“Snatching Defeat From the Jaws of Victory” – July 6, 2004
Republican Legislators started late last week to make public their criticism of the Governor's budget negotiations questioning his restoration of major spending proposals on a budget only balanced by borrowing.  Instead of remaining silent and letting the press savage the Governor and the Republican legislators for this split, Democrat legislators stupidly brought up their own list of demands and have now managed to take ownership of the late budget.

What could the Democrat legislators be demanding that is so important?  They are fighting for the right to steal money from local governments.  That’s right: they object to the Constitutional Amendment that the Governor negotiated with local governments that protected cities, counties and special districts from again being victims of state mismanagement.   Without Constitutional protections, local governments would still be subject to the whims of the legislature and the governor regarding local finances.

My thanks to these legislators for saving the Republicans (so far) from an embarrassing spat and for showing their true colors with regard to their lack of support for local government fiscal priorities.

“When a Deadline Is Not a Deadline” – July 12, 2004
Yes, I know the California Constitution says the state budget must pass by June 15th.  The intent of this requirement is to give the Governor two weeks to consider the budget then sign it before the new fiscal year starts. But since the Governor's staff writes the budget, he really does not need two weeks.  Yes, I know the fiscal year starts on July 1st and that if there is no budget, then there is no spending authority.  However, court cases and emergency statutes have made missing this deadline virtually risk-free.  No state employee is off the clock due to lack of pay.  No vendor is getting checks any later than they already do.  In fact, the bills for June just coming in now are paid with June money that is from last year's budget authority.  July’s bills will not show up until August.

The truth is that once the self-imposed political barrier of July 1st is breached, then there are no consequences for at least two weeks (mid-July, when some state employees are due paychecks).  Budgeteers have already suffered the bad headlines for being late, so now the pressure is on to gain some budget 'victory' that justifies holding up the budget.  Not only do the terms of the budget have to be negotiated, but also the terms of who won and who lost have to be articulated so that everyone has something to allow them to save face.

Unless the courts reverse themselves to actually implement the Constitution the way it reads, there will always be late budgets. The consequences of being late are far less important than the philosophical fight over the direction of the state budget.

“Budget Kudos” – July 19, 2004
I want to give a high five to California’s local governments.  The state budget fight has come down to the question of whether the state should be able to rip off local government revenue easily, as it has done to the tune of more than $44 billion in the last decade.  Local governments have always objected to this, but they just as routinely caved in.  This year is different.  Republican and Democrat Mayors are standing together telling the Governor to stick with his deal with them and telling legislators to get the message to stop the bleeding.  With so many legislators coming out of local government work one would think this message would be an easy sell.  But Sacramento fever is a terrible disease.  It captures otherwise common sense legislators and allows them to say silly things like: “cities are greedy” and “in times of crisis, the state needs local governments to contribute to the cuts.”

Credit goes to local government leaders for taking a stand and not backing down.  If the legislature wants to continue to have the unbridled power to take property taxes away from local governments, then they are going to have to roll over the cities and counties to get there.

“What Would $300 Million Buy?” – July 26, 2004
One of the issues credited with (or blamed for, depending on your viewpoint and political philosophy) holding up the state budget, is school bus contracts. The Republicans would like to make it possible for school districts to bid out busing contracts in search of the lowest price. Democrats would like to continue to require that school districts use only government workers to drive buses.  If the Republicans had their way, school districts around the state could save roughly $300 million per year.  What else might school board members choose to buy with that money?  They could afford one new textbook for every student in California, or 6,000 new teachers, or put a computer in every classroom in the state. 

“Taxpayers Win One” – August 2, 2004
Though the recently approved state budget does not include tax increases, it also does not have a lot of good news for taxpayers in general. State spending is still up and true reform was scant.  However, taxpayers can celebrate one big victory that was won for them last week with the leadership of Senator Rico Oller (R-Sacramento).  Last year the Legislature adopted a law imposing a $35 per-parcel fee to generate $50 million to supplement the California of Forestry and Fire Prevention’s budget.  This year, Senator Oller introduced a bill to repeal that law, arguing that the charge was not a fee, but a tax.  Everyone benefits from state fire protection services not just landowners.  Although his bill was defeated, Oller was successful in getting the Schwarzenegger administration to champion this cause in budget negotiations and the prohibition on such parcel taxes was included in the budget approved last week.  One small victory for taxpayer rights, thanks to Senator Oller.

“Governor Being Set Up For Election Year Budget War” – November 22, 2004
Elizabeth Hill, the state’s Legislative Analyst, released the latest budget projections last week.  This document confirms that last year’s budget bought the Governor time, but did almost nothing to solve the state’s ongoing fiscal problems.  Stalling does have some virtue, given the financial circumstance we have been experiencing.  As has been demonstrated, time is helpful when deficits occur during recessions. When economies rebound they have helped governments “grow” out of deficits.  But while it is true that current revenues are outpacing what was expected this year by an estimated $2.4 billion, Hill does not believe that the growth of the economy alone will solve the deep discrepancy between what the state collects and what is spends.

The good news for the Governor is that it appears he will be able to negotiate a balanced budget for 2005-06 with relative ease-- both because of the unexpected new revenues and the potential cash still available from the deficit bonds authorized last summer that have not yet been sold. These unsold bonds amount to around $3.5 billion. 

However, because this is merely painting over a structural deficit that is ongoing, Hill lays out a nightmare budget scenario for Schwarzenegger’s final year of this term should the hard decisions be delayed until then.  Hill estimates that the structural deficit-- the difference between revenues and expenditures in state spending-- could reach $10 billion unless corrective action is taken before spring of 2006.

The question is, will the Governor choose to engage in a brutal battle over the hard choices this summer, or the next?  Without the crisis atmosphere of last summer could he motivate the majority Democrats to cut new spending?   In one scenario outlined by Hill, the legislature can simply halt the growth of Prop. 98 appropriations (dedicated funds to schools), sell the already approved deficit bonds, declare victory, and go home.

This points to the summer of 2006 as the big showdown.  Having exhausted most one-time fixes (the few things remaining, like selling surplus state property, consolidating state departments would help but will not solve the problem) the Governor’s hand will be forced.  He will either need to raise taxes or slash some of the major entitlement programs that make up the lion’s share of the budget. And he will have to do it in an election atmosphere where Democrats will not want to cooperate so they can ascribe to him all the blame and none of the credit for the hard choices.  My prediction is that he will make a stand for fiscal responsibility in 2005.

