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Today’s Issue:
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Inside the Leonard Letter
By: Bill Leonard on: Monday, June 29th, 2009
***Problem Solving by Delay***
Normally, half a loaf is better than none, but under the Capitol dome that kind of logic does not always work. Over the last few days the Democrats have offered a solution to the short-term cash flow crisis but not to the on-going problem of overspending. The Republicans are split, with some advocating the partial solution then returning to the issue of a long-term fix while others argue that the problem is so acute that we do not have the luxury of time to address the problem incrementally. Earlier I was on the side of those suggesting that we agree on what is offered and come back for more debate on the rest of the problem.
However, Senator Dean Florez (D-Shafter), who is Majority Leader, brought me up short. During the debate on Friday about the short-term measures, he argued eloquently that preventing the state from issuing IOU warrants was the most important item before the Legislature, and since everyone agreed that the proposed bills would cut spending enough to cover the cash gap, they should be adopted now. Then he shocked me with way too much disclosure of the Democrat strategy by saying that the structural deficit and the imbalance of the current year budget and next year's budget will NOT be resolved while he remains in office. He is termed out November 30, 2010. The Senate majority has no plans to resolve this endemic problem now and apparently do not plan on addressing it until at least 2011.
Wilson, Davis and Schwarzenegger have all tried versions of this wait-until-the-problem- goes-away strategy. It does not work. There have been times in the past where eventually we have grown out of the spending problems by a boom of economic activity. Given the state's anti-job and anti-business climate it is irresponsible to assume again that taxpayers will be the solution to the problem of spending. Delay is not the answer.
AROUND THE STATE
***More Thoughts on the Con Con***
Last week I participated in the New America Foundation's "California v 2.0: The Roads to Fundamental Reform." Everybody there knew this was a promo for the idea of a Constitutional convention. Panelists from the Bay Area Council, California Forward and the New America Foundation all are in favor of a convention. However, other than some general assumptions about gridlock, partisanship, governance failure, and political malaise, they did not present any specifics on what the problems are, or any proof that the Constitution has to be rewritten in order to solve these non-specific problems.
What struck me was that these foundations appear to have lots of money and want to spend that money doing good. Since people's opinions vary so widely on what would be "good," they have skipped over the definition of the problem and lightly passed over the proposed solutions in order to jump straight to "process." "Process" is fun to talk about when you have no stake in the outcome.
Reflecting distrust of the elective process, the Bay Area Council is proposing that we empanel a Gigantic Jury of 400 Californians who would be called and then tasked with rewriting the Constitution which would then be presented to voters for approval. Discerning voters will want to know who is the staff for this Jury, just like it is important to know who is the District Attorney who staff real Grand Juries. 400 Californians who yesterday were minding their own business and today carry all hopes of saving state government might choose to rely a lot on the staff experts. Even if the jury is unbiased, what of the staff?
I do not believe any of the proposals most frequently discussed by pro-Conventioneers (e.g., eliminating the 2/3 vote requirement to raise taxes; eliminating the 2/3 votes requirement to pass a budget; repealing term limits; increasing the size of the legislature and having multi-member districts; and establishing regional governments) would be approved by the voters if they stood alone. Perhaps the biggest difference between a legislature and a Constitutional convention is that a convention can vote trade. Vote trading, or log rolling, is where one group of conventioneers in order to get their idea into the package, agree to vote for someone else's idea that they are indifferent to. It is how we got the U.S. Senate sharing power with the U.S. House of Representatives. Or in today's controversies, I could see Cal-Tax supporting the same-sex marriage agenda as long as the anti-Prop. 8 delegates support a 2/3 vote on taxes and fees. I will scratch your back and then you scratch mine. Whether the voters ever approve any package of any kind is doubtful, but the plan is to call the convention in 2010, rewrite the constitution in 2011, and put it to the voters in 2012.
