The Bear Bones Era Take 2: "Stupid is as stupid does" - Forrest Gump

In January the pun "Bear Bones Era" was introduced here to describe the state of the State of California. The Gubernator in his annual State of the State Message had just offered up his depressing budget recommendation for the fiscal year running from July 2010 through June 2011.

Since then the Legislative Analyst also has offered revenue projections for 2010-11 that are somewhat more optimistic by about $1.4 billion. Building on that, a committee in the State Senate and a committee in the State Assembly each prepared a draft budget reflecting different ways of "optimizing" available cash to support spending programs.

Californians have yet to face the fact that the cash truly available is at the bare bones level meaning "the irreducible minimum; the most essential components." Existing proposals in the Legislature to spend cash are not at the most essential components and by any rational standard are not at the irreducible minimum.

Now we have in Assembly Speaker John A. Pérez, the voters' perfect legislator. Pérez was first elected to the Assembly in 2008, his first job in State and local politics. So, reelected in 2010 and having that really significant two years of experience - ironically more than many of the newly elected Assembly members filling seats where incumbents have been termed out by voter mandate - the Assembly Democrats elected him Speaker.

Favoring the "Progressive" point of view, his budget game plan relies on more taxes and borrowing, and limited cuts to schools and social services. He has strong support from the state's most powerful labor unions. And he shares their ignorance of reality, so has no problem pressuring Senate President Pro Tem Darrell Steinberg whose first goal is to find a way to adopt a budget that works.

Steinberg has a real disadvantage. He has the knowledge gained from experience - as a Sacramento City Council member (1992-1998), an Assembly member (1998-2004), and the Senate (2006-current). He appears to know there is a real problem.

So in the Assembly, we have a leader adhering to the "Progressive" point of view and a Republican block larger than one-third adhering to a rigid "no new taxes or tax increases" point of view. It's the perfect storm of voter accomplishment - a two-thirds requirement for budget adoption and a room full of legislators with no experience representing ideologically firm to mostly ignorant constituencies.

This situation is exacerbated by "hope," mostly the optimistic belief that the underlying economy will improve substantially within a year or two. This causes many to believe that if we can just find some money to borrow to be paid back in ...say... 2015, it will all work out.

In other words, the prevailing mantra is "let's just all ignore the fact that no reason exists to believe that the economy will improve significantly before 2015." California needs to acknowledge we are in a "Bear Bones Era", the first since the 1930's. And by "era" I mean at least a decade.

We needed a "statewide reality check" last year, before the State Budget was adopted. The situation is even more critical now.


The "Cash Flow In" Reality

The starting point is that total cash flowing in to support governmental functions including education will be near the 2004-05 fiscal year level as can be seen on this graph (as with many graphics here, click on it to see a full size version) which includes cash in from temporary and permanent sales and income tax increases plus increased withholding tables, all adopted since 2004-05:


You won't see a graph elsewhere that includes half of the statewide revenue from the 1% property tax rate (set by Proposition 13). The fact is that the State must fund K-12 which means making up the difference between spending and property tax revenue received by the schools.

According to the August 2006 State Board of Equalization publication California Property Tax: An Overview:

The property tax raised more than $43.2 billion for local government during 2006-07. These funds were allocated as follows: counties 17 percent, cities 11 percent, schools (school districts and community colleges) 53 percent, and special districts 19 percent.

It is obvious that changes in property tax revenue are just as important to the State budget as changes in sales tax revenue. A downward change in the trend of property tax revenue has occurred that will impact school funding for at least three fiscal years - the year just completed, 2009-10; the current fiscal year, 2010-11; and the 2011-12 fiscal year.

The average increase in the assessed value, and the corresponding revenue from 1% property tax rate, in the period beginning July 2000 and ending June 2009 was 8.6% a year. In fiscal year 2009-10, the assessed value statewide dropped 2.4%, it likely will drop another 3±% in 2010-11, and (my estimate) drop by 2±% in 2011-12. California has not seen a graph that looks like this since the 1930's:

Any income, sales, or property tax revenue increases of any significance are just not going to happen in the next decade because "it's the economy, stupid," to use a phrase from Clinton's 1992 election campaign.


The Underlying Reality: Our Economy

The second basic reality check is the economy within California. No "recovery" from The Great California Slump will occur any time soon.

First, Californians and their economic experts must acknowledge that it does not matter how well multinational corporations are doing - if that corporate "economy" has begun a recovery, that's nice but nearly irrelevant. Economists point to growth in the world and U.S. economy based on revenue growth reported by multinational corporations. In the U.S. those numbers are included in the Gross Domestic Product (GDP).

But almost no Californian lives for free in a home owned by such a corporation, eats meals prepared daily in that home by employees of such a corporation, dresses in clothing provided by such a corporation, and a large number don't receive health care provided by such a corporation.

The success of an "economy" must be measured in terms of the number of people it benefits through jobs, as argued here previously.

The only important economic question is: "How many Californians are earning from jobs?" The graph below shows 35 years of data - the size of the workforce and the number of jobs in California. Click on the graph to examine a full size version.


The red line indicates that despite fluctuations from month-to-month and year-to-year, the growth of the workforce in our state continues at a fairly predictable, consistent level. The green line shows that beginning in late 2007 the number of jobs plunged to near the level it was in 2000 (purple line).

Simply, the entire decade from 2000-2009 was a private sector jobs-creation zero for California, though many California-based multinational corporations have grown revenue beyond imagination. As I noted previously, this was the first "Lost Decade" of the 21st Century for California's economy. No reason exists for the next decade to be any different (except possibly for the lack of an artificially created employment bubble). Having lost over a million jobs (with more to come as government pares down), there is no reason to believe that income tax and sales tax revenue will increase at any significant rate over the next ten years, if at all.

Property tax revenue will not increase either. As noted above during the period beginning July 2000 and ending June 2009 property tax revenue 8.6% a year and has now begun a decline because of the home price bubble crash. Although more stable than the other tax bases, it has begun a slow decline because of the following:



And while there was a slight increase from 2009 to 2010, the expiration of the federal new home buyer tax credit resulted in a 2.9 percent drop in the median price in June as new home sales plummeted a record 32.7%, largest drop the since the government began collecting such data in 1963.