“Paperless Budget” – November 29, 2004
For the nearly 30 years I have been studying the state budget, I have had to lug around several thousand pages of data in several books.  This year, students of the budget will get less of a physical work-out because the Governor has announced that his 2005-2006 proposed budget will only be available on-line and via CD-ROM.  A pocket-sized summary will be available in print, but all the detail will be paperless.  The proposal is due out on January 10^th and the paperless plan should save taxpayers more than $100,000.

“What the News Will Not Tell You About the Budget” – January 18, 2005
Last Monday Governor Schwarzenegger released his 2004-2005 budget. It is the most honest budget presented since before Gray Davis became Governor. There are no phony revenue projections or accounting gimmicks. The sad news, as Governor Schwarzenegger pointed out, is that this budget still relies on borrowing from our future because of the out-of-control auto pilot spending requirements buried in the law.  To promote an honest discussion about the impacts of this proposed budget, I want to share with you some observations you will not see in mainstream media.

·         Thank you, Californians. The Governor is expecting a 6.8 increase (or $5.3 billion) in tax revenues in the budget over the current year. That is a pretty good return on anyone's portfolio.

 

·         The budget documents also project that on a net cash basis, the tax amnesty program for 2004-05 will bring in $211 million.  The next year that figure drops to $52 million, and the following year it actually loses about $27 million.  The highly touted amnesty program will only accelerate revenue that would have come in anyway without the program and will actually cost the state money in two years. Will Controller Steve Westly or author Assemblywoman Judy Chu ever admit that this is a failure?

·         Non-Proposition 98 expenditures (that is, state functions except K-14 education) are UP $1.035 billion from this year’s spending compared to the budget year spending.

·         Proposition 98 (K-14 education) spending is UP $2.408 billion from this year to next.

·         Given those last two bullet points demonstrating that proposed spending is UP, the discussion you will hear about this budget being full of “cuts” is mired in gross misuse of the English language. In Sacramento, people use the jargon term “cut” when your budget does not increase as much as you would like it to increase.  Keep that in mind as you read the press coverage and watch the interest groups apply pressure. So far I have found only one reporter who admits that state revenues would be going up and none who confessed that state spending is also up. Every story line uses the words like cuts, reductions, or layoffs, which do not paint a realistic picture of the budget plan at all. In case you still do not believe this (and it is difficult given how we have been brainwashed by this jargon over the years), look at this list of percentage increases or decreases by budget area:  

Governor's Office -0.5
Remaining Executive -4.2
Legislature 4.1
Judicial 9.3
State and Consumer Services 5.3
Business, Transportation and Housing 1.0
Resources/Environmental Protection 17.3
Health and Human Services 4.6
Youth and Adult Correctional 1.2
Non-Proposition 98 Education 8.6
STRS Contribution -49.4
Labor and Workforce Development 0.0
General Government -41.7
PROPOSITION 98: 7.1

·         As you can see from the list, the programs hit by actual reductions in prior year spending are few and only two, STRS Contribution and General Government, are taking large percentage reductions.

·         Another sign of spending changes is the number of employees or personnel years in state government. Here are the budget numbers:

Personnel Years 2004-5 181,923.1

Personnel Years 2005-6 184,554.6
This is a continuing trend, with the current year number of almost 182,000 full-time employee equivalent being higher than the prior year.

“Governor’s Reforms: Public Employee Pensions” – January 24, 2005
The press has missed one important aspect of the pension reform debate. The press has compared the Governor's reform on public employee pensions to the President's reform on social security. While both are addressing the bump caused by baby boomer generation retirements, they are two different plans. Whether or not the government employees’ pension money investments are controlled by the employees directly in the form of some privatized plan or by the pension board of trustees as is currently done is not the real issue. The issue is defined benefit versus defined contribution. Defined benefit is the nature of the current public pension system. You get a pension developed by a formula that has nothing to do with the amount of actual dollars paid into the trust fund by you or your employer. Obviously this means that employees never have to pay for increases in benefits.  Further, since the pension is a contract, the entire state of California budget could go in the red by billions and that pension obligation would still be owed.

A defined contribution plan is what the Governor is proposing. Employees put in their money, state government puts in its share, the money is invested by the trustees, and when the employee retires this entire amount -- whatever it is -- will be paid back to the worker. If employees want bigger pensions they can either: increase their own contributions, bargain under the labor contract for government to increase its contributions, or urge the pension trustees to make better investments that will return the most money when they retire. In this way the pension fund is never out of balance and all the incentives are for the money invested to grow for the employees’ benefit.

This is the only fiscally responsible pension plan and should be considered with all of the other budget balancing efforts. One last twist: because pensions are a contract with employees, the new defined contribution pension proposal would apply only to new public employees.

“Name Calling” – January 24, 2005
The public hates name-calling and so do I.  The Governor made headlines for making a comment about Three Stooges who oppose his budget.  He was responding to one of those so designated who called his budget morally unbalanced.  Since budget documents are neither moral nor immoral, it was clear that Treasurer Angelides was calling Schwarzenegger morally unbalanced.  I am not making a whining plea for us all to get along, but I am suggesting that the voters would be better informed if their leaders stuck to explaining why their proposals are good public policy and why other proposals are not so good.  Schwarzenegger has made a good case for state government living within its means even as he explains that he proposes more borrowing to avoid real cuts.  The Democrats pick and criticize parts of this proposal (all budgets are easy to pick apart), but they need to make a case for their own fiscal plan if it is to be a comparable alternative.

I suspect the only real comparison is going to be the Governor’s budget versus tax increases, which is why it is easier to call the Governor a name rather than debate the alternatives.  That debate needs to take place so the leaders and the voters can choose which plan they like best.

By the way, I once was called one of the Three Stooges by a Republican disgruntled with my support for George W. Bush (then the Governor of Texas) running for President.  The label quickly became a badge of honor from friends who also like Bush, as well as the many fans of the Three Stooges.  Like the British who made up the slur name, ‘Yankee,’ to describe Americans, some names live on not in infamy, but in honor.

“A Bigger Budget Hammer” February 7, 2005
Last year the Governor received voter approval for Prop. 58 which was meant to put some teeth into the state’s budget adoption process.  That plan authorized the Governor to call a special session of the Legislature to rebalance a runaway budget and to prohibit the lawmakers from working on any other issue until they fix the budget.  Observers noted then that this was not really tough punishment for legislators since it did not offer any incentive for them to solve the problem.

Governor Schwarzenegger seems to have taken this critique to heart and he is now pushing a new reform—one he promised to take to the voters if the legislature does not enact it.  This new plan sets a 45-day deadline.  If after that time the legislature does not resolve the budget crisis, the governor will be authorized to tell the state controller to cut every budget item including salaries, local government support, schools, welfare, and all programs by whatever percentage is necessary to balance the budget. This is a tremendous hammer. It means the fiscal problem will be resolved in that same year either by bipartisan agreement or by blind across-the-board reductions.

