Obama's Administration & the wave energy technocrats: What whales?

The first two posts here were Limited Time Only - Act now to own your piece of the ocean off the Mendocino Coast and FERC Ponders Allowing Public Input, Environmental Review of Proposal for Electrical Generators in Whale Route as I was rather aghast at the apparent governmental effort to facilitate wave power facilities construction along the U.S. Pacific Coast.

As I pointed out, unlike the areas off Europe and Britain, the entire U.S. Pacific Coast is the migration route for the Gray Whale:

It appeared that the wave energy efforts by PG&E and others came to a halt, though it took a couple of years. But apparently that did not discourage the Obama Administration.

Lo and behold, the Obama Administration is back advocating it again according to a Silicon Valley Mercury News article (classified as an article on green energy):

A new report by the Department of Energy says that waves off California's 1,100-mile coastline could generate more than 140 terawatt hours of electricity a year -- enough to power 14 million homes -- if tidal and wave energy was developed to its maximum potential.

The United States uses about 4,000 terawatt hours of electricity a year; 1 terawatt hour powers about 100,000 American homes.

"California's wave and tidal current resources offer real opportunities to generate renewable energy using water-power technologies in the future," Energy Secretary Steven Chu said in a statement.

When you look at the article - and the report it refers to - you discover that government engineers sound like the nuclear power engineers of the 1950's, in this case all focused on how to get electricity to support the systems and customers of Apple and Intel by building electromagnetic energy generation facilities in the survival path of a species the U.S. spends a great deal of time pretending it cares about.

They even provide an interactive map which indicates where wave power energy generators should be built:

This doesn't surprise me. As I've pointed out before, there is a core disconnect between what the Obama Administration says (and probably believes) versus the permanent-job producing potential of the tech economy. As I noted in 2009:

Californian's already know that most of those nifty high-paying technology jobs created between 1985 and 2005 have gone to people making half or less located in other countries and other states. But they keep hearing that the green revolution partly funded by the Obama stimulus bill will be the source of California's magical economy engine.

But we still keep seeing the heavy influence of the international technology corporations in the supposedly-progressive Obama Administration as I explained on February 22, 2011 offering extensive supporting detail:

This week it was announced that President Obama will appoint Intel CEO Paul Otellini to join GE's CEO Jeffry Immelt on the Council on Jobs and Competitiveness.

President Obama has spent a lot of time with Silicon Valley corporate chiefs. This week he spent more time with them. In fact, the LA Times reported:

Obama's visit was, however, also a reminder that the political stereotypes that California conveys are not just divided between movie star-rich Southern California and the hippie-liberal north. Silicon Valley has its own connotation, of magical inventions spawned in garages or college dorms, of American enterprise.

It was that spirit that Obama sought as his own last week, even if largely out of view. He landed Thursday night, but only his arrival and his departure Friday morning from San Francisco were public events.

 Despite all the factual evidence to the contrary, based on what he says and based on the policies he has allowed to be implemented or continued during his administration, Obama appears to believe that technology oriented international corporations are going to replace the 7 million jobs lost nationwide since 2008, if only we'd just educate another 7 million engineers, biologists, and lab technicians using money from the working poor, or at least any source other than the technology corporations like Intel.

Intel, headquartered in Santa Clara was founded in 1968. By the end of the 1990s, Intel was one of the largest and most successful businesses in the world. But Intel's employment in the Silicon Valley area has been cut drastically. It shut it's last Silicon Valley manufacturing plant in 2009.

I simply don't understand why the Obama Administration is so tied to these multinational corporations.

And I don't understand why anyone thinks wave energy projects are green energy! Just ask the Gray Whales what they think.

Polling stops the billionaire's beauty and barber shop tax proposal; Moonbeam has typo

Calbuzz reported today:*

Calbuzz has come across a brand new FM3 poll for the Think Long Committee that tests the major competing tax measures (fairly described) for their fundamental acceptability among 800 likely voters. The results: California Federation of Teachers' millionaire's tax, 70-30%; Jerry Brown's temporary income and sales tax increases, 62-37%; Think Long's income tax cut and extend sales tax to services, 57-30%; Molly Munger's income tax increase, 51-45%.

