Thursday, May 24, 2012

The Bare Bones Era - 2012: Tech giveth and tech taketh away

Last week's Facebook IPO was a bit of a flop, disappointing those in our State government who had hoped for huge taxable profits.

This week's headlines reflect the long-term impact of California's child-like dependency on new bright shiny objects designed in the Bay Area and Silicon Valley - Hewlett-Packard to Cut 27,000 Jobs.

Jerry "Moonbeam" Brown's opponent in the California 2010 Gubernatorial election was Meg "Teletubby" Whitman, the former CEO of eBay, whose success at that dot-com company was built on making bad acquisitions of other companies and outsourcing labor (for more details see the July 2010 post Governor Moonbeam or The Overpaid Corporate Bigwig).

After losing to Governor Moonbeam who took office in January 2011, that same month Whitman joined the HP Board of Directors and in September was appointed CEO. The HP Board had publicly renounced the prior decade of of acquisitions and layoffs that seemed to have led to long-term failure. Instead the Board emphasized focus on investment and innovation. So Whitman was the logical choice since her success at eBay was built on making bad acquisitions and outsourcing labor....
Eight months after assuming the position of CEO, at this week's quarterly earnings call Whitman offered assurances about innovation and investments, and oh but right now HP needs to layoff 8% of its workforce or 27,000 people. To put that layoff number in perspective, that's just 12,000 more people than eBay employed at the end of Whitman's tenure there, so she's obviously gained in stature being able to fire that many people.

She explained that HP would be taking $3.5 billion in charges against earnings over two tax years to provide severance and early retirement packages for some folks being laid off. That means it will be at least three years before the layoffs might generate a dime for new investment and innovation.

One needs to be aware of this from the Silicon Valley Mercury News story:
HP has taken an ax to its workforce on several other occasions in recent years. In June 2010, it announced it was cutting about 9,000 positions "over a multiyear period to reinvest for future growth." Two years earlier, it disclosed a "restructuring program" to eliminate 24,600 employees over three years. And in 2005, it said it was cutting 14,500 workers over the next year and a half.

In a note to its clients this week, Deutsche Bank analysts said past layoffs "have done little to improve HP's competitive position or reduce its reliance on declining or troubled businesses." And despite HP's assertion that the latest cuts will enable the company to reinvest in other key market areas, Deutsche Bank questioned that rationale because the company "has been restructuring for the past decade."
Don't get confused. The issue here is not what HP needs to do.  The issue here is California tax revenue, specifically personal income taxes and corporation taxes.

Governor Moonbeam and his Legislature were hoping for big income tax revenues from a tech company one time IPO to somehow save the State.

What they were doing is committing malfeasance. Perhaps too many of them learned math in California schools. This graph reflects the truth about California's tech industry:

As was explained about this graph in the February 2011 post Lies big and small: Why California will fail to fix Brown 1.0's mess:
This "M-curve" is typical for employment changes associated with new technology. Jumps in employment are followed by a drop, followed by another spike, followed by a drop. There are things we know about this from experience in the latter quarter of the 20th Century and the first decade of the 21st Century.

One of those things we know is that being in the center of technology innovation does not give the Bay Area and San Jose a permanent increase in jobs, it just keeps employment steady.

We know that American manufacturing employment in the computer industry is actually lower than it was immediately prior to beginning of assembly of the first PC, the MITS Altair 2800, in 1975. We know that about 1.5 million workers - factory employees, engineers, and managers - work in computer manufacturing in Asia. These things are facts. They shouldn't surprise us. It is disturbing that political leaders lie about it.
Perspective - the big picture view - is essential to managing the State of California's finances. The fact is that the fiscal health of the State depends entirely on taxable personal income of Californian's and how much of that income they spend purchasing merchandise subject to state and local sales taxes.

In the last fiscal year before politicians started to panic over The Great California Slump, 2006-07, personal income and sales taxes brought in 72% of all State revenue which was typical for the prior five years.