As I considered the idea of a convention, it seems important that the call instruct the Jurors on what the problems are that need solving and maybe even ideas on how to solve them. I have yet to see any language, but I believe that the drafters of the initiative to call a Constitutional convention by initiative owe it to the voters to announce why they think the Constitution needs to be revised and what revisions should be considered first. So far, this has not been done.
***Check Your Withholding***
Kudos to the Sacramento Bee for their reminder of an important change in state tax law enacted in February. This tax hike could cost a typical couple with two kids an extra $670 next April 15. The Franchise Tax Board is warning people that if they did not adjust their withholding, instead of a refund, they may owe money.
The tax changes, adopted by the Legislature in February, added 0.25 percent to California's personal income tax rates and reduced the tax credit by $210 for each dependent claimed on a tax form. The higher rate is retroactive to January. Even if your present withholding is correct now, companies did not receive the new withholding tables until April so you may not have had enough withheld earlier in the year.
Go to the FTB's Web site, www.ftb.ca.gov (search under "Individuals" and "Plan for next year"). You can also calculate your withholding rates using Form DE 4 at the Employment Development Department's site, www.edd.ca.gov.
For those who are making quarterly estimated tax payments the challenge is similar. FTB also has a web page of advice: http://www.ftb.ca.gov/professionals/taxnews/2009/0409/Estimated_Tax_Payments_Law_Change.shtml
Inside the Leonard Letter
By: Bill Leonard on: Monday, June 22nd, 2009
***Revised Budget Do Over***
I watched the Democrat press conference on the Calcliptv Youtube channel
http://www.youtube.com/calcliptv#all/uploads-all/1/2NS-MyE09p4
and found several items of interest. It appears that everyone is accepting the Governor's calculation that the current budget ending June 30th and that the next budget through June 30, 2010 is just shy of $25 billion out of balance. Normally there are fights over the various methods of estimating expenditures and revenues that reach this number. The fact this number is being accepted is an alert to me that it is probably worse than that by billions.
While there are some glimmers of economic recovery in parts of America, it is dimmer in California. And when the economy does recover, government revenues will lag. Companies will not pay taxes until they have a profit. Consumers will not go on buying sprees until they have paid off existing bills and made sure their jobs are secure. Income taxes and sales taxes will be slower to rebound than jobs, and the budget crisis will last even longer than the economic crisis.
The Democrat leaders announced that their solution falls a billion dollars below the Governor's solution. So even though they agree on the magnitude of the problem, they are unable to come up with a real solution to it. They are committing themselves to a never-ending story of budget revisions monthly until their terms in the legislature end and they hand off the problem to someone else. This is not responsible work. People know there is a problem. People know there are cuts in government spending that have to be made. To adopt an incomplete plan and then come back in a few months to enact further cuts just keeps all those who benefit from government on edge not knowing if the cuts they are already enduring will be surpassed shortly with even bigger hits. It would be better to make those hard decisions now showing all that no one is immune from cuts and assuring folks that the solution matches the size of the problem.
They figured that the Budget Conference Committee had adopted 45% of the Governor's cut proposals as is. Congratulations. They should adopt those en masse with no other riders this week and the Governor should sign them immediately. It will not solve the entire problem, but it will show the public, the bankers and the voters that state government can take some baby steps in the right direction when it has to.
The tax increases are silly. They are punitive when taxes should be fair. They will not bring in money fast enough since we need cash this month, and they will not work as tax increases because they will never bring in the revenue ascribed to them. I fully expect the Republicans to do the responsible thing and kill the tax increases, but even that is a waste of precious time. As both the Controller and the Treasurer have testified, the state cannot meet its obligations, nor does it have the credit to cover routine cash flow gaps, and that is just talking about this month. Without revising the budget, the problem grows. That is an outcome that is unacceptable.