That was followed by reports of a statement from the Think Long Committee like this one in the Sacramento Bee:

"It is clear from public reaction, stakeholder meetings and our own public opinion research that Californians are hungry for real reform and are more willing than ever to support a sweeping plan that is fair and will put an end to California's perpetual financial volatility and suffocating wall of debt," the committee said in a statement. "At the same time, we recognize the practical constraints of the 2012 election calendar - and have come to the conclusion that it will take more time to perfect these proposals, eliminate unintended consequences and provide every stakeholder and everyday Californians a meaningful voice in that process."

The Committee's proposal was described here in the post The billionaire's beauty and barber shop tax proposal.

In the meantime, Governor Jerry "Moonbeam" Brown's measure to increase taxes on the working poor and the very rich had to be resubmitted Friday. The Sacramento Bee reported:

Gov. Jerry Brown is taking a mulligan, tripped up by a typographical error and forced to re-file his ballot initiative to raise taxes.

The Democratic governor on Friday filed paperwork with the state for "The Schools and Local Public Safety Protection Act of 2012- ver. 2." The measure is identical to one Brown filed in December, the governor said in a filing with the attorney general's office, "except that we have corrected a typographical error that resulted in two numbers being transposed."

Re-filing an initiative can delay the attorney general's preparation of its title and summary, potentially condensing the period for a proponent to gather signatures and making that effort more expensive.

I don't understand how this could happen in an organization headed by such a smart man. (That's sarcasm.)

What's not surprising about this news is that what I call The California Federation of Teachers & Friends Tax Millionaires for Education, Social Services, Safety Services, and Road and Bridge Maintenance Initiative got the strongest support in the polls. It would get even stronger support if the press were honest about how the Governor's measure would impact on lower income workers.

In fact, perhaps one day the press in California will be honest about all the various tax measures in terms of who pays, what the added tax will look like in 2020 (i.e. it will have expired causing a replay of the current crisis), the likely impact on those who decide where to locate businesses, how the money can be used, etc., instead of who is sponsoring it.

I know, the public can't understand the details, but they can relate to faces, hence the popularity of Facebook and the need to write about people, not bland tax facts.

---

*The text quoted has disappeared from the linked web site as of January 19, 2012. Perhaps there was some rights problem, but being paranoid I think it may have been removed to not embarrass Brown. A Google search still turns up references to it from which I've done a screen dump and created a jpeg file to show it existed.

The Working Class, The Chamber of Commerce, & Governor Moonbeam's 2012-13 Proposed State Budget

On "The Daily Show with Jon Stewart" this week Fox News libertarian political gadfly Andrew Napolitano rattled off a comment something like:

"I don't believe there are two parties in this country... We have one big-government party. It has a Democratic wing that likes war and taxes and individual welfare, and a Republican wing that likes war and deficits and corporate welfare."

Today at its luncheon forum, Governor Jerry "Moonbeam" Brown's Finance Director Ana Matosantos will be chatting with members of the California Chamber of Commerce.

According to The Sacramento Bee:

Gov. Jerry Brown's political adviser, Steve Glazer, has been tapped to advise the California Chamber of Commerce's heavy-hitting political action committee in legislative races next year.

The chamber's JobsPAC, whose donors include insurance, oil, tobacco and pharmaceutical companies, spent more than $9 million statewide last year, including opposing the elections of Lt. Gov. Gavin Newsom, Attorney General Kamala Harris and Insurance Commissioner Dave Jones, all Democrats. The chamber itself attacked Brown during the campaign, though it became largely supportive of the Democratic governor this year.

...Glazer will remain Brown's unpaid political adviser in the new year.

The California Chamber of Commerce is apparently becoming a regular member of the Moonbeam fan club. The Chamber has endorsed the Governor's tax increase initiative, the only proposal submitted to the Attorney General's Office that substantially raises the taxes paid by the poorest workers among us as well as the richest among us, while favoring most those with taxable incomes in the $100,000 - $200,000 range.

Apparently Brown has successfully won the hearts of the Republican wing of the California branch of Napolitano's One Big-Government Party. And since Governor Brown, 73, is part of the the Democratic wing's ruling gerontocracy along Senator Diane Feinstein, 78, Senator Barbara Boxer, 71, and Party Chairman John Burton, 79, he apparently is capable of either "working with" or "effectively misleading" both wings.

Due to a "oops" mismanagement problem, Brown's proposed 2012-13 State Budget was presented a few days early this year. It didn't take long before the State Legislative Analyst Mac Taylor, in his polite and respectful style, to express concern about revenue estimates being too high, about severe cuts in programs that support families with working parents, and about the problem of having school systems setting budgets in July based on a possible voter approval of a tax increase initiative in November.