While it is reasonable to discuss the idea that California has a revenue problem because of declining bases - declining personal income, declining taxable sales, declining home prices - it isn't likely that the voters will allow any revenue rate increases in the near future. This is particularly true with regard to property tax revenue controlled by Proposition 13. Property taxes should be adjusted upward. Which brings us to the crux of California's problem - the voters have mandated costs well beyond the State's revenues. Voter mandated expenditures far exceed what the voters are willing to pay. This isn't surprising as overall voter personal expenditures exceeded what they made in recent decades. Deficit spending is a Californian's way of life but apparently we don't understand that our State and local governments cannot join us, unlike the federal government.


The "Cash Flow Out" Reality - Voter Overspending

California voters have been involved in school funding (Proposition 98 - California Mandatory Education Spending), our prison system (the Three Strikes Law), and a whole host of bond acts, some of which are listed below along with measures to fund anything which were voted down:

ELECTION	MEASURE NUMBER	TITLE	Passed/ Failed
EDUCATION SPENDING
1988G	98	California Mandatory Education Spending	P
1998G	1A	Public Education Facilities Bond	P
2000G	39	School Facilities Bonds	P
2002G	49	After School Programs	P
2004P	55	Public Education Facilities Bond Act	P
2006G	88	$50 per parcel property tax; provides public school funding for K-12	F
PRISON SPENDING
1994G	184	Sentencing Repeat Offenders	P
1994G	189	Denial of Bail; Felony Sexual Assault	P
1996P	195	Punishment with Special Circumstances	P
1996P	196	Punishment for Murder	P
1996G	205	Funding for Incarceration Facilities	F
1998P	222	Murder - Punishment	P
2000P	18	Murder; Punishment	P
BONDS TO BE FUNDED FROM GENERAL FUND
1996P	192	Seismic Retrofit Bond Act of 1996	P
1996G	204	Water Bond	P
2000P	12	Park Bond	P
2000P	14	Library Bond	P
2002P	40	Clean Water and Parks Bond	P
2002G	46	Housing Bond	P
2002G	46	Housing Bond	P
2004P	57	Economic Recovery Bond Act	P
2006G	1C	$2.85 billion bond for low-income housing and shelters	P
2006G	1E	$4 billion bond for levee improvements and flood control	P
2006G	84	$5 billion bond for safe drinking water, flood protection and park improvements	P
2008G	3	Children’s Hospital Bond Act. Grant Program	P
2008G	1A	Safe, Reliable High-Speed Passenger Train Bond Act	P
MEASURES FOR FUNDING
1996G	217	Top Income Tax Brackets	F
2004P	56	State Budget, Taxes, & Reserve	F

In fiscal year 2001-2002 the effects of the "Dot-com" bubble bursting were seen in the revenue decline of the State, but actual expenditures were almost in line with revenue that year. Since then the Legislature has been blamed by an thoroughly ignorant press for all the subsequent deficits.

In fact, the voters are directly responsible for the spending mess of the State government since 2001-2002. In the three areas where the voters have assumed responsibility for micromanagement, by 2007-08 spending exceeded reasonable increases to keep pace with inflation and population growth by a whopping $33.8 billion. In the remaining areas controlled only by the legislature, increase have been kept under inflation and population growth by $3.6 billion. The chart below lays this out (click on the chart to see a large version):


This year the only real option regarding expenses is to roll back expenditures to near 2004-2005 levels, particularly the Department of Corrections which went up 44% between 2004-05 and 2007-08 and local schools (K-14) which went up 30% in the same period. This would require the voters of California to give up trying to micromanage the criminal justice system with such things a the Three Strikes Law and mandating annual school system funding increases.

The something-for-nothing-mentality that has plagued California government because of voter attitude must stop. The only honest balanced budget for the current fiscal year 2010-11 would be as suggested below.*


The problem, of course, is that such a budget would violate two voter spending mandates, one for local schools and one to overcrowd prisons and jails. At some point after 1970, governing this State became impossible. Some drastic action must be taken to resolve the problem. Continuing to act in a stupid manner just makes us a stupid people. Or as Forrest Gump said: "Stupid is as stupid does."

My solution is to divide the State into three states - see Three Californias.

__________________________

*Unfortunately, voter approved General Obligation Bond issues require that payments continue to increase and the increase in All General Fund Other State Operations includes the State absorbing into its budget the cost of local courts a few years ago as well as unavoidable costs for supplies and services from the private sector. Also, the year-to-year variation in Resources expenditures results mostly from costs for fighting wildfires.

Group or Societal Verbophobia

"Verbophobia" means "fear of words." It is a real phobia that with symptoms common to other phobias like breathlessness, excessive sweating, nausea, etc. It also can result in a full blown anxiety attack leading to detachment from reality and an inability to think and speak clearly.

All phobias are an irrational, intense and persistent fear accompanied by an excessive and unreasonable desire to avoid the feared stimulus. Phobias are linked to the amygdala, an area of the brain located behind the pituitary gland. The amygdala triggers secretions of hormones that affect fear and aggression.

"Verbophobia," then, is an irrational, intense and persistent hormonally based fear of words accompanied by an excessive and unreasonable desire to avoid the feared words which may result in aggression caused by the hormones.

Groups of people from a relative few to whole societies can be affected by phobias. Xenophobia is the most commonly known. A group or societal phobia can create collective behavior or even mass hysteria. In the case of xenophobia, in the group it can result in collective behavior that ranges from discrimination to genocide, from tribalism to nationalism.

At most of the time in our history, America has struggled with verbophobia. In 1793 one pundit commented:

‘The United States’, instead of the ‘People of the United States’, is the toast given. This is not politically correct.

A large number of groups of Americans in the political left, most common within academic institutions, began to be affected by verbophobia in the 1970's. The result was a cult-like movement with that term "politically correct" at its core.

Freedom to use words is fundamental to the United States. The first provision in the Bill of Rights - the First Amendment - clearly states:

Congress shall make no law abridging the freedom of speech, or of the press.

And yet, America seems to have a split personality. Because of a large variety of personally subjective, culturally related and historically changing values and attitudes, at various times specific words have been attacked as indecent, un-American, and/or politically incorrect.

Group verbophobia can get so bad that collective behavior becomes detachment from reality. Ironically, the following philosophy is a children's recitation in the English language but frequently seems not to be effective:

Sticks and stones
May break my bones
But words will never hurt me.

But as we all know, American parents don't believe what their children recite.

Words are not indecent or politically correct. Applying such labels to words and then "being offended" when they are used is essentially offering up a prejudice to justify acting in a discriminatory manner to impair freedom of speech.

