Friday, December 30, 2011

2012 Tax Initiatives Chapter 2:     The Truth and Mythology of Taxing Oil and Gas Well Production

Every recent proposal to institute a state severance tax on oil and gas produced from wells in California, whether in the Legislature or by initiative, has been defeated by the oil and gas industry.

Unfortunately,it is nearly impossible without extensive research to find every proposal made to institute a severance tax in California in the 20th Century plus the past decade. It would not be unreasonable to say that the proposals number in the dozens.

Nothing is ever simple about the subject of taxing oil and gas. California is the only major oil producing state that does not charge a severance tax. In a study done by the Franchise Tax Board and the Board of Equalization, it was determined that the combined tax burden per barrel of oil in California was $4.22 per barrel and in Texas was $14.33 per barrel.

Certainly the oil companies pull out all the stops to confuse the issue, even to the point of convincing California voters that a severance tax would result in an increase in the retail price of gasoline - a myth that would be downright silly except many adult Californians believe it.

Prior to 1978, California effectively used its property tax in lieu of a severance tax to gain revenue from oil and gas. Proposition 13 lowered the tax rate to on average ⅓ of the prior year's tax rate, a tax break not discussed in the debate on the measure.

But the measure's impact was much greater. All oil and gas reserves then identified had an assessed value placed on them. Proposition 13 froze those values, as it did all property values, limiting increases to no more than 2% a year no matter how much the value of the oil and gas increased.

The Kern County Assessor noted this year:
Most of our oil and gas properties are at the Proposition 13 Base Value, and taxes are paid on this base value, even though the market value of these properties is a great deal higher. Kern County remains the largest oil producing county in the State, with an estimated 70% of all of the State’s reserves.
What has happened is that California homeowners typically sell their homes every 7 to 8 years at which time under Proposition 13 the assessed value is increased to the then market value. Typically most homes today are being assessed at close to current market value, and even one that has not sold since 1978 is being assessed at 49% of market value (based on the California home median sales price for 1977 compared to the median sales price as of November 2011).

On the other hand, oil reserves are assessed at about 28% of its market value and that assessed value in some areas is being taxed at about 33% of the tax rate prior to 1978. In essence, those oil producers were awarded as much as a 91% tax reduction in 2011 by the well-informed California voters of 1978 through the adoption of Proposition 13 (not that voters today are any more informed).

Most voters have no idea this happened. Most efforts at an oil and gas severance tax have been an attempt to try to rectify this. While directly modifying Proposition 13 with a split roll as suggested by the measure discussed in my previous post would correct this problem, three severance tax measures have been proposed for the 2012 elections.

The first of these measures filed is what I call The Community College Professor's Oil and Gas Severance Tax to Fund Education Initiative. Rescue Education California founder Professor Peter Mathews is behind this measure which would set a 15% tax on the value at the well head of oil and gas produced in California. There are some rational exemptions for so-called "stripper wells."

It would allocate the approximately $3 billion per year in new tax revenues as follows: 11 percent to University of California; 14 percent to California State University; 38 percent to community colleges; 37 percent to K-12. It also prohibits the reduction of existing education-funding levels based on these additional tax revenues.

This severance tax would put us midway between Alaska's Sarah Palin severance tax rate of 25% and Texas.

This measure is currently being circulated for signatures. See the web site.

The second severance tax measure currently circulating is The Occupy-the-Elections Severance Tax on Oil and Gas Initiative to Create a North-Dakota-Type California State Bank. With the understanding that California is much larger and more diverse than North Dakota, to really understand the model for this bank you should review the Bank of North Dakota web site and the article How the Nation’s Only State-Owned Bank Became the Envy of Wall Street.

The measure would establish a state bank named the Sustainable California State Bank, to initially be funded by $200,000,000 General Fund loan. It imposes a 15% percent minimum tax on value of oil and gas extracted in California for state bank capital which, as noted above, that rate would generate about $3 billion a year. It mandates the deposit of some state funds in the State Bank, and authorizes public and private entities and individuals to establish accounts. The state would guarantee deposits, though the State Bank could be insured by the FDIC. It authorizes the State Bank to borrow money, invest funds, make loans to businesses, organizations, and local governments, and keep earnings. It authorizes state bank to refinance state debt and make zero-interest loans to General Fund to finance operating deficits.