To use The Sacramento Bee's explanation of the cuts to family support:

The governor's proposal drops aid to parents who fail to find jobs after 24 months, rather than the current 48 months. It also would restrict child care access to those making the equivalent of about $11,400 for a family of three, down from $12,970.

The Great California Slump appears to have permanently reduced employment by a million jobs. Literally tens-of-thousands of unemployed workers are seeing their unemployment benefits end. The Democratic Governor's solution for the budget deficit is a sales tax increase, along with an income tax increase on the richer folks, which combined still leave a major deficit requiring these cuts.

When you find a key elected leader of the California Democratic Party receiving support from the Chamber of Commerce, you begin to understand why Andrew Napolitano's comment "feels" like it could be accurate.

The problem we have in California is a failure to deal with reality. The press tends to describe Brown as someone who tells it like it is. I call him Moonbeam who is someone who spins the truth to get himself elected.

The fact is he says he has proposed a General Fund expenditure budget for 2012-13 of $92.6 billion but that includes assumptions about expenditures that should not be made. And that's after shuffling off significant work to local governments, along with $2.5± billion in sales tax revenue. Without that sales tax revenue, he has $88.0 billion to work with. In my opinion, he's short at least $6 billion without any tax increases. The problem is that in the current fiscal year he's short at least $6 billion. So he proposes an initiative to raise taxes, which tax increase expires in 2017.

The State owes a bunch of money not covered by that initiative. For instance, its Unemployment Insurance Fund owes $10 billion an counting to the federal government for loans covering basic unemployment benefits since 2009 (the federal government covers all benefit after 26 weeks) These basic benefits Chamber of Commerce members should have covered in payments made prior to 2009. But they consistently opposed increasing the payments.

Brown has included in the budget a surcharge on employers of a little over $3 a month per employee to make interest payments on the loans. That may not pass because of Chamber opposition.

In 2011 we borrowed from the state’s Unemployment Compensation Disability Fund to cover the interest in order to avoid taking it from the General Fund. But we have to deal with this problem or by 2016 the Disability Fund, funded by employee withholding, will be bankrupt.

Brown made no headlines worrying about this. And it isn't the only problem lurking in the background.

A year ago I wrote about Brown's first budget proposal since he was elected:

Foolishly I thought Brown was going to offer a severely reduced balanced budget to the Legislature with a possible solution.... I thought he was going to create a serious discussion about the future of California government rather than attempt to put it off for five years.

In five years, the opportunities to keep California "golden" will be even more severely constrained. This is some legacy the son of Pat Brown is going to leave us.

Of course, with these proposals he simply just restarted the same old political arguments....

Nothing is really changed since last January. Jerry "Moonbeam" Brown is offering no leadership. He's no different than he was in his first two terms as Governor 30 years ago.

2012 Tax Initiatives Chapter 5: Income Tax Only Initiatives

As I've noted previously, four "tax-the-rich" income tax increase initiative measures have been submitted to the Attorney General to date.

One, which has the advantage of being accurately titled as "Our Children, Our Future: Local Schools and Early Education Investment and Bond Debt Reduction Act", I call the The Activist Heiress's California PTA Supported Proposal to Tax Millionaire Dad & Friends for Schools Initiative.

This proposal might please Warren Buffett who is constantly pointing out that the income of his clerical help is taxed at a rate higher than he pays. Fittingly this measure is being proposed by Molly Munger, daughter of billionaire Charles Munger, vice chairman of Buffett's Berkshire Hathaway.

Munger, a Harvard Law School Graduate who after being a federal prosecutor and a partner in a Los Angeles law firm, became a staff attorney with the Los Angeles office of the NAACP's Legal Defense and Education Fund in 1994. She co-founded and is President of the Board of the non-profit Advancement Project which is sponsoring the initiative.

Her proposal, though legally complex, would:

• Raise income tax rates using a sliding scale that creates 11 different brackets up to $5 million-plus for joint filers (at the lower income levels the rates remain the same).
• Provide an estimated $8.5 billion directly to school districts and $1.5 billion to public preschools and early-childhood development programs, though during the first four years $3 billion would be used for state bond repayment prioritized to school bonds.

Monger has won the support of the California State PTA. While it provides for an independent oversight board, the money bypasses the processes controlled by Legislature and the Governor, going directly to the school districts. Naturally, Governor Moonbeam would not support this approach.