Corporation taxes, the next highest single revenue source, brought in only 9% of the total State revenue. In the State known for its motor vehicle traffic, Gas Taxes bring in about 3% of total State revenue and Vehicle License Fees another 2.5%.

In that year, one-third of all State revenues, about $41 billion, went to support local public schools (K-14), augmented by about $20 billion in local property taxes.

Also in that year,  about 5% of all State revenues, about $6.2 billion supported the two California university systems.

Don't get lost in all these numbers. The simple fact is that 70%-75% of all state revenue comes from Californian's paying income and sales tax. And about 45%-50% of those monies are used to support public education, preschool through graduate school.

When the total personal income of Californian's drop, we have a problem funding public education. In 2008, taxable personal income fell about 9% from the year before and the taxes due on it fell 18%.  Compared to 2006-07, by 2010-11 taxable sales had fallen 11%.

If we had responsible leaders in our State government, tax revenue from a one-time corporation IPO would not be a factor in budgeting. What would be a factor is employment numbers. That's all that matters in California.

That great economic miracle, Facebook, launched in 2004 now has about 3,200 employees and some in California's tech sector.

Over the last decade, in the process of acquiring 59 companies HP has announced job cuts totaling 120,000 some in the California Tech Sector. Right now HP's workforce is about 350,000 with 54,500 in the U.S. including about 16,000 in California.

While exact numbers are not publicly available, it is likely that while Facebook, one of our wow-isn't-this-an-economic-dynamo tech companies, was hiring 3,000 people, HP, one of our former wow-isn't-this-an-economic-dynamo tech companies, likely laid off 5,000 Californians.

Yeah, sure, there will be some income tax revenue from the Facebook IPO in the next year. At the same time, income tax revenue from employment plus sales tax revenue will remain stagnant or even decline, in constant dollars.

Since 1990, the tech sector - with the help of California's Democratic Party politicians - defrauded Californian's into thinking tech was going to be the source of stable job growth and therefore stable tax revenue growth. In fact, it is as unstable as the construction and the film industries, and maybe even as seasonal as agriculture. But those politicians raised long-term spending commitments in years when one-time extra revenues came in.

For government and schools in California, how Moonbeam and the Legislature handle the 2012-13 Budget will be critical. Honest leadership requires forcing Californian's to face up to the fact that taxes on personal income and sales cannot sustain the current General Fund expenditure levels, even with Brown's tax-the-rich-and-the-poor scheme. The Great California Slump will continue.

In February 2011, the truth about our situation was stated clearly and honestly to President Obama by one person who understood how the tech sector really works:
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. "Those jobs aren’t coming back," he said....
The future of California's middle class cannot be found in venture capital used to create new technologies. As the New York Times article describing the exchange between Obama and Jobs noted:
The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that "Made in the U.S.A." is no longer a viable option for most Apple products.
At some point in the future, there won't even be jobs flipping burgers at MacDonald's or restocking socks at Walmart because there won't be enough working Californian's who can afford to buy them. We need to educate and train our children for a 21st Century economy.

Californian's need to recognize the leadership offered by Molly Munger and pass her tax initiative measure designed specifically to achieve that goal. That would, of course, require California's upper middle class (those families with incomes between $80,000 and $500,000) to overcome its self-involvement addiction. Governor Moonbeam knows that won't happen because he doesn't want to take the political risk of providing honest leadership.

Tuesday, May 22, 2012

The Bare Bones Era 2012: California School Boards Association caves to political playground bullies. Or were they just greedy and ignorant?

This past Sunday, the California School Boards Association posted a news release on their web site:
  In an unprecedented move, the Delegate Assembly, the governing body of the California School Boards Association (CSBA), voted today to endorse both of the revenue initiatives that will appear on the November ballot to help fund public schools and other needed statewide services.  The Delegate Assembly, CSBA’s primary policy-making body and the foundation of the organization’s governance structure, consists of nearly 300 locally-elected board members from 21 regions across the state.