Censorship and ignorance go hand-in-hand. George Carlin’s “Filthy Words” monologue dealt with that in a straightforward way. Today an appeals court noted the District Court ruling on the case about his aired monologue, later overturned by the Supreme Court, commenting:

In finding the FCC’s order both vague and overbroad, the court pointed out that the Commission’s definition of indecent speech would prohibit “the uncensored broadcast of many of the great works of literature including Shakespearian plays and contemporary plays which have won critical acclaim, the works of renowned classical and contemporary poets and writers, and passages from the Bible.”

What Carlin was saying, in effect, was decency has nothing to do with words, it has to do with behavior. And though he was not the first to point this out, he did frequently note that those in politics who protest about indecent language the most frequently are discovered to be persons who engage in questionable behavior.

We need to keep in mind that this is not about nude sunbathing in a public place or yelling "fire" in a crowded theater. This is about broadcasting.

"Community standards" in this context should be handled by the community within the private sector, as an alternative to government enforcement actions which can range from reasonable to illegally hamfisted and which, within this context, clearly risk violation of the First Amendment right to free speech - you know, the one that our founding fathers number first before that really important one on guns.

Here in the "good ole USofA" our government did put in place a Television content rating system. The TV Parental Guidelines system was established in 1997 as a voluntary-participation system, with ratings to be determined by the individually-participating broadcast and cable networks and designed to be used with the V-chip, which was mandated to be built into all television sets manufactured since 2000. That mandate seems reasonable.

Yes the guidelines themselves have no legal force, and do not apply to news or sports programming. Nonetheless, most television programming is voluntarily rated by the broadcasters. If you don't like the way a channel uses the ratings system, you can not turn that channel on or get your TV from a signal provider like Dish Network that allows you to block channels.

So, in addition to an on/off switch and a channel switch on the TV, the government working with the private sector endowed Americans with the ability to limit what they might see on their TVs. Unfortunately, some members of the public apparently don't make the V-chip work in their homes because they are incompetent, lazy or scared of their kids. That's their problem and it shouldn't ever be mine.

Some paranoid Americans worry about what I watch. Particularly with this V-chip tool in place, I detest the idea that any American would want the government to prevent my access to information and entertainment they don't approve of.

Americans need to be vigilant that within our society the basic rights of individuals as agreed upon in what we call our Bill of Rights are never lost simply because of the current majority opinion, which is constantly changing and frequently whimsical.

And so I was pleased to learn that yesterday in FOX TELEVISION STATIONS, INC., CBS BROADCASTING INC., WLS TELEVISION, INC., KTRK TELEVISION, INC., KMBC HEARST-ARGYLE TELEVISION, INC., ABC INC. v. FEDERAL COMMUNICATIONS COMMISSION, UNITED STATES OF AMERICA the United State Court of Appeals for the Second Circuit ruled against the FCC stating:

We now hold that the FCC’s policy violates the First Amendment because it is unconstitutionally vague, creating a chilling effect that goes far beyond the fleeting expletives at issue here.

So perhaps once again the Bible and Shakespeare could be broadcast verbatim in the United States and, for a moment, the verbophobes won't rule our airwaves.

State of California tax revenue data for 2009-10 is not good news

State Controller John Chiang today released his report for June 2010.

According to Chiang's analysis "The second half of the 2009-10 fiscal year saw mostly positive results in the State’s fiscal position...." He then compares the June 2010 results to estimates done in way back in May 2010!

He does also compare the results to the 2008-09 fiscal year (ended in June 2009) without reflecting any of the tax rate increases or withholding changes:

Compared to June 2009, General Fund revenue in June 2010 was down $1.2 billion (-9.7%). The total for the three largest taxes was below 2009 levels by $1.2 billion (-10.6%). This was driven by corporate taxes that were $2.5 billion lower (-56.7%) than last year. However, personal income taxes were up by $1.3 billion (28.8%), and sales taxes came in slightly above last June by $29 million (1.2%).

The report also explains that the budget isn't his problem, just cash flow.

While apparently the annual budget for the State of California isn't the Controller's problem, nor apparently is it the Legislature's problem as they recessed without adopting one for the fiscal year that began July 1, it is of some interest, if not concern, to me.

Compared to the 2009-10 budget numbers as adopted by the Legislature and approved by the Governor, the following facts can be reported:

• Personal Income Tax revenue came in $4.24 billion (8.67%) less than budgeted.
• Sales Tax revenue came in $950 million (3.44%) less than budgeted.
• Corporation Tax revenue came in $647 million (7.35%) more than budgeted.
• Total "Big 3" Tax revenues came in $4.54 billion (5.33%) less than budgeted.

Using the figures Chiang reported to examine California's economy, we can learn that compared to the 12 months ended in June 2007 (the last fiscal year before The Great California Slump), taxable sales in 2009-10 were down 19.26%, taxable personal income was down 19.23%, and taxable corporate income was down 12.27%.

We know that taxable sales were distorted by the "Cash for Clunkers" program and that personal and corporate income were distorted by the home purchase tax credit, two programs that expired, both of which increased revenue results. It is reasonable to assume that all three of these sources of State income will drop further in 2010-11 unless the economy makes some totally unexpected recovery or Congress unexpectedly approves some similar stimulus program.

Adding to this information, the State Board of Equalization's Annual Report indicates that statewide the total assessed value used for property tax purposes in 2009-10 fell $106.3 billion or 2.35% , "the first year-to-year decline in the statewide total since the BOE began keeping records in 1933." In terms of revenue, under California's Prop 13 property tax rate of 1% of value, it meant that property tax revenue dropped $1 billion statewide. The State uses half of the property tax collections to fund schools with the balance of school funding made up from General Fund revenues. The other half supports cities, counties and special districts.

Initial reports from County Assessors indicate that assessed valuations have declined again and likely will result in further loss of revenue to the State for school funding.

Governor Moonbeam or The Overpaid Corporate Bigwig

California will elect a new Governor on November 2nd. Whoever it will be, that person will be following in the footsteps of Gray Davis and Arnold Schwarzenegger towards a greater tomorrow. So let's look at who we have to select from so that we can be depressed.

Meg Whitman and the eBay myth

The online auction website was founded on September 3, 1995, by French-born Iranian computer programmer Pierre Omidyar. Jeffrey Skoll was hired as the first president of the company in early 1996. While eBay was already profitable at the time Skoll joined, he wrote the business plan that eBay followed from its emergence as a start-up to a great success. He remained President until the arrival of Meg Whitman in January 1998.

