Posted on 15 January 2011.
It may prove cheaper than registering your car
In the 1970s, when Jerry Brown was elected the state’s 34th governor, his touchy-feely manner and strong environmental stance earned him the odd nickname “Governor Moonbeam.”
A generation or more later, after a hard-fought electoral victory over former eBay CEO Meg Whitman, Moonbeam’s back, but the brightness of his optimism, in the face of a gargantuan budget deficit, is considerably dimmed. Instead, his first proposed budget is filled with paring and downsizing. And at least a few of the cuts arguably stem from policy decisions Brown had a hand in when he first held the office more than 30 years ago.
In his fiscal plan, unveiled Monday, Brown asked Californians to accept deep service cuts, more taxes and a fundamental shift in the way resources are distributed. The document calls for $12.5 billion in what he called “drastic cuts” to nearly every state program, an extra $12 billion in revenues and nearly $1 billion in reserves for the next 18 months to lead the state out of a $25.4 billion budget deficit that has been steadily growing as the economy has shrunk.
The state has lost 2 million residents to other states in the past 20 years, and has the lowest credit rating of any state in the union. No wonder … it also has $91 billion in accumulated debt, which has ballooned by 50% just since the recession hit about three years ago.
The new taxes mentioned are essentially proposed extensions of taxes approved in 2009 and set to expire in July. Part of Brown’s budget is predicated on Californians voting to extend these taxes in June.
If they don’t, Brown indicated that could leave schools and other state services at risk, and force him to look for additional areas to cut. “I’m hopeful (voters will) want to do this,” Brown said at a recent budget news conference. “This is the best I can figure out.”
Brown immediately won praise from Democratic leaders, though Republicans condemned the tax extensions, promising to fight to keep them from reaching the ballot. Senate Leader Darrell Steinberg (D-Sacramento) called the budget a “comprehensive framework” that he has committed to enacting despite the tough cuts Democrats will have to agree to. He asked Republicans to approach the budget as an exercise in “shared sacrifice.”
Not likely, say GOP leaders. “There’s not any support for tax extensions” among Republicans, according to Assembly Budget committee vice chairman Jim Nielsen (R-Redding). “I believe there’s $25 billion that people don’t need to be taxed for. It’s the worst signal to send that taxes will be maintained.”
Brown said he’d prefer a bipartisan deal and a two-thirds vote to get any ballot measure through the legislature, but tempered that by saying he and Steinberg would, if necessary, consider pushing the ballot proposal forward with a simple Democratic majority vote.
California’s government will spend $84.6 billion in general funds for 2011-2012. The Senate was scheduled to begin holding budget hearings Thursday.
Where the moonbeams won’t shine
Whacked in this budget: the less fortunate. Medi-Cal will be hit for $1.7 billion; the welfare-to-work program, CalWORKS, loses another $1.5 billion and the Department of Developmental Services, $750 million.
As soon as the budget was announced, protesters were lined up in demonstrations outside the Capitol. The cuts, they said, would “put further strain on an already taxed community safety net.”
Higher education will also see further impact. The University of California and California State University will lose $500 million each. The budget does spare K-12 education, maintaining expenditures at its current $49 billion level.
State parks, which managed to dodge budget bullets under former governor Arnold Schwarzenegger, may be under the gun yet again. Parks stand to lose roughly $11 million; some parks may be partially or fully shuttered.
State employees not covered under collective bargaining agreements would get a 10% reduction in take-home pay, saving $308 million. Another $200 million would be saved through government-trimming operations such as reorganizations and consolidations.
Under Brown’s realignment plan, revenue generated from the taxes would go directly to local governments to finance the first phase of Brown’s plan to shift responsibilities from the state to local governments. Transferring authority to locally run community-based corrections facilities, for instance, is estimated by Brown’s budget to save $458 million. More than 50,000 inmates are sent to prison to stay less than 90 days, a cost of $200,000 per inmate. “We’ll send the money down to [the localities],” the governor said. Mental health, foster care and substance abuse programs are also programs better handled at the local level, he added.
The governor also proposes to eliminate enterprise zones and phase out the state’s 425 redevelopment agencies, which he said would reroute billions in property tax revenues to schools, cities and counties. Not surprisingly, redevelopment advocates are against such a move.
Brown called his proposal “a tough budget for tough times” that eliminates the structural deficit and sets the state on course to stable budget practices. State Controller John Chiang called Brown’s budget a “refreshing departure from past schemes that too often sacrificed long-term fiscal stability for band-aid solutions.” Unions, Brown’s closest allies, not unexpectedly lined up in support of the budget, though some expressed reservations about certain cuts. The California Labor Federation, however, called it a “much-needed balance between cuts and revenues.”
Getting the tax measures finalized in time for a summer vote dictates that the state legislature must complete its budget work by March. In his budget statement to legislators, Brown acknowledged that getting the tax extensions on the ballot, much less passed by voters, would take a stepped up sales pitch. “I’ll try to win over as much support as I can. I will sometimes go into the lion’s den and see if I can’t satisfy them with less red meat than they’re accustomed.”
Eye of Newt
Meanwhile, it seems that more and more of the private sector is wising up to the size of the banquet to which the public sector unions have been treating themselves at taxpayer expense. And the unions may soon find that the party’s over. Politicos who have heretofore curried favor with the unions by boosting pensions, adding holidays and dropping reforms, rather than increasing front-end pay, now find themselves up against a wall and facing a firing squad of money shortfalls. Now, they have to cut costs, focus on productivity and improve levels of service. Or else, as evidenced in November nationwide, it’s the blindfold and a cigarette for your seat in government.
Too many state workers can retire in their 50s and at almost full pay, and estimates show that underfunded (or unfunded) pension liabilities owed by the states start at $5 trillion and could actually be as much as $13 trillion.
For reference: the entire U.S. national debt just passed the $14 trillion mark.
Critics say that fixing the pension problem shouldn’t be used as a reason to disparage the public sector, but at the same time point to myriad problems caused by its fallout, including infrastructure issues, such as the poor state of the country’s roads and rail system, and employment problems, such as those caused by a poorly planned teacher tenure practices, among others.
One concept being floated by former House Speaker Newt Gingrich is to allow states to declare bankruptcy under federal law, which he thinks would go a long way toward avoiding any potential bailouts by the federal government.
The intent, according a story by Examiner.com Finance writer Ken Schortgen, seems to be to allow the states the opportunity to void the destructive contracts they helped institute with the unions over the past three decades, and to help them get out from under the un-payable Municipal debt they accumulated from their own fiscal irresponsibility.
On the flip side, how can one support the breaking of contracts with one’s own citizens and negating the pension agreements created with municipal and state workers?
California’s unfunded pension liability is estimated at more than $500 billion, six times the present state budget, according to a Stanford University study.
But if it’s a choice between bankruptcy or more taxes, its seems voters are inclined to take just about any other remedy, so long as it doesn’t involve any more taxation. As one Illinois voter told a television reporter for Fox News, “Do something. Just don’t keep sticking it to those of us who are already paying more than we can afford.”
Sources: Contra Costa Times (Steve Harmon), FOX News, The Economist and the Wall Street Journal.