Tuesday, May 24, 2011

The Cruel Illusion of California: "Moonbeam 1.0's" legacy and "2.0's" proposal for Californians

The Legacy of Moonbeam 1.0

Many folks are upset because of the Supreme Court's decision yesterday supporting a lower court's determination that California was running it's prison system so irresponsibly that the federal courts had to assume control.  As noted today by Sacramento Bee columnist Dan Walters in a piece headlined 1970s actions on prisons come back around to bite Gov. Brown:
By happenstance, Jerry Brown was governor as this socioeconomic tsunami crashed into California and played a central role in its political aspects.

The crime issue was especially vexing for Brown, a longtime opponent of capital punishment, and he responded by signing dozens of lock-'em-up anti-crime bills. Not surprisingly, the new laws and tougher attitudes by prosecutors and judges began raising the prison population.

When Brown became governor, the state had about 20,000 men and women behind bars and hadn't built a new prison in many years. By the end of his governorship, however, prisons were packed and corrections officials were begging for new space.
I do appreciate the fact that Walters is starting to call out each item Governor Jerry "Moonbeam 1.0" Brown left as a bequest to Governor Jerry "Moonbeam 2.0" Brown. (Keep in mind that Brown has said he likes the "Moonbeam" moniker.)

As anyone who paid attention during Moonbeam's first Governorship remembers, he was a political leader not a policy leader.

Back then he was busy getting his photo op associated with the burgeoning space industry funded and controlled by the federal government - in other words appearing "forward thinking" without having to be responsible for anything.

He expanded this into delaying highway construction under the guise of being a early "environmentalist" thereby literally causing the future deaths of thousands on dangerous unimproved highways. People loved it stupidly. The press covered him with equal stupidity.

At the same time lobbyists, special interests, fear mongers, idiots and anyone but the Governor, took over policy leadership. That was his legacy. Few get to inherit their own legacy, but it appropriately happened in this case.

This first year of Moonbeam 2.0 Brown had a chance to lead in policy development, correcting the problems created by his legacy. Instead, he is demonstrating that he really has no idea what public policy formulation is all about.

He wants to delay dealing with problems until someone else has to deal with it (the 5-year temporary tax increase) or dump off problems on others (moving prisoners to local jails).

Still, members of the press fawn all over him because he's "accessible," meaning he's a security team's nightmare - but why care about people responsible for you when you're a narcissist of the first order.

A narcissist is someone preoccupied with issues of personal adequacy, power, prestige and vanity. Yes it is possible for a narcissistic personality to thrive on attention derived from appearing to be a humble minimalist who lives in a $1.8-million home in the Oakland hills.

Moonbeam 2.0 Budgeting version 1.2

Moonbeam 2.0 this month released a second budget proposal for 2011-12 dealing with some "new" facts that indicate General Fund revenues are up.

With the proviso that there are some "formatting" and "accrual" differences between Brown's budgets versus past budgets and Controller's reports, the following reflects the 2011-12 Budget Proposal just released by Governor Brown:

I had been prepared to do a comparison to the Hans Christian Andersen tale "The Emperor's New Clothes." But it appears that the Governor's new budget isn't entirely a fiction.

The new budget may be a bit more tattered than someone taking an imaginative new approach to solving State of California's financial problems. But it doesn't leave us completely naked.

The big picture problems with the proposal are plentiful. Some of the projected savings in spending aren't going to happen in 2011-12, if ever. So cash going out could easily be $2 billion higher than the budget. Cash coming in 2011-12 could easily be anywhere from $3 billion to $6 billion less the revenue budget.

The new budget proposal reflects what was reported in the press as a surprise increase in revenue. When it was first "discovered" by the press covering Brown, I had hoped it was a surprise only to the press and public who apparently now do their research by reading tweets.

The Moonbeam 2.0 Administration had that information available to them prior to the budget presentation in January.

