Tuesday, March 29, 2011

Mildred Pierce, the good Lord, A. Alan Post, the Republican budget working paper, and Jerry Brown

The "Mildred Pierce" Experience

If you watched the premier episodes of HBO's miniseries "Mildred Pierce," perhaps you noticed the enhanced sounds of coffee shop patrons discussing how the press was indicating the economy has turned around. It was a pointed commentary.

The scene was set in 1931-32 Los Angeles. What viewers were vaguely aware of is that on September 5, 1929, the Dow hit a high of 382.01. By July 8, 1932, the Dow hit a low of 40.56. It was The Great Depression.

Two months later, September 8, 1932, the Dow had doubled hitting a high of 81.39. Compared to 382.01, this still shouldn't have seemed worth noting. But it was the source of all that silly economic optimism being discussed. In 1932, about 34 million people belonged to families with no regular full-time wage earner. So predictably, by February 27, 1933, the Dow dropped 39% to a low of 49.68.

Unemployment was the problem in The Great Depression. By 1936, all the main economic indicators had regained the levels of the late 1920's, except for unemployment, which remained high. In 1937, the American economy again experienced a crash, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. As we all know, the economy for workers did not recover until WWII.

The wisdom of HBO's "Mildred Pierce" is that for California the "facts" of our economy can be seen in the chart below, not in the optimistic press discussing various economic indicators:

Only the good Lord knows

Now, you may ask, what does massive, sustained unemployment have to do with the California budget? If you ask that, perhaps you should be answered as Governor Moonbeam1 answered a reporter when essentially asked when and if the State budget would be balanced: "Only the good Lord knows."

You see, Moonbeam can't even acknowledge that the problems he faces today he actually created as Governor 30 years ago. Solutions have become beyond human comprehension, according to our state's leader. Of course, given the problems Moonbeam created for himself just in the past year in order to get elected, indeed it may be true.

Moonbeam's most significant newly created problem is that he promised during his campaign to take any tax increases to the voters. He did so despite The Gubernator's experience working with the Legislature two years ago as explained here:
After voters soundly rejected five budget-related ballot measures, Gov. Arnold Schwarzenegger and state lawmakers agreed Wednesday on one thing - they need to act quickly to solve the state's budget woes on their own.

"With an overwhelming majority, the people told Sacramento, 'Go and do your work yourself, don't come to us with your problems,' " Schwarzenegger said in Washington before flying back to Sacramento.
Instead of heeding this lesson, thinking himself smarter and better than Schwarzenegger, Moonbeam stupidly boxed himself into another election to balance the budget, making compromise with Republicans impossible in his mind. He explained the situation this way on YouTube:
This is a matter that's too big, too irreversible, to leave just to those whom you've elected. This is a time when the people themselves can gather together in a special election and make the hard choice....
In other words, Moonbeam and the Legislature who taxpayers pay to make these decisions find the responsible solutions just too hard to discern, too complex to choose, and too likely to get their core constituencies upset.

That last concern is the one that counts because we don't have a leader in Moonbeam, we have a poll watcher. The lesson he learned from The Gubernator is that trying to lead, trying to compromise, just makes you unpopular with the world's most fickle electorate. (And anyone knows using YouTube is a way to get popular if you can just get enough hits since it makes you look so 21st Century even if you are an old guy.)

And so today he abandoned any further effort to negotiate with Republicans.

The problem here is an inherent refusal to engage in honest discourse and embrace the observations of John Stuart Mill about his experience with democratic government:
One of the most indispensable requisites in the practical conduct of politics, especially in the management of free institutions, is conciliation; a readiness to compromise.

I became practically conversant with the difficulties of moving bodies of men, the necessities of compromise, the art of sacrificing the non-essential to preserve the essential.
One would think that Moonbeam's Jesuit education - combined with his experience as Governor when Proposition 13 was passed - would have made him acutely aware of what is essential to make institutionalized representative democracy work.

The Republican working paper

Instead, through spin he has persuaded much of the press to embrace a characterization of the Republicans in the Legislature as unwilling to compromise. And many are unwilling to compromise to preserve the essential. But so are many Democrats, apparently including the Governor.