The measure's purpose is to boost California's economy generally, but particularly to make financing available to small business and growth industries. It's a laudable goal and an interesting idea, which is more than I can say about the next one that has garnered considerable press attention.

The third severance tax measure, currently just at the Attorney General's review stage is what I call The California Democratic Party Chairman John Burton's Oil & Gas Severance Tax Initiative, some for Higher Education (⅓) and most for the General Fund (⅔) for the Legislature to Play With.

Burton has a long record of public service as a Democrat:
  • 1965 - 1974 member of the California State Assembly
  • 1975 - 1982 member of the U.S. House of Representatives
  • 1988 - 1996 member of the California State Assembly
  • 1996 - 1998 member of the California State Senate
  • 1998 - 2004 President of the California State Senate
  • 2009 - Present Chairman the California Democratic Party
Burton, 79, has long been among the California Democratic Party leaders and is part of the Party's ruling gerontocracy along with Governor Jerry Brown, 73, Senator Diane Feinstein, 78, and Senator Barbara Boxer, 71. (It is worth noting that among this group, only Boxer has experienced any significant time working in the private sector, and she has been in Congress since 1982.)

When Burton left the State Senate in 2005, the California Journal noted:
Gone will be the Senate's most vehement partisan for social services for the poor, the Senate's angriest voice against tax breaks for businesses and the wealthy, its loudest voice for protection of workers, its fiercest pro-labor advocate and its disciplinarian.

Suffice it to say that anything Burton is involved with reflects his preference for a Legislature free of constraints and his partisan viewpoint. This ballot measure is no exception and he clearly states that this is his proposal, not that of any party or group.

For whatever reason, Burton chose to provide for a 12.5% severance tax rate instead of the 15% in the other measures which likely would reduce the revenue to $2.5 billion. The measure specifically provides as follows:
...One-third of all taxes, interest, penalties, and other amounts collected pursuant to this part shall be deposited into the California Higher Education Fund. The remaining two-thirds shall be deposited into the General Fund.
In other words, it would put $1.6 billion into the General Fund for the Legislature and Governor to spend as they see fit. Only $0.8 billion or ⅓ of the revenue pursuant to the measure titled "The Higher Education, Schools, Public Safety and Health Care Preservation Act" is allocated for a specific purpose.

To collect spend the allocated money, a complex new bureaucracy is created called "The California Higher Education Endowment Corporation" which is to have a very large paid Board, CEO, and employees, along with the hiring of an Auditor to perform a very complex annual audit. The Corporation's costs and expenses are subtracted from the $2.5 billion first, and the remaining $0.8 billion not sent to the General Fund is to be allocated as follows:
The corporation shall annually allocate the moneys in the California Higher Education Fund, for purposes of funding direct classroom instruction for higher education, as follows:
(1) Fifty percent to the California State University.
(2) Twenty-five percent to the University of California.
(3) Twenty-five percent to the California Community Colleges.
The measure also provides for a complex sub-allocation for medical and nursing education, the latter based on a complex formula for determining need county-by-county.

Only someone who has spent most of his life in legislative positions in California could propose a measure this complex. The facts are:
  1. It is mostly just a tax to add revenue to the State General Fund,
  2. It creates a large bureaucracy including politically appointed paid board positions to accomplish a simple task of distribution of a comparatively small amount of funds among our state higher education institutions.
I guess Burton has allies for this measure as it has received a lot of press compared to the other two oil and gas severance tax measures. It will be interesting to see which of these measures gets enough signatures to be on the November 2012 ballot, if any.

Again, the severance tax measure petitions that are circulating or likely will be circulating would:
  1. Divide approximately $3 billion per year in new tax revenues as follows: 11 percent to University of California; 14 percent to California State University; 38 percent to community colleges; 37 percent to K-12; or
  2. Establish a state bank named the Sustainable California State Bank funded using approximately $3 billion per year in new tax revenues to boost California's economy generally, but particularly to make financing available to small business and growth industries; or
  3. Collect $2.5 billion per year in new tax revenues, which would allocate approximately $1.7 billion into the State General Fund to be spent by the Legislature and Governor and would allocate to a new fund $0.8 billion for a new bureaucracy to divide between the three state higher education systems which currently spend about $10 billion.