AROUND THE STATE
***Constitutional Revision Revisited***
California's governance and finances have been messed up for a long time. Back in the early 1990s we had a deficit that was, for the time, enormous and seemingly insurmountable. One result of the drama was the appointment of a Constitutional Revision Commission created to deal with the dilemma the report summarized thusly: "Neither the voters nor state and local officeholders are anxious to raise taxes. The conclusion is obvious. We must find ways to provide needed services with existing resources. This means that government must operate more efficiently. The state’s governmental system developed in the nineteenth century will not be adequate for the twenty-first century."
About 28 people, myself included, spent 1994-1996 studying and debating how to accomplish these goals. A fellow commissioner, Joel Fox, recently wrote about the commission's work and posted its final report:
http://www.californiacityfinance.com/CCRCfinalrpt.pdf
Fox also observed that our report was "ignored as soon as it was printed." He and Commission Chair Bill Hauck believe that was because the crisis that spurred the commission's creation had passed by 1996 and the contentious election season had begun and politicians were unwilling to consider such controversial changes. Senator and commission member/creator Lucy Killea (D- San Diego) introduced the entire plan as a constitutional revision, but it never even received a hearing in her own committee since there was no enthusiasm for the fight.
I appreciate Joel's reminder about the important work we did because it means that the wheel does not have to re-invented to meet the current crisis. I did not concur with every recommendation the commission made, but there is plenty of meat there worth considering now. There is a fairly standard set of suggestions that are familiar: improving the state budget process (e.g., a two-year fiscal calendar, mid-year review, required capital outlay plan and reserve fund); allowing legislative addition of technical and clarifying language to initiatives that have qualified for the ballot; and consolidating the tax agencies.
Where this commission broke new ground was in our discussions about improving the bureaucracy of public education and adapting the entire local government structure to enhance local control. The first dramatic suggestion was to make the governor responsible for K-12 education by eliminating the separate offices of State Superintendent of Public Instruction, State Board of Education, County Superintendents of Schools, and County School Boards. Increasing local control, involving all local agencies in capital planning, and moving community colleges to higher education authority were all recommended. We then discussed rethinking the entire structure of state-local government relations, revisiting what counties do, and offering home rule charters to strengthen local control.
The report should be read or re-read by everyone interested in fixing the mess that is California right now. In addition to the commission's recommendations, it includes a healthy discussion of dissenting opinions and a vast list of references.
ISSUE FOCUS
***Amazon Fights Back***
A number of California revenuers (those who believe in extending taxes far and wide) have been arguing that California is not following the law with respect to collecting sales tax from Amazon. Their argument is Amazon’s associates program amounts to having sales agents in the state, and therefore the Board of Equalization should demand Amazon collect and redeem sales tax to the state right now. I disagree with this argument. Amazon associates are merely putting Amazon links on their websites in the hope their readers will click on the link, order a book or merchandise and get a little money in return from Amazon. Amazon argues they are just paying for advertising, a position I agree with.
First of all, if you buy an untaxed item from Amazon and use the item in California, you owe the state use tax under current law at the same rate as sales tax. This is why the tax is officially called the Sales and Use tax. If the Franchise Tax Board audits you or your business it can check to make sure you paid the Use tax, especially on equipment for which you claim depreciation, so exercise common sense. Second, if you order a book or other item from Amazon that comes from a California source, Amazon does collect and redeem the sales tax on your behalf.
The bottom line is California cannot collect sales tax from businesses that do not have a physical presence or actual sales agents in California under the U.S. Supreme Court’s Quill vs North Dakota decision in which the Court ruled a mail order company’s catalogues did not constitute “substantial presence” (aka nexus) in the state.