Meg Whitman was hired as eBay President and CEO in March 1998. At the time, the company had 30 employees half a million users and revenues of $4.7 million in the United States. eBay went public on September 21, 1998, and both Omidyar and Skoll became instant billionaires. eBay's target share price of $18 was all but ignored as the price went to $53.50 on the first day of trading.

Omidyar and his wife in 2004 founded the Omidyar Network, a that invests in and helps scale innovative organizations to catalyze economic, social, and political change.

In 2004 Skoll became the founder, chairman and owner of Participant Media which he created to fund feature films and documentaries that promote social values while still being commercially viable. Its first three films were Syriana, Good Night, and Good Luck, and North Country along with the documentary Murderball. These films accounted for 11 Oscar nominations in 2006.

Subsequent films have included;

• An Inconvenient Truth
• American Gun
• Fast Food Nation
• The World According to Sesame Street
• Charlie Wilson's War
• The Kite Runner
• Angels in the Dust
• Jimmy Carter Man from Plains
• The Visitor
• Chicago 10
• Standard Operating Procedure
• The Soloist
• Food Inc
• The Informant
• The Cove
• The Crazies
• Pressure Cooker
• Oceans

Unfortunately, we are not going to be able to vote for either Pierre Omidyar, the creator of eBay, or Jeffrey Skoll, the person who designed the business plan for the company. So we have to look at Whitman's performance there.

Whitman continued as CEO of eBay until March 2008. She appeared to do well during the company's growth stage, but much less well as the company became large and mature. The state of California, of course, is a large and mature organization. So she decided to run for Governor.

eBay stock price hit its historic price high on December 29, 2004. Here's want happened from that point on until she left, when eBay actually needed an effective CEO, with the NASDAQ for comparison (click here for a large version):

Investors had their reasons for reacting negatively to Whitman's direction of the company those last three years. Whitman's campaign told one news reporter: "The decisions she made during that period were designed to make eBay a stronger company built for the long haul...." Measured by share value, compared to the NASDAQ eBay has underperformed since she left.

Whitman left eBay March 1, 2008. By early April share prices had climbed 23% for some reason. Of course, in the next 12 months the economy crashed and so did eBay's share prices.

If Skoll or even Omidyar were running for Governor based on their apparent wisdom and experience, one might be tempted to vote for them.

Whitman was not an entrepreneur. Prior to eBay a General Manager in Hasbro's Playskool Division where she was in charge of the Mr. Potato Head brand and responsible for importing the Teletubbies into the U.S. How she's avoided being labeled with one of those brands is anybody's guess.

Based on her record, Whitman was a corporate ladder-climber, a typical early 21st Century hired CEO, enriching herself, making bad acquisitions of other companies, outsourcing labor, and generally not contributing much to society. Just another overpaid corporate bigwig. Now she wants to try her hand in politics and government, as the Governor of California. If she wins, she'll be California's first woman Governor.

Jerry Brown: What the Governor Moonbeam label meant

In 1978 then Governor Jerry Brown was nicknamed "Governor Moonbeam" because he proposed the establishment of a state space academy and the purchasing of a satellite that would be launched into orbit to provide emergency communications for the state. In a Rolling Stone interview his then girlfriend Linda Ronstadt referred to him as her "Little Moonbeam." Columnist Mike Royko of the Chicago Sun-Times picked up on it and Brown's proposal, offering the nickname "Governor Moonbeam."

This is, of course, an amusing anecdote with everyone noting that Royko in 1992 commented, while disavowing the nickname, that Brown was just as serious as any other politician.

People remember other such amusing things about Brown. He refused to live in the newly-constructed Governor's Residence, renting a modest apartment. Instead of riding in a chauffeured limousine, he rode in a chauffeured Plymouth Satellite.

But besides being a quirky B-class celebrity dating an A-class celebrity pop star, he was also Governor. Early in his term, he prevented the State of California from building badly needed freeways, a construction freeze that put the state so far behind that when construction began again construction costs had inflated requiring the state to scale down plans that could have been accomplished during Brown's term. This was typical of his ideas, removed from the reality of California. Californian's weren't going to quite driving cars in the early 1970's nor will they now.

Then we get to 1978, when he earned his nickname "Governor Moonbeam." For reasons beyond comprehension, the press seems to not notice that it was also the year Proposition 13 passed. Regardless of the political arguments between the tax cut advocates and those trying to support schools, police, etc. services, Proposition 13 made a significant structural change in California government, a change that did not bode well for the future. As with all government, it takes a long time to see what the full results of such a change will be. Those chickens have come home to roost in the second decade of the 21st Century in the form of a bankrupt state and local government structure.

While Brown was delaying the inevitable construction of freeways and proposing a state space academy, as Governor for three years he became one of the primary reasons Proposition 13 passed. The Washington Post noted:

As incomes and property values rose, Sacramento's tax revenue soared—but the parsimonious Democratic governor, Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians grumped to the polls and passed Proposition 13, which rolled back and then froze property taxes—effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and '60s, California sank to the mid-40s by the 1990s.

And as Governor after Proposition 13, he and Assembly Speaker Willy Brown (no relation) failed to prepare California government for the new reality. Governor Moonbeam had no idea what to do.

Since then, he has run failed campaigns for President. After being elected Mayor of Oakland he discovered the City had a City Manager. So he successfully eliminated the City Manager position, gaining power for himself. It's tough to find a successful program he started and accomplished during his tenure, but he did frequently elevate his celebrity status with publicity stunts like leaving the Democratic Party only to re-register as a Democrat a short while later.

Even though he initially failed the state bar exam, had never practiced criminal law, nor practiced any serious civil law, and was ineligible to practice law because of his voluntary inactive status in the State Bar of California from January 1, 1997 to May 1, 2003, in 2004 having nothing else to do he ran for and was elected Attorney General of California in 2004.

Now he wants to be Governor again. Make no mistake about it. "Governor Moonbeam" is an appropriate nickname. Like moonlight, his brightness is simply a diffuse reflection of popular ideas, political fads really. Like the moon, he appears in cycles as a political celebrity moving tides of fluid voter support that is high at one point and low the next. And while sunlight is the energy that supports life, a moonbeam is only a weak reflection of a sunbeam.