Angered by that characterization repeated to the press by the Democratic leadership, the key Republican Legislators negotiating with the Governor released a working paper list of subjects discussed or to be discussed during the negotiations. Senate GOP Leader Bob Dutton and Sen. Bob Huff, R-Diamond Bar, vice chairman of the Senate Budget Committee, upon releasing the working paper made this statement:
"Governor Brown challenged Republicans to be engaged in the budget process. Republicans have been engaged for months. Today he was presented with a thorough outline, which reiterates our priorities, including: getting our state back on track by reining in runaway spending; controlling unsustainable public employee pensions; getting people back to work; protecting and improving our state's public education system; and making critical adjustments to the governor's flawed budget.
The Associated Press story called the document "a comprehensive wish list of more than 50 demands."

The LA Times also called it a "list of demands" noting:
Brown spokesman Gil Duran called the list "a hodgepodge."

...It is unusual for such a negotiating document to be made public in the midst of talks and could be a sign negotiations are collapsing.

"Serious negotiations cannot be carried out through the press," Duran said.
You've got to be kidding! After the past two months, a Democrat saying "negotiations cannot be carried out through the press" is hypocrisy of the worst form.

The Republican working paper deserved some serious evaluation by the press. Any honest attempt should have begun with at least noting the unmentioned-in-the-press context.

The Honest Context. If one adjusts the amount disbursed from the General Fund in 1990-91 by the increase in population and cost-of-living since then, the result is a General Fund 2011-12 disbursement target of $80± billion.

In 2007-08 the Democratically-controlled Legislature irresponsibly disbursed $107.3 billion, roughly $27 billion more. An obvious economic bubble resulted in unsustainable revenue they could distribute to their demanding constituency, many of whom were on their own track of wildly irresponsible personal spending. Predictably, the economic bubble burst in the second quarter of that fiscal year.

Though still about 10% higher than what California population growth and cost-of-living might have justified to a reasonable person, in 2009-10 that General Fund number had to be cut 19.3% to $86.6 billion. The Great California Slump (or worldwide, The Great Recession)had eliminated the chance of wild overspending, though the Legislature approved and The Gubernator signed a 20% sales tax increase.

That's honest context from fiscally conservative point-of-view. Within that context, here's more of the Moonbeam Administration spokesman Duran's response to the Republican working paper:
"This is basically Republicans trying to ram through an agenda that does not reflect the fact that we have a Democratic governor and Democratic majorities in both houses of the Legislature," he said.
So what is this Republican agenda he's referring to with regard to the budget?

In the working paper, they have all the key negotiating points under a heading "BIG OUTSTANDING PIECES OF THE PUZZLE" which seems like a good place to begin an evaluation. Let's examine the big items, the ones that individually exceed $1 billion.

1. The Republicans apparently have concerns about "additional cuts in Governor’s budget not adopted by dems ($1.7 billion)." This doesn't seem unreasonable as this money must come from somewhere.

2. The Republicans apparently feel someone should "account for higher than projected revenues - $1.3 billion." This also doesn't seem unreasonable, though maybe it will just be applied to resolve their concerns in "1." above.

3. The Republicans apparently think that taking "more from Prop 10 & 63 ($1 billion – would require going back to voters)." This is a bit more complicated, needing explanation.

According to a Legislative Analyst's Office (LAO) report:
Proposition 10 was enacted by the voters of California in the November 1998 election. The initiative measure created the California Children and Families Commissions, now commonly known as the state and local First 5 Commissions, which rely upon revenues generated by state excise taxes on cigarettes and other tobacco products to fund early childhood development programs for children up to age five. The state commission (which receives 20 percent of revenues) and county commissions (which receive the remaining 80 percent) operate the First 5 programs.
First 5 LA in January explained:
Brown proposed taking $1 billion in funding from First 5 California and county First 5 commissions in 2011-12, as well as half of all future First 5 revenues on a yearly basis. The budget proposal also redirects to state coffers another $50 million from First 5 California, the state Proposition 10 Commission, to fund state-supported early intervention services for disabled children.
Despite Moonbeam Administration arguments to the contrary, the Legislative Analyst stated "This proposal would require voter approval because it changes the allocation of funding originally provided under Proposition 10." The Republicans agree. Here, Moonbeam is being unreasonable, not the Republicans.

