Sunday, August 19, 2012

Northern California is on fire

While we have our normal late Summer fog, much of Northern California is more than a bit smokey. The red arrows in the satellite picture from this morning point to smoke plumes from three major fires (plus others are visible) (click on picture for larger version).

The fire at the upper center east of Redding, California: UPDATED: Sheriff declares state of emergency as Ponderosa Fire threatens 3,000 homes, forces more evacuations.

The fire at the right east of Chico, California: Chips Fire inches closer to Seneca.

The new fire at the left in our own Mendocino County: Wildfire burning near Covelo grows overnight.

Last week's big fire in Lake County, California is just producing hazy, but significant, smoke: Full containment of Wye Fire expected Saturday. Containment, of course, just means the fire is surrounded, but still burning.

CALFIRE maintains a web site summarizing incidents in California with links to a few more details.

The InciWeb web site which lists (with links) fires on federal lands shows 36 active fires in California, mostly Northern California. These active fires - only the ones on federal lands - involve 451,330 acres. When you add in the fires being handled by CALFIRE you get over 500,000 acres actively burning in Northern California.

Why is this happening? How about Climate Change! It's already impacting us and we are not prepared.

Monday, July 16, 2012

Drought 2012
  How The Great Recession is becoming
  more and more like The Great Depression

Images of The Great Depression most frequently include two focal points: (1) the unemployed, either selling apples or standing in line for food and (2) the Dust Bowl.

Because we now have the so-called "safety net", we haven't seen pictures of  anyone selling apples, though pictures of people standing in line for unemployment or food stamps were in newspapers in 2008 and 2009.

Now the other shoe has dropped.

If you didn't read the stories or hear the subject discussed on TV news, half of the United States, including areas in the 1930's Dust Bowl, officially has been or likely will be declared a drought disaster area. You can read the Department of Agriculture news release or do a Google News Search on "drought disaster" to bring yourself up-to-date. But here's the map:

When people start running for the Presidency, the candidates and the public think they know what issues are important. Of course, that is not true. George Bush and Al Gore did not run on how to fight terrorism in 2000. When Barack Obama decided to throw his hat into the primary ring against Hillary Clinton, the idea of an economic crash was not on the voters minds.

The current hot button issue is not this year's drought conditions even though one agricultural economist called it a "$50 billion event for the economy as it blends into everything over the next four quarters", with the important element of the "event" being the amount of extra money it will take for Americans to buy food combined with government insurance program payouts to farmers which will come from the borrowing.

But what could potentially be a major problem for either President Obama or Mitt Romney would be the continuation of this drought, which in many areas is already a multi-year drought. If the hot dry weather continues into next year, the potential economic impacts will be significant. Feed corn and hay will become scarce and prices will skyrocket forcing up the price of meat. Dairy farms and poultry producers will be confronted with a scarcity of feed.

Of course, in theory we could "outsource" by importing, but Argentina, among other alternative sources, is being slammed by drought also.

Climate change anyone? Does anyone running for President relate this to a potentially immediate worsening of the economic crisis?

And has anyone great and wise in California's Capitol wondered how this might affect The Great California Slump other than having a shortage of snow up at Tahoe next Winter?

Tuesday, July 3, 2012

Aaron Sorkin's Great Expectations: A news media that could never live up to our highest standards

I love Aaron Sorkin's new drama on HBO "The Newsroom."

But I am warning my conservative friends to not get so upset by Aaron Sorkin's opinions that they end up not watching the show. Truthfully, like so many "progressives" Sorkin is a conservative in the sense that he defends a fictional past as the time when American's were better, in this case because the press was so much better.

Sorkin's views were clearly stated at the beginning of the pilot which you can read here where Sorkin explains how to write effectively. While I got all teary-eyed because it was effective writing, this is Sorkin's fantasy. As with all fantasies it's a view based on fiction and even while I was taken in by the emotion I knew rationally that the monologue was like all propaganda, using some elements of fact mixed with fiction to persuade the listener to believe the fantasy.

History is a continuous line of cause and effect. So it's pretty easy to pick the monologue apart. First Sorkin sprinkles in some facts:
We're seventh in literacy, twenty-seventh in math, twenty-second in science, forty-ninth in life expectancy, 178th in infant mortality, third in median household income, number four in labor force, and number four in exports. We lead the world in only three categories: number of incarcerated citizens per capita, number of adults who believe angels are real, and defense spending, where we spend more than the next twenty-six countries combined, twenty-five of whom are allies.
Then he adds the argumentative fiction:
We waged wars on poverty, not poor people. We sacrificed, we cared about our neighbors, we put our money where our mouths were, and we never beat our chest. We built great big things, made ungodly technological advances, explored the universe, cured diseases, and cultivated the world's greatest artists and the world's greatest economy.
Finally, he concludes with a statement about some newsmen who flourished in the period from 1948-72:
And we were able to be all these things and do all these things because we were informed. By great men, men who were revered.
The problem is statistically and anecdotally the facts don't support this view of history.