Only because he deserves to be punished for his failures as Governor in the 1970's would I vote to put Jerry Brown in the position of presiding over the financially bankrupt State government for the next four years.

He also would set some dubious records: (1) the oldest governor of California at the time of inauguration; (2) the longest elapsed period (nearly 28 years) between serving two non-consecutive terms as governor; and (3) at the end of a four year term he would become the longest-serving governor.

Other Candidates

Other candidates will be on the ballot. Voting for one of them will be the proverbial "tilting at windmills." While in their respective party primaries, Democrat Brown got nearly 2 million votes and Republican Whitman got nearly 1.5 million votes, American Independent Party candidate Chelene Nightingale garnered 23,272 votes, Libertarian Party candidate Dale Ogden got 16,842 votes, Green Party candidate Laura Wells got 16,654 votes, and Peace and Freedom Party candidate Carlos Alvarez got 1,853 votes (not even a majority in his party). Nightingale and Ogden appeal to different elements of the political right. Wells appeals to the political left.

Since there is only one leftist candidate, a review Green Party candidate Laura Wells, who has tilted at windmills with some effort for awhile now, gives some sense of what's out there. In 2002 and 2006, Wells ran campaigns for State Controller, receiving 419,873 votes in 2002, the most ever for a Green Party candidate in a statewide partisan race in California. She directly focuses on the policy issues which, of course, are never seriously discussed by either major party candidate.

• Regarding property taxes, she says provisions of Proposition 13 must be changed, in part because it primarily benefits corporations over individuals, and favors use of a "split-roll tax" to keep cap residential property taxes while allowing higher property taxes for businesses.
• Regarding the continuing budget stalemate in the Legislature she favors lowering the margin needed to pass a budget and raise taxes in the state from two-thirds to a simple majority.
• Regarding the health care crisis, she supports a Single Payer Universal Health Care solution for California.
• Regarding energy and the environment sh advocates the use of clean, sustainable, local energy, including publicly-owned utilities, Community Choice Aggregation (CCA) and localized (distributed) electricity generation, instead of nuclear power or carbon sequestration.
• Regarding the banking industry, she opposes bailouts of large corporations and proposes the creation of a State Bank for California which could partner with local banks and credit unions, and potentially improve their ability to lend.

These ideas may or may not be perfect, but they address the issues that most affect the collapsing California economy and the bankruptcy of the State. Unfortunately, a Google News Search pulls up not one article about Wells in a major newspaper since the primary. In may she is mentioned in a San Jose Mercury News article headlined Governor's race is full on the fringe.

And so, the media has consigned the two political right candidates and the one political left candidate to "the fringe" even though they talk about issues and offer serious proposals. Of course that is probably best for them, as the Governor cannot accomplish anything without the support of the Legislature. California has not had a third party Governor unless one counts Hiram Johnson. He was originally was elected as a Republican in 1910 but then joined with Teddy Roosevelt to form the Progressive (Bull Moose) Party in 1912 and was re-elected in 1914, but was elected to the U.S. Senate taking office in March 1917.

The next Governor, by default, is going to have a failed term. It seems appropriate that it will be either Governor Moonbeam or the overpaid corporate bigwig.

Coming Up - California's Second Lost Decade of the Century

Is The Great California Slump so systemic that it will become regarded as the two years leading to California's Second Lost Decade?

At one time it was difficult to imagine the Golden State in a situation where economic expansion would remain flat for ten years, barely keeping pace with inflation and population growth. But measured in terms of employment - people with jobs - the numbers in 2010 are roughly the same as in 2000-2001 whether you look at the federal survey data or the actual employment reported to the State Employment Development Department. From an economic growth standpoint, the period from 2001 through 2010 was California's First Lost Decade of the 21st Century.

Right now it is difficult to project a recovery scenario in the next 10 years - 2011 to 2020 -where the California economy not only recovers the 1.2 million jobs lost since November 2007 but adds 2.5 million additional jobs to employ the expected growth in the workforce.

That would require adding 30,000 new jobs a month. That's never happened. In the best years of the last decade, 2005 and 2006, we produced 20,000 new jobs a month and much of that was the result of an asset valuation bubble.

All indications are that The Great California Slump is ensconced deeply into the fabric of the economy. And example is bankruptcy filings:

The year 2005 is a record year because Congress changed the rules effective 2006 - anyone who might need to file for bankruptcy filed that year. While nationally, bankruptcy filings climbed last year, in California the skyrocketed exceeding 2005 by 25%. That is partly because the asset valuation bubble affected Californians more significantly than other parts of the nation.

While people recover from bankruptcy, frequently their confidence doesn't recover, particularly when it was in conjunction with the loss of a home due to foreclosure all due to extended unemployment.

Complicating the situation, Congress is allowing the "safety net" to slip Also, a State budget proposal for the 2010-11 fiscal year that began July 1 is not before either house of the State Legislature. The Gubernator wants some state employees paid minimum wage (those whose unions have not accepted his last-best-final offer for wages and benefits) until a budget has been adopted, a move he thinks will put pressure on the Legislature.

No real incentive exists for legislators to adopt a budget before Election Day November 2. If the State Government continues on without any of drastic measures such as minimum wage, with just a little juggling of expenditures the State may not even have to issue IOU's before then. And there is nothing positive a legislator running for reelection can derive from voting for a balanced budget this year.

In the meantime, local governments and schools continue to reduce staffing and expenditures. That loss of cash flowing into the state's economy will slowly offset any economic gains that might occur. Once the new Legislature and new Governor take a hard look after November, they will be forced to make substantial cuts in "safety net" programs and education, or increase taxes substantially, or some combination of both. That also slowly will offset any economic gains that might occur.

Just as that is occurring, the recent housing sales slump will tamp down any gains in asset value recently made by homeowners and cause employment in construction to remain depressed.

The irony is that after Proposition 13 passed had Jerry and Willie Brown and their successors maintained, the "obscene surplus" (as described by Howard Jarvis) within the State coffers, when a slump like 2008-09 hit, the State could have maintained the safety net and stimulated the economy instead of becoming a drag on it.

But then again, if the Bush Administration had kept in place policies that reduced the deficit then the federal government could have been more effective in 2008-09 also.

Of course, there would not have been enough money flowing in California's private sector economy to support the dot-com bubble and the home mortgage bubble. The former, however, did contribute to some modest economic growth. (Moving retail sales from your local stores to eBay and Amazon contributed nothing real, but other elements have established long-term positive trends.) The home mortgage bubble was a simple ponzi scheme where people were enticed to "buy in cheap" for a return on investment that was never possible.