    "With the release of the May Revision, it’s clear that school-age children stand to lose significantly without new revenue.  The school funding crisis is at historic proportions," explained Jill Wynns, president of CSBA.  “Public schools have sustained more than $20 billion dollars in revenue reductions and deferrals since 2008...."

 This endorsement is unique. "CSBA is the only statewide educational association to endorse both initiatives.  While each initiative presents a different funding scenario for our schools, the bottom line is that both will generate billions of dollars in much-needed revenue for public education," said Vernon M. Billy, CSBA executive director.  He added, "The initiatives are stop-gap measures that minimize the hemorrhaging.  Ultimately, we need the Legislature to commit to sustained adequate yearly funding."  According to Billy, CSBA opted for the dual endorsement because schools desperately need funding.  Yet, he and the CSBA leadership want to make it clear to the public that the governor’s initiative does not provide new funding for schools.  Instead, it bolsters the General Fund with new revenue...
One of the two ballot measures the CSBA decided to endorse is the one sponsored by Governor Jerry Brown  and the California Teachers Association, the State's powerful teacher's union that strongly dominates the California Democratic Party.

As the news release makes clear far down the page, well below the level that short-attention-span news organizations will notice, "the governor’s initiative does not provide new funding for schools.  Instead, it bolsters the General Fund with new revenue."

What the news release does not make clear is that the other measure, which is not described nor mentioned by any descriptive name, does provide new funding directly to schools, bypassing the Legislature and the Governor, to be managed by local school boards. That other measure drafted by Molly Munger and supported by the California PTA has been discussed in this blog many times before.

One would think that strongly backing the Munger-California PTA measure would be a "no brainer" for the CSBA. It provides monies for the locally-elected school board members to use to improve California's economic future by educating California's children for a 21st Century economy.  It is not a "stop-gap measure" like the Brown-CTA measure.

The Brown-CTA measure would put about $5 billion a year for five years into the State General Fund. Going into the new fiscal year beginning July 1, the General Fund is facing a $16 billion deficit. How the $5 billion will be spent will be completely controlled by the Legislature, subject only to vetoes by the Governor. Every indication is that the funds will be thinly spread around to many priorities, perhaps including education or perhaps not.

In contrast, the Munger-California PTA measure would for 11 years direct about $11 billion or more a year from a tax increase to education costs.

For the first four years 60% of revenues go to K-12 schools on a per pupil basis, 30% to repaying school bond debt, and 10% to early childhood. Thereafter, it directs 85% of revenues to K-12 schools on a per-pupil basis, 15% to early childhood programs.

The funds are subject to local school board control, audits, and public input. The measure specifically prohibits the state from directing or using new funds.

One might suppose that the California School Board Association members just simply decided they would like both measures to pass thinking that $17 billion in new revenue would be available. But that would mean that nobody in charge at the California School Board Association can read. The Brown-CTA measure states:
In the event that this measure and another measure that imposes an incremental increase in the tax rates for personal income shall appear on the same statewide ballot, the provisions of the other measure or measures shall be deemed to be in conflict with this measure. In the event that this measure receives a greater number of affirmative votes than a measure deemed to be in conflict with it, the provisions of this measure shall prevail in their entirety, and the other measure or measures shall be null and void.

The Munger-California PTA measures states:
In the event that this measure and another measure or measures amending the California personal income tax rate for any taxpayer or group of taxpayers, or amending the rate of tax imposed on retailers for the privilege of selling tangible personal property at retail, or amending the rate of excise tax imposed on the storage, use or other consumption in this state of tangible personal property purchased from any retailer for storage, use or other consumption in this state, shall appear on the same statewide election ballot, the rate-amending provisions of the other measure or measures and all provisions of that measure that are funded by its rate-amending provisions, shall be deemed to be in conflict with this measure. In the event that this measure receives a greater number of affirmative votes than any such other measure, the rate-amending provisions of the other measure, and all provisions of that measure that are funded by its rate - amending provisions, shall be null and void, and the provisions of this measure shall prevail instead.
In other words, both measures contain the standard language found in most initiatives that creates a "most-votes-take-all" approach. Only one measure can prevail.