Sure, we built a huge economy doing the many things he lists. But we beat our collective chests continuously from 1945 on. And we created many of our current problems with the best of selfish intentions even though the problems were foreseeable and, therefore, avoidable if only we had been informed by the great men of Sorkin's mythical newsrooms, newsmen who were revered.

While inventing many great things after the WWII, we built ourselves hundreds of thousands of suburban homes in thousands of Levittown's across the nation by leveraging government credit through the FHA and VA programs. And by using government debt we built streets and highways to commute to work in obviously fuel wasting, polluting automobiles we purchased using private debt. And we beat our chests about these accomplishments and learned to feel good about being in debt.

Beginning in the 1960's, we stopped putting our money where our mouths were when the Kennedy Administration began reducing the marginal tax rate. And the Johnson Administration invented the let's-don't-sacrifice-anything-collectively "Guns and Butter" economy, not George W. Bush. And so we felt even better about being more in debt.

What Sorkin doesn't say is that me and my generation and he and his generation created a mess for our grandchildren by "living off the fat of the land" partly because we, in fact, weren't informed.

In his second episode, Sorkin uses the Arizona immigration law to emphasize how a really good news show might deal with the subject. While the folks in the newsroom screwed up, if they had succeeded the implication was we would have been a much better informed America. But would we have?

Let's look at a longer view of American history and Mexico, which is ignored in the whole somewhat-silly-picture of the Arizona immigration law Sorkin presented.

Mexicans aren't a people in some country across an ocean like Italians or Koreans. While we want to define this as a legal issue about immigration, in fact it is a traditional human population "migration" pattern across some invisible lines on the ground, creating a controversy that based in part on the difference between these two historical maps:

It is a controversy that stems from the Mexican-American War about which Wikipedia notes in phrasing reminiscent of discussions over many of our much more recent wars:
American territorial expansion to the Pacific coast had been the goal of President James K. Polk, the leader of the Democratic Party. However, the war was highly controversial in the U.S., with the Whig Party and anti-slavery elements strongly opposed. Heavy American casualties and high monetary cost were also criticized. The political aftermath of the war raised the slavery issue in the U.S., leading to intense debates that pointed to civil war; the Compromise of 1850 provided a brief respite.
When you take a long view of history, it's not surprising that Arizonan's 160 years after the Mexican-American War find themselves in the middle of a controversy. It's one a historian could easily provide comparable scenarios in Europe and Asia dating back thousands of years.

While "progressives" and "conservatives" argue about a law in Arizona, over periods of decades and centuries people will migrate to wherever they can find a better life, whether its towards access to more food and other "stuff" or away from civil wars (such as the one going on in Mexico today). And most assuredly they will do so when it can be done "on foot."

I'm emotionally susceptible to Sorkin's monologues. Sorkin's fantasy - about an America being informed by a wise and knowledgeable free press so we can somehow make better decisions - is my fantasy.

But unlike Sorkin, I would assert we've not had that in my lifetime. In my opinion, one of the worst failures of the American press occurred between 1945-55.

Walter Cronkite, one of those "great men who were revered" was a journalist I greatly respected. But, I know that the time for Cronkite to take a hard look at American policy on Vietnam was in 1945, not in 1968, - when Cronkite belatedly went out to take a look, changed his view on the Vietnam War, and then told us about it .

It's always the history that we don't know that causes us problems.

Consider the Vietnamese leader Ho Chi Minh. Most Americans still don't know that from 1911-13, he lived in the United States.

Most Americans still don't know that following World War I, under the name Nguyễn Ái Quốc he petitioned for recognition of the civil rights of the Vietnamese people in French Indochina to the Western powers at the Versailles peace talks, but was ignored. Citing the language and the spirit of the U.S. Declaration of Independence, Quốc petitioned U.S. President Woodrow Wilson to help remove the French from Vietnam and replace them with a new, nationalist government. It is said that his failure further radicalized Nguyễn, while also making him a national hero of the anti-colonial movement at home in Vietnam.

Following the fall of the Japanese-controlled Empire of Vietnam in August 1945, the Viet Minh occupied Hanoi and proclaimed a provisional government, which asserted national independence on September 2, 1945. This could happen because America's "Greatest Generation" fought a war in France so people of all nations could determine their own future ... at least that's what we were told.

But the Provisional French Republic sent the French Far East Expeditionary Corps – originally created to fight the Japanese occupation forces – to restore French colonial rule.

This could have been prevented by the United States at the time. But there was no Murrow or Cronkite telling us about it. They were focused on Europe. And they simply did not know that their ignorance could end up in the death of thousands of young Americans.