Thursday, December 29, 2011

2012 Tax Initiatives Chapter 1: California's Property Tax Problem and the Ghost of Howard Jarvis

What I call "The California Teachers Association Initiative to Increase and Equalize Property Tax Values on Non-Residential Non-Farm Properties by Splitting the Property Tax Rolls" provides a good place to begin analyzing the plethora of tax proposals.

It is the only proposal that addresses head-on some of the economic and social impacts of Proposition 13, the underlying problem of California's state and local government revenue structure.

(Yeah, yeah, partisans can argue about government spending as there is plenty to argue about. Nonetheless, Proposition 13 was not a spending control measure so spending discussion is irrelevant.)

Most importantly, what voters need to know is that this measure will not change the way residential and agricultural property is taxed. No matter how the opposition phrases scare ads, this measure has nothing to do with homes and farms. Nor will it change the 1%-of-assessed-value property tax rate in California.

It is an attempt to address the problem that Proposition 13 caused California's government revenue structure to be vulnerable to economic cycles in ways most voters in 1978 did not understand.

It's likely that the arguments over this measure will be phrased in the the form of a fight over California's fictional anti-business tax environment, particularly using the California Teachers Association sponsorship to frame it as a fight between public employee unions and private businesses. So let's look at the measure and that issue.

The proponents amusingly entitled this "Protect Homeowners and Close Corporate Tax Loopholes Act". Actually, it would be a tax increase on most, but not all, business property. I do think it is the one and only ballot measure that would stabilize income for California government and thereby stabilize government. Here's what it would do:
  1. Its only impact on residential property is to double the owner occupied dwelling exemption (from $7,000 to $14,000) in 2015-16 and doubles the renter credit on income tax returns at the same time.
  2. It excludes from the definition of non-residential property real property "used and zoned for producing commercial agricultural commodities."
  3. It requires that non-residential property currently subject to the property tax be reassessed every three years to the fair market value beginning after 2014-15.
  4. It exempts from taxation the first $1,000,000 of tangible personal property (specifically excluding from the exemption boats and airplanes not used in the day-to-day operation of the business), primarily intending to exempt the first $1,000,000 in business equipment and inventory providing a significant relief from the impact of the reassessment of business property to small businesses.
  5. It provides that the additional revenue derived from the reassessment be used to cover the reasonable cost of reassessing commercial property with the balance allocated (a) 90% to the State General Fund and (b) 10% distributed to local entities based on law.
  6. It provides that some of the money placed in the State General Fund be remitted back to the counties to cover the exemptions described in "1." and "3." above.
I should point out that the business community already has an "expert" report The Economic Effects of California Adopting a Split Roll Property Tax explaining how this would just be a disaster for businesses.

The only problem is that these are the same people who hold Texas up as the model for "business friendly." The split roll measure would bring California's property tax on business property up to the Texas level. What could possibly be wrong with that???

What it would do is equalize business property taxation, reducing the Proposition 13 extreme favoritism given old business properties over newly developed business properties.

It would eliminate a multitude of inequity sins resulting from the fact that large numbers of business property are owned by corporations. For instance, many of those properties do not sell in a manner triggering reassessment to the selling price. Therefore existing commercial properties are not being taxed at an amount comparable to homes which sell on average every 7-8 years nor are they being taxed at an amount comparable to new commercial developments.

But what about that California business unfriendly tax structure is discussed in the press so frequently?

A March 2010 study was prepared by the firm Ernst & Young (the accounting firm used by award shows if you don't know them from anywhere else) for their business clients who want unbiased information - Total state and local business taxes. From that study, the first piece of conventional wisdom about California that is debunked is in Table 6 which shows State and local business taxes as a share of private sector economy within the state. What we learn is that California ranks #27 among the 50 states. Here's the list:



Note that Sarah Palin's Alaska takes the highest percentage from businesses. Also note that Texas took a higher percentage from businesses.

The primary difference between Texas and California is how we tax businesses (and oil and gas production at the well which I'll address in a future post). Here's a comparison from Table A-3 of the study:



Note the difference in personal income taxes. Texas is more "over-paid corporate executive friendly" because Texas does not have a personal income tax. It has a much higher property tax plus other taxes that impact heavily on corporations. But it is tax friendly to the highly paid executives who decide where to locate the company offices and, like all people, when taxes are considered it all has to do with how it impacts on them. Keep this fact in mind when we discussion the various proposed income tax increases on millionaires. Anyway....