Whether Amazon’s associates program is just advertising, or actual sales agents with “substantial presence” in the state, is being litigated in New York.
http://www.electronicretailerblog.com/tag/quill-decision/
Now North Carolina’s Legislature is on the verge of passing a similar law to New York’s. Amazon responded last week by saying if North Carolina passes the law it will shut down its associates program in North Carolina. It occurs to me that Amazon has a potent political force in its associates, who could be activated to pressure elected officials as a group. I hope they do so.
http://confederateyankee.mu.nu/archives/288628.php
Inside the Leonard Letter
By: Bill Leonard on: Monday, June 15th, 2009
***Simple Solution: Adopt the 2004-05 Budget***
Time is running very short before the Governor carries out his threat to completely shut down all unessential state operations. If the Legislature wants to reject the Governor’s cuts, they could simply re-adopt the 2004-05 spending plan. 2004 was a pretty good time in California. Housing was booming and the economy was growing. General Fund revenues were about $78 billion, and most reasonable people did not think the state budget signed in the summer of 2004 was austere. As Anthony York reported in Capitol Weekly a couple weeks ago, just two years later the state was spending 21% more in the 2006-07 Budget than it did in 2004-05.
http://www.capitolweekly.net/article.php?_c=y0i9dtelhndoc9&xid=y0dgall7be9art#
According to the Legislative Analyst’s Office, we can expect the same level of revenue for the 2009-10 fiscal year that we budgeted for in the 2004-05 fiscal period, plus enough for a $10 billion reserve. From this perspective, the current fiscal situation does not look like much of a crisis except for the political angst in making a decision to roll back state spending. Circumstances do change, like the number of prisoners, the number of people on welfare, the number of students etc. So I did some research to compare the 2004-05 year to what we can expect in 2009-10.
Our prison population is flat and declining. In the fall of 2004 the Department of Corrections and Rehabilitation pegged its “Institution Population” at about 163,000, with a parole population of about 113,000. Looking at the current Institution Population report (May 13, 2009), it is 166,000 with about 111,000 on parole. Governor Schwarzenegger is implementing a new program where many of these are going to be turned over to the Federal government for deportation.
http://www.cdcr.ca.gov/Reports_Research/Offender_Information_Services_Branch/Projections/F04Pub.pdf
http://www.cdcr.ca.gov/Reports_Research/Offender_Information_Services_Branch/WeeklyWed/TPOP1A/TPOP1Ad090513.pdf
K-12 and social services together account for about 60 percent of total state spending. The K-12 system continues to experience declining enrollment. In 2004-05 there were roughly 6.04 million students (ADA). The estimate for 2009-10 is 5.9 million students.
For public assistance, the latest report available is from February 2009, so I will look at February 2005 to compare. In February 2005 there were 1,240,089 Californians receiving CalWORKS (welfare) benefits. In February 2009, there were 1,272,359 CalWORKS recipients. In February 2005 there were 1,188,393 Californians receiving SSI/SSP benefits. In February 2009, there were 1,268,020. In this category, the biggest jump in enrollment is for In-Home Supportive Services. In February 2005 there were 333,384 receiving the service (average cost per person $749 per month). In February 2009 there were 421,637 (average cost per person $921 per month).
http://www.cdss.ca.gov/research/res/pdf/Paff/2005/PAFFFeb05.pdf
http://www.cdss.ca.gov/research/res/pdf/Paff/2009/PAFFFeb09.pdf
My conclusion is the state could go back to 2004-05 spending levels taking advantage of the fact that workloads of these programs are roughly the same today and that inflation over this time has been mild. The impacts, of course, would be for state and local governments, including schools, to reduce the payroll back to those levels by either layoffs or pay cuts. Obviously, those impacts will be serious to those affected but the overall programs will remain in place. Here at the Board of Equalization, we have added around 590 positions since 2004-05. The growth in government over the last five years was way higher than justified.
The state can trim spending to what it was five years ago without causing cataclysmic shocks to the quality of life for Californians.
***Career Tech: Hats Off***
Despite my preference that the legislature concentrate solely on the pass recently: Senator Rod Wright's SB 381 which requires school districts to offer non-college admission routes to high school graduation, including focus on career technical education classes.