Those who oppose this reform should explain how to hold the legislature accountable if its members fail to act on a fiscal crisis within the 45 days.

“State Budget Primer – Part I” – February 8, 2005
California history is full of twists and turns.  Until 1933, California had a majority vote budget, but the great revenue loss due to the Great Depression brought a number of new taxes, including the sales tax. To protect taxpayers, a new requirement was added that the budget had to be approved by two-thirds of the legislature rather than a majority if spending went up by more than 5%.  In 1962 this 5% rule was repealed on the argument that every budget for decades had increased by more than 5%.  Thus, today it takes a two-thirds vote of the Legislature to approve a budget.

There was an ongoing discussion during this entire period about whether the two-thirds vote only applied to spending in excess of the 5% level.  For all the years from 1933 to 1962 it was not seriously contested and every budget received the required two-thirds vote.  But the politics are interesting.  If the majority passed a budget with no increases or minimal increases, then the debate would switch from the basic budget to the items of major increases.  Would this better serve the public by focusing the budget discussion on the increases, or would it just allow last year's spending to run on autopilot?

“Not Exactly” – February 8, 2005
A reporter wrote a story last week that relied on a quote from this newsletter.  The point of my piece was to decry name-calling by people of both parties because it distracts from the issues.  Tom Elias, of DailyBreeze.com, decided to use my quote to attack the Governor.  This is what he wrote:

"What's more, even some Republicans detested the tone of his (the Governor's) insults. 'The public hates name-calling and so do I,' wrote Bill Leonard, a longtime former GOP legislator now on the state Board of Equalization. 'I was once called one of the Three Stooges by a Republican disgruntled with my support for George W. Bush, then the governor of Texas. (It) quickly became a badge of honor.'"

Notice that Elias did not attribute this comment to the Leonard Letter; but more important, he omitted the fact that I was making a point about politicians in general, not singling out the Governor.  This is what I actually wrote in the January 24th LL:

"The public hates name-calling and so do I.  The Governor made headlines for making a comment about Three Stooges who oppose his budget.  He was responding to one of those so designated who called his budget morally unbalanced.  Since budget documents are neither moral nor immoral, it was clear that Treasurer Angelides was calling Schwarzenegger morally unbalanced.  I am not making a whining plea for us all to get along, but I am suggesting that the voters would be better informed if their leaders stuck to explaining why their proposals are good public policy and why other proposals are not so good.  Schwarzenegger has made a good case for state government living within its means even as he explains that he proposes more borrowing to avoid real cuts.  The Democrats pick and criticize parts of this proposal (all budgets are easy to pick apart), but they need to make a case for their own fiscal plan if it is to be a comparable alternative."

It was after all of this commentary about the failure of the Democrats to honestly provide alternative budget proposals and instead resort to name calling early on, that I discussed my own history being named one of the Three Stooges.

 

See the difference?  Tom, next time pick up the phone and call me.

“Budget Quiz” – April 11, 2005
Dan Carson at the Legislative Analyst’s Office has issued his eighth annual state budget quiz.  He is testing how closely members of the Capitol Press Corps read the budget information produced by the LAO.  To those trying to answer the questions, Carson warns, “As is often the case in budget analysis, the more absurd the answer, the more likely it sometimes is to be correct.”  Though I am not offering the dozen Krispy Kremes to the winning reader as Carson is offering to the winning reporter, I believe you will find the quiz very entertaining and enlightening. I will share the answers in an upcoming issue. Here are some of my favorite questions:

 

1. The budget proposes to purchase firefighting helicopters to replace 11 choppers it received free from the federal government’s “surplus” fleet. How much does the administration estimate the new helicopters will cost?

(A) $1 million to $2 million each.

(B) $2 million to $3 million each.

(C) Up to $15 million for a whole new fleet.

(D) $7 million to $15 million each.

2. States and the federal government can sometimes transfer foreign inmates back to their country of origin. The state has about 6,500 inmates eligible for transfer now. Over the past three years, the federal prison system has transferred 857 foreign inmates. With an inmate population of roughly the same size as the federal system, how many foreign inmates has California transferred from its prisons during the same period?

(A) 15.

(B) 100.

(C) 500.

(D) 1,000.

3. The budget asks for additional funding for Caltrans to maintain storm water treatment structures. Based on a survey of four of the 12 Caltrans districts, the budget plan assumes Caltrans has 487 such structures. Based on a later survey of seven Caltrans districts, how many structures does Caltrans have to maintain statewide?

(A) 97.

(B) Caltrans did not say, but indicates the seven surveyed districts alone have 881 structures with 109 more expected by the end of the year.

(C) Exactly 1,629.

(D) More than 10,000.

4. The state education system is currently not spending all of the federal money it is allotted for before and after school care for disadvantaged K-12 students. How much unspent federal money does LAO estimate could revert to the federal government by September 2006?

(A) $12 million.

(B) $23.6 million.

(C) $47 million.

(D) More than $100 million.

“Out of the Box Schools” – May 23, 2005
In recent weeks the public discourse on education has focused on spending.  The fight between the Governor and the California Teachers Union over how much money our schools need has generated debates about how schools function and how students learn. 

First, let me share an idea offered by Senator Tom McClintock.  It is not new; I remember writing similar article myself nearly 20 years ago and McClintock has been doing a great job making education spending understandable for a long time now.  After pointing out that the K-12 school budget proposed for next year is actually $2.5 billion more than this year, McClintock finds we will be spending $10,084 per student.  After removing the money spent at the state Department of Education, we are left with $6,937 per student.  McClintock then takes a hypothetical school of 180 students and budgets $6,937 per student.  This would give the school “only” $1.2 million to get through a year.  Rather then putting those students in an existing school (with the filthy bathrooms, leaky roofs and other physical problems we have seen), he proposes leasing luxury commercial office space.  Then he wants to hire five teachers—associate professors from Cal State paid at their current rate.  He says “since university professors generally assign more reading, we’ll need 12 of the latest edition, hardcover books for each student at an average $75 per book, plus an extra $5 to have the student’s name engraved in gold leaf on the cover.”  He considers that since the childhood obesity epidemic seems to indicate that our P.E. classes are not working, he proposes an annual membership at a private health club for each student. “Finally, we’ll hire an $80,000 administrator with a $40,000 secretary because, well, I don’t know exactly why but we always have.”  Here is the budget:

Five classrooms in leased office space: $158,400

150 desks @ $130 each: $19,500

180 annual health club memberships @ $480 each: $86,400

2,160 textbooks @ $80 each: $172,800

Five CSU professors @ $67,093: $225,465

One administrator: $80,000

One secretary: $40,000

24% benefits for faculty and staff: $109,312

Offices, expenses and insurance: $30,000

Total = $1,031,877

Second, I have heard many creative ideas from educators and parents.  Consider these options: changing the school calendar so it is no longer based on the agrarian lifestyle; altering school hours and having schools offer before- and after-school programs; grouping students by ability rather than grade; having students work on computers that either move them forward when they have mastered a skill or keep reviewing a skill in different ways until it is mastered; creating classes that teach student work skills so that if they do not want to go to college they will be prepared to take on productive jobs.