In terms of comparing increases in taxes on taxable income to Governor Moonbeam's proposal, here's a comparable chart showing increases including the increased income and current sales/excise taxes (Monger does not propose any sales tax increase):

Compare this to the chart I provided in the last post:

Monger's proposal results in no increased taxes on the lowest taxable income level families while Brown's sales tax increase represents a significant increase at that income level. Also Monger isn't trying to buy votes from the upper middle class, so a couple making $135,000 a years would see a 6% increase in the taxes paid to the State under Monger's plan, while Brown's plan would represent a 2% increase.

In a very real sense, this measure's income tax revenue would have replaced property tax revenue lost to the schools because of Proposition 13. It embraces California's liberal progressive tax trends, but ironically would continue to place education in front of every economic bubble collapse. And, then there is the problem that it would expire on December 31, 2024, making it a temporary, albeit 12 year, fix.

Originally, the proposal would have had the full $10 billion going to education, but in late December Munger submitted a revision that for four years provides relief to the General Fund by using $3 billion to make payments on state bonds, the priority being school bonds. Munger did this to address concerns by Governor Brown, Democratic legislative leaders, and budget "stakeholders." Munger foolishly thinks she can negotiate with these folks to get support for her measure.

A truly simple measure, what I call The Unity High School Senior Class Free Resident Tuition for State Colleges Paid from Tax Increases on Incomes over $250,000 Initiative would increase the income tax rate by 0.7% on annual taxable incomes between $250,000 and $500,000 and 1.7% on annual taxable incomes over $500,000 to provide ree tuition for four years to all California residents at UC and CSU campuses provided that, each academic year he or she maintains a cumulative GPA of 2.7 or performs 70 hours of community service.

While some of the wording might be a problem, it is simple. Whether these kids could get enough signatures to get it on the ballot is questionable.

On the other hand, what I call The California Federation of Teachers & Friends Tax Millionaires for Education, Social Services, Safety Services, and Road and Bridge Maintenance Initiative would simply add 3% on annual taxable incomes between #1,000,000 and $2,000,000 and 5% on incomes over $2,000,000. The measure is complicated in how the money would be spent as it creates The California Funding Restoration Trust Fund, and within that Fund, the Public Education Funding Restoration Trust Fund, the Children and Senior Services Funding Restoration Trust Fund, the Public Safety Funding Restoration Trust Fund, the Road and Bridge Maintenance Funding Restoration Trust Fund, and the California Funding Restoration Administrative Account and specifies in great detail how the funds will spent. The State Controller is to administer and essentially audit the expenditures.

The measure funds would experience huge variations in taxable income at those high income levels and rates. As I explained in an earlier post an already existing voter approved special 1% tax rate on income over $1 million fell 25% between fiscal years 2007-08 and 2008-09. Since in this tax measure we're talking about around $40 billion, a 25% drop from year-to-year is a rather big number to add to an already extreme economy-vulnerable budget.

Also, it undoubtedly would have a significant effect on choices about residence and business locations made by billionaires. At some point, no one can ignore the fact that deriving income and living within California would be a major sacrifice for anyone potentially making many millions in taxable income. If you were to make $7 million taxable, on the last $5 million you would pay about $800,000 in taxes in California and $0 in taxes in Texas. That would be pretty hard to ignore.

Lastly, there is a targeted income tax initiative which I call The California Center for Public Policy 15% to 25% Extra Personal Income Tax on Annual Pension Income Exceeding $100,000 Derived from The California Public Employees and Teachers Retirement Systems Initiative. It basically reduces pension income for those receiving from the two State pension funds what is considered high pensions.

One has to recognize that there has been some abuse by a few executives in public employment. But the bulk of retired public employees receiving such pensions are physicians, folks with PhD's in fields like physics and chemistry who worked for our universities, etc. There seems to be a bit too much begrudging envy associated with this measure.

But the biggest flaw in the measure is that it doesn't put the money back into the retirement funds to help make them whole. It dumps the money into the General Fund which, at least in many cases, was not the source of the employer's contribution. There, of course, Legislators can use the money to give themselves raises. Not much forethought here.


The press has given the most continuing ongoing coverage to Governor Brown's proposal which has the greatest impact on low income working families, which the press hasn't clearly noted, while at the same time publicizing how his proposed budget cuts will negatively impact these same people. And, of course, we still don't have what I call The billionaire's beauty and barber shop tax proposal.

What will happen next is anybody's guess. More on that in a later post.