My hats off to Gino DiCaro, Vice President of Communications for the California Manufacturing & Technology Association (CMTA), for writing up the passage for all to see:
http://foxandhoundsdaily.com/blog/gino-dicaro/sen-rod-wright-scores-one-equal-respect-all-students-dreams
CMTA has been pushing the issue of career tech for many years and I am pleased their reasoned argument has finally found a reception audience in the capitol. I commend Senator Wright for his passionate pushing of this vital issue, and I remain mystified by the "no" votes of Senators Simitian and Wiggins.
***BoE Sponsors Another Terrible Bill***
Over my objections, the BoE voted 3-2 to sponsor a bill that would make it extremely difficult, if not impossible, for non-wealthy taxpayers to sue the government. The back story to this is the BoE recently lost a case in Superior Court. The judge awarded attorney’s fees to the plaintiffs because the Board’s position was so unreasonable the judge ruled the case involved the enforcement of an important right affecting the public interest. The judge ruled the BoE must pay the plaintiff 1.5 times a reasonable fee, which he found in this case is more than $600,000. Before it got to this point I repeatedly argued we needed to settle the case, but the Board's Democratic majority would only listen to the flawed legal advice we were getting from our legal department.
On Tuesday, the same lawyers who previously insisted we fight this case brought before the Board a bill idea to eliminate the current system for recovering costs and replace it with an exclusive standard that raises the bar so high for fee recovery that it will preclude non-wealthy taxpayers from bringing actions against the Board. Attorneys will not be willing to take a case for a regular taxpayer if the threshold for eventually recovering costs is so high it is not worth taking the risk.
In cases of unlawfully enacted taxes and fees the amount in dispute might be very small, but the cost of going up against the government could easily include many years of work for attorneys, as it did in the case the Board recently lost. That case took more than 10 years of internal appeals and litigation.
I am fairly confident this bill will get killed quickly because it is so offensive and wrong to so many. It is embarrassing to see it even get that far. My thanks to the California Consumer Attorneys Association and the California Taxpayers Association for standing up to the Board against this bad idea. An edited video of the discussion is here:
http://www.youtube.com/user/calcliptv#all/uploads-all/0/3ktMPZdvh2c
Inside the Leonard Letter
By: Bill Leonard on: Monday, June 08th, 2009
UNDER THE DOME
***The Public Has Seen It, Now Do Something***
The Governor's emergency May Revise proposal to save the state from insolvency has been vetted extensively. And unlike the February budget deal, this was all done in public before the cameras. Now that all the interests facing deep cuts have had their say in public we know the full implications of those cuts. The Legislature must now either pass the May Revise, which I suggest is the best course, or they need to step up and provide their own deep cuts. Finding cuts of sufficient magnitude outside education and welfare will be impossible because that is where the money is being spent. While I am okay with the fact the Legislature is proposing some small cuts like doing away with some of the Governor's agencies, a couple million dollars here and there is not going to get it done.
The State Treasurer and Controller, both Democrats, have reported the state will not be able to borrow any more money unless it restores the state's balance sheet. There are many details that will need to be worked out later, but the Governor's proposal and the hearings have brought transparency to the process so that the Legislature cannot go back and undo them with phony insider solutions.
Neither the Republicans nor the Democrats should want to take the lead in finding a cut list different from the Governor’s.
AROUND THE STATE
***Teacher Lay-Offs***
Back in March when school districts around the state issued the required preliminary layoff notices to teachers, I expressed my disbelief that when push came to shove, teachers would actually lose their jobs. The March pre-notice requirement was put in place by the teachers' union to create political pressure on school board members and legislators to make the necessary budget changes to prevent the layoffs from happening. In my experience, that has been what has happened. This year may turn out slightly differently, but the games being played still do a discredit to students and speak to the need for a full revamping of our public school system.