All of these have value.  Some schools might thrive in a non-traditional campus setting.  Some students might excel in a technology-based environment.  Some families might benefit from different schedules.  The problem is that in our current, top-heavy, centralized education system, none of these options can be explored.  Creativity is squashed.  The pendulum swings all the way in one direction (“outcome-based” education) to the other (excluding everything that does not appear on a standardized test) and back again.  We have to dismantle the system, toss out the concept that one-size-fits-all, and enable parents to find the education option that is best for their children.

“Don’t Forget the Blue Pencil” – June 20, 2005
The press is still not asking the right questions about the state budget.  In a surprise move late last week the Democrats announced they would support Governor Schwarzenegger's education budget and drop their plans for a $3 billion increase. So on Wednesday the Democrats brought up their version of the budget, which is now only about $1 billion over the Governor's, but they got no credit for their concessions.  Republican opposition prevented passage.  I searched in vain for the breakdown of the $1 billion overage.  If it’s a regular appropriation, then the Governor can blue pencil these items out and the Republicans might as well have passed the budget.  But if any portion of that billion is locked in statute and not subject to the blue pencil, then the Republicans were justified in protecting the people and the Governor from an unbalanced spending plan.  Even checking the Legislative Analyst’s quick summary of the Democrats’ proposal fails to show which items can be subject to the line-item veto.  The Democrats would have been smarter to brief the Republicans and the non-partisan Analyst on these differences unless they are hiding something.

“More Power to the Governor” – July 5, 2005
Los Angeles Times columnist George Skelton opined (http://www.latimes.com/news/local/la-me-cap30jun30,1,6054733,print.column?coll=la-mininav-california) on the state budget situation last Thursday and he has it wrong again.  Skelton says the current budget delay “highlights a glaring flaw in Gov. Arnold Schwarzenegger’s ballot initiative to limit spending and ‘live within our means.’”  He says the measure would shift a significant amount of power from the legislative majority to the governor and minority party.  Skelton sees that as bad; I think California needs it. The restraints Skelton lists unduly limit the Governor.  Any Governor needs to have the power in a budget crisis to override the spending mandates that have pushed us to the brink of insolvency.  Such executive power is really the minimum needed for any Governor to govern.  All California’s Governors have had many of these powers until a hostile legislature forced Governor Deukmejian’s hand in 1983.  The Legislature will always have powers to create new programs and to reallocate spending but they will have to be responsible in doing so or the Governor will be obligated to be the adult in the Capitol.

“Does a July Budget Mean No November Election?” – July 11, 2005
The legislature missed its constitutional deadline for passing the state budget, but it managed to pass the budget much faster than it usually does.  Now the focus of politicians and pundits alike will turn to the Governor's Live Within Our Means initiative. The biggest issue for some with that measure is a portion that allows mid-year corrections to the state budget.  This is fairly common at other levels of government; cities usually hold quarterly budget adjustment hearings to bring their budget in line with their actual revenue.  Some argue that the Governor wants this mid-year adjustment authority more than anything else in the measure and that if he is given that authority, he may be willing to drop his support for the overall measure.  (That rumor also says that attorneys have been tasked with determining if and how a governor can un-call a special election if a deal is reached.)  Certainly there is authority for agreement.  I encourage all to read Article 4 of Section 12e of the State Constitution:

(e) The Legislature may control the submission, approval, and enforcement of budgets and the filing of claims for all state agencies.

I believe this language, particularly the word “enforcement,” authorizes the legislature to develop a statutory means for the governor to have some kind of mid-year budget enforcement power subject to some level of legislative control or scrutiny.  This language can get us to a place where the governor has proper fiscal authority with the proper balance of powers for the legislature.  This is a proper role for the governor.  The executive should have extensive authority to keep the state's fiscal house in order, just as all policy development really belongs in the hands of the legislative branch.

“Infrastructure” – September 6, 2005
Governor Pete Wilson often said that the best social program is a job. He is certainly correct, but government does not provide jobs. The private sector generates employment.  To amend his saying I would offer that the best government social program is infrastructure.  I do not know if this makes me a big government Republican or a public works Democrat, but the point is that before jobs, before even schools, there must be the basics of life that government can actually provide.  Clean water, sewer handling, flood protection, streets, highways, airports and ship ports are essential to modern life but are often left behind in budget priorities.  Let California take this lesson from our suffering brothers and sisters in the south: we need to invest now in strengthening our networks of basic services commonly called infrastructure.  The truth is that we are not prepared for floods, earthquakes or fires, and we are losing ground on providing water and electricity.

 

“When the Score Keeper Is Corrupt” – October 11, 2005
Newt Gingrich and Peter Ferrara co-authored an excellent piece in last Monday's Wall Street Journal, “Doesn't Anyone Know the Score?”  They lament the near-universal sabotaging of President Bush's fiscal agenda by supposedly independent public agencies tasked with analyzing the future effects of the President's policies.   Forecasting how policies will impact the budget is called “scoring.”   When elected officials really want to get to the bottom of a certain policy, they want to know how much it costs, or what the score is. The Gingrich column points out that the forecasting, or scoring, of national policy have been so consistently erroneous it almost defies belief.  Gingrich charges that these errors were not random but stem from an ingrained bias against pro-market, pro-growth reforms. Indeed, the current method of scoring is called “static analysis” because it assumes policies have no effect on human behavior, thus one only needs a calculator to come up with the cost of programs.  Well, human beings are not calculators and businesses have been known to grow when government gives them a break.   The contrary is also true: when government raises taxes severely, businesses do less well and consumers spend less, thus less tax revenue is generated.  Not taking these very simple reactions to tax policy into account when scoring is intentional economic ignorance.  And its effect is to severely hamper congress' ability to truthfully demonstrate to the American people how pro-market reforms work for the benefit of all.

Some highlights from the WSJ piece:

The Office of Management and Budget projected in February a federal budget deficit of $427 billion for FY '05.   In July, OMB said $333 billion -- a 28% miss.  In 2004, OMB February budget projection missed by $109 billion.

The Congressional Budget Office in March projected a deficit of $394 billion.  Last month, $331 billion -- a change of $63 billion in five months.