After all the lofty language about self-determination that came out of our collective mouths after WWII, did our failure to stop the French in the aftermath of WWII make this Vietnamese national hero more than jaded and angry? Could an informed press told us about it? Might he not have turned to the Soviet Union for support if we actually did support the idea that people of all nations could determine their own future?

We'll never really know because Aaron Sorkin's heroic news team failed to inform us at a critical moment.

Perhaps this is true because while at times individual reporters and photographers can be heroic, but otherwise we expect too much of the press and too little of ourselves when it comes to being informed.

And that's the way it is in my humble opinion, July 3, 2012.

The Newsroom: Episode 2 "News Night 2.0"

Let's begin with a look at real life. Back in August 2010 CNN’s DC bureau chief David Bohrman and CNN political director Sam Feist produced the following memo:
From David Bohrman and Sam Feist:

We are thrilled to announce that today, Patricia DiCarlo becomes the Executive Producer of The Situation Room with Wolf Blitzer. In her three years at CNN, Patricia has demonstrated that not only is she an outstanding journalist, she has also emerged as an important leader at CNN.

Patricia’s 15 years in broadcast journalism have spanned important producing positions from WFLA and WTVT in Tampa all the way to the Oprah Winfrey show in Chicago. Under the leadership of CNN’s own Katherine Green, Patricia ran one of the largest newsrooms in Washington, DC as Executive Producer at WTTG-TV. Everyone who has worked with Patricia DiCarlo will agree that she is tenacious, full of ideas, full of energy, and a virtual force of nature. The energy and enthusiasm Patricia brings to everything she does will be a perfect fit as she takes the helm of the Sitroom. And we couldn’t be more pleased to have found our new executive producer within our own ranks.

Please join us in congratulating Patricia, Wolf, and the whole Situation Room team.

David and Sam
What bugs me about this memo is that sentence "Patricia’s 15 years in broadcast journalism have spanned important producing positions from WFLA and WTVT in Tampa all the way to the Oprah Winfrey show in Chicago." So the "Oprah Winfrey Show" is considered "journalism"???

Watching episode 2 Sunday evening I realized that "The Newsroom" accurately reflects the reality of 21st Century American television news which is worse than the worst possible nightmare scenarios imagined by Edward R. Murrow and Walter Cronkite. The meaning of "journalism" as they knew it is dead.

As I watched the first 33 seconds of the opening credits/intro sequence of "The Newsroom" last night...

...I realized that the show reflects a nostalgic Aaron Sorkin writing a fantasy where the male characters are simultaneously bigger than life and run things, like in the 1950's.

Other than the men being "bigger than life", is it a fantasy? The cable news channel news-prime-time (6-7 pm) anchors are CNN's Wolf Blitzer, Fox's Shepard Smith, MSNBC's Chris Matthews.

Last night's episode is taking hits among reviewers because of its portrayal of women. Hey, folks, let's back up a notch. This is Sorkin's fantasy, we've only seen two episodes, and over at CNN the male honchos see "The Oprah Winfrey Show" as journalism in the context of a woman producer's experience, even though she stayed there only 1 year and 1 month before returning to real news.

I'm not so sure Sorkin is that far off.

As seen by Sorkin, there are three critical sources of philosophical conflict in early 21st Century television news. Two were presented in this episode by the character Mackenzie MacHale (well-portrayed by Emily Mortimer) as keys to the main story arc of the series:

In an argument with News Night's anchor Will McAvoy she states the first element of Sorkin's belief's about what the television news should be:
MacHale: "We don't do good television we do the news."
The second is an exchange between MacHale and the other members of the newsroom, mostly younger people who grew up with the current news style. In the exchange we hear the second element of Sorkin's belief's about television news, this time about bias:
MacHale: "The media's biased towards success and the media's biased towards fairness.

Maggie Jordan: "How can you be biased towards fairness?"

MacHale: "There aren't two sides to every story. Some stories have five sides, some only have one."

In response to the obvious skepticism of the younger staff, McAvoy elaborates: "Bias towards fairness means that if the entire Republican Congressional Caucus were to walk into the House and propose a resolution stating that the Earth was flat, the Times would lead with Democracts and Republicans can't agree on shape of Earth."
The third critical philosophical conflict is the issue of ratings and popularity versus integrity of content and informing the viewer.

Sorkin seems to be framing this last conflict as an economic issue, which it is. But he isn't clearly presenting the reality of cable news networks. If no one watches, you aren't informing anyone. And, if your "integrity" is so great you don't tend to reflect a political ideology, no one will watch because cable news is mostly background noise, except for the believers who "pay the bills" in the cable news competition.

McAvoy's speech in the first episode is about what's wrong with Americans - not what's wrong with America. In it he said about the past: "And we were able to be all these things and do all these things because we were informed."

In this episode Sorkin is saying in his fantasy is that we cannot become an informed people if all we're looking for is entertainment. But what several characters in the story are saying is what the larger audience is looking for in television news is entertainment.