While it is still too early for final layoff numbers to be known, I did see a survey of several school districts done by a large newspaper. Of the 3,038 preliminary layoff notices issued, “final” notices went to only 1,137. I looked into one of those school districts and more than 25 of the 300+ teachers who got the “final” notices had already been told there are jobs for them this fall. An administrator predicted that only 100 of the remaining laid off teachers would actually not have positions by then. All 100 of those have been placed at the top of the substitute list, meaning they will work nearly every day of the next school year. And the administrator further indicated that over the course of the year, every one of them will be rehired permanently as other teachers retire, move away or quit, something that happens every single day.
I asked whether any administrators had lost their jobs before classroom teachers were cut. What I understand is that some of those teachers were bumped from their positions by administrators who lost their jobs claiming their right to return to the classroom. That means that people who had been working in the district office or even as assistant principals for years will be back in front of students and the newest teachers are out of luck. Another consideration is whether a district undergoing layoffs is growing in enrollment. Most are not. In most districts in the state, the number of students is dropping or at least staying the same. Yet in recent years as California's population increased, student enrollment did, too. Now that the growth has stopped or reversed, fewer teachers are needed.
Yet the real tragedy here is that even many of those districts planning to lay off teachers have enough money in the bank to pay their salaries and then some. Federal and state mandates prevent the districts from using categorical program money to pay for classroom teachers. Even if the locally elected school board decided that its "at-risk" students would be benefited most by having smaller class sizes and thus wanted to use that money to pay to keep more teachers on board, the rules say no. School board members and superintendents are frustrated by this, and no wonder. It is hard for taxpayers to get upset about layoffs when there are silly, bureaucratic rules that prevent common sense from prevailing. If Democrat legislators are serious about keeping teachers in their posts, they should heed the Governor's call to free districts from state mandates, and the Governor can best serve the people of this state by pushing to eliminate all categorical restrictions on education dollars.
***The Con Con Con***
All the talk about a Constitutional Convention reminds me of a con game. Whatever your problem, the Con Con will fix it. You want balanced budgets, come to the convention. You want to repeal Prop. 13, come to the convention. You want to redefine marriage, come to the convention. You want to make chocolate without calories, come to the convention.
For example, the California League of Cities, the California School Boards Association and the California Association of Counties have called a governance summit next month that may very well result in their calling for a Constitutional Convention. On the surface of it, I agree with these local elected officials seeking a discussion of how to restore local control. Addressing that issue would get to the crux of much of what has gone wrong with California in recent decades. I even agree with the statement by the LA Times' George Skelton about the need to: "reconstruct the tangled, unhealthy relationship between the state and local governments."
The city council members, school board trustees and county supervisors are for rolling back state mandates, which the Governor spoke in favor of in his speech last week. However, Skelton and, I suspect, many of those local electeds who will participate in the governance summit believe the solution is to allow cities, school districts and counties to raise taxes more easily or simply label every revenue source a "fee" instead of a "tax." That way, local governments can get on with providing all the services they do now, plus give out all the other goodies the state does, and perhaps even more.
If making it easier to impose tax hikes (by any name) by local governments is the best we can get out of leaders calling for "reform," then a Constitutional Convention will be a disaster. It would mean that our leaders have fundamentally misunderstood what the average California taxpayer is saying, which is: stop the madness. Our government cannot be everything to everyone. Government is trying to do too much and is failing at even those basic things we expect and need it to do, much less at those things that are far beyond a bureaucracy's ability to accomplish.
A discussion of that could make for a solid Constitutional Convention and could lead to a true restructuring of governance that could make for a better, stronger California. Call me a skeptic, but I do not believe that is what we will get out of Constitutional Convention. Obviously, a Convention could never please everybody, but we run the great chance that it will take away freedoms and protections we now enjoy. I know there is low support for the Legislature, but rather than re-writing the Constitution to make legislators better, we should try using the election process to elect better legislators or re-educate the existing ones.