Both OMB and CBO projected massive losses from the 2003 Bush tax cuts, which did not happen.

The Congressional Joint Committee on Taxation and the Treasury Department have also failed this administration.   JCT scored the 1997 capital gains cut as a loss of $28.8 billion for 2000-07.  Capital gains revenue is now expected to grow to double their 1996 levels, just before the tax cut.

It is clear that this problem has enormous implications for Social Security reform.  According to Gingrich, the CBO scoring of private accounts assumes that stocks earn no more than bonds - which is totally, historically false.  Gingrich turns to Harvard's Martin Feldstein, who believes CBO is thus undervaluing private accounts in excess of $10 trillion.

The opposite problem can also occur.  Here in California, Pete Wilson's 1991 package of tax increases was scored statically by his Department of Finance.  The result was a shortfall of $1.5 billion to the General Fund.   I asked the Legislative Analyst's office to document this in 1999 -- email me if you want a copy.

There is no doubt that the erroneous scoring culture in government is a huge impediment to flatter, fairer, and simpler tax policy.  This is the problem that should be corrected now.

“Budget Balanced on Backs of All Who Pay Taxes” – January 17, 2006
I watched the presentation of the Governor’s budget last week. The Governor was followed by his budget director, then by the legislative leaders. Speaker Nunez needs a new speechwriter. He complained that the budget is balanced on the backs of someone. Honestly, I forget who was his victim - the poor, the students, the employees, cats and dogs. But he is wrong. These groups may not be getting as big a share of the budget as he wants but budgets are balanced on revenue. And revenue comes from taxpayers. All government budgets are therefore balanced on the backs of taxpayers.

“Overlooked Budget Item Will Help Alleviate Health Care Crisis” – January 23, 2006
I have written many times on the wonderful benefits of tax-deductible Health Savings Accounts (HSA). Many Californians would be better off with a high-deductible health care plan. These typically call for subscribers to be responsible for the first $2,000 in medical expenses before insurance covers the rest. This allows people like small business workers or self-employed individuals to save hundreds each month on health care premiums. HSAs allow people to make a monthly tax deductible contribution to an account that covers the insurance deductibles. The savings can make a huge difference for people's budgets. High deductible plans would give tens of thousands of Californians affordable health insurance, extra money for a car payment, or a mortgage they would otherwise not be able to afford. The problem is that while Congress created the tax deductible accounts at the Federal level, the legislature defeated a proposal to make California conform to Federal law last year. This change is needed to give small businesses additional incentive to offer a high deductible plan to their employees.

I want to thank the National Federation of Independent Business for pointing out that the Governor's Budget provides for this conformity. See the Governor's Budget Summary GF revenue document http://www.ebudget.ca.gov/BudgetSummary/REV/8865909.html

The NFIB sponsored the conforming legislation last year and I commend them for pursuing the issue.

 

“Budget Pop Quiz” – March 27, 2006
Every year the Legislative Analyst’s Office invites the Capitol press corps to take its budget quiz and offers a box of doughnuts to the reporter who gets the most correct answers.  This year, no reporters even attempted to answer the questions.  Perhaps that’s because the LAO changed the prize from the traditional doughnuts to muffins and bagels.  Or perhaps it’s because even the reporters who cover the state cannot make heads nor tails of this stuff.  Judge for yourself with the sample questions below.  The answers are at the end of this issue.

1. The Department of Motor Vehicles (DMV) faces a statutory deadline of October 2006 to set up a new computer system so it can suspend the registration of vehicles when their owners fail to provide evidence to the state that they have auto insurance.  Which of the following events has occurred during the development of this project?

a)      In February 2005, DMV proposed to contract out the new computer system to a vendor.

b)      In May 2005, DMV proposed instead to hire staff to carry out the project.

c)      In July 2005, DMV changed its mind and again proposed to hire a vendor.

d) All of the above occurred and the project is unlikely to be completed by the  

October 2006 deadline.

2. The School Land Bank Fund is expected to have a $59 million balance at the end of 2006-07 that can be used to acquire property and earn lease revenues for the support of public education.  How much has been spent for these activities in the last five years?

a)      Nothing.

b)      $12 million.

c)      $114 million.

d)     $256 million.

3. The budget proposed a new human resources initiative to assist state departments in coping with the expected retirement of up to 100,000 “baby boom” state employees during the next decade.  The new initiative would be supported by a staff of how many state employees?

a)      100.

b)      25.

c)      8.

d)     1.

4. The state has budgeted more than $200 million to pay for emergency repairs at schools to address conditions that pose a threat to the health and safety of students or staff.  Almost none of the money has been allocated to districts.  What does the LAO identify as one of the reasons why?

a)      School districts are reluctant to spend money on repairs because it is uncertain if the state will reimburse them for after-the-fact work.

b)      Schools already had sufficient unspent bond funds available for these projects.

c)      Continued litigation over the school repair issue has held up release of the funds.

d)     Because of recent statewide school facility investments, only a limited number of school district have outstanding emergency repair needs.

Answers: 1) D; 2) A; 3) D; 4) A

“May Revise” – May 15, 2006
I am heartened to see the Governor correctly labeling the recent revenue surge from volatile sources as one-time revenues.  On the one hand, his May Revision places $2.2 billion in reserve, which is not bad.  He also proposes to pre-pay over $3 billion of future debts, which is terrific.   However, the Budget fight is just beginning.  He has already committed at least an additional $2 billion to be permanently added to K-12 funding.  Additional funding for education will be made available through various one-time spending methods.

Governor Gray Davis had a similar approach to his 2000 budget but the big spending policies of the legislature forced him to capitulate to an out of control budget.  Can Arnold Schwarzenegger break this pattern?

This proposal for 2006-07 still spends more than it receives so the deficit clock is still running.  The new budget proposes to spend $100,985,000,000 in the coming year and collect taxes and fees of $93,866,000,000.

“Your Money=Angelides’ Expenditures” – September 5, 2006
You may have noticed that gubernatorial candidate Phil Angelides keeps suggesting new tax hikes for us to pay. The most recent was an auto services tax so that, for example, when you get your oil changed, you not only pay sales tax on the new filter, but also on the labor.  So much for his argument that he only wants to tax the rich.  For those of us who do not want to pay higher taxes, you may wonder where Angelides and the budget liberals in the legislature get the idea that you have so much extra money to share with the government. 
 
Budget liberals have a unique way of viewing the world best explained by budget reports.  Budget reports consist of what the rest of us have in our family budgets: revenue and expenses.  But added is one thing normal people do not track: tax expenditures.  This is a category that exists on paper that says “here is how much money the government would have collected had it not been for this particular exclusion, exemption, credit, incentive or subsidy.”  That includes those evil exemptions advocated by the two largest and particularly scurrilous special interest groups in the state: home owners and food eaters. 
 