Essentially we don't collect as much property tax from businesses compared to most states, particularly Texas. Simply, this measure would have us do so. And if we do adopt this measure, it would move us up among the states to somewhere around Rhode Island and New Mexico.

Estimates of the amount of additional revenue this would raise range from $2 to $18 billion depending on who's doing the estimating and the time frame used. It likely would take about three years to derive any significant additional revenue from the reappraisal process. It is also likely that the measure would solve the State General Fund revenue stability problem within five years and on a permanent basis.

Could this measure become law? First, it has to get enough signatures. I don't think it will. But if it does, it likely will be accompanied on the ballot with other tax measures. Given that the measure must fight the ghost of Howard Jarvis and the depressing presence of Jerry Brown, it likely wouldn't pass.

Too bad, because it would correct the worst impacts of Proposition 13.

Wednesday, December 28, 2011

Moonbeam, billionaires, high school seniors, and workers - the tax increase initiative competition

And the great owners,...the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.
                        -John Steinbeck, The Grapes of Wrath
Many types of uprisings occur when the working class feels aggrieved and oppressed. Certainly today we are beyond the French Revolution, making use of the guillotine. In a political system that basis itself on "democracy", many "pressure relief valves" have been created to keep the ruling oligarchy free of the falling knife blade.

For instance, we here in California have the initiative, which we are using to create our own metaphorical Reign of Terror. Right now there are over 100 "active" ballot measures that have been submitted to the Attorney General's Office (see the list). The web site explains: "The Attorney General provides the official titles and summaries to the Secretary of State for all measures cleared for petition circulation."

Besides taxes, these measures cover every subject from social issues like abortion and marijuana to economic issues like car and health insurance to government reform and pensions and, of course, to "fixing" in incredibly horrific "three strikes law" approved by the voters based upon prejudice, bias, and sound bite advertising paid for by special interests.

Most of these new proposals are complex laws which if adopted would have far reaching impacts on the lives of many, negative social impacts that could not be explained in a book much less in a post. California voters will vote on these measures based upon sound bite advertising appealing to bias paid for by special interests. (Hence my comparison of the initiative process to the French Revolution and its Reign of Terror - that popular rule run amok.)

A number tax revenue increase initiatives have been proposed for the November 2012 ballot, most of which are considered "millionaire taxes," heavily targeting taxable annual incomes above a quarter of a million dollars or oil and gas well production.

In passing, I have to note that some call the measures taxing higher incomes a "millionaires tax." Confusion exists on what constitutes a "millionaire." Dictionary.com says:

If a millionaire family is one that has a million dollars in assets (wealth), then at the beginning of 2008 California was full of millionaires. Significant numbers of families owned homes valued over $500,000. By the time you add in some furnishing, cars, electronics, savings and investment, it was possible to be a millionaire without even realizing it - particularly when you had a big mortgage, car loans, and a lot of credit card debt.

Extra taxes on a married couple with taxable earnings of $250,000 and over is probably pretty much a tax on millionaires in the state, just not all. "Taxable earnings" by definition excludes a lot of money.

If by "millionaire" you mean any "very rich person" ... well... even after the recent crash the Forbes list of billionaires residing full or part-time in California is pretty long. Unfortunately, by today's standards being a millionaire isn't all that unusual - kind of an upper tier of middle-class.

But apparently the teachers unions think being a millionaire is rich enough to tax. Who am I to argue with those entrusted with the minds of our children? So taxing millionaires means a meaningful increase the income tax on couples who make more than $250,000 a year.

I'm also a little confused about how many such initiatives ultimately are going to be circulating to get signatures, much less be on the November 2012 ballot. But that's normal in advance of the deadlines for signature submission.