Inside the Leonard Letter
By: Bill Leonard on: Monday, June 01st, 2009
***Investments in Infrastructure***
While the woes of California state government remain in the big headlines, every California business is challenged with this economy no matter who gets the blame. It seems that the bulk of California's utilities have decided that they cannot stand still in these times. Even while making difficult decisions on employee layoffs and product pricing they are making heavy investments in their own company's future. Last week the Board of Equalization adopted the property values for our state's utilities. We assess the value of all energy, gas, electric, telephone, wireless, and railroad companies. The roll is up-- and it is up by over a billion dollars. Total utility property values went from $75.666 billion in 2008 to $76.826 in 2009. A major factor in this increase is that 2009 is a big “catch-up” year for the electric companies (i.e., Edison and PG&E) because they have not done much infrastructure in the last couple of years. Consequently, they are going to be doing a couple of billion dollars worth of investment each year for the next several years. Additionally, the electric companies are a significant proportion of the entire utility roll, meaning their heavy investment in one year tends to skew the roll somewhat. So despite the weak economy, the utility tax roll is expected to increase for the next couple of years. That is, California utilities will be paying more in property taxes to local governments because they have made billions of dollars of improvements to their properties. This not only includes heavy items like generators and rail stock, but also computers, cell towers, and switching equipment. This is concrete evidence that improvements are always needed to keep providing services to customers whether the times are good or bad. The lesson for state policymakers is this: do what you have to do on spending programs, but move on quickly to making the necessary investments in water and transportation infrastructure to keep California moving forward.
***Not Much Stopping Government These Days***
I did my best to prevent the Board of Equalization from endorsing an incredibly bad bill on Wednesday. In the end, I lost 3-2 with Michelle Steel joining me in voting no. Elective democracy only works well when the citizens push back when the government goes too far. Sadly, this rarely happens. Nonetheless, every business owner in California should take a look at Assembly Bill 852 by Assemblyman Paul Fong (D-Mountain View), a bill that would allow county assessors to mandate that businesses file their property tax returns electronically. Not every business, just the ones the assessors pick. Those that are targeted by the assessors must file electronically or get hit by a ten percent penalty. This shows the total falsity of the assessors’ argument that this is good for business. If that were so, there would be no need to mandate it with the threat of a penalty. A reasonable person might think California is so eager for revenue they would allow people to pay their taxes in any way that results in the State getting the money on time. Nope. This bill is all about the assessors making things more convenient for themselves. Under my grilling, the assessors’ representative repeatedly promised to fix the bill, that the assessors would ultimately do the right thing, and so on. Note how the assessors’ representative specifically mentioned Bank of America for targeting, which is totally inappropriate. With nothing more than vague promises that the bill will be amended and that the assessors will be fair to business owners, the Democrat majority on the Board endorsed the bill. If you are outraged by this, I encourage you to contact your county assessor and Assemblyman Fong. An edited video of the discussion is here:
http://www.youtube.com/watch?v=lcDQM_JhuII&feature=player_embedded
ISSUE FOCUS
***Free to Move***
The Wall Street Journal had an article last week about an experiment in wealth extraction in the State of Maryland. Last year Maryland found itself in a deep budget hole. Governor Martin O’Malley (D) led the charge in creating a higher tax bracket for millionaires. O’Malley said these millionaires would be “willing and able to pay their fair share.” Leaving aside the absurd “fair share” statement, the Wall Street Journal has discovered that in fact many of the wealthy in Maryland were not willing to give more to the State of Maryland. The Journal reports that it appears one third of the millionaires have decamped for less hostile territory. In 2008 there were about 3,000 people filing million-dollar income tax returns filed in Maryland. As of the end of April this year, there were 2,000. Instead of the state getting an extra $106 million from their soak-the- rich scheme, they are instead getting $100 million less from millionaires than last year. Knowing the ways of government, I bet the Maryland booked that $106 million as if they already had it in their possession, then spent it. So, rather than a windfall to support Maryland’s spending, the actual result of the tax hike and the breezy revenue estimate is an additional $206 million to the state’s deficit. But that is not a complete accounting of the damage. The millionaires who left Maryland are now buying their cars, jewelry, houses, landscaping, groceries, and everything else in Florida, Delaware, South Carolina, Virginia, etc. I always like to bring up the Laffer Curve in these situations. Art Laffer’s simple thesis is tax rates of zero percent or one hundred percent both return zero revenue. Somewhere in the middle is the best tax rate. If your tax rates result in people no longer wanting to remain citizens of your state, you have gone too far. By the way, this also demonstrates the critical importance of Federalism. Thank goodness Americans can still vote with their feet. The Journal sums up better than I can, “All of this means that the burden of paying for bloated government in Annapolis will fall on the middle class. Thanks to the futility of soaking the rich, these working families will now pay Mr. O’Malley’s ‘fair share’.” Ouch!