So the California School Board Association considered a measure that puts about $5 billion of new revenue into the General Fund which has a deficit of $16 billion, monies to be managed by the Legislature. And it considered a measure that collects about $11 billion in new revenue and distributes it to the the California School Board Association member districts to be managed by the school boards in California.

After careful consideration, they decided to not endorse anything by endorsing them both. Who makes that kind of decision?

It's difficult not to believe that the pressure from Jerry Brown and the California Teachers Association - the California political playground bullies - prevented the CSBA from doing the logical thing which would have been to support the Munger-California PTA measure. No real upside exists for the member school boards to have the Brown-Teacher's Union measure prevail.

The CSBA is a group of school board members we Californian's have elected. We Californian's deserve the crappy government we get.

Monday, May 14, 2012

The Bare Bones Era - 2012: Brown's Budget - Is the sky really falling?

The headlines are flying today as Governor Jerry "Moonbeam" Brown announced the May version of his ideas about a 2012-13 Budget. Most seem to imply the sky is falling.

It is almost impossible to compare Moonbeam's budget proposal to past years because of his "realignment" of revenues and expenditures, such as shifting prisoners to counties. It is almost impossible, but not quite impossible.

And if one attempts to see how Moonbeam's proposal compares to actual revenues and expenditures in 2002-03 - ten years ago - it is even a little more complicated.

Nonetheless, it is possible to compare his proposal to 2002-03 after:
  1. adjusting for "realignment" of responsibilities to counties,
  2. adjusting for the additional costs for voter authorized bond issues since 2002-03,
  3. adjusting for the elimination of a substantial annual property tax relief expenditure beginning in 2003-04,
  4. adjusting for the unscrupulous credit taken against CalPERS earnings, and 
  5. adjusting for population growth plus the cost of living index.

What one finds is that Moonbeam's January 2012-13 General Fund Budget revenue projection was $12± billion higher than one might reasonably expect would result from "normal" budget growth based on population and CPI increases compared to 10 years ago.

His new May budget proposal revenue is $9.5± billion higher. And if one deducts the revenue from his proposed tax increase, then his revenue projection is "only" $4± billion higher than one might expect compared to 10 years ago.

Don't misunderstand the situation. Our State and local government finances are in a mess. But it is a cumulative problem we have created which can only be fixed by radically restructuring our State government. We're never going to do that.

And it is essential that the voters pass Molly Munger's California PTA backed initiative to fund education, with the funding bypassing the Legislature and the Governor. But that opinion has to do with building an economic future for California's children.

Nonetheless, don't accept Brown's explanation:
"I said at the beginning when I ran for this job that it has taken a long time, more than a decade, to get into this mess. We're not going to get out of it in a year -- or even two years. But we're getting there. We're making real progress," Brown told reporters in releasing his updated budget.
Yeah, more than a decade. How about we started getting into this mess with Brown's failures in his first two terms and he's not making "real progress" now.

Saturday, May 12, 2012

The Bare Bones Era - 2012: Brown admits a deficit of $16 billion

A little before noon today these headlines appeared California deficit has soared to $16 billion, Gov. Jerry Brown says and Brown: California facing $16 billion shortfall. A little after noon, The Sacramento Bee offered this headline Gov. Jerry Brown: State budget deficit now $16 billion - double January estimate.

Apparently this week Governor Jerry "Moonbeam" Brown "discovered" some "unanticipated" problems with the 2011-12 adopted General Fund Budget and his January proposed General Fund Budget for 2012-13. Thus the press dutifully reports:
California's budget deficit has grown to a projected $16 billion and the state will have to make severe cuts to schools and public safety if voters reject tax hikes in November, Gov. Jerry Brown announced Saturday.

The Democratic governor said the state's shortfall grew from $9.2 billion in January because tax collections have not come in as high and the economy isn't ramping up as fast as the administration had hoped. The deficit has also gone up because billions of dollars in state cuts have been blocked by lawsuits and federal requirements.