Right at the moment, the following tax measures have been submitted, listed in order of date filed with the Attorney General, using my descriptive titles and the official file number as the link to the text of the measure:
  1. The Nickle (5¢) Tobacco Tax Increase to Fund Cancer Research and Other Stuff  Initiative (approved for the June 2012 ballot). 09-0097.
  2. The California Center for Public Policy 15% to 25% Extra Personal Income Tax on Annual Pension Income Exceeding $100,000 Derived from The California Public Employees and Teachers Retirement Systems Initiative (currently circulating). 11-0021.
  3. The Community College Professor's Oil and Gas Severance Tax to Fund Education Initiative (currently circulating). 11-0044.
  4. The Happy Pills Tax Initiative (currently circulating). 11-0045.
  5. The Occupy-the-Elections Severance Tax on Oil and Gas to Create a North-Dakota-Type California State Bank Initiative (currently circulating). 11-0051
  6. The Unity High School Senior Class Free Resident Tuition for State Colleges Paid from Tax Increases on Incomes over $250,000 Initiative. 11-0086.
  7. The California Teachers Association Increase and Equalize Property Tax Values on Non-Residential Non-Farm Properties by Splitting the Property Tax Rolls Initiative. 11-0087
  8. The Activist Heiress's California PTA Supported Proposal to Tax Millionaire Dad & Friends for Schools Initiative. Version 1 11-0088 was recently replaced by Version 2 11-0100 apparently in an effort to get more political support.
  9. The Moonbeam Complex Free Up General Fund Money and Fix Nothing Tax Increase Initiative. 11-0090.
  10. The California Federation of Teachers & Friends Tax Millionaires for Education, Social Services, Safety Services, and Road and Bridge Maintenance Initiative. 11-0091.
  11. The California Democratic Party Chairman John Burton's Oil & Gas Severance Tax, some for Higher Education (⅓) and most for the General Fund (⅔) for the Legislature to Play With. 11-0096.
Obviously many of these titles reflect sarcasm on my part. I want to emphasize that each one of them offers in preambles lofty language and sincere, laudable goals. Some of them may even be worth considering seriously.

In future posts, I'll offer analysis on these proposals. And when new ones are submitted, I'll add them to this post and offer analysis. I do expect new ones. For instance, The billionaire's beauty and barber shop tax proposal hasn't even been submitted yet.

Thursday, December 15, 2011

The Long Depression, The Lost Decade, The Great California Slump

TIME Magazine coined the term "The Great Recession" for the economic period that began at the end on 2007. It was an effort to liken this recession (which is supposedly over) to The Great Depression of the 1930's, but just not so bad.

When the people who lived it as adults talked about The Great Depression, they generally seemed to say they didn't think it ended for them at least until WWII started in Europe in September 1939. So fundamentally, it was a 10-year time of struggle for many Americans, even though economists call the period of the first 43 months a contraction followed by a period of growth followed by another severe recession beginning in June 1937.

Many Americans are aware that the Japanese economy crashed in 1991 because of what is called the Japanese asset price bubble, and the Japanese initially referred to the period of 1991 to 2000 as The Lost Decade, but many now refer to 1991 to 2010 as The Lost Decades.

What most Americans are not aware of is what is known now as The Long Depression which began with the Panic of 1873 and ended about 1896 or 23 years, an economic collapse that was world wide, but most notably in areas that had gone through rapid economic growth from the Industrial Revolution such as Europe and the United States.

The Great Depression was relatively short as world wide depressions go, shortened because of a world war.

What we should be aware of from The Long Depression is in truth it began with a major economic collapse, followed by some growth in between a series of recessions. In fact the period was a sustained period of painfully slow growth with bumps and dips. As one economist who likens our current situation to that period notes:
New technologies and industries were being created. The telephone was invented, and the foundations of new industries based on the petrol engine and electricity were put into place. The people who got it right still made huge fortunes, and the workers in the right industries prospered. Overall, however, times were hard.
This brings me, then, to what I am calling The Great California Slump. Simply put, California has not been able to create enough new jobs for its growing workforce for two decades. From a worker standpoint, California's economy looks like this:


Simply put, for workers overall The Great California Slump began in 1990 and continues today. And the economist I quoted above feels that it could last 40 years, with some occasional ups and downs. The economy may grow slowly as international corporations generally increase output over the long term, but for workers the general direction will "feel" down in bad times and stagnant in good times.

And that is why we read in the Sacramento Bee  Public confidence in California falls as economy improves and why it appears that a revolution is going on with folks using initiative measure proposals as bullets.

I'll explore those proposals in my next post.

Monday, December 12, 2011

California's Bear Bones Era - Come view the meager remains of our fathers' and grandfathers' promises




“Why don't you go on west to California? There's work there, and it never gets cold. Why, you can reach out anywhere and pick an orange. Why, there's always some kind of crop to work in. Why don't you go there?”
― from The Grapes of Wrath by John Steinbeck published in 1939.


"This is the most significant step California has ever taken in planning for the education of our youth," Governor Edmond G. (Pat) Brown declared in April 1960 upon signing the bill establishing The Master Plan for Higher Education in California.

