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.

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