"This means we will have to go much farther and make cuts far greater than I asked for at the beginning of the year," Brown said. "But we can't fill this hole with cuts alone without doing severe damage to our schools. That's why I'm bypassing the gridlock and asking you, the people of California, to approve a plan that avoids cuts to schools and public safety."
For his constituency which has a short attention span, Brown spins this in a less-than-3-minute   YouTube video late in a Saturday morning and the press dutifully reports it without comment. You have to admire how he controls the news cycle. No details, just a "golly folks, it seems a problem has mysteriously developed."

In fact, it was a problem built into the 2011-12 adopted budget. As noted here on June 29, 2011:
...It's a budget predicated on significant revenue growth. In the first seven months of the current fiscal year, 2010-11, the total of Corporate, Personal Income, and Sales Taxes exceeded 2009-10 by 12.16%. Based on that surprising news, every budget proposal discussion since February has assumed continuation of the growth.

The problem is February through May the 2010-11 total was the same as 2009-10. 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.
And as pointed out here February 11 "what is clear is that Moonbeam's Administration has no idea what's going on."

Finally, as noted here Tuesday "the actual revenue shortage two months from now can be estimated to a range that is, itself, nearly 5% to 10% of the annual budget." We can't offer a better estimate because of how poorly California's uninformed, incompetent voters have structured the State's tax revenue.

Whatever Moonbeam proposes for 2012-13 in the next week will be based on guesses about revenues and expenditures, that together predict an ending balance that easily could be off by 15% or more.

In May 2009 I noted here:
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.

The "other shoe" is about to drop in our Great Recession. California is hosting a "belated" economic collapse. Of course, no one publicly calls it that because no one wants to see it. But the boring statistics are available.
In January 2011, Moonbeam said the description of State's financial situation was "so horrible that we don't want to release it." And so he didn't, instead proposing a foolish budget to a foolish Legislature for a foolish population. At that time I said:
Is it horrible? Depends on our perspective, I guess. If one increases the amount disbursed from the General Fund in 1990-91 by the increase in population and cost-of-living since then, we should be disbursing $80± billion from the General Fund 2011-12. Brown's budget, which uses all kinds of gimmicks, is $7 billion higher than that.

An honest budget from Brown would have told Californian's the truth - we need to cut education and safety net General Fund support by 50% from 2007-08 levels. The immediate cause is that our economy crashed. We are in The Great California Slump.

But the underlying reason our government is in that position is that since 1978 we've relied on taxes that are too sensitive to the economy - sales, income, and corporate taxes.

When we gave up a huge chunk of our property tax revenue, we made our schools and government too dependent on economic cycles. In a recession we may buy less at Wal Mart because our income dropped 25%, but we don't pull one of our four kids out of school because the school's income dropped 25%.
In 2007-08 the State disbursed from the General fund $107.3 billion with only $103.4 billion in receipts coming in. In January, Moonbeam submitted a General Fund Budget proposing to disburse $92.947 billion. But these aren't "apples-to-apples" comparisons as $6 to $8 billion has been "realigned" meaning costs and some revenues have been shifted to counties, the most infamous of which has been to move prisoners from prisons to county jails.

An honest statement is that in January Brown proposed for 2012-13 to disburse $92.947 billion, or 93% of 2007-08 disbursements after factoring in the realignment. He should have proposed for 2012-13 to disburse no more than $83.7 billion or 86% of 2007-08 disbursements after factoring in the realignment. He proposed to disburse $9.2 billion too much.

Compounding his problem is the fact that at the end of the 2011-12 Fiscal Year, it appears that there will be some deficit carry-over from 2011-12 plus the General Fund owes schools and local governments monies that were "borrowed" in the past three years to be repaid in the future.

Moonbeam says this all combines to $16 billion due in 2012-13 that we don't have. Apparently the the description of the State's financial situation that in January 2011 was "so horrible that we don't want to release it" is still as horrible, but rather than honestly confront it 18 months ago, he now intends to confront it when it will cause more real damage in the long term.

