Friday, November 12, 2010

The Magic Kingdom of California: leading the nation again

California has been the leader in national trends. We do things in a big way. The current situation with our government is no exception.

We began the angry taxpayer movement in 1978 when we voted for Proposition 13. In 30 years it has resulted in huge tax breaks for some of the largest corporate property owners in the State and established a social policy that keeps our more financially secure senior citizens in large homes where they pay low property taxes while a young family that buys a new smaller home gets to pay 3 to 7 times more taxes. And you thought we were a bastion of political liberalism, right?

It has made the funding of our government and schools unstable forcing government to exacerbate hard economic times rather than smooth out the impacts of recessions.

And now we are about to see over the next few years what it's like to live in a State where the budget for education and fighting wildfires has been cut 40-50% over a period of four fiscal years from 2007-08 to 2011-12.

It is clear that The Gubernator (Arnold Schwarzenegger) and Governor Moonbeam (Jerry Brown) are working together to prepare the denizens of The Magic Kingdom (the State of California) for a shock. What we can hope for is that it will be shock followed by awe.

Normally in December the Legislature meets and each house organizes itself, then everyone goes home until January. But the Gubernator has called The Deliberators (the Legislature) into a special budget session for December.

The Deliberators in the State Senate include 24 Democrats and 14 Republicans with two vacancies. One Democrat has never served in the Legislature, but is a former staffer. One Republican has no experience in the Legislature and will be trying to find the restrooms during the special budget session (in other words will have no idea what's going on).

The Deliberators in the State Assembly include 52 Democrats and 28 Republicans. Of the Republicans, 10 have never served in the Legislature but only 8 will be looking for the restrooms during the special session as 2 have significant lobbying experience. Of the Democrats, 14 have never served in the Legislature, though 6 are former staffers, leaving 8 looking for the restrooms during the special session.

So in January at the beginning of the 2011-2012 two year session, of The 118 Deliberators working with Governor Moonbeam, only 16 will be unfamiliar with most everything except where the restrooms are. So  term limits haven't left us with a totally inexperienced Legislature. We just have one in which nearly no one was in office during the last recession.

The only meaningful problem the State has right now is the budget. Getting The 118 Deliberators to keep focus on that problem will be like herding cats.

How bad is the problem? Well, since 2007-08, no serious effort has been made to deal with what the Legislative Analyst calls "a structural deficit." Instead, stupid budget tricks have been used to create a fantasy image of a balanced budget. But at the same time expenditures have been cut in the past three years, by $20 billion as noted in previous posts, while policy issues were never addressed.

The 2007-08 expenditures were the last numbers before The Great California Slump. While a $25 billion deficit has been identified for 2011-12, here's an example of the cumulative level of cuts that should be reviewed from a policy standpoint (click on the image to see a larger version):

For even Republicans among The Deliberators who are concerned we haven't cut enough government spending, a 42% budget reduction should be somewhat surprising. For Democrats who realize that Governor Moonbeam has said he will not increase taxes except with voter approval, panic should be setting in as more than half those cuts need to put in place in the next six months.

The level of demolition to our educational system will be catastrophic.

With regard to reducing the level of care of children through health and welfare programs, these programs will lose at least two federal dollars for each state General Fund dollar cut. (Forget the elderly and disabled, we have to throw them under the bus.)

State parks and environmental law enforcement will be competing with CalFire and all will lose. Bring out the padlocks for the park entrances. And who is going to spend money on enforcing those environmental regulations the voters just confirmed? In the same election, the voters eliminated the ability of the Legislature to levy fees to support enforcement.

We are about to institutionalize the adage that our late beloved President and Former Governor Ronald Reagan recited about recessions  "government is not the solution to our problems; government is the problem." He was our guy, so I guess we want to try it his way by having less government. (Well, not how he did it, but what he said.)

Other than to make permanent cuts of this magnitude, only one real option exists to improve revenue on a stable basis. Increase the Jarvis-Gann property tax rate from 1% of assessed value to either 1½% or 2%. The only issue is how much do we want to increase revenue - $20± billion or $40± billion?

Whether Governor Moonbeam could persuade the voters to approve such an increase is questionable.

But patches being discussed such as keeping in place the $8 billion from the 20% temporary sales tax increase from  5% to 6% and seeking approval of a 10% surcharge on income tax won't make much of a dent. And relying primarily on unstable sales and income taxes is part of the reason the Magic Kingdom is in this mess.

It is more likely we are going to demolish our State's government and school systems. How we go about reconstructing our governmental services will provide a peak into the future for the rest of the nation.

The Great California Slump has left us with a 1.4 million job loss. In September, nine of the nation's 13 metropolitan areas with an unemployment rate of 15% or higher were in California. Among metropolitan areas with a population of 1 million or more, Riverside-San Bernardino-Ontario had the second-highest unemployment rate in the U.S. at 14.8 percent, just behind the 15-percent jobless rate in Las Vegas-Paradise, Nev.

Nothing about this situation can lead one to believe that things will noticeably improve in this decade. Which leaves the government funding problem a permanent problem. If you have been reading my posts for the past two years, you know I've been saying that. Now the Legislative Analyst is saying it, offering charts like this:

So watch us here in The Magic Kingdom of California. We'll show you just how to put into effect a major government reduction that will be the conservative movement's dream. And Democrats will have to do it.

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