without some agricultural changes. Democrats are going to anger the environmentalist who support them. This is true because there will be an environmental impact to any water solution. Any water solution is also going to have to involve storage of water, which always angers environmentalists.

The water problem might be too large for an ineffective Legislature to solve. Although, if they solved it and proved they were willing to act on tough issues, people might not think they were so ineffective.

There are major problems in California. The unemployment rate averages over 12% - and is over 20% in Imperial County. The education system is in collapse. There is nothing to help the struggling middle class. Manufacturing jobs, really jobs of all sorts, are leaving California (the latest is the NUMMI plant shutdown in Fremont and the loss of engineering jobs in high-tech firms to overseas engineers). The economy is in shambles. People are leaving their houses because they owe more than 150% of what the house is worth (in this bloggers situation, the mortgage is over 225% of what the house is worth according to the property tax bill). The Legislature, and politics in general, are polarized and do not represent most of California citizens. California is falling apart.

Time Magazine recently ran an article that said Californians should stop whining, and that California is still a great state because of what happened prior to 2007 in the state. The article says:

Ignore the California whinery. It’s still a dream state. In fact, the pioneering megastate that gave us microchips, freeways, blue jeans, tax revolts, extreme sports, energy efficiency, health clubs, Google searches, Craigslist, iPhones and the Hollywood vision of success is still the cutting edge of the American future - economically, environmentally, demographically, culturally and maybe politically. It’s the greenest and most diverse state, the most globalized in general and most Asia-oriented in particular at a time when the world is heading in all those directions. It’s also an unparalleled engine of innovation, the mecca of high tech, biotech and now clean tech. In 2008, California’s wipeout economy attracted more venture capital than the rest of the nation combined. Somehow its supposedly hostile business climate has nurtured Google, Apple, Hewlett-Packard, Facebook, Twitter, Disney, Cisco, Intel, eBay, YouTube, MySpace, the Gap and countless other companies that drive the way we live.

This is a 2003-2007 view of California. This is not the current view of California. Just because California did well in the past does not mean it is doing well now, and will not collapse in the future.

The main problem with the collapse is the budget. People blame the economy, the education system and California’s vast inequalities among socio-economic classes. But all of these are simply window dressing - the real problem is the budget.

People are going to disagree with this assessment, and that is fine. But look at what you are blaming the downfall of California for - they all tie back to the budget. Republicans and Democrats have spent more money than is reasonable. Neither party - and they have both been in charge over the past 25 years - has been able to create a stable rainy-day fund for fiscal emergencies. Neither has been able to stem the tide of bonds and continual debt that California is in. Nether has been able to provide continual support to education so that basic educational needs are met, and students can be prepared to be the next generation of inventors and innovators.

If California is going to come out of this economic crisis on top, or simply intact, there needs to be major budget reforms. The problem isn’t that there needs to be 2/3 votes on the budet, the problem is that no one seems to understand the money needs to be balanced. It doesn’t matter whether there is more or less money coming in, there has to be the same amount spent as is brought in. Otherwise, we simply continue on this cut and spend cycle that has become ingrained in California politics.

In politics, the money dictates where the priorities are. It is a common phrase to “follow the money” to learn about where the system’s priorities are. In California, follow the money down the sewer. There is no more money. Instead of focusing on all the other things that are wrong, let’s focus on how to handle the budget we have. No one gets to simply increase the revenues in California, we live in a time when tax increases just aren’t going to happen. Instead, focus on what we have, and where we need to spend the money. Education is the key - let’ focus on that and try to find a solution to this situation that doesn’t involve blame, but instead involves solutions.

Two Republican candidates for Governor - Poizner and Campbell - will debate California’s budget issues Wednesday night at Brandman University in Orange County. Whitman - a continual absentee in debates - will not attend.

Both Poizner and Campbell have released plans to fix California’s budget. The Democratic nominees haven’t done anything but say they can fix it because they are better consensus builders (Brown) or because they think the two-thirds requirement is holding the budget hostage and they would eliminate that (Newsom).

The problem seems to be that no one wants to address the problem. Bringing the fiscal situation front and center is being the bad news bunny. No candidate wants to be seen as the death-bringer, as the person who is always filled with bad news.

The reality is that there is almost as big a hole in the budget for the next governor as this governor faced. Part of this is because the current budget deal simply shifted debt around, borrowed money that has to be repaid, and made several cuts that have already been declared illegal and overturned by the courts.

Campbell acknowledges that the budget isn’t the sexiest campaign issue. It is complicated and filled with things people don’t want to deal with, and issues that most people don’t understand. However, he has released a 40- page report about the budget issue and how he would fix it. If you take the time to read it, it looks like some of the solutions would be viable - how many would work is unclear, but some of them would. Poizner has also released a plan that might have some chance of working. The fact that both of these candidates have addressed the issue means they are thinking about it and realize it matters.

Whitman, Brown and Newsom all treat it as the elephant in the room - hoping that if they don’t say anything, it will go away and people won’t notice. People are noticing.

 If you want to hear some informed debate on the issue, listen in on the debate Wednesday night.