Oh, and by the way, in his YouTube announcement today he reminds you to support his tax increase ballot measure which will soften this $16 billion problem by between $4.8 billion to $6.9 billion by taxing the working poor and the well-off-to-very-wealthy.

The only problem facing Moonbeam's Finance Department in attempting to predict tax revenues in the next two years is just how to predict how much income tax from capital gains will result from the Facebook IPO. It may not be quite as much tax revenue as one would expect. We recently learned:
Eduardo Saverin, the billionaire co-founder of Facebook, renounced his U.S. citizenship before an initial public offering that values the social network in upward of $90 billion, a move that may reduce his tax bill.

...Saverin, 30, joins a growing number of people giving up U.S. citizenship, a move that can trim their tax liabilities in this country. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dorm and stand to reap billions of dollars after the world's largest social network holds its IPO.
Of course, California needs to quit taxing these folks so high if we want California's economy to recover. As I noted in March when pointing out that Moonbeam's popular tax-the-rich-and-poor tax measure is bad policy compared to Molly Munger's measure:
The difference between the measures is one appeals to the idea that we can simply tax the rich to solve our problems, an idea that has a strong emotional appeal right now. Many want to ignore the idea that there is a limit on how much California can attempt to tax the so-called wealthy "1%". The simple fact is that companies can move their "headquarters" out of California. And if their executives and major investors move their "primary" residences out of California (keeping both the Carmel "beach bungalow" and the Tahoe "cabin", of course), those taxable profits from future high tech IPO's would leave California also.

It is dangerous when a politician like Brown chooses to compromise with those selling the emotions of class warfare. He could have backed Munger's measure as does the California PTA.
It will be interesting and likely disturbing to see how much damage to California Moonbeam 2.0 and his allies can do to further the damage Moonbeam 1.0 did in his first two terms.

Californian's could, of course, vote to approve Munger's measure backed by the California PTA.

It would generate $10 billion to $11 billion per fiscal year beginning in 2013-14, monies that would go to local school boards instead of the Legislature. It is the one tax increase measure now circulating specifically aimed at improving California's economic future by educating California's children for a 21st Century economy.

Californian's could vote to approve it instead of Moonbeam's measure. But they probably won't because they seem to like Moonbeam even though he regularly lies to them.

Tuesday, May 8, 2012

The Bare Bones Era - 2012: Reality Lost in California Political Spin

State Controller John Chiang has released General Fund cash flow figures for the 2011-12 Fiscal Year through April. That leaves just two months remaining to estimate what actual cash revenue may come in during this fiscal year. So in the spirit of wishing to help the apparent helpless, let me offer the following estimates to State Officials:

This is pretty straightforward as we only have to estimate two more months.

Compared to the 2011-12 Adopted Budget, General Fund cash revenue will be between $3.1 and $7.1 billion less.

Compared to Jerry Brown's January Estimate, General Fund cash revenue in will be between $4.3 and $8.3 billion less.

In other words, the actual revenue shortage two months from now can be estimated to a range that is, itself, nearly 5% to 10% of the annual budget.

As noted in the previous post, experts are telling us to shift to a two year budget cycle. Comparing the known margin of error committed by Brown's Department of Finance, it appears that by using a two-year budget cycle instead of revenue estimates for the adopted budget being off by 6%, they'll likely be off by 11%.

Many involved in budgeting were taught to use the most conservative estimate for revenue and then budget disbursements accordingly.  They would find the April 2012 situation ... odd? Through April this fiscal year cash disbursements have exceeded cash revenue by $14.6 billion. Of course, last year at this time cash disbursements had exceeded cash revenue by $9.8 billion. Somehow they made it work by the end of the fiscal year. So it's all good, right?

Governor Brown is out selling his initiative to increase taxes on the poorest workers and the richest among us. The official title and summary indicates it would generate in 2012-13 between $4.8 billion to $6.9 billion. Looking at the April cash numbers, doesn't seem like enough money to avoid further significant cuts in the budget. But Brown has convinced many union members - teachers, nurses, state employees - that it is enough to avoid major cuts. So it's all good, right?