2012 Tax Initiatives Chapter 4: Spinmaster Moonbeam's Enticing, "Cagily Worded" Tax Proposal

Since Governor Jerry "Moonbeam" Brown (Moonbeam is a nickname he says he likes) is raising large amounts of money for the campaign on his initiative proposal (along with money for his reelection in 2014), I'll start my review of "tax-the-rich" proposals with his initiative measure.

Conveniently it has almost all the flaws, accompanied by spin untruths, that one could possibly expect from a seasoned California politician - none of which the mainstream press acknowledges while they give him favorable fluffy story after story.

In passing I will note that the term "cagily worded" in the title of this post comes from an analysis on the Silicon Valley Education Foundation's web site, one of several such independent reviews that began worrying last month over the details in Brown's proposal.

My analysis below has the advantage of having enough time to consider the details in what I call The Moonbeam Complex Free Up General Fund Money and Fix Nothing Tax Increase Initiative now at the Attorney General's Office for review.

The Temporary Measure Problem. The first troubling fact is that the measure will expire on December 1, 2017. I don't really understand how this is going to work.

California's economy is going to continue be in The Great California Slump between now and then. Here are examples of where The Great California Slump stands at the beginning of 2012:

• Housing values continue to drop, which affects personal wealth and consumer confidence.
• We need to find 1 million jobs for Californians, not including the jobs needed for those new to our expanding workforce, an accomplishment that would be impossible unprecedented for a five year period.
• At some point Congress is going to quit funding extended unemployment benefits leaving many households with severely reduced income.
• At some point employers in California are going to be required to repay the federal government for the $10+ billion we've borrowed to pay basic unemployment benefits - a potential job creation killer.
• In terms of high income earners, one of primary sources of taxable personal income has been IPO's issued by California companies in the tech sector which appear to be iffy right at the moment with the obvious exception of Facebook in 2012 (Google's IPO in 2004 did result in a relatively few tax returns providing a nine-figure revenue shot into the General Fund which the Legislature instantly spent).

Is Brown going to calculate what 2017-18 revenues will be and then in some fashion limit spending to that number for the five years in between so that we won't need to vote on a new version of this measure?

Or is he going to allow the Legislature to spend at the increased revenue level forcing another fight over cuts or new taxes in 2017?

This is partly why I call this in part a Fix Nothing Tax Increase Initiative. It does not fix our revenue structure, its passage would just make Moonbeam's life less stressful for the next few years assuming he doesn't decide to base spending on a stable economy.

Taxing the Poor and the Rich Problem. Unlike the other measures I will discuss in my next posts, Moonbeam's measure is a combination of a sales tax increase and an income tax increase.

In his letter explaining his proposal, of the sales tax element he says:

There will be a temporary ½ cent increase in the sales tax. Even with this temporary increase, sales taxes will still be lower than what they were less than six months ago.

Brown is either very stupid, invested in right wing economics, or cynical. I have accepted that he's cynical and simply wants to get reelected.

Using a combination of a sales tax increase plus an income tax increase on those with the highest income, he can generate additional tax revenue while creating the least impact on those whose earnings place them in the "middle middle-class" and "upper middle-class." This is where you find the "likely voters" he will need in 2012 to get the measure passed and in 2014 to get reelected.

The following reflects the percentage increase in income and sales/excise taxes paid at various taxable income levels:

Determining the incidence of a General Sales Tax increase is problematic using statistical averages. But what I do know is that the sales tax is very regressive and will impact more heavily on the lowest paid portion of the working class as reflected in this chart.

With regard to the income tax, I know that "taxable" income is only marginally reflective of real income which is protected from taxes by many exemptions and tax breaks, but usually people with annual taxable incomes over $500,000 can be called "the rich."

With all of those reservations offered, almost any honest system of calculation of the impacts of Moonbeam's proposal will result in this reality:

• Tax returns showing taxable earnings under $65,000 (likely to be 69%± of the returns filed for the 2011 year) will see an increase in sales and income taxes paid of around 5%±1%.
• Tax returns showing taxable earnings in the range of $65,000 - $250,000 (likely to be 29%± of the returns filed for the 2011 year)will see an increase in sales and income taxes paid of around 3%±1%.
• Couples filing tax returns showing taxable earnings over $250,000  (likely to be 2%± of the returns filed for the 2011 year) will see an increase in sales and income taxes paid of around 9%±4%.