Which brings us to this show which is supposed to be entertainment.

Other than the ideologues who hate Sorkin for his political views, the show is getting the most criticism for what the first two episodes have not been. They have not been the representation of the well-written soap opera. Sorkin has not focused on creating believable characters.

What's most worrisome about this is the fact that Sorkin is writing this series without a "writers room" where others can expand his horizon regarding people, particularly women at the beginning of the 21st Century. This means that while the show is powerful with solid "production values" it is similar to "Mad Men" in that it is primarily the sole creation of one fifty-ish man. The female characters are not accurately represented according to their female contemporaries.

In "The Newsroom" the focus on the two women important to the story so far has been painted with a fog about relationships with the men they work with and even men they dated in college. That probably was a bad idea, at least for the first few episodes.

But, it's classic Sorkin. There were people who did not watch "West Wing" because of the sometimes frenetic verbal pace.

With that said, in terms of story arc, this episode combined with the first episode demonstrated that the new "retro" approach to the news sometimes will work and sometimes will fail. And it can be because of the unexpected. Last episode, one staffer had a solid connection to the story. This week the other staffer had a connection that should have been avoided.

These two episodes were "the pilot." The problem is if you missed some of the chatter you may have missed something you need to know. Or not.

I'm hoping we're going to get more quiet character interaction. It happened a lot in "West Wing." In an interview with Jane Fonda we learn that:

...[Jane] Fonda plays the recurring role of Leona Lansing, the CEO of the fictional network parent company Atlantic World Media that is, as Fonda explains, somewhere in between Ted Turner and Rupert Murdoch.

In the interview Fonda explains:

...Aaron says that it's mostly about the relationships -- and they are fascinating relationships -- about the characters that are in the newsroom. With Emily Mortimer and... well, you know who's in it. It's very interesting. The newsroom, to me -- and I play the head of the whole parent company -- the newsroom is less than three percent of my bottom line. But, because it's the newsroom, it can create a lot of trouble for me. So, I can rattle a lot of cages. But, my dilemma in this first season is what's happening because of what happens to Jeff Daniels in the course of the series. I don't feel like I'm in a position to say, you know, what the core of the story is....

So I have great hopes that the story will develop well.

Monday, June 25, 2012

HBO's "The Newsroom" - about regaining the ability to function

The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. - F. Scott Fitzgerald
It says more about me than it does about the new HBO series "The Newsroom" that I can say the premise and style expressed in its premier nearly moved me to tears.

I'm old and I started my working life as a newspaper reporter.

I believed and still believe that the United States isn't the greatest country in the world because of what and how it is at any given moment, but rather because most Americans believe it could be and want it to be the greatest country in the world. We want a country that continuously attempts to achieve the impossible ideals:
  • of balancing populist governance against protecting basic rights for all individuals through formal institutions run by relatively small groups of professional and amateur politicians.
  • of a society that offers each of us equally an opportunity to be all that we can be, while protecting each of us not only against physical force from others, but against the abusive accumulation and use of government and economic power by any one or any few of us.
I shared, and still share, Edmond Burke's belief expressed in his 1787 observation to Parliament that "in the Reporters' Gallery" is "a Fourth Estate more important" to our government and society than the relatively small groups of professional and amateur politicians.

And so when a key character in Aaron Sorkin's "The Newsroom" states that the goal is "reclaim journalism as an honorable profession” I was moved.

Never mind the need for me to suspend disbelief at a level generally reserved for science fiction or wild car chase action hero shows.

After all, this show's first episode begins far back in time for Americans to two weeks before a historical event essentially forgotten in the day-to-day discourse of most Americans - the 2010 Deepwater Horizon disaster. It then presents how the story should have been covered by the news media from the beginning instantly creating a newsroom full of "cape crusaders."

Aaron Sorkin was the creator and/or writer of the TV series "Sports Night","The West Wing", and  "Studio 60 on the Sunset Strip" and movies "A Few Good Men",  "The American President", "Charlie Wilson's War", "The Social Network", and "Moneyball". The imprint of show creator Aaron Sorkin is deep in "The Newsroom" with rapid dialog and a fast pace.

The script is tight, the direction is flawless. The principle characters, however, include two flawed heroes, one a reluctant hero played effectively by Jeff Daniels, and the other a scarred action heroine, played also effectively by Emily Mortimer. It is also populated with a number of younger actors, the most obviously winning characters in the pilot played by Alison Pill, Dev Patel, and John Gallagher Jr.

And then there is  the venerable Sam Waterston bringing wit and wisdom to the always slightly inebriated character cable channel president Charlie Skinner who, like me, thinks it's time to try to have somebody on television bringing news that's full of facts (because there is a difference between the facts and spin) and who as a fictional person, unlike me, is in a fictional position to do so.