"I am proud that with this bill California takes the lead among the nation’s states in giving direction and purpose to higher education," said Brown.

"Many others unselfishly contributed their time and talent to this plan and their efforts have given us the tools to build the finest higher education system in the country" said the governor.


In 1980, 40 years after The Great Depression and 20 years following the adoption of the California Master Plan for Higher Education, 60% of California's families were middle income. Last year 47.9% of California's families were middle income. And all indications are that the number will continue to drop.

According to the Public Policy Institute's study The Great Recession and Distribution of Income in California, here is what The Great California Slump has done to Californian's as compared to what The Great Recession has done to the rest of Americans (click on the image below to see a larger version):

What this chart shows is that the 10% lowest income California families saw a drop in median income of more than 21% between 2007 and 2010. This has created a significant change in what it means to be a Californian as seen in this chart:


Essentially, the spending power of a family's income has plunged for the poorest among us and skyrocketed for the richest Californian's. As the report explains:
Not only did the Great Recession strip away any gains in income at the 10th and 25th percentiles that followed the bust of the dot-com bubble, but it also pushed incomes at these levels to near-record lows. By 2010, families at the 10th percentile had incomes roughly 24 percent lower than the 10th percentile did in 1980, and families at the 25th percentile had incomes 12 percent lower. The 10th and 25th percentiles have not yet fallen to the lows of the 1990s recession, but by 2010 there is no evidence that incomes have yet troughed in the Great Recession.

At the other end of the spectrum, the 90th percentile saw a decline from its 2006 peak. However, the gains at the 90th percentile over the past three decades mean that despite the Great Recession, the 90th percentile of income was still 34 percent higher in 2010 than in 1980. Income declines at this level are also much less severe than the declines experienced at lower points in the distribution. Notably for the 90th percentile, the Great Recession has not as of yet stripped away the recovery made after 2004.

The 75th percentile of income saw larger declines than the 90th percentile during the Great Recession, bringing it to a level last seen in the late 1990s. However, over the longer term, income at the 75th percentile is still substantially higher than it was in previous decades. By 2009, the 75th percentile was earning over 18 percent more than in 1980.
The troubling trend relates to the size of the middle-class which is declining as can be seen in this chart:

The study explains:
Most Californians live in middle-income families. In 1980, the proportion of these families reached a 30-year high of 60 percent, a number that has been trending downward ever since. The percentage of individuals in middle-income families reached a new low of 49.7 percent in 2010.
What this tells us is that the goal of our California grandfathers and fathers as reflected by the writings of Steinbeck and the speeches of Pat Brown were being achieved in the 30-year period from 1950-1980. In the next 30 years, 1980-2010, there has been a slow, but systematic decline in access to the middle class, culminating in the effects of The Great California Slump which I now believe will be the period from November 2007 through late-2017.

This has stopped the California population growth from population migration. For better or worse, more people are leaving California than moving in from other states and foreign countries. Instead our population growth of not quite 1% comes from a lower death rate than birth rate. As Sacramento Bee columnist Dan Walters recently noted:

  • Three-quarters of those babies are being born to nonwhite mothers, which means there's a widening generational gap between a fast-aging and shrinking white population and a young and still-growing nonwhite segment.
  • While Asian American and white kids are doing relatively well in public education, the data on academic achievement and high school graduation are miserable for Latino and black kids, which could mean a looming shortage of trained and trainable labor if and when the recession ends.
  • The combination of demographic factors and recession are producing an increasingly stratified society with a predominantly white and Asian overclass, a largely Latino and black underclass and a shrinking middle class, as new studies by the Public Policy Institute of California graphically demonstrate.
This is a trend that is dangerous, it is a trend that would have been unacceptable to the grandfather, Edmund Brown, and to the father, Governor Pat Brown. That the son Jerry "Moonbeam" Brown was Governor when it started (1975–83) and is Governor again is troublesome.