A new requirement imposed by the liberals in the legislature is that the Department of Finance report to the legislature each year on each of these so-called tax expenditures in excess of $5 million.  Liberals begin with the assumption that all resources belong to the government, so tax expenditures are just loopholes that allow people to keep resources that government ought to have.  They need this new report to identify exactly how many “government” resources are slipping through these loopholes, so that they can find ways to further restrict them and keep more for government. I offer this very simplified tax expenditure report that gets to the heart of the liberals' intent:
 
Californians' Payments to IRS           $ 221 billion

 

Total State & Local Revenues            $ 192 billion

Total taxes to government                  $ 313 billion

 

Californians' Total Annual Income    $  1.4 trillion

That means that government is already getting 22% of all income in California, on average, but legislators are still worried that 22% is not enough!

“Change of Perspective” – January 2, 2007
The job descriptions of “legislator” and “executive” are different.  Yet, one would hope that a person lives the same values no matter which title is held.  That thought came to mind when I read a quote from now-Mayor Antonio Villaraigosa.  As Mayor, Villaraigosa is facing a $250 million budget shortfall and wrote to his department heads asking them to cut their budget requests by 5% and make those requests “based on demonstrated results, not because a program has existed and operated for many years.”   This is a responsible approach from a chief executive, but it does not reflect my memory of Villaraigosa as Speaker of the State Assembly.  Indeed, I cannot find a record of him calling for such appropriate restraint when he was a legislator.  Clearly his new executive branch responsibility has given him a new perspective; it is one that is much needed, perhaps we should find some way to help legislators see the budget from the executive’s broad perspective.

“CalFacts” – January 16, 2007
With all the budget stories this week there are good summaries of the Governor’s major budget proposals.  I will be pointing out interesting other items as the budget details unfold.  In the meantime there is good material about our finances available.  A very useful reference guide about California’s economy and state finances was recently published by the Legislative Analyst’s Office.  If you are curious about anything from education funding to wildfires to foster care to the gas tax, go to this link to read “2006 Cal Facts”:

http://www.lao.ca.gov/2006/cal_facts/2006_calfacts_toc.htm

“Spending Limit Success” – April 30, 2007
Budget season is approaching Sacramento again.  We will once again hear complaints that the state does not bring in enough money to pay for all the “services” it must provide.  There will be calls for higher taxes. A few sane voices will call for reducing spending.  We are likely to be hearing the debate well into the summer rather than concluding it by the constitutional deadline of June 15^th.  Unfortunately, what I doubt will be part of any of these discussions is a reasonable spending limit.  I urge lawmakers to review a brief report by the Main Heritage Policy Center by Geoffrey Segal.  He focuses on how local governments have used shared services, introduced competition, leveraged public assets and linked appropriations to performance to control spending.  He concludes, “Good government … requires that all ‘investments’ by government be routinely assessed for their actual effectiveness. Only those activities that provide the greatest benefit should be funded at a level relative to the goals and priorities set by the people.”   To read Segal’s report, go to this link:

http://www.mainepolicy.org/Portals/0/The%20Maine%20View%20-%20Vol.%20%204,%20Issue%20No.%2010%20(final).pdf

Paul Gann was ahead of his time in 1979 with the Gann Spending Limit.  It worked wonderfully for the roughly ten years that it was in effect before it was watered down.  Had been allowed to stand as originally passed, we would today be taking in more revenue than we would be allowed to spend, and enjoying a healthy surplus.  One of the remarkable effects of this law was that in 1987 the state was forced to refund $1.1 billion in surplus revenues to all Californians.  It is hard to imagine this happening today.

Michael New with the Cato Institute has a good summary of the Gann Spending Limit’s history:

http://www.cato.org/pub_display.php?pub_id=2871

“Unusual Budget Battle” – July 30, 2007
Often the summer tradition of a budget battle has been for the Senate Republicans and Democrats to cut a budget deal first, send the package to the Assembly and adjourn for the summer, usually before the Assembly even sees the agreement.  For the first time in my memory it is the Assembly that has now done the deal and gone for the summer.  I do not know if this has any long-term meaning, or if it reflects some other shift in how the houses work their internal affairs.  But this is clearly a noteworthy year in budget history. The possibilities include the Assembly Speaker's desire to look productive (to enhance the term limits change he and other incumbents favor), and/or the Assembly members of both parties being less senior than their Senate counterparts are more sensitive to outside media and special interest groups that depend on the budget. 

It may also reflect the growing frustration of the Senate Republicans with the state's deficit spending and the knowledge that a budget hold-out gets some bad press, but not in papers that their voters are reading. From my budget experience, no voter without a financial stake in the budget ever called me and told me to change my vote.  The Senate Republicans know this, and know well that their unity and their principled goals can make the budget less bad.

In his Sacramento Bee column, Dan Walters suggests that Democrats should involve Republicans earlier in the process of writing the budget as their votes are needed to ultimately pass the budget.  Walters is being kind to the Democrats as I believe it is illegal for the Democrats to pass items through committee with simple majority votes when those same items require a two-thirds supermajority vote by order of the constitution.  Committees must follow the same rules as the entire body, but the press, it seems, does not want to call them on it.

http://www.sacbee.com/walters/story/298548.html

“No Balanced Budget Without More Cuts” – August 6, 2007
Senator Tom McClintock (R- Thousand Oaks) pointed out in a floor speech that rather than the $700 million deficit the majority Democrats claim would result from their plan, the reality is more like $2 billion cash shortfall this year, and an additional $1 billion of future debt.  From the Governor's May Revise, which I do not believe was changed much by the agreement that passed the Assembly, the projected (hoped for) Budget-year revenue is $101.2 billion with proposed budget-year expenditures of $103.7 billion.  We are spending more than $2 billion than we will have under this plan before the start of next year.  Obviously do not try this at home.  It is only the carry-over reserves from last year that allow the claim of a balanced budget that also has a reserve -- and this is based on the sale of bonds, not prior year revenue.
 
So to have a budget we could say with some confidence is balanced, we would need to cut more like $3 billion from General Fund spending.  McClintock pointed out how non-draconian these cuts would be considering that even if we cut $3 billion from the current proposal we will still be spending $8 billion more than we spent two years ago – and $22 billion more than we spent in Gray Davis’s last budget just four years ago.
http://www.carepublic.com/news.html?news_id=204&start=0&category_id=2&parent_id=2&arcyear=&arcmonth
 
The California Taxpayers Association site has a nice discussion of some of the near-term threats to state revenue, budget games, and the list of the cuts the Senate Republicans are looking for:
http://www.caltax.org/caltaxletter/pdf/080307.pdf

“Structural Deficit Still Haunts Budget” – August 13, 2007
I had an excellent discussion with Finance Director Mike Genest last week.  Among things I learned why there is a difference between the way the Department of Finance and the LAO report budget numbers, although they arrive at the same conclusions.