Then there's Proposition 63. According to Wikipedia:
Proposition 63 was a California ballot proposition on the November 2, 2004 ballot. Its official name and title on the ballot was the Mental Health Services Act....

It was an initiative statute that levied an additional 1 percent state tax on incomes of $1 million or greater to fundamental health service programs beginning January 1, 2005....

A later ballot measure, Proposition 1E appeared on the May 19, 2009 special election ballot. This measure would have authorized a fund-shift of approximately $230 million annually in income tax surcharge revenue currently earmarked for Proposition 63. However, the measure was defeated.
Despite the fact that the voters in 2004 approved this tax increase for a specific purpose and in 2009 voted against shifting these funds, the Moonbeam Administration unreasonably proposed shifting the money. The Republicans want the voters to vote on that.

3. The Republicans apparently are concerned that the "current budget is at least $400 million short of Governor’s level (+$500 million phony cuts)."  This actually now totals to over $1 billion. This doesn't seem like an unreasonable concern.

4. The Republicans apparently want discussion on "additional cuts - LAO letter - $13.5 billion." On February 10, 2011, at the request of Democratic Senator Mark Leno, chair of the Senate Budget and Fiscal Review Committee, the LAO prepared a letter describing what could be done to balance the budget without the tax increase extensions.

Leno released the 11-page letter with considerable spin. The very limited press coverage offered words like "grim" and "doomsday." But nobody offered an honest analysis of the proposals.

Indeed some of the proposals seem a bit drastic. The letter explains that the alternatives were to include expenditure reductions, shifts or transfers of existing states funds to benefit the General Fund, and increases of non-tax revenues. The proposals could be only ones that did not require voter approval. Jason Sisney, the LAO director of state finance, explained:
"We tried to score savings we thought were realistic under the law," Sisney said. "We attempted to identify as many options that would avoid touching core programs as much as possible."
The problem is, the Democrats do not even want to talk about it. And yet, if they could work out $4± billion of those cuts:
  • the temporary State sales tax rate increase to 6% from 5% would not have to be extended
  • the temporary income tax rate increase that expired at the end of last year would not have to be extended.
Attempting to accomplish that doesn't seem completely unreasonable.

5. The Republicans apparently want serious consideration of a compromise alternative on the Governor's proposal targeting up to $1.7 billion by eliminating Redevelopment Agencies. Specifically they advocate a proposal by Senator Bob Huff (R-Diamond Bar) which is a borrowing plan, one which he said would make it optional for locals to participate, thus avoiding the 'state taking the money' ban under last fall's Proposition 22. This doesn't seem unreasonable.

It is a simple fact that in November when the voters were electing Moonbeam, 60.7% of the voters approved Proposition 22 telling him to not "require a community redevelopment agency (A) to pay, remit, loan, or otherwise transfer, directly or indirectly, taxes on advalorem real property and tangible personal property allocated to the agency" nor "(B) to use, restrict, or assign a particular purpose for such taxes for the benefit of the State, any agency of the State, or any jurisdiction."

6. The Republicans apparently want to discuss not eliminating "Enterprise Zones" but examine potential reforms. They also view the proposal a $1.4 billion tax increase. Given the employment graph above, open discussion of this doesn't seem unreasonable.

7. The Republicans apparently want careful analysis before considering the Governor's proposal to shift various service responsibilities to counties without providing for long-term funding. Many of the structures created dividing the responsibilities to provide these services were created based on decades of experience. Brown decided in a month to propose changing them which seems unreasonable.

8. The Republicans apparently have strong preferences about what is to be submitted to the voters. They feel that three measures should be submitted including a tax increase extension, a spending cap, and pension reform.

They propose that the extension of the temporary tax increases should be 18 months, not five years. That seems more consistent with the term "temporary" and Moonbeam would still be Governor giving him the opportunity to work on the State's real budget problems. This doesn't seem unreasonable.