From July through December 2010, the total of cash received from Personal Income Tax, Sales Tax, and Corporate Tax was $3.8 billion (10.7%) greater than the prior year, mostly from Personal Income Tax. But the budget proposal didn't reflect that, a fact from which one might infer the Administration also was doing its research through Twitter.

Now in May the Moonbeam 2.0 Administration has proposed a 2011-12 budget reflecting a continuation of that growth in those revenues. The only problem is that from February through April 2011 those revenues are down $0.5 billion (2.2%) over 2010 which might reflect a different trend.

The Moonbeam 2.0 administration proposal is to increase spending above 2009-10 levels in education (really only K-14, which seems important to teachers unions and parents but mostly only to pay back monies "borrowed" from school districts in recent years), in prisons and jails (important to the prison guard union and the U.S. Supreme Court), and bond payments (required by law).

But this only leads us to his 5-year plan for Californians.

Solving problems created by Great California Slump - tax those with the least???

Though he has only been in office for five months, Moonbeam has conveniently changed his political message as he wanders around receiving the adulation of his followers while handing out misleading and incorrect information.

Until the first week in May, he told his followers that we need to extend the 2009 "temporary" tax increases to avoid catastrophe in our schools and among our poor. He got the teachers' unions and other supporters all involved in various ways to get those tax increase extensions. But then the "unexpected" higher revenue numbers from July-December 2010 seemed to have surfaced publicly.

Let's just ignore the fact that on January 7, 2011, I received an email from the Office of State Controller John Chiang about a report that said:
Compared to July through December 2009, revenues year-to-date were up by $3.8 billion (10%). This was driven by personal income taxes, which came in $3.4 billion above (17.9%) last year at this time. Sales taxes also were $343.8 million above (2.7%) last year’s total at the end of December.

Year to date collections for the three major taxes were $3.8 billion higher (10.7%) than last year at this time, with corporate taxes up $89.3 million (2.5%) from last year’s total.
It's obvious Brown's people didn't get that information in advance of Brown's January 10 Budget Presentation. But they did get it before preparing the revised budget this month.

So now Brown is now going around advocating his tax increase "extension" proposal as a means to rapidly pay down the debt the General Fund incurred in the last few years to replace revenue lost due to the Great California Slump.

Moonbeam places himself among the liberals and those concerned for the poor and the working class. Those tax increases are (1) a 0.25% addition to the income tax rate at all levels of income and (2) a 25% increase in the sales tax rate. Fundamentally, these are two regressive tax changes proposed for economic bad times. Why would he propose them?

Must we accelerate the repayment of that debt? No.

It is a good idea to use any unexpected revenue to pay off the debt. But while The Great California Slump continues, a proposal to increase taxes on the poorer among us should be generating vociferous opposition from the political left. Instead, the only negative voices come from the anti-tax crowd normally considered part of the political right.

Apparently Moonbeam and his followers fail to understand the relationship between tax policy and the plight of the victims of The Great California Slump. The state's economy is failing its citizens in complex ways.

Despite the recent dutiful reporting about increases in jobs,  the federal data for California is as follows:

This is the lowest April level of employment since 1999. It should be of some concern because nationally employment is higher than last year and above 2004 levels. Simply California's economy is not recovering.

And despite all the positive discussion to the contrary, the Bay Area - Silicon Valley IT job growth is not reflective in any way of a long-term permanent job growth trend. As noted in the most reliable available study:
Fueled by explosive growth in mobile and cloud-based applications, as well as federally mandated electronic medical records reforms, this surge has been driven in part by a wave of Angry Birds, smartphones, DropBoxes and compliance requirements. American businesses are crying out for tech-savvy talent.
We all know that this "surge" will be temporary and downsizing will follow in a few years. But the CEO's and other corporate leaders are the political bankroll for Moonbeam and Obama.