Sorkin is an anathema to the American ideological far right and he didn't ingratiate himself with the American ideological far left by having his lead character calling them "losers." Which brings me back to the Fitzgerald quote.

It is obvious that today America does not have a collective "first-rate intelligence" the test for the existence of which is "the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

The premise underlying the show is that at one time we did have such a collective "first-rate intelligence," stimulated and maintained by the likes of Edward R. Murrow, Walter Cronkite, Chet Huntley, and David Brinkley, which if we only could bring back that commitment to "truth, justice, and the American Way" could be recovered. And the character in the show that expresses that goal is ...drum roll... the Brit with a dual citizenship Mackenzie MacHale played by Emily Mortimer.

In Action Comics #900 ...yeah #900 at 100 pages...  Superman renounces his American citizenship saying "truth, justice and the American way- it's not enough anymore."

Aaron Sorkin's two flawed heroes would disagree. Truth, justice and the American way are all that matters and there's nothing "fair and balanced" about that.

Of course, unlike "The West Wing" which informed the broad sweep of Americans from a broadcast network, because American culture today lacks the ability to hold two opposing ideas in mind at the same time while still retaining the ability to function, "The Newsroom" could only be presented through HBO which has the slogan "It's not TV, It's HBO" and only reaches 29 million homes out of the 100+ million homes with TV.

Saturday, June 16, 2012

The Bare Bones Era - 2012: When a "balanced budget" isn't balanced

For those of us who remember the era of Governor Jerry "Moonbeam" Brown 1.0 when we thought the quality of governmental leadership in our State was at an all time low, yesterday set a new standard for low here in the Magic Kingdom.

The etymology of the word leadership tells us that it involves the "characteristics necessary to be a leader."

At one time a "leader" was differentiated from a "follower." Unfortunately, that no longer seems to be the case in California politics (and maybe politics across the U.S.).

It appears that somewhere between the middle of the 20th Century and the first decade of the 21st Century, we have developed a new approach to selecting those who hold elected office in our governmental systems. The term "leadership" is passé, or as the younger generation says, so yesterday.

Today we are offered "celebrityship," from celebrity + -ship which would involves the "characteristics necessary to be a celebrity." Wikipedia tells us that a celebrity "is a person who has a prominent profile and commands a great degree of public fascination and influence in day-to-day media." We also are told:
While people may gain celebrity status as a result of a successful career in a particular field (primarily in the areas pertaining towards sports and entertainment), in other cases, people become celebrities due to media attention for their extravagant lifestyle or wealth (as in the case of a socialite such as Kim Kardashian); for their connection to a famous person (as in the case of a relative of a famous person, such as Chaz Bono); or even for their misdeeds (as in the case of a well-known criminal such as Ronnie Biggs).
California has established that the best qualification for Governor is celebrity status. For instance, Arnold Schwarzenegger was a successful actor who had almost no experience in government at any level. When he first ran for Governor, Jerry Brown had little experience in government but was the son of a Governor.

Let me digress a minute to discuss "celebrityship" in 21st Century politics.

It is fairly clear that if you are competent as an elected officeholder, but lack the style and background to bring you to celebrity status, you won't get much press coverage.

When you're a celebrity the press will cover you because you're a celebrity. Thus, Donald Trump who has become a well-known celebrity because of his family wealth and television success has considered running for President and offers significant political celebrityship despite a background clearly described in Wikipedia (with footnotes) that might otherwise preclude him from being considered for elected public office:
Donald Trump is the son of Fred Trump, a wealthy New York City real-estate developer. He worked for his father's firm, Elizabeth Trump & Son, while attending the Wharton School of the University of Pennsylvania, and in 1968 officially joined the company. He was given control of the company in 1971 and renamed it The Trump Organization....

By 1989, the effects of the recession left Trump unable to meet loan payments. Trump financed the construction of his third casino, the $1 billion Taj Mahal, primarily with high-interest junk bonds. Although he shored up his businesses with additional loans and postponed interest payments, by 1991 increasing debt brought Trump to business bankruptcy and the brink of personal bankruptcy. Banks and bond holders had lost hundreds of millions of dollars, but opted to restructure his debt to avoid the risk of losing more money in court....

On November 2, 1992, the Trump Plaza Hotel was forced to file a prepackaged Chapter 11 bankruptcy protection plan after being unable to make its debt payments....

In January 2002, the Securities and Exchange Commission brought a financial-reporting case against Trump Hotels & Casino Resorts Inc., alleging that it had committed several "misleading statements in the company's third-quarter 1999 earnings release." The matter was settled with the defendant neither admitting nor denying the charge.

...On October 21, 2004, Trump Hotels & Casino Resorts announced a restructuring of its debt. The plan called for Trump's individual ownership to be reduced from 56 percent to 27 percent, with bondholders receiving stock in exchange for surrendering part of the debt. Since then, Trump Hotels has been forced to seek voluntary bankruptcy protection to stay afloat.