Regarding a permanent "hard" spending cap, the Governor has already said no. So the Republicans offered a different proposal:
  • Hard cap (based on CPI & population) until:
    1. Specified budgetary debt is paid down (e.g. ERBs, Loans, Prop 1A borrowing, VLF GAP loan, Non-98 deferrals, education deferrals, maintenance factor)
    2. A 10% rainy day reserve is obtained
  • Base Year 12-13.
  • Carve Prop 98 spending out of cap
  • Revenues above the cap to be used to pay down debt, to build reserve, or other 1-time expenses
  • Transition to ACA 4: At end of the hard cap, implement provisions of ACA 4 (the 2010 measure). (Some of the dates in ACA 4 would need to be changed.)
The idea of negotiating language for a spending cap ballot measure is hard to disagree with when one considers what the Democrats did with the budget from 1990-91 to 2007-08.

Finally there is the pension reform ballot measure proposal. The Republicans feel that the Governor has agreed to the "Little Hoover Commission’s recommendations - minus existing employees and no mandatory hybrid for current employees." The original State employees' retirement system implementation measure was put on the ballot as Proposition 5 in November 1930, in The Great Depression. The voters approved the Proposition. Suggesting that reform as agreed to by the Governor also be put on the ballot doesn't seem unreasonable.

Those are the "BIG OUTSTANDING PIECES OF THE PUZZLE" presented. Yes, the Republicans' working paper has stuff in it about revising the California Environmental Quality Act, a proposed Office of Management and Budget following the federal model, and education reform. But none of it is part of list of big outstanding pieces.

A. Alan Post versus Moonbeam 1.0

A. Alan Post died last Saturday at the age of 96. For nearly a third of my life, as the California Legislative Analyst A. Alan Post represented the voice of "responsible government" in California state government - note the word is "responsible" not "responsive."

Post resigned the position in Moonbeam's first term as Governor and Proposition 13 was the outcome of bad government.

Post said of Proposition 13 that it replaced one unfair tax system with another. He described the situation as follows: "The need for reform was obvious, but some liberals wanted too much, and so reform efforts in the Legislature failed. It was left to the initiative process, and the time was right for Jarvis."

After the passage of Proposition 13, Jerry Brown appointed Post chair of the newly created California Commission on Government Reform which became known as the Post Commission. They produced a good report.

Post subsequently said: "I wasn't getting much help from Jerry Brown or his director of finance, Dick Silberman. We even had a tough time getting the report printed and distributed.

"When the report was finished, I went into Governor Brown's office to deliver it personally, and I told him 'a lot of people have put in a lot of time and effort in the making of this, and I expect you to do something with it.' He said 'I will,' but he didn't. He was busy getting himself re-elected.

"I think it was a good report, but I guess I'd have to say that it was of marginal value because it was never really given a chance to be effective. It was not a success, but I believe it could have led to significant resolutions if the governor had been more helpful."

The Jerry Brown Experience

As near as I can tell - particularly after reading the "Big Outstanding Pieces of the Puzzle" section of the Republican budget working paper - Brown is still just perpetually attempting to retain political power, forever making sure Democrats get reelected, forever catering to the most irresponsible .

Brown spokesman Gil Duran confirmed this attitude when he said of the working paper: "This is basically Republicans trying to ram through an agenda that does not reflect the fact that we have a Democratic governor and Democratic majorities in both houses of the Legislature."

Reading this one might believe it is only the threat of the initiative and recall processes available in California that the California legislature has not joined the Democratic-majority Illinois legislature which in January passed personal income-tax increases of 66 percent and corporate income-tax increases of 45 percent. Such an act would restore the General Fund budget to 2007-08 levels.

Nothing he has done since he was elected again implies that Brown is trying to fix anything he did wrong 30 years ago or will do so in 2011. In my opinion, had he still been alive A. Alan Post again would have said at the end of this year: "The need for reform was obvious, but some liberals wanted too much."

Since his party's core constituency still wants too much, Moonbeam's best answer to a budget solution is: "Only the good Lord knows."

Maybe the good Lord, A. Alan Post, and Mildred Pierce would have some wisdom to offer Moonbeam and all the Legislators: "You're state is in the middle of a depression, swallow some of that sinful it's-all-about-me pride, quit worrying about getting reelected, and through compromise work your way to a better future in the form of responsible California government."
1I see Jerry Brown as Governor Moonbeam, enamored with the currently impossible solutions for government that could in several decades become improbable or even possible.

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