Sunday, May 30, 2010

The Magic Kingdom

It's fitting that Disneyland was created in California.

It's fitting because we now have two branches of state government that live inside the Magic Kingdom of the late 1950's - in two "lands" far away from reality. The Governor's Office has been relocated to Fantasyland. The Legislature has relocated to Tomorrowland.

Way too many of the voters of California also live inside the Magic Kingdom - in three radically different worlds far away from reality and incomprehensible to each other.

Some live in Main Street USA, a fictional early 20th century Midwest town totally without a corresponding community reality in 21st Century California.

Some live in Frontierland hoping to confront the challenges of the 21st Century with a muzzle loading rifle while wearing a coonskin cap - a reality that never existed in California even when Ronald Reagan was Governor.

Some live in Adventureland where crocodiles, hippos, and other "African Queen" dangers, completely foreign to and absent from 21st Century California, fill people with fear and consume tremendous amounts of their psychological energy.

We have a Governor - well, the Gubernator - who has proposed in his final budget to completely dismantle all care for low income children and the elderly. He has a reason. The State Government figuratively went bankrupt during his administration. He's opposed to tax increases or new taxes to fix things. So he proposes to dump off the increased cost of medical care for the kids of the underemployed and unemployed and for old people whose retirement nest egg went the way of the State's employees retirement funds.

In the meantime, two Republicans, people you might otherwise think are rational, want to become Governor in this situation, a situation that will be worse in 2011 and 2012. Like the Gubernator they have ideas about the budget. Unlike the Gubernator, between them they will have spent over $100 million on the primary election campaign, just to get nominated to run against Jerry Brown, the de facto Democratic candidate.

The candidate spending the most money is Meg Whitman. She has roughly the same understanding of Government as the Gubernator did when he was elected. She proposes to fix the State's problems by managing better. You know. Like she did as CEO of Ebay. Apparently, she doesn't understand that in California the Governor has clear authority over the employees in the Governor's Office, and no others. Apparently she doesn't understand that in California the Governor proposes a budget while the Legislature prepares and adopts one, if the leaders can find support from 's of the 80 members members of the Assembly and from 's of the 40 members members of the Senate.

Jerry Brown, of course, was the guy who started California down the road to bankruptcy when he was previously Governor and was dubbed Governor Moonbeam. I guess he thinks he can fix the problems he created.

Now let us move from Fantasyland where Governors and would-be Governors live, to Tomorrowland where the Legislature lives. In this Tomorrowland, if Californians can just get through until tomorrow, everything will be fine. So the Legislature has developed budgets for the last two fiscal years that basically have borrowed against tomorrow's wished-for economic boom to get us through, until tomorrow.

This year the Legislative leaders propose to borrow $9 billion from Wall Street to avoid drastic social service cuts. From the Sacramento Bee we learn:

To pay back the nearly $9 billion loan, Democrats propose ostensibly using container recycling deposits that consumers pay on beverages they consume. But that would cost the beverage recycling fund around $600 million annually, so Democrats propose a new tax on oil production to backfill the recycling fund each year.

In another twist, Democrats want to pass their oil production tax with only a majority vote, using various sales tax shifts to get around the state's two-thirds vote requirement.

They said their proposal not only would avoid cuts but reduce fee hikes at universities and give $900 million in new money to local governments.

But Assembly Democrats offered no projections for what would happen in future years, when the state would not have access to the same influx of money. Because their plan would sustain spending at higher levels, the state likely would have to make deeper cuts in later years unless the economy roars back or lawmakers find another multibillion-dollar source.

To add to this weird borrow from tomorrow vision, Senate President Pro Tem Darrell Steinberg proposes to shift many social services programs to the counties. Today, of course, the state's counties are each trying to figure out how to cut millions from expenditures by July 1 without further gutting county operations to the point they are meaningless, particularly sheriff departments. Again, to quote the Sacramento Bee:

Steinberg said he's identified some of the kinds of social programs that could be shifted more to counties – senior care and children's services among them – but has no details to disclose less than three weeks from the Legislature's June 15 deadline to approve a budget.

One has to admire a vision of how one could believe this might possibly work - tomorrow.

In the meantime, many of the legislators who have sat through a few budget battle years are "termed-out" and will be replaced in January mostly by folks who have no idea how California's Government really operates. The rest are hoping to survive the election - to be there tomorrow.

We all should marvel at the potential of knowing we could have a Governor in Fantasyland who thinks she is going to be the State's CEO and new legislators in Tomorrowland who are equally ignorant in thinking something can be done, tomorrow, by the Legislature, about California's figurative bankruptcy.

On June 8, the George Bailey's, Davy Crockett's, and the Rosie Sayer's will cast their votes to determine ... who they will be able to cast their votes for on November 2. This is so that in January everyone can continue to live inside the Magic Kingdom happily ever after.