Brown is a 73-year-old man who is the oldest currently serving governor in the United States. He has no children and is married to a 53-year-old woman, Anne Gust Brown, who also has no children. His wife (who plays a significant role in his administration) is the Former Chief Administrative Officer and Executive Vice President of Gap Inc., a corporation that operates the Gap, GapKids, babyGap. GapBody, Banana Republic, Old Navy, Piperlime, Athleta, Gap Outlet, Gap Generation and Banana Republic Factory Stores. During her tenure clothing for these companies were made in Cambodia, China, Colombia, El Salvador, Hong Kong, India, Indonesia, Mexico, Moldova, Peru, Phillippines, Turkey, and Vietnam and the company was embarrassed when The Observer published an accurate article headlined Indian 'slave' children found making low-cost clothes destined for Gap,which embarrassment was handled so well that TIME published a followup article headlined Gap Threatens India's Clothing Boom.  They live in the Oakland Hills in a home purchased for $1.8 million.

Brown, by almost any comparison from a prominent family, is a 1964 Yale Law School graduate who passed the state bar exam on his second attempt and whose only meaningful jobs have been Mayor of Oakland, California Secretary of State, California Attorney General, and Governor of California.

A bachelor in his first term as Governor and as Mayor, Brown was a darling of the press
  1. because he dated high-profile women, the most notable of whom was the singer Linda Ronstadt, and
  2. because he staged appearances at high profile technology events appearing to be the cool technology and environment guy.
In fact it was the combination of these two facts that earned him the name "Governor Moonbeam."

Many ...ok... I would call him a celebrity. Generally the press treats him as a celebrity. Few attempt to relate current events to what happened, to what he did and failed to do, when he was Governor the last time or even when he was Mayor. If he weren't so old, after serving his current stretch as Governor, he'd be a good candidate for "Dancing with the Stars."

Unlike his Irish immigrant grandfather, unlike his Governor father, he has no vision for his non-existent grandchildren. He offers no vision for any other Californian's grandchildren. The vision he has offered recently is him running for another term as Governor in 2014, while the State Government he heads today is in crisis. But rather than lead during a crisis he monitors the public opinion polls to make sure he is a winner even if the State isn't.

Because of opinion polls, while the less wealthy among us are being pushed from their homes or the State Universities that were part of his father's plan or from senior care centers or from medical care facilities for children, he is proposing for the period of 2013 through 2017 to raise the sales tax plus raise the income tax on the wealthiest among us to raise about half the revenue the state needs.

He is doing this by personally sponsoring an initiative measure.He's doing an initiative because supposedly during the budget process in 2011 he discovered to his shock and amazement that the Legislature hasn't been able to do anything significant related to the State Budget for a decade other than overspend.

And apparently nobody but me finds his self-admitted ignorance appalling since from 1999 through 2007 he was Mayor of California's eighth-largest city and from 2007 to 2011 he was the Attorney General of California. He must have been doing these jobs from a cave.

The problem Moonbeam will have with this unimaginative tax initiative to be voted on in November 2012 is that six other proposed tax increase initiatives have already been submitted to the Attorney General and at least one more is expected (along with over 80 other initiative proposals on various subjects).

Few of these initiative proposals will do anything to reverse the decline of the California Middle Class. But in a future post I'll explore the multitude of tax and budget initiative proposals.

Sunday, December 11, 2011

The Great California Slump & The Bear Bones Era collide


Back in the spring of 2009 when I first started posting specifically about the looming financial problems of the State of California and its local governments, I had some belief that Californian's would wise up and head off the long term affects of The Great California Slump.

I apparently was too far out of touch with the voters, the state politicians, and the "smart" influential people.

As I noted in May 2009 (emphasis added):
In Grapes of Wrath, John Steinbeck told a story about how folks migrated to California to find hope within The Great Depression. We are now in what Time Magazine calls "The Great Recession" but California is not going to be a place to find economic hope.
By July 2010 I noted:
...The prevailing mantra is "let's just all ignore the fact that no reason exists to believe that the economy will improve significantly before 2015." California needs to acknowledge we are in a "Bear Bones Era", the first since the 1930's. And by "era" I mean at least a decade.

We needed a "statewide reality check" last year, before the State Budget was adopted. The situation is even more critical now.
So at the end of June of this year, 2011, when the Legislature adopted and Governor Moonbeam signed a "timely" and "balanced" budget, I noted:
...It's a budget predicated on significant revenue growth.

...If February - May is indicative of a trend, the adopted budget will be $10-$12 billion short on revenue without even considering the gimmicks that may not work because they are illegal.