...On February 17, 2009 Trump Entertainment Resorts filed for Chapter 11 bankruptcy; Trump stating on February 13 that he would resign from the board. Trump Entertainment Resorts has three properties in Atlantic City. Trump's unsuccessful libel lawsuit against author Timothy L. O'Brien, for O'Brien's estimating his net worth at less than $250 million, was dismissed in 2009. In the lawsuit it was revealed that in 2005, Deutsche Bank valued Trump's net worth at $788 million, to which Trump objected.
People like Trump, a lot of people. They like to follow his activities. He offers celebrityship.

So does Governor Jerry "Moonbeam" Brown 2.0 who, as noted in these posts, gets "good press" and his "spin" on any subject receives coverage no matter how big an untruth it is.

And so yesterday, the Democratic majority in the California Legislature essentially adopted a budget for the fiscal year 2012-13, more or less the same Moonbeam 2.0 balanced budget proposal offered in May. The Democratic Legislative leaders called the adopted version a balanced budget.

Here's how you "balance" a State General Fund budget in California.

In the late fall of 2011, Moonbeam decided he was going to get the voters to approve a tax increase by putting an initiative on the ballot in November 2012. So he estimated how much of a shortfall the budget would have and came up with a plan which, at the time, he determined would "balance" the budget. Later, because he's a celebrity who needs his fans, he compromised with the California Teachers Association, and together they put forward a plan which will be on the ballot in November.

The Legislative Analyst and the Director of Finance are tasked with determining the financial impact of ballot measures in California. Here is what they say about the Moonbeam 2.0 - CTA measure:
Estimates of the revenue increases vary--for 2012-13, from $4.8 billion to $6.9 billion; for 2013-14 through 2015-16, from $5.5 billion to $6.9 billion on average each year; and for 2016-17, from $3.1 billion to $3.4 billion.
The budget as proposed and adopted includes $8 billion in revenue for the General Fund from the proposed tax measure, a law that may or may not be approved by the voters in November (at this point before the anti-tax forces start any attacks, the polls indicate that support for the measure has already dropped to nearly 50%).

The irony here isn't that this $8 billion in "wished for" revenue is included in the balanced General Fund budget. The irony is that it was obvious by late March that the General Fund deficit for 2012-13 was going to be $16± billion.

So that "wished for" $8 billion wasn't enough to balance the budget.

Regardless of the ballot measure, the budget assumptions include about $2 billion in capital gains taxes from Facebook's  IPO without reevaluation after it became obvious in the third week of May that it wasn't the huge success anticipated.

The budget contains $1.4 billion in property tax revenue from local redevelopment agencies that the Legislature abolished last year. No one knows how much money will actually be available. The Legislative Analyst says that number is too high.

The State Air Resources Board this fall plans to auction off cap-and-trade credits for carbon emissions. No one know how much money will be generated. The funds were to help with the State's renewable energy programs. But the balanced budget estimates that the auction will generate $1 billion and transfers half into the General Fund. No one knows if that is legal.

The General Fund budget includes $400 million from the national mortgage banking lawsuit settlement, monies that were to help troubled homeowners.

There are many other "revenue" gimmicks. The General Fund plan includes raiding transportation money and other special funds (i.e., child abuse prevention money from special license plates).

Then there's the expenditure side of the budget. It of course includes delaying payments on loans. It includes delaying funding for schools and other local agencies. It assumes wage cuts in the form of "furlough days" but the Legislature refused to adopt Legislation establishing those furlough days. It assumes significant reductions in persons needing public assistance and medical care even though California's employment situation since the beginning of The Great California Slump clearly shows little or no recovery (click on the graph to see a larger version):

Another irony is that most of the seats in the Legislature also are up for election in November.

Because the winners of our elections will be determined on their celebrityship skills, there will be no significant changes in the membership of the Legislature.

The final irony is that last year the Governor and Legislature simply threw $4 billion extra into "Revenue Not Otherwise Classified" hoping it would materialize, which it didn't. It was promised that if it didn't materialize, someone would spend $4 billion less, but they didn't.

Of course, we don't really want leadership anyway. Leadership this year came from Molly Munger and the California PTA in the form of a ballot measure providing money for education. They know that to keep the employment picture from permanently looking like the graph above, we need to educate and train our children for a 21st Century economy. But for their ballot measure to pass California's upper middle class (those families with incomes between $80,000 and $500,000) would need to overcome its self-involvement addiction and its fascination with celebrityship, with the Donald Trumps whose success comes at the expense of others.

That won't happen because plans providing for the future come from leadership not celebrityship. The last thing California's upper middle class wants is someone telling them to skip upgrading to the soon-to-be-released Chinese-made iPhone 5 and pay some extra taxes.

Moonbeam knows this which is why his inadequate tax measure might pass. Whatever good it might do it will do using the money of "the others," the so-called 1% and the working poor.