Without some "asset value bubble" between now and 2020, significant employment growth will not be possible. But any "bubble" growth will be artificial and likely collapse back to near-2000 levels - meaning California will have a Second Lost Decade.

The Embarrassing State of 1970

The Gubernator in 2008 said cut some employees wages to minimum wage. A State Appeals Court this week upheld that order.

The Court noted that State Constitution prohibits paying wages for most state employees without a budget adopted by the Legislature. The Court also confirmed that federal law supersedes state law and requires that the employees must be paid the federal minimum wage.

The Court said to the State Controller, while we understand that the 2008 order is moot, we're dealing with the issues in order to clarify your obligations pursuant to law for the future, perhaps for circumstances such as what has happened this week in 2010 (see the complete ruling).

State Controller John Chiang says he couldn't do it then and he can't do it now. Why? To quote an AP article:

The state's payroll system was designed more than 60 years ago and was last revamped in 1970, Hallye Jordan, state controller's office spokeswoman, said in an e-mail.

A report by the nonpartisan legislative analyst's office said an overhaul of the state's computerized payroll system was proposed by the controller's office in 2004. A year later, the Legislature approved $130 million for the effort, called the 21st Century Project.

...[John Harrigan, a division chief for the state's payroll services from 1980 to 2006] said he was involved with the 21st Century Project when it was conceived in the late 1990s. He said the state fired the vendor executing the project in 2008 because the company went bankrupt.

As the project dragged on, the state has had fewer experts on hand who could thoroughly understand the programming languages used to design the system.

"There's been a knowledge loss with people retiring," Harrigan said.

So the State of California, home to literally dozens of technology giants, among them Intel, Hewlett-Packard, Apple, Intuit (maker of QuickBooks Payroll Enhanced), processes its payroll on a 1970 computer system - a system so old that it preceded the advent of the personal computer.

Unfortunately, it's not surprising because sometime in the 1970's state government ceased to progress sometime in the 1970's.

But it's embarrassing.

The iPad Economy

I love the iPad. It's great. But its huge success - 3 million sold in 80 days - doesn't represent a huge success for the average American. The news media just doesn't get it, so there is no chance for the American public to understand what is about to happen.

Back in April we treated to news stories about the first quarter growth in the Gross Domestic Product. And example is this one in the LA Times written by one of its own reporters headlined Nation's GDP grows at 3.2% rate in first quarter which told us:

The economy grew 3.2% in the first quarter of the year, the Commerce Department reported Friday, another indication a steady, though modest, recovery has taken hold.
The annualized rate of growth of the gross domestic product -- the nation's total production of goods and services -- was down from the 5.6% rate of the last three months of 2009. But that had been expected as the effect of the federal government's stimulus policies peaked during that period.
..."We're still running on the fumes of stimulus in the U.S. economy," said Diane Swonk, chief economist at Mesirow Financial in Chicago. "It's a recovery, but by any standard is still a muted recovery. But we're thankful to have what we've got," given the depth of the recession, she said.
..."I think its well in line with expectations," Swonk said of the first-quarter figure. "The recovery's more broad-based. Although the momentum slowed quite a bit from the fourth quarter, the consumer showed up and we had a lot of demand, which is good."

Yeah....

Except that today the LA Times offers a followup wire service story headlined Government lowers 1st quarter growth estimate that reports "Gross domestic product rose by an annual rate of 2.7 percent in the January-to-March period, the Commerce Department said Friday."

The article does ramble through some information. But it doesn't explain why the growth number was dropped 15.7% from the original estimate. Nor does it point out that the GDP grew less than the population - in other words, the per capita GDP is still a negative number. Nor does it note that the growth rate would have to be above 3.5% the rest of the year to meet the Federal Reserve's forecast for a start to an economic recovery.

That forecast coming to fruition doesn't seem very likely since:

• retail sales in May fell for the first time in 8 months;
• new home sales plunged 33% in May because the tax incentive stimulus expired in April;
• the Republicans in the Senate killed the jobless bill which means that unemployment insurance will disappear for about 200,000 unemployed people each week for the foreseeable future;
• state government, school, and local government spending will dramatically drop over the next 12 months, particularly without the funds that were in the jobless bill.

All of which brings me to the iPad economy. It is possible that sales of the iPad and the iPhone 4 could effectively distort the second quarter results. What's bad about that is the hidden truth of our economy, which the iPad as a product represents.

It is possible that during the April-June 2010 quarter American consumers will have spent $3 billion purchasing iPads and iPhones. That is very different than spending $3 billion on purchasing homes or even cars. The difference is that the multiplier effect of the $3 billion in purchases of Apple products won't be comparable. Nothing in the iPad is manufactured in the United States.

A home is constructed by American workers and the products and many of materials used in the home are manufactured here using raw materials from here. Each dollar spent multiplies in our GDP.

Sure, Apple in America employs the folks who develop a product like the iPad and sure a number of other companies and individuals will add to our GDP developing and selling accessories and apps.

But to be enthused about consumer spending growth as one might be if new home sales jump is not possible. When Apple turns on the production line, it is all in the ether of computerized accounting for Americans, it is money going to China and Chinese workers, it can be seen on the screen but not felt.

That is why people are failing to understand the truth of the report that also came out today telling us that corporate profits increased 8 percent in the first quarter and earnings were up 34 percent from the same time last year. In an iPad economy these numbers can never translate into a corresponding increase in employment. Nor does it mean that the federal state, school, and local government revenues will see a corresponding increase.

When something was designed and manufactured in the United States using materials mostly from the United States, every dollar spent by a consumer to acquire the item was multiplied in our economy. Not only did the store clerk get a piece of the dollar the consumer paid for an RCA TV in 1952, the American who made the cabinet for an RCA TV in 1952 got a piece of the dollar. So the dollar spent, plus all the pieces as they passed through various hands in the system, increased the GDP and became taxable income which helped to support the school the consumer's kids went to.

When I bought an iPad, the employee who made the metal back got a piece of my purchase price, but he or she is in China. My consumer spending just isn't comparable as a stimulus to the American economy as one might think. It most certain isn't comparable to spending on new home purchases.

The hard truth is the U.S. has reached a limit. We as consumers can't spend our way out of The Great Recession. We must start producing things here beginning with the raw materials, to the extent possible, and ending with the final product. And we need to find a way to represent our economy so that a dollar spent on an iPad purchase is not equated by economists and the media to a dollar spent on a new home purchase.