On July 24, Legislative Analyst Liz Hill summarized the situation this way:

“Revenues and Expenditures. The budget assumes the state will start 2007-08 with a fund balance of $4.8 billion. It projects $102.3 billion in budget-year revenues, an increase of 6.5 percent from 2006-07. The budget authorizes expenditures of $103 billion, an increase of 1.3 percent from 2006-07. The resulting operating shortfall of $0.7 billion leaves the General Fund with a year-end reserve of $3.4 billion.

“Future Shortfalls Likely. Based on current estimates of the policies reflected in the package, the state would continue to face operating shortfalls of about $5 billion in both 2008-09 and 2009-10, requiring future corrective actions.”

http://www.lao.ca.gov/2007/floor_packet/072007_floor_packet.pdf

Therefore, under the Assembly-approved plan, the state will spend more than it takes in this budget year and only by drawing down reserves is the proposed budget technically balanced.  Unless the budget deal is modified, we will end the fiscal year with $3.4 billion in reserves facing a $5 billion structural shortfall for 2008-09 and beyond.

In sum, I believe that had the Governor got the CalWorks reform he proposed, along with his plan to pay down the recovery bonds sooner, while protecting public safety and education, then Senator Ackerman and his caucus in the Senate would have voted for the budget long ago.  The choices today are difficult but next year is going to be much harder.

“Living Within Your Means” – August 20, 2007
Proposition 58, which passed in 2004 with more than 71% of the vote, not only required a balanced budget but also mandated a reserve.  Irwin Nowick, known to Capitol insiders as a savant on the budget process, reminds me that the biggest bar to spending next year is that Proposition 58 reserve requirement will rachet up to 3% of the General Fund with the mandate being that the money is untouchable and must grow to 5% of the state's budget.  Thus, billions of dollars will be held in reserve and Legislative Analyst Liz Hill and other experts know that a larger portion than ever before of the state's revenues must be set aside and will not be available for the regular budget process.

The number of $5 billion of potential spending over available revenue reflects this fact.  This assumes the usual growth in revenue, which is always an assumption subject to risk.  And it assumes the usual growth in state spending, which is itself hugely dependent upon caseload assumptions.  Caseloads are students (pre-school through UC), poor people (in both welfare and Medi-Cal programs) and prisoners.  Unless a program is changed by law these people all receive state support on autopilot.

If you were spending 85% of your income on mortgage payments, car payments, and other locked-in items and you were told that your spendable income was being cut so your savings account could grow to a responsible level, my guess is that you would start now to bring your spending commitments in line with your adjusted income.  But then again, you and your family have no choice but to live within your means.

“Talking Parrots” – August 20, 2007
Imagine a friend who owns talking parrots.  All year long, he keeps the birds in a cage covered with a drape, feeds them only occasionally, and cleans the cage less often. Then once a year around June 30^th when the relatives come to visit, he drags out the cage, pulls off the drape, and orders the parrots to talk.  And then because they do not perform on cue, the parrots are called obstructionist, stubborn, uncooperative, and even terrorist.  Now imagine those parrots are the members of the Senate Republican Caucus. 

The truth is that the Democrat changes to the Governor’s budget have only been available since mid-June and the Republicans began detailing their objections to that “work product” as soon as it was public.  I sympathize with those bothered by the lateness of the budget, but this outcome is entirely predictable when the budget itself has been kept under wraps for so long.  California has a constitutional requirement that the budget bill requires a two-thirds vote of both houses.  This is not a new rule.  Past majority party leaders have tried to find ways around this rule and they have failed.  So, there is no other choice but to engage the minority party in the debate, negotiations, and agreements.  Why are the Republicans being treated like caged parrots when they are, by order of the Constitution, fundamental to the process? 

There is a reason I am part of that small 12% of Californians who are following the budget standoff.  I am not getting paid.  That being said, it seems to me that very important issues have been raised by the Senate Republicans that deserve to be answered with thoughtful responses and not name calling or staged media events.  While the budget document is technically balanced with a reserve due to previously borrowed money, everyone I have read or listened to agrees that the state’s spending commitments are outrunning its revenue.  This is not economically healthy.  With such a rare consensus on the facts of the situation, it is reasonable that now our leaders take steps to bring annual spending and annual revenue into balance into the future.

Some suggest that this “structural deficit” is tomorrow’s problem and that it is okay to ignore it for now just like we are ignoring the looming Social Security crisis, but I know it is difficult to identify and reduce low priority programs or to decide if particular programs should be ended as opposed to across the board reductions.  These are all tough decisions even for those who believe the state budget is bloated.  Given contracts and other commitments it can take a year or two to close a program.  With this time frame it is crucial that we begin now.

“Dodging a Bullet – Democrats Could Have Declared Victory” – August 20, 2007
The Senate Republicans are making a big deal of their proposal to fund the government during July and August while the budget debate continues. And it really is a big deal. I am so pleased that the Democrats did not take up the offer as it is also a risky precedent. Continuing resolutions are how the Congress funds the various federal agencies with the actual budget often months later when the fiscal year is mostly over. By necessity these on-going appropriations just continue last year’s budget even if everyone agrees that that level of spending cannot be sustained. It removes flexibility to make changes in spending priorities or to match spending to upcoming revenues. It also compromises the ability to fund new programs or meet new priorities.

The Democrats would have been smart to grab the offer, declare victory, and go on vacation. Coming back the budget year would be two months older and it would have been even harder to make changes in spending patterns. It was a great and risky offer by the Senate Republicans and the result showed the continued refusal of the Senate Democrats to sit down with the minority party as equals when it comes to the Budget.

“BOE – What Budget Restraints?” – August 20, 2007
I was disappointed in the budget votes at last week’s BoE meeting in Sacramento.  My Democrat-majority colleagues on the Board approved virtually every increase proposed for our budget.  The total amount we are asking for is staggering.  The requests are sent to the Department of Finance (which uses such requests from all state agencies to prepare the Governor’s budget proposal for the following year), and Finance needs to look very critically at these requests because if they are all approved our rate of growth will be astronomical.

In the current year, we will spend about $206 million from the General Fund.  If Finance approves the request for more money, the BoE will receive nearly $242 million in General Fund dollars and 173 more positions in 2008-09 for our operations, an increase of more than 8% from the General Fund allotment in the proposed budget for 2007-08.  If Finance approves, we will thus be looking at more than 17% General Fund growth in two years.

