Wednesday, May 25, 2011

The Cruel Illusion of the California Dream in the 21st Century

"Egalitarianism" is a political philosophy that states that all people shall have an equal standing before those establishing and exercising governmental power.
The opening of the United States Declaration of Independence states ""We hold these truths to be self-evident, that all men are created equal...."

Considered one of the philosophical cornerstones of "The American Way", in 1776 abolitionist Thomas Day commented on that opening sentence:
If there be an object truly ridiculous in nature, it is an American patriot, signing resolutions of independency with the one hand, and with the other brandishing a whip over his affrighted slaves.
Americans, because they are people, have never supported egalitarianism in any broad sense meaning completely equal treatment by government. As opposed to accepting slavery, some unequal treatment ends up being "more fair."

For instance, most of us would resist conceptually the idea of a head tax as the sole means of supporting government. Yet it is the most egalitarian tax system. Get rid of the income tax, the sales tax, property tax, etc. Just bill every person who resides within the jurisdiction.

To get some idea of what such a tax might mean, it would require payment of about $3,600 a year from every resident (man, woman, and child) in California to support the State General Fund. So a family earning $40,000 a year consisting of a man, a woman, and three children would pay $18,000 a year. A single "dot-com" billionaire would pay $3,600 a year.

This would be an anathema to the American political left, which espouses a belief in egalitarianism but frequently opposes literal egalitarian policy proposals.

On the other had the American political right sees egalitarianism as as "an achiever's torment" which hates the exceptional person.

Which brings us to the California education system, or at least the funding of that system. It is the average-achieving middle class person whose condition most requires egalitarian education policies. But...
The other asserted policy interest is that of allowing a local district to choose how much it wishes to spend on the education of its children. Defendants argue: "[I]f one district raises a lesser amount per pupil than another district, this is a matter of choice and preference of the individual district, and reflects the individual desire for lower taxes rather than an expanded educational program, or may reflect a greater interest within that district in such other services that are supported by local property taxes as, for example, police and fire protection or hospital services."

We need not decide whether such decentralized financial decision-making is a compelling state interest, since under the present financing system, such fiscal freewill is a cruel illusion for the poor school districts. We cannot agree that Baldwin Park residents care less about education than those in Beverly Hills solely because Baldwin Park spends less than $600 per child while Beverly Hills spends over $1,200. As defendants themselves recognize, perhaps the most accurate reflection of a community's commitment to education is the rate at which its citizens are willing to tax themselves to support their schools. Yet by that standard, Baldwin Park should be deemed far more devoted to learning than Beverly Hills, for Baldwin Park citizens levied a school tax of well over $5 per $100 of assessed valuation, while residents of Beverly Hills paid only slightly more than $2. - Serrano v Priest [5 Cal. 3d 584]
In Serrano v Priest, the California Supreme Court called funding schools through a mechanism that favors school districts in wealthy communities "a cruel illusion" that essentially denies some children the resources of adequately financed schools.

Perhaps public education is the one policy arena where Americans at least pay lip service to the idea that every child an equal chance to achieve. And while a school having more money does not automatically make the education a child receives better, no rational person would deny that signficant differences in funding will result in an unequal opportunity for the average-achieving child. It may also affect special programs for the over-achiever and the learning disabled, but it may not. But significant funding differences will affect opportunities for the 80% in the middle.

The truth is, despite the nearly four-decades-old Serrano decision, California has not even come close to an egalitarian funding system for its pubic schools. In fact, in the past two decades the situation has become worse. Many richer districts have no trouble getting parcel taxes passed and receiving "voluntary" financial support from parents.

Comparisons have been done even though many anti-tax and pro-education elements oppose doing comparisons. These two are examples:



Now, following the failure of the Democratically controlled Legislature to restrain expenditures and save for rainy days in years like 2007-08 when revenues climbed dramatically, the California education system has already experienced major cuts in education funding and likely will see significantly larger cuts.

To prevent these cuts and to needle Republicans, Democratic Senate President Pro Tem Darrell Steinberg has introduced SB 653 which provides as follows:
This bill would authorize the governing board of any county or city and county and any school district , subject to specified constitutional and voter approval requirements, to levy, increase, or extend a local personal income tax, transactions and use tax, vehicle license fee, and excise tax, including, but not limited to, an alcoholic beverages tax, a cigarette and tobacco products tax, a sweetened beverage tax, and an oil severance tax, as provided.
Why school districts? Is it hard to imagine that local income and sales taxes to support school districts will result in the same inequities that the local property tax does? Is this really the kind of thinking that reflects the best of the California Democratic Party leadership?