Californian's prefer the substance one can find in a moonbeam.

Monday, June 11, 2012

The Bare Bones Era - 2012: Once upon a time...

This coming Friday is the Constitutional deadline for the California Legislature to adopt a balanced budget. Democratic legislative leaders, Democratic Governor Jerry Brown, and their minions are making the final edits on the new fairy tale they'll call a balanced budget.

 Their creation would rival  Hans Christian Andersen's "The Emperor's New Clothes" which is simply the story of a vain Emperor who hires two tailors who promise him the finest suit of clothes from a fabric invisible to anyone unworthy of his position or otherwise hopelessly stupid. When the Emperor "dresses" in the new suit and parades before his subject, a child too young to understand the need to keep up pretenses blurts out the Emperor has no clothes.

Outside the State Capitol Building some people have been blurting out the fact that California's budgets have been unbalanced for years. But the rest of the folks, including those inside the Capitol Building as well as most California voters, keep up the pretense.

The latest to point out the naked obviousness of the California State Budget is the folks at the venerable Standard & Poor's (S&P) rating service. In a 12-page report released today Californian's can learn, but don't want to know, that:
...In our view, whether the state has had a genuinely balanced budget at any point in the past decade or more is debatable. But despite California's recurring budget problems being the subject of considerable news and analytic coverage, we believe their origins are not well understood.

A complex maze of constitutional and statutory provisions governing California's budget process seems to contribute to misconceptions about the state's finances, in our view. Some observers blame the state's fiscal morass on over-spending, large pension and retirement liabilities, or an excessive tax burden, which theoretically could weaken its economic climate. Whether the state's handling of these areas is appropriate public policy is different from the question of whether the state's approach in these areas contributed to its current fiscal position. ...In our view, retirement liabilities have contributed little if anything to California's current budget problems. Spending and taxes relative to the state's economy also do not appear to be causing the recent fiscal imbalance when viewed over the past several decades. Instead, we find that revenue generated by the state's tax system has been growing at a slower rate in recent decades while becoming more volatile. During the same years, the general fund has become the source of payment for an increasing share of the state's educational system as a result of a variety of direct and indirect changes in state law. In our view, it is mostly through these expansions of the general fund's scope of funding responsibility, which we consider particularly inflexible, that spending has contributed to fiscal imbalance....
Those words come from an organization that has no ideological agenda. To summarize, they say that the problem we have with our budget has nothing to do with spending or taxing too much, or from public employee pensions. They explain:
...Total tax revenues generated by the state's tax regime are volatile and insufficient for its current level of spending. But we don't see the state's existing spending level as the key source of its budget distress. In fact, the state is currently spending less as a share of its economy than it has at any point in the past 39 years.
Instead, they tell us that the problem is our tax structure:
...We can infer from these data that in 2010, when the PIT accounted for 51.5% of total general fund revenue, the state relied on the top 1% of taxpayers for 11% of general fund revenues. In 1979, the top 1.05% of taxpayers funded just 2.7% of general fund revenue.

The governor's revised budget proposal for fiscal year 2013 would rely on PIT for 63% of total general fund revenue. Applying the recent income distribution rates would imply that the portion of total general fund revenue from the top 1% of income earners would increase in fiscal 2013 to 13% or more. Sales and use tax, as a source of revenue, has moved in the other direction: it would equal 22% of general fund revenues in fiscal year 2013 (assuming the one-fourth cent SUT increase sought by the governor), down from 38% in 1979.
In great detail they provide a historical analysis offering without judgement data that reflects the fact that it was in 1978 California's voters took charge of the State's finances by approving Proposition 13. Their comment quoted earlier that "the general fund has become the source of payment for an increasing share of the state's educational system" which has "has contributed to fiscal imbalance" reflects, of course, the fact that the voters decided to commit general fund revenues to education through several propositions.

In other words, the people who have incurred incredible amounts of credit card debt buying consumer goods, who bought houses that were overpriced and which they couldn't afford, and who elect legislators and governors who cater to their prejudices really have no idea how to manage the finances of the State of California, home to one of the world's largest economies.

Being aware of the fact that the fairytale budget now being written will depend upon the voters approving a tax initiative measure proposed by the Governor and a teachers union, the S&P writers note:
The governor's tax initiative would temporarily increase income tax rates on the state's high-income earners and would raise the statewide SUT by one-fourth of a cent. Most of the projected revenue increase (93%) would come from the higher income taxes. By boosting total tax revenues, the governor's initiative would alleviate to some degree the budget pressure from the slowing revenue growth. On the other hand, by relying on high-income earners that generate a greater share of their overall income from capital gains, the tax initiative would likely exaggerate the volatility of the state's revenue base. To the extent policymakers used any breathing space afforded by the additional temporary revenue to pursue structural tax reforms, we think the tax initiative could ultimately be beneficial to the state's credit quality. If no reforms were undertaken during this period, the underlying deficit would presumably reemerge once the temporary tax rates expire. Under this scenario, we believe any general fund relief derived from the temporary tax increase could wind up being a missed opportunity.
This is, of course, a polite way of saying that the voters and their legislators are about to make things worse because they won't overhaul the tax system to impose a greater share of the burden on the middle class, particularly the upper middle class, using a stable source of tax revenue, say, oh, I don't know,... property taxes maybe?