“Autopilot Spending” – August 27, 2007
The LA Times and many other newspapers wail about the supermajority requirement to pass a state budget.  Under their doomsday descriptions the world stands still until the two-thirds vote is achieved on the budget.  The truth is that the California state budget is on autopilot with more than 85% of the spending determined by statutory formulas that are appropriated without a budget.  Having a majority vote budget would not affect the big spending programs since separate bills are needed to tweak those formulas every year.

It is these “trailer” bills that are even more critical than the budget.  They are called trailer
bills because they follow, or trail, the budget when in reality they are “tractor” bills because they pull the budget into place.  These trailer bills all require a two-thirds vote even if they do not appropriate any money.  The reason is that another section of our state constitution requires that all urgency bills designed to take effect immediately must have a two-thirds vote.  There is a good purpose for this.  In return for the two-thirds vote, the people of California forfeit their right to referend all urgency bills.  An urgency bill, no matter how bad it is, cannot be subject to a referendum and vote of the people, unlike all other statutes.  Do the left wing media want the government to have this power?

The budget bill is pretty boring.  It is the trailer bills where the real changes are made and the mischief takes place.  I like the idea that two-thirds of the members of each house of the legislature have to go along with these changes to limit the mischief. 

“Just Raise Taxes!” – August 27, 2007
Finally, an honest liberal. Just raise taxes! At last someone will admit this budget fight and much of the state spending battles are over the long term goal to raise taxes -- all taxes. Using a model totally opposite that of a business, which must price its products to what the market will pay, government prices its taxes to match the spending desired. I love the irony of Nellen's advice. She advises California to do what people who need more money do: get a better job. Of course many individuals have followed that advice and gotten better jobs in other states.

http://www.mercurynews.com/ci_6668215?source=email

“Be Careful What You Ask For” – September 4, 2007

Budget trailer bills are dangerous items.  They are permanent changes in law, unlike the annual budget, and they are rushed through the process without hearings often very quickly as part of the deals to make the budget palatable.  The county assessors just learned this harsh lesson.

The county assessors asked for $3.5 million in the budget to be distributed to all 58 counties to improve the accuracy of the tax rolls, to process filings faster, and to make assessments sooner.  This item was put in the budget early on and actually re-established a program that existed a few years ago and had a good record of success.

The county assessors also asked for an identical $3.5 million to be given to only three of the county assessors to implement an untried, controversial proposal to assess property taxes on the managers of corporate jet fleets instead of the many timeshare owners.  This proposal was put in a budget trailer bill along with an estimate that it would raise lots of money.

So, the Governor sees two identical amounts of money to assessors (actually, one was to 58 assessors and the other to only 3) and he sees that one promises more efficiency and the other promises more money.  And the Governor made a commitment to cut hundreds of millions of dollars from the budget. Here is what the Governor decided: The Governor’s veto message reads:
 
“I am deleting the $3,500,000 legislative augmentation for grants to county assessors... Local government is anticipated to receive $28,000,000 in property tax revenue in 2007-08 pursuant to a new method of collecting fractionally owned aircraft property taxes, facilitated by budget trailer bill legislation. As a result, this $3,500,000 augmentation is unnecessary.”

Be careful what you ask for.  If you give a Governor choices, he will make them.  My guess is if the 58 Assessors had been asked to choose between the program for all counties or the program for just three counties, they would have chosen the former.  But that is not what happened, and the final irony is that many property tax experts believe that the $28 million that the Governor was promised by the three assessors is simply phantom revenue that may never materialize.

“Using Our Children as Budget Shields” – September 10, 2007

The annual rite of summer is starting again: the call to dump the state constitution and abolish the two-thirds vote requirement for the state budget.  Behind such a push is the idea that government by consensus be tossed aside in favor of tyranny of the majority.  Actually, the truth is somewhat different.  California already has a majority vote budget for all special fund programs that are supported by special taxes or fees.  This includes Caltrans with its transportation budget, and the Public Utilities Commission with its regulation of utilities.  And California already has a majority vote budget for all of education, from kindergarten through community colleges.

So, what is left that requires the two-thirds vote?  The welfare and general government budgets.  Our Constitution writers wisely concluded that these portions of the budget needed a larger consensus before being adopted.

Now you might be asking yourself why the majority party does not just separate the majority vote portions of the budget from the two-thirds vote portions and get the bulk of the budget passed early.  Great question!  At the start of next year’s budget impasse, ask the liberals in the media and the legislature why they protect welfare programs by using education (i.e., our children) as a shield.

“The Final Budget” – September 10, 2007

This year’s state budget was two months overdue. That meant it was a constant topic of media coverage, but you are easily forgiven if you did not pay attention to the painstaking details of the final deal.  If you are curious about how it finally turned out after all the banter, the Legislative Analyst’s office has produced a summary at this link:

http://www.lao.ca.gov/2007/major_features/major_features_2007.aspx

As you look at it, think about this. The Governor sold his plan as having a “zero deficit.”  Yet, his Department of Finance Director, Mike Genest, said he expects $6.1 billion of red ink in the 2008-09 fiscal year.  Truly, the balanced budget is only good for this year.

Hat Tip: http://www.kqed.org/weblog/capitalnotes/2007/08/109-blue-pencil-marks.jsp

“California’s Credit Crunch” – November 12, 2007

The Governor directed all state departments this week to prepare budget requests that reflect a 10% cut.  The Finance Department explained that such cuts were necessary because the downturn in the housing and credit markets was having a negative effect on state revenues. As expected, there has been a hue and cry over the damage that such cuts will do to those dependent on government programs and the predictable call for increased taxes to prevent some devastation.  It is reminiscent of the classic tale of the ant and the grasshopper.  During good times, the ant worked hard and saved for the dark days.  The grasshopper whiled the time away, not being productive, not saving and not giving a thought to the future, and is then dismayed when the ant will not share his hard-earned store of goods.

The housing crunch was not a surprise.  It was projected many months out and such predictions should have been built into revenue and budget models long ago.  Consider the dilemma faced by many troubled homeowners in our state.  They bought at the height of the market. They did not have enough savings or income to qualify for traditional mortgages. They agreed to terms for adjustable-rate or interest-only loans and then lamented when the payments become more than they could pay.  Many also took out equity from their homes to cover additional debt that went to pay for luxuries like pools, boats, upgraded home décor, etc.

Just like this individual homeowners, the state is mortgaged to the hilt.  It has failed to economize when times were good to prepare itself for sustenance in the lean days.  And instead of facing reality head on, making hard choices, and doing without things it likes, it looks to others for a bail-out.  The Governor’s order is a good first step but much more will be needed.