This may be the worst California General Fund Budget ever adopted. But it is truly the Will-of-the-Voters Budget.
The adopted Budget provided for "Trigger Cuts" should the revenues fall short. So here we are at the end of November reading in The Sacramento Bee:

California would impose $2 billion in mid-year "trigger" cuts next month, mostly through K-12 school reductions, under a new revenue forecast issued this morning by the nonpartisan Legislative Analyst's Office. The LAO also said the deficit for the year beginning July 1, 2012 would be nearly $13 billion.

The analyst's report is not the sole determinant of whether the state will impose those cuts, but it is one of two tools the Department of Finance must rely upon before deciding whether to slash spending. The finance department will issue its own forecast in December.
On the same day The Bee reported:
Gov. Jerry Brown's finance director said Wednesday that some mid-year cuts are "likely," increasing the possibility the state will slash education and social services in the coming months.
The latter article also noted that State Legislative Analyst Mac Taylor at his press conference "seemed to discourage lawmakers from taking action to avoid trigger cuts in light of a nearly $13 billion hole staring at them in 2012-13." He was aware that desperation was increasing in the Legislature.

The problem is that next year is an election year for all members of the Assembly and half the members of the State Senate. What they are fearing is that more cuts might have a political fallout.

You see as noted by the Bee in a database "California school districts cut their teaching staffs by almost 25,000, or 8 percent, between 2008 and 2011."

Further, again as noted by The Bee, California is facing elimination "hundreds of state law enforcement jobs that lawmakers and Gov. Jerry Brown say must fall under the budget ax" and elimination 34 joint city and county major crimes and narcotics task forces around the state.

Related to law enforcement are the predictable results of the Governor Moonbeam plan approved by the Legislature to save money by shuffling prisoners off to county jails. Los Angeles District Attorney Steve Cooley, whose office generates one-third of California's felony convictions, is training his personnel to prosecute as many offenders as possible for the most charges available so they will go to state prison, not to LS. County jail. As noted in The San Francisco Chronicle:
In a recent interview, Cooley said he is trying to mitigate the "public safety nightmare" that realignment will bring - particularly in a county like Los Angeles, where the jails are overcrowded and the sheriff regularly releases offenders early.

"It is going to lead to an increase in crime, which is unfortunate, because Los Angeles is at a 60-year low," he said. "There is no place for them to serve their sentences."

Cooley and his senior staff said the office may take this training to other counties as well.
Two years from now we Californians will be blaming someone, anyone but ourselves, for the mess that will result from the "realignment."

And it will be the left side of the spectrum screaming louder than the right.

The only newspapers around the state to offer serious, fairly accurate evaluations of what will happen that I can find serve small counties, like the Eureka Times Standard. I don't know why this is. Maybe because the communities are in more rural regions, the newspapers aren't solely forums for politicians and overpaid talking heads.

Reporters talk to folks who are responsible for things - and maybe the latter are too naive to fear the politicians. For example read this article and a followup article in the Eureka Times-Standard.

What you learn is that the Humboldt County Health Department finds itself saddled with 12 "realigned" health care programs costing about $8.75 million, programs being shifted to a County Department that just experienced a $17 million reduction in funds this year. While these numbers are small when Moonbeam talks about billions, the financial situation is the same almost everywhere in the state.

What is more disturbing is that the Department is the one that provides health and mental health services to the County Jail and therefore will have to serve the increased "realigned" population. So the mental health of the "realigned" prison population will be evaluated and treated by folks who already don't have enough help. They'll be the ones evaluating who should be released.

This is happening all over California. What we learn from the followup article is:
Officials are hoping that Gov. Jerry Brown will make good on his promise to go to the Legislature with a constitutional amendment that will set aside funds for both realignment plans.

Erin Treadwell, spokesperson for the California State Association of Counties, said counties are hopeful that the Legislature will come through with some funding.
Of course that was before the Legislative Analyst "said the deficit for the year beginning July 1, 2012 would be nearly $13 billion."

Finally one can't help but note that some political fallout is coming from the Legislature having to nearly eliminate state tax funding of the two California university systems result in multifold increases in tuition and cuts in faculty pay. Protest by students and faculty have resulted. But the more significant facts are that the universities are admitting more foreign and out-of-state students that pay even higher tuition and a new survey says voters find that state universities get favorable opinions but they fear they are being priced out of the system.

Governor Moonbeam has prepared a tax increase ballot measure to fix things. It appears it could end up being one of many. But that's for a future post.