 Even though voters have demanded the Legislature adopt a balanced budget by June 15, we know they won't even talk much about it until after the June 5 primary election. We know what they will adopt will be balanced like last year by using "overly optimistic" projected revenues and, unlike last year, assume voter approval of Brown's proposed tax increase on the poorest workers and the richest among us.

If, by next January, that political spin hasn't worked out, the November General Election will be behind us and the next one will be nearly two years off. So if need be, we can lay off large numbers of teachers, nurses, and state employees.

Friday, May 4, 2012

The Bare Bones Era - 2012: Cult gurus and delusional constituencies

It is May 2012. Theoretically the Legislature must adopt a balanced budget by June 15. So where are we in this process?

In January the greatly-admired California guru, Governor Jerry "Moonbeam" Brown, offered a budget that was based on wildly inflated revenue projections for the remainder of fiscal year 2011-12 and the new fiscal year 2012-13. It didn't matter as he will offer a revised budget this month, except....

Governor Moonbeam is selling a tax initiative measure that might do certain things if those projections were correct. Teachers and other unions have withdrawn their own proposals based on political promises made, promises made that could have only been kept in the best of circumstances.

Right now polls show that a majority would approve Moonbeam's initiative. But no one has really challenged his numbers and the public is delusional enough to believe that extra taxes on the rich for five years will solve all of California's State Budget problems.

If Moonbeam's measure passes, using his January revenue projections for the rest of this fiscal year and next fiscal year, it appears that by the end of June 2013 the cumulative revenue shortage will range between $8.8 billion and $25.9 billion. Yes, the shortage could be less than the $8.8 billion if wealthy Californians earn a lot more taxable income in the next 15 months than they did in the last 15 months. It's possible. But it would have to be a lot more.

If the Legislature decides to use his revenue projections and his measure passes and the wealthy don't make a lot more, then at best only $8 billion will have to be cut from schools, welfare, and public safety.

Moonbeam is the guru for one cult - California's Democratic Party. The other cult - California's Republican Party - is without a single guru, but instead is led by California Republican Party Chairman Tom Del Beccaro, Senate Republican leader Bob Huff and Assembly Republican leader Connie Conway who are on a statewide campaign tour opposing Moonbeam's tax measure.

In the midst of all this is California Forward, an organization that has started submitting signatures on an initiative that would "reform" California's budget process by first requiring a two year budget. The fact that in January 2012 the Governor couldn't accurately project revenues through June 2012 says all you need to know about the measure. Nicolas Berggruen, a billionaire investor and California Forward's guru, has pledged to spend $20 million to "reform" California government.

And, of course, there is Molly Munger's measure backed by the California PTA described here as"the one tax increase measure now circulating specifically aimed at improving California's economic future by educating California's children for a 21st Century economy."

It has no chance with the voters, according to all the pundits who laud Munger's initiative, one of whom said it "makes more public policy sense than Brown's. It just makes less sense politically." It makes less sense politically because even though it funds schools while moving control of the funds to the local school boards, it does so by providing fairly reliable revenue in the form of taxes on the working upper-middle class (as well as the rich), the only place reliable revenue can come from. Good lord, who'd want to actually pay for educating our kids?

In the meantime, there is absolutely no chance anything significant will happen with the State Budget before the June 5 primary.

Perhaps the Legislature can adopt a budget by the fictional June 15 deadline, 10 days after the primary. They'll adopt something they call "balanced." Like last year, it will be based on wildly inflated revenue projections including the assumption Moonbeam's measure will pass. It will not force further budget reductions which would affect teachers, nurses, and other public employee union members nor programs for the disabled or senior citizens. Instead, "triggers" will be built in to cut those programs if Moonbeam's initiative measure fails to pass (note, the triggers will not deal with the fact that revenue will be significantly short if the measure does pass).

We'll have to deal with all that after December 21, 2012, after the Mayan Calendar "ends", when some cults (other than the two main political parties in California) believe the world will end....