http://online.wsj.com/article/SB124329282377252471.html
Inside the Leonard Letter
By: Bill Leonard on: Tuesday, May 26th, 2009
***Just Pass It***
The February budget deal has fallen apart with a heavy dose of economic reality. The May vote of the people has rejected tax increases and borrowing. The state's constitutional officers and the Legislative Analyst are reporting that borrowing is impossible without a balanced budget. And the Governor, to his credit, is proposing a budget package that is almost entirely cuts in spending. Now some of the cuts are one-time, which merely postpones the day of reckoning, and some of the 'cuts' are actually fee increases, which hit Californians in the pocketbook.
Nevertheless, his plan works, especially now without the riskiest borrowing. The Legislature would be wise to pass it this week. Let me advise legislators that the pain and pressures are not going to get any better. In fact, if the Legislature seriously considers rejecting any one of the cut items, then they have the burden to find another cut of equal value and then tell that interest group that their spending is less important.
Pass the Schwarzenegger budget. He has accepted the reality of our economic times clashing with our spending excesses. No amount of tinkering will change that reality and no number of changes will make this budget any better. Every Republican and every Democrat should vote to pass this budget quickly and then move on the bigger issue of what California state government might do to encourage economic growth. I would suggest they focus on transportation and water, but I know they cannot do so until the current budget is adopted.
This budget proposal has already had more scrutiny by the legislators, press and public than the February secret budget deal. The month of May should end with legislative action to respond to the crisis.
***CA Water Wars***
In addition to the economic crisis and the budget crisis facing California, we are also head-on with a water shortage. People have stopped being concerned when they hear “drought” because they have heard it for many, many years. California’s climate and development work hand-in-hand to create this situation over and over again, but policymakers, particularly those in judicial robes, exacerbate the problem at every turn. The tug-of-war previously has been categorized as north vs. south and agriculture vs. urban, but the current incarnation is “radical environmentalists” vs. the rest of us who want to drink, eat, work and live in California.
I am hopeful that the new Latino Water Coalition can help break through this impasse. The group brings together Latino business and civic leaders for the purpose of lobbying for state-financed canals and reservoirs, particularly targeting legislators of the Latino caucus. These are overwhelmingly Democrat-affiliated legislators who, heretofore, have opposed such infrastructure investment because of the Democrat tendency to side with environmentalists who oppose building canals and water storage. Indeed, as a spokesperson for the Coalition explained:
“[t]oo many in California's environmental community care more about fish than people."
You can see the potential for progress of such a group when you also read Rep. George Radonovich’s article in the Fresno Bee last week discussing the Two Gates project. The Congressman explains that the project “would require the simple construction and installation of two gates near the Delta pumps that would keep the hallowed Delta smelt safe while simultaneously pushing the lifeblood of the Valley to our farmers. The project is permit-ready and, once approved, could be installed as quickly as 90 days.” Yet, it seems this worthwhile project that would solve so many problems has been left off the list for stimulus funding. Groups like the Latino Water Coalition can make a big difference as we fight this battle, and the Two Gates project would be a great place to start.
Find Rep. Radonovich’s article here:
http://www.fresnobee.com/opinion/wo/story/1416551.html
Read more about the Latino Water Coalition here:
http://www.gotwater.org/
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