California has an economy problem. What we know is that the large jump in Personal Income Tax revenue in the latter half of last year came from the wealthiest segment of the population, not from the middle class or the poor. As noted in the San Francisco Chronicle:
"It looks like the upper-income taxpayers are having a greater gain in their income than previously anticipated," said Brown's budget director, Ana Matosantos, explaining the unexpected windfall.

Good news, budget-wise, for sure, but beware of this "dependence on the wealthy," warns Robert Frank, author of the Wealth Report blog in Wednesday's Wall Street Journal. It's the reason, he says, California and other states "got into this mess" in the first place.

Such dependence is exemplified in California, where the proportion of revenue collected from taxes on the upper end of personal incomes, including capital gains, stock options and the like, has grown to more than half of the total. Income from capital gains alone is projected to rise from $34.9 billion in 2009 to $60.4 billion in 2011, according to Brown's revised budget ( www.ebudget.ca.gov).

But that's less than half the $132 billion of capital gains reported in 2007, before the Great Recession, which saw such income and concomitant tax revenue reduced by more than two-thirds two years later.
In that Wealth Report blog post Frank noted:
Now, stock markets have recovered and so have the rich. It follows, therefore, that as the incomes of the rich are soaring again (all those Facebook billionaires and hedge-funders), so are their tax payments. As go the rich, so go the states. (That is simply fact: This is not to argue for lower or higher rates on the rich). Add to this the fears last year of higher capital-gains tax rates–which induced the rich to sell extra stock so they don’t have to pay more later–as well as Roth IRA rules and you get a new bulge in tax revenue.

The good news is that the revenue boom will continue–as long as stock markets hold. The bad news is that just as governments failed to recognize their dependence on the rich in good times, and failed to prepare for a bust, they have been too slow to realize the rebound of the rich in good times. Now they find themselves drastically missing their budget projections.

And rest assured, this boom in tax revenue from the rich will end just like the last one. And governments won’t be ready.
Perhaps Moonbeam's Administration was just "too slow to realize the rebound of the rich in good times." But if true, that borders on negligence as Budget Director Ana Matosantos is a carry-over from The Gubernator's Administration. She should have known exactly where things were at the end of December. (If nothing else, President Barack "Avatar" Obama should have told her since he knew these cool guys who he visits regularly were rolling in dough.)

The important fact buried in this discussion is that Moonbeam never understands the long-term impact of his failure to provide policy leadership.

Jerry Brown was Governor from 1975 to 1983 and Chairman of the California Democratic Party from 1989 to 1991. While Moonbeam 1.0 was studying satellite technology as Governor, columnist Dan Walters wrote a series of articles about what was really happening to California, which in 1986 he published as a book The New California: Facing the 21st Century. Moonbeam should have read that book.

In a column last week Walters wrote:
I quoted one academic study that saw "the possible emerging of a two-tier economy with Asians and non-Hispanic whites competing for high-status positions while Hispanics and blacks struggle to get low-paying service jobs."

Last week's release of detailed 2010 census data and this week's unveiling of a massive statistical study of Californians' educations, incomes and health confirm that what was theory in 1985 has become reality.
The study is "A Portrait of California". As indicated on the linked study home page: "This timely report introduces the ‘Five Californias’ to highlight the varied opportunities open to differing segments of the population...." The report is timely because it focuses on the current problems exacerbated by Moonbeam's failure to provide policy leadership during what was the most critical time for California State Government in the 20th Century.

It was in that time that the California Supreme Court first used the term to describe the "cruel illusion" of California government policy. It was in that time that Moonbeam 1.0 (and what is now the entire aging California Democratic establishment) essentially chose to ignore that original Court decision, the problem it described, and the cruelty of public policy it represented. Their preferred choice was to achieve and keep political office and in California that means catering to the prejudices of the upper middle class and higher income segments of the population.

These politicians and their followers were failing the people of our state as will be discussed in the next post. Since they still hold office, they could develop and institute public policy to eliminate "the cruel illusion" of California. They won't.

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