Except for a few pesky problems out there in surrounding "realityland" which threaten to darken the Magic Kingdom amusement park. We'll look at those problems next time.

Saturday, May 8, 2010

The Fantasy Budget Game

While the "Hopeful Headline Writers Guild" seems to dominate the news media - my latest favorite is Hiring robust across nation; California could follow (you gotta love that "could") - it's time again to play the "Fantasy Budget Game" in California.

The players are the Gubernator Arnold Schwarzenegger and the other 120 goobers in the Legislature. Arnold is in his last few months as Governor. A number of legislators are in their last year in office. It's an election year.

On Friday, the Gubernator will release an updated, and presumably thinner, version of his January envisioned 2010-11 plan which included revised revenue estimates for the last six months of 2009-10. Since January every month politicians and all the news media have been comparing the State's monthly income numbers to those revised estimates. This avoids facing the farce that was the result of last year's Fantasy Budget Game.

This time last year the same goobers were working on a budget for 2009-10 and they did finally adopt Fantasy Budget. Last July I wrote:

Choose the size of your problem - $8 billion or $12 billion. Let's just agree that it's likely that the revenues shown in the adopted budget will be about $10 billion short by June.

Now, at the end of 2009-10, we learn that the income tax revenue expected in that budget was a mere 12% too high. Fortunately, Sales Tax revenue will have been only 2% too high partly because of the federal government's Cash for Clunkers program. And it appears that the manipulations-by-threat regarding the Corporation Tax will have resulted in the actual revenue being around 1% higher than the budget - a this-year-only result. So last year the goobers missed the big three revenue sources by only around $6.4 billion or by 7.5%. Add in the too-high budgets for other revenue, it appears that the General Fund revenue figures will have been $8 billion too high.

So, what do we know going into the new season of the Fantasy Budget Game?

The available numbers tell us a great deal about California's economy. The Sales Tax revenues adjusted for the 20% rate increase in April 2009 tell us that taxable sales are down about 20% from 2007. Income tax collections are down about 18%. And, adjusting for the manipulation, it appears that Corporation taxes are down around 17%.

Reportedly over the past 28 months California has lost around 1.2 million jobs or 7% of the jobs it had in November 2007 while the labor force has grown by about 2%. These number come from the federal survey data. But the State's reported number of "Unemployment Insurance covered jobs" support the 1.2 million jobs lost number.

This is the year that the State needs to determine how it can educate its children by spending 20% less per student than it did five years ago without losing federal funds. Or it needs to determine how to raise taxes to cover the reduced tax revenue.

This is the year that the State needs to determine how it can provide services to the disabled, the poor and the elderly spending 20% less per beneficiary on average than it did five years ago without losing federal funds. Or it needs to determine how to raise taxes to cover the reduced tax revenue.

Instead, for the next few months, the press will dutifully report the activities of the goobers as they play the Fantasy Budget Game. This will carry us through to the November election when the voters will elect those who will discover in January how bad things really are. By May 2011 everyone will understand that all the hard decisions delayed for the previous three years will have to be made. Right now they think that many hard decisions have already been made.

The Great California Slump is economic reality. And California is caught in a trap of its own making. By pretending that it is better to have a fully handicapped Legislature unable to respond to financial collapse, the voters created a Fantasy State Government. By adopting Proposition 13 and term limits, the voters confirmed the governmental style they preferred - avoid making hard choices.

We are determined to not be limited to selecting between candidates who point out we cannot afford the "free lunch" mentality. We don't want to choose between candidates who (a) promise to reduce services by leaving many children without medical care and education or (b) promise to increase taxes thereby reducing the amount of cash individuals have to buy necessities ranging from iPods to houses twice as large as our grandparents were comfortable in.

This California cannot continue beyond 2012 without entrenching into its soul many of the problems of a third world nation where the population is divided between:
  • 50% who are always below, or are barely above, minimum poverty level, unable to educate and elevate their children, but hoping the latest lottery ticket will carry them to financial heights, and many of whom live in neighborhoods controlled by gangs (warlords, really) as government has failed to maintain a security presence;
  • 45% who are middle class and in constant fear of losing that status but still thinking they could become wealthy with a little more effort; and
  • 5% wealthy people mostly in secure communities with their own police forces, schools, and privileged lives and many of whom think they are sincerely trying to help the other classes.
And so the current goobers in Sacramento begin the 2010-11 Fantasy Budget Game. Other goobers run to become the new Gubernator. Meg Whitman, the likely Republican nominee, believes she can do something under a corporate (government) structure that leaves no room for creativity. Jerry Brown, the likely Democratic nominee, believes he can work with the State's financial problems he created the last time he was Gubernator.

It is time to take a hard look at dividing California into three states as I outlined a few years ago. Only by doing something that radical will California stop its plunge below mediocrity.