The Great California Slump: Phase 2

In May 2009 I wrote:

California's Great Recession likely will begin "in earnest" in July 2009. And unfortunately for the Obama Administration and the world, what was the world's 8th largest economy will drag everyone else down with it.

It was in a July 2009 post that I suggested calling it "The Great California Slump" in recognition of the fact that California has its own economy, simultaneously integral to and separate from the U.S. economy.

The fact that seems hard to grasp is that the employment level in California is the same today as it was in the period from 2000-2002. In my opinion it will remain at that level through 2015. California is in a depression comparable to that of the mid-1930's.

The only difference is that a "safety net" of extended unemployment insurance and other economic subsidies reduced the immediate impact on individuals. Also federal "stimulus" programs such as the August 2009 "Cash for Clunkers" program and the home buyer's tax credit slowed the overall economic slump.

But we are now seeing a fear of deficit at the federal level that apparently will result in many of the programs ceasing which will further depress the California economy. One shouldn't underestimate the impact these programs had.

For instance, the home buyer's credit expired in April. This week a news article headlined New-home sales plunge 33 pct with tax credits gone reported:

Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

...Analysts were startled by the depth of the sales drop.

"We all knew there would be a housing hangover from the expiration of the tax credit," wrote Mike Larson, real estate and interest rate analyst at Weiss Research. "But this decline takes your breath away."

Reporting on the same data, the Los Angeles Times noted: "Sales in the West were down by more than half."

And now comes The Great California Slump: Phase 2. Consider this comment by UC Berkeley business school dean Laura Tyson, a top economic official in the Clinton administration who is on the short list to become President Obama's budget czar:

Deep cutbacks by state governments such as California have all but obliterated the effect of the nearly $800 billion federal stimulus enacted last year....

As I noted in May 2009:

As the State reduces its purchases of supplies, equipment, and services from the private sector and starts laying off employees whose families stop spending, the multiplier effect will put more private sector workers on the unemployment roles. This will result in reduced sales tax and income tax revenue which will increase the State budget deficit.

What has happened is that the government of the State of California has hit a brick wall because it is now clear there isn't enough money flowing in the economy. As noted by one observer:

The governor has a state budget that his fellow Republicans more or less support. Assembly Democrats have a budget whose centerpiece is a complex scheme to borrow billions of dollars. And Democratic senators have a budget that's based on raising taxes and shifting some programs from the state to counties.

...The two Democratic versions of the budget are very much at odds, even if they both agree on rejecting Gov. Arnold Schwarzenegger's slash-and-burn approach to closing a $19.1 billion deficit.

Moreover, Attorney General Jerry Brown, the Democratic candidate for governor, has declared that the massive borrowing envisioned in the Assembly plan probably would violate a 2004 balanced-budget ballot measure.

It is easy to blame ineffective and irresponsible government. But even when I'm doing so, I am fully aware of something recently noted by another observer explaining a recent study:

In the paper, Inman tests factors in states' budgeting practices, politics and economies in order to figure out which correlates most heavily with their economic conditions. The runaway winner is unemployment. "States with a one standard deviation higher rate of unemployment (10.0%) will have a budget gap which is $222/person more than a comparable state with an unemployment rate one standard deviation lower than average (6%)," he concludes. Inman finds this to be a cheering prospect: "The good news from this analysis is that the states’ fiscal crises of 2009 do not appear to be linked to any obvious structural or institutional failures in state finances. It’s the economy."

A few other points from the paper: The states that have survived the recession best are not states with more competent governments. They're states that depend on natural resources – Montana, Nebraska, North Dakota, Texas, West Virginia, and Wyoming – for revenue. Budget cuts, as you might have expected, have hit aid to local education and transfers and services for lower income families hardest. And the stimulus covered, at most, 23 cents of each dollar of state budget gap -- and that's running out this year.

In other words, it may be fun to denigrate our politicians or to point to states that seemingly do it better because they have a different tax structure, but the fact is the more a state and the local governments and schools in each state depend on income and sales taxes rather than income from taxes on natural resources and real property, the worse its budget problems.

Of course, our politicians are deserving of criticism.

Confronted with the current situation, the Legislature didn't even try to meet the June 15 budget deadline and the joint committee working on the budget adjourned for awhile because they can't figure out how much money they have to spend in the next six months.

Meanwhile, in March the Senate passed a proposal sponsored by California Forward that would require the governor to submit a two-year budget plan and a five-year fiscal outlook to the Legislature in odd-numbered years beginning next year.

Really? The Legislature and the Governor have been adopting and significantly revising the state budget every six months for several years now, but someone thinks they can adopt a two-year budget and make serious five-year fiscal projections.

I know, I know, we need all those great business planning practices that will avoid the problems.

But who, again, was the person who in early 2006 offered the projection that in 2009-10 taxable sales would be 16%+ lower than in fiscal year 2006-07, taxable personal income would be 20%± lower than it was in 2006-07, and the Corporation Tax income would be 17%± lower than it was in 2006-07? If no one would have put that in the five year plan, doing the plan would have been an exercise in futility. Worse yet, if the Governor had put that in the plan, he would have ceased to perform a critical role for the State - head cheerleader for our economic outlook.

The Great California Slump: Phase 2 is going to be a worsening of the economy combined with a weakening of the "safety net" at both the federal and state level. And California is not alone. Here's a map of the states this year showing those with deficits in red, the darker the red the worse the problem:

The federal government does need to recognize the depth of the problem. California, New york, Illinois and New Jersey, the four darkest on this map, contain 25% of the nation's population. If you add in the next tier, Florida, Pennsylvania, New Jersey, Washington, Arizona, and Connecticut, 43.5% of the American population located in 10 states will be seeing major cuts in state, local government, and school employment and purchasing and/or tax increases beginning July 1.

This will severely impair any national economic recovery, perhaps delaying a recovery for a decade. And it could cause significant numbers of Americans to experience economic stress not seen in this country for 80 years.

In any event, absent some remarkable strategy implemented in the next three months The Great California Slump: Phase 2 is about to begin.

From an AP news article on line as of around 8 pm EDT tonight headlined Republicans kill Senate jobless aid measure:

The rejected bill would also have provided $16 billion in new aid to states, preserving the jobs of thousands of state and local government workers and providing what White House officials called an insurance policy against a double-dip recession....