We have already seen Governor Brown dump off onto local agencies the task of providing prison space. Now Steinberg is proposing to dump off the responsibility of equitably funding education to no one. He's proposing the Legislature abandon the State's responsibility for some semblance of an egalitarian approach to public education and leave it up to local school boards to figure out how fund education based on local financial resources.

In school districts located in affluent communities served by upscale shopping malls, presumably that could turn into a really good education system. In other areas, well who cares?

This reflects a California government system that shouldn't exist. It's a system that has been corrupted - not criminally corrupted, but corrupted in the sense that it is like contaminated milk. The whole carton needs to be discarded. We don't have a viable government; that is the cruel illusion now.

Which brings us back to the issue of the historical lack of policy leadership from Governor Moonbeam. Serrano v Priest was the significant policy issue when Jerry Brown took office in 1975. So was the runaway property tax revenue problem. These were two issues that together deserved strong policy leadership from California's Governor at that time.

But Brown wasn't a policy leader, he was a politician seeking photo ops, press notice at the personal level, and support for a second term. He got all three and four years later voters reelected him even though California government was headed for a long march to the chaos we see at the beginning of the 21st Century.

For Jerry Brown and "his brother" Willie were the elected public officials most responsible for abandoning California policy development to lobbyists, special interests, fear mongers, and idiots. And California always leads the way for the nation.

This leads us directly back to the Social Science Research Council American Human Development Project's "A Portrait of California" (Portrait) briefly discussed in the last post. This study using census data and other sources tells us clearly that what in the early 1980's columnist Dan Walters warned about the future of California has come true.

Instead of a California envisioned in the early 1960's by Moonbeam's dad, Governor Pat Brown, as represented by the goals of the California Master Plan for Higher Education of 1960 to continue the California Dream in the second half of the 20th Century, we got Moonbeam's leadership failures.

The Portrait describes Five California's that evolved in the Moonbeam era:
  • Silicone Valley Shangri-La
  • Metro-Coastal Enclave California
  • Main Street California
  • Struggling California
  • The Foresaken Five Percent
The Portrait provides government service comparisons in what is called A Tale-of-Two's.

The Portrait explains some startling facts in important public policy areas:
  • Health. Whites in California are living significantly shorter lives than Latinos or Asian Americans—nearly seven fewer years than Asian Americans and four fewer years than Latinos. Asian American women in California can expect to live up to 88.6 years, over 18 years longer than African American men.
  • Education. 100 of California’s nearly 2,500 high schools account for nearly half of the state’s dropouts; residents of coastal counties are two‐thirds more likely to have a bachelor’s degree than those of inland counties; 45 in 100 Latino adults in the Los Angeles metro area never completed high school.
  • Income. A gap of $58,000 in earnings separates the top earners in the Santa Clara–Cupertino, Saratoga, Los Gatos area (about $73,000) from the lowest earners in the LA–East Adams–Exposition Park area (about $15,000)—a gap double the median personal earnings for the country as a whole. California’s Latina women earn the least, at $18,000—earnings on par with those of the typical American worker in 1960, half a century ago.
Charts, of course, help visualize certain points:






In the case of the Portrait, what surprised me was the accuracy and bluntness of their conclusion which reads in part:
Public discourse around California’s future focuses increasingly on what’s wrong with the state, particularly its finances—titanic deficits, plummeting revenues, costly entitlements, and drastic cuts. The budgetary situation is grave, and clear-eyed realism is called for, to be sure; however, doomsday scenarios are not a useful starting point for rallying Californians around a new vision for the Golden State.

Yes, California—like many other states—has serious financial woes, caused in no small measure by a revenue free-fall fueled by tax cuts and a national downturn that hit the state particularly hard. California was already facing severe budget shortfalls on the eve of the recession in late 2007. The stage was set by Proposition 13, a 1978 amendment to California’s constitution that dramatically limited property taxes, previously the state’s largest and most stable revenue source. Decades of tax cuts then placed the state in an increasingly precarious budgetary situation—California had some $13 billion less in annual revenue in recent years than it would have had were those taxes still in place.1 Then the Great Recession arrived, pushing the state into the financial abyss. California’s 2010–2011 revenues, dependent largely on the volatile personal income tax, fell more than $40 billion short of the nonpartisan Legislative Analyst’s 2007 forecast.
I would only slightly disagree with one thing. In my opinion the stage was set in 1974 when the voters elected Jerry Brown their state's Governor.

The Portrait offers conclusions and recommendations that should be carefully read by Californians concerned about development of policy to improve the lives of most residents ... oh, and by Jerry Brown.

And just perhaps California Democrats need to elect leaders who were born at least after 1960 instead of before WWII (like Brown, Feinstein, Boxer and Pelosi) so that those born after 1990 may have some kind of future here.

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.