Instead, the vast majority of California's voters generally want to tax someone other than themselves, such as the now almost mythical wealthy 1% which in California means all those high tech billionaires.
Economic benefits from the high-technology sector also appear to us to come at the cost of strikingly higher revenue volatility, which coincided with the dot-com boom in the late 1990s. That period, followed by bubble conditions in the housing market, led to a surge of capital gains as a share of income in the state. Windfall revenues from surging capital gains income are unpredictable, but as the state has lurched from one budget crisis to the next, lawmakers have typically spent these gains on recurring expenses. Income tax revenue from capital gains as a share of general fund revenues ranged from 3.0% to 14.8% between 2000 and 2010. In his revised budget proposal, the governor reduced the forecast for capital gains income and assumes essentially no growth in the equity markets for the duration of the calendar year. Although the tempered outlook could make the new revenue forecast more accurate, compared with earlier forecasts, it now includes additional revenue assumed from the recent Facebook initial public offering (IPO). The Facebook-related revenue in the forecast boosts state revenues by $1.5 billion to $1.9 billion, contingent on the outcome of the November 2012 tax initiative. But this revenue is also subject to capital market uncertainties. While setting aside any such revenue in a reserve may comport with a theoretical best practice, we believe that the politics of doing so might be impractical if it required spending cuts beyond those already deemed severe by policymakers. On balance, California's software and biotechnology fields attract significant investment, including, for the fourth year in a row, more venture capital investment than all other states combined. Therefore, we believe the high-technology sector benefits the state's long-term credit quality, but the greater reliance on high-income earners that it brings exposes the general fund to the vagaries of the capital markets.
In other words, funding government using taxes depending upon year-to-year swings in profits made in capital markets is foolish. And what they observe is:
Apart from a resurgent economic-driven change, we believe that the only realistic near-term potential for increased tax revenues under consideration is the governor's tax initiative, which would exaggerate the state's revenue reliance on a portion of the taxpayer base we already consider concentrated.
This is, after all, California where we have Governor Moonbeam and the Democratic Legislature about to publish a fairytale and have the voters help them keep up the pretense of a balanced budget.

In the meantime, the ideological opposition is telling voters solve the budget problems by reducing pensions. The S&P writers note:
The state's pension liabilities, while large, contribute little if anything to its current budget predicament.
We are, after all, the home of the Magic Kingdom and vote as if we live in Fantasyland. And so our story for 2012 begins: "Once upon a time...."

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....

Wednesday, April 25, 2012

What's the purpose of an economy? A 2012 reminder what "a recovery" means in the lives of real people.

In October 2009 post here, a question was raised was: "What's the purpose of an economy?"

As I review headlines in the news media, it's obvious that the typical reporter covering the economy doesn't ask that question. And as I read the headlines in the news media, it's obvious that California's politicians don't ask that question.

To review, in that post I offered two different perspectives on the "purpose" of an economy. The first perspective is that of most 21st Century economists and international corporations.

It is about statistical data related to something called "productivity" measured in terms of computers recording data, data that could be about the production of food for people.

But it could be and, in the economic data we see reported, is frequently about robots that produce more robots designed to produce robots creating income for corporations retained in the bank accounts those corporations. The benefits of productivity are quantified only in the sense that electronic numbers representing value transfer between the producer and the entity receiving the product are acknowledged. In an obvious sense today, everything that the economists measure are really the results of computers exchanging data.

The other perspective is data about how well the economy is servicing the general populace as they attempt to meet their material needs. This can be found in statistics examining how well the economy is distributing among the people the resources necessary to acquire food, clothing, housing, health care, and education.

The following graph is a reminder that here in California, while The Great California Slump appears to have bottomed out, we are nowhere near a recovery if the purpose of an economy is to provide our people with income needed for food, clothing, housing, health care, and education.

It's nice that new unemployment claims are down. It's nice that the number of foreclosures is down. It's nice that as reported per capita personal income in California "grew at the fastest rate in five years during 2011" and is now only 4.75% below 2007, though we know it that income is distributed less equitably than in 2007.

Let's just not forget that we have a 1.4+ million job recovery gap and are not likely to see that number change significantly in this decade.

While The Great California Slump has bottomed out, it is not over, our economy has not recovered. As I wrote here in a previous post:
...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.
We are in the era created by Jerry Brown and his generation, not in the era created by Pat Brown and The Greatest Generation.