The demise of the bill means that unemployment benefits will phase out for more than 200,000 people a week. Governors who had been counting on federal aid will now have to consider a fresh round of budget cuts, tax hikes and layoffs of state workers.

The Evil Reality in the Magic Kingdom

As a government with serious responsibilities related to the well-being of its residents and visitors, the State of California has a twofold problem.

The first difficulty is that based on all available information the state's economy is essentially producing somewhere between 15% to 20% less wealth then it did in the period between July 2006 - June 2007. That was what I described as The Great California Slump last July and we know that a "recovery" will take a very long time. In the meantime, we read about the effects on our workers and families in stories like Jobless without a net , stories subtly warning us that the federal government will not be able to carry Californians through the slump.

The second difficulty is the resulting effect of The Great California Slump on state government revenues.

• In fact, taxable sales are 16%+ lower than in 2006-07. Fortunately for governmental operations, in 2009 the legislature increased the sales tax rate from 5% to 6% - a 20% increase - so sales tax revenues are slightly higher than in 2006-07.
• Though the numbers are harder to calculate, it appears taxable personal income is 20%± lower than it was in 2006-07 which is masked by a 2009 0.25% rate increase and a temporary 10% increase in withholding which makes it seem like income tax revenues have only dropped 7%.
• The Corporation Tax income has dropped 17%±.

The Governor and the candidates for Governor, as explained in the last post, all operate in some Fantasyland where it is believed that the Governor has some powers - sort of magical pills - to reduce spending and make it all better. But, in fact, the pills have side effects that reduce revenue further, cause injuries to residents and visitors, and are simply illegal in some cases, as the Gubernator found out.

The Legislature operates in Tomorrowland - never do today what can be put off until tomorrow. In their case, for 2009-10 they "borrowed" money to avoid cutting expenditures, made one time accounting "adjustments" like moving the June 30, 2010 payroll to July 1, 2010 and what that didn't cover, they chose to budget revenues too high. So after waiting, we will learn in July that the 2009-10 Income, Sales, and Corporation taxes budget line items were in total 7% too high which amounts to about $6 billion.

What we know today about the fiscal year beginning July 1, 2010, is that nothing has changed for the better since the State's CFO, State Treasurer John Chiang, told a reporter that the State General Fund deficit could likely reach $35 billion. Since the total budgeted General Fund revenue last year was $89.5 billion, we're really discussing a potential 40% deficit. The Gubernator in January proposed a budget which was dead-on-arrival in the Legislature because of policy issues and is now dead because the numbers were from Fantasyland.

So far, as the 2010-11 fiscal year beginning approaches, Legislative leaders have proposed to borrow $9± billion to be repaid from beverage recycling fee revenue and to repay the recycling fund from a new tax on oil production, the latter being accomplished without a two-thirds vote by making various sales tax shifts! This was in response to the Gubernator proposing in the middle of The Great California Slump to eliminate medical care for the kids of the underemployed and unemployed whose jobs have disappeared in the past three years and for old people whose retirement nest egg went the way of the State's employees retirement funds.

And in the midst of most of the 58 Counties having to make unprecedented budget cuts for 2010-11 which will involve significant layoffs creating more unemployment, Legislative leaders and the Governor are discussing shifting welfare and prison costs to the counties offering meaningless promises to cover the costs which, of course, would be cheaper.

Let's take a look at the situation at the county level by sampling recent headlines:

Deep Cuts for Alameda County
31 Fresno County deputies let go in cuts
[Contra Costa] County budget proposal would slice $34.4 million
[Sonoma County] Social services brace for cuts
[Santa Clara County] Budget-related transit cutbacks take effect today
State cuts Humboldt County's victim witness support funds
S.F. home value drop, jobless drain city budget
L.A. County sheriff considers major budget cuts
LA County budget cuts to deprive seniors, disabled of homecare service

And to sample an article Yolo County budget includes less spending, more job cuts:

Yolo County has proposed a $271.5 million budget for fiscal year 2010-11, the third-consecutive budget with a dramatic decline in spending....

...Since the county’s largest-ever budget in fiscal year 2007-08, revenues and expenditures have dropped $38.3 million — or 9 percent — and 408 positions (24 percent) have been eliminated. The county’s ratio of employees per 1,000 residents is at the lowest level in more than 20 years.

Sure, why not pass down a few more responsibilities to the counties. Things are bound to improve.

After all, Treasurer Chiang issued a report for May this week indicating May revenues were looking better than estimated by the Gubernator in January just as we are told:

Retail sales in May took their biggest dive in eight months, raising fresh doubts about the state of the nation's recovery and the pace of long-term economic growth...

"Retailers have long recognized that it may be a long uphill climb to full recovery, but [Friday's] report suggests the climb may be steeper than we thought," said Sandy Kennedy, president of the Retail Industry Leaders Assn. "Until the overall economic news improves and those Americans out of work find employment, meaningful retail sales growth will be difficult to achieve."

So it is likely that June revenues, which include sales taxes paid to retailers in May, might not be so good.

Interestingly, to stimulate discussion Chiang included with his report a report on tax policy prepared by economists at the Milken Institute offering a recommendation to cut corporate taxes in the U.S. which could by 2019 "increase total employment by 2.13 million." Do these guys live in Fantasyland with the Gubernator? The U.S. economy lost 7.8 million jobs between November 2007 and April 2010 and we have a huge federal budget deficit, now, not in 2019.

If economists, the Legislature, and the Governor are lost is some fantasy of their own, it's no wonder that those involved in giving care to the poor and elderly, those teaching our children, those who offer "seed grant money" for new businesses under a state program, those who guard our prisoners, those who run our local governments, etc., all behave as if the problem isn't the economic collapse of the state but rather just unaware political leaders in Sacramento who control more than enough money to take care of everything.

Residing in the Magic Kingdom, the Governor and the Legislature both fantasized that the federal government would help. What we saw in the LA Times last week was this headline Congress pulls back state aid package, leaving a $2-billion hole in California budget. Oh well, a billion here, a billion there....

Within our Magic Kingdom an evil reality exists. The evil reality is the basic structure of our government which prevents any effective action that would begin to address the problems. Electing the folks now running for statewide or legislative office this November will not result in improving California government.

We need to replace the State Constitution. And maybe the only real solution, given the political divisions in the electorate, is to replace it with three state constitutions, one for each state created from the existing State of California as suggested here.