The cynicism Brown shows is found in just how sure he is that people will ignore the facts and accept his spin, which the press will repeat over-and-over without comment. It's already begun with these two sentences in his  letter:

• "No family making less than $500,000 a year will see their income taxes rise."
• "Even with this temporary increase, sales taxes will still be lower than what they were less than six months ago."

These two sentences are literally correct. His income tax increase affects only high income Californian's. Of course, his sales tax increase represents a 10% increase in the State's General Sales Tax, which impacts most heavily on people with annual taxable incomes of  less than $50,000 a year.

But yes, his sales tax increase proposal does represent half of the expired temporary sales tax increase that supplemented revenues that past three years. That was the temporary increase that we only needed temporarily - the one approved by the Republican Governor and a few Republicans in the Legislature.

The Not Enough Money Problem. Over the life of this temporary measure, the income tax increase could generate anywhere from $3± billion to $6 billion a year depending on the general well-being of our richest citizens. The sales tax increase will generate $3± billion a year. That's $6± billion to $9 billion a year. The State General Fund is facing a deficit of about $14 billion ± $3 billion on July 1, 2012 (yeah, the range of what we don't know is that significant). So this proposal which in his letter Moonbeam says "would generate nearly $7 billion" doesn't fix the problem in the best of circumstances.

The Money for What Use Problem. Then there's the the major spin in Brown's letter what explains his measure "would generate nearly $7 billion in dedicated funding to protect education and public safety."

Most of the revenue is not targeted in the sense that the gain in cash in to the state's coffers will supplement existing spending in education and public safety. Instead it is "cagily worded" in a way voters would not understand, but which I'm sure will be called out by the mainstream press before the election if the key staff in the key newspapers complete a reading for comprehension course.

For instance, Moonbeam's initiative states:

(8) Revenues, less refunds, derived pursuant to subdivision (f) for deposit in the Education Protection Account pursuant to this section shall be deemed "General Fund revenues," "General Fund proceeds of taxes" and "moneys to be applied by the State for the support of school districts and community college districts" for purposes of Section 8 of Article XVI.

Now I know that many people, particularly those key newspaper staff, regularly pick up Section 8 of Article XVI of the State Constitution for some light reading. But in case you don't do that, basically that Section sets a minimum amount of money to be paid to K-12 schools from the General Fund.

Moonbeam's wording simply says that if this tax increase covers part or all of the required spending on schools, General Fund monies previously used for schools could be spent on raises for the Legislature.

But that's not the only wording that we need to be concerned about. The measure also says:

(1) Except as provided in (d), commencing in fiscal year 2011-2012 and continuing thereafter, the following amounts sh.all be deposited into the Local Revenue Fund 2011, as established by Section 30025 of the Government Code, as follows:

(A) All revenues, less refunds, derived from the taxes described in Sections 6051.15 and 6201.15 of the Revenue and Taxation Code, as those sections read on July 1, 2011.

(B) All revenues, less refunds, derived from the vehicle license fees described in Section 11005 of the Revenue and Taxation Code, as that section read on July 1, 2011.

(2) On and after July 1, 2011, the revenues deposited pursuant to paragraph (1) shall not be considered General Fund revenues or proceeds of taxes for purposes of Section 8 of Article XVI of the California Constitution.

Again, if Section 8 of Article XVI of the State Constitution isn't in your material for light reading, basically that Section sets a minimum amount of money to be paid to schools from the General Fund.

What this provision does is lower the amount guaranteed to schools.

Taken together, these two provisions which normally nobody but education funding experts would understand allow Brown in his measure to say that it will be:

...helping balance the budget and preventing further devastating cuts to services for seniors, middle-class, working families, children and small businesses

Fortunately, Moonbeam's measure which he has titled "The Schools and Local Public Safety Protection Act of 2012" will prevent "devastating cuts to services for seniors, middle-class, working families, children and small businesses." This is simply illogical if the title is accurate. The title just could be ... misleading.

By increasing the taxes paid by

• high income families about 9%,
• lower income working families about 5%, and
• middle-class families somewhere around 2%,

...Moonbeam's measure will

• protect our schools and local public safety, plus
• prevent devastating cuts to services for seniors, middle-class, working families, children and small businesses,

...all by generating enough funds to cover about half the expected General Fund deficit. 

I'm surprised he didn't assert that his measure will daily provide a piece of fat-free apple pie to every Californian.

Voters may have other options to "tax the rich."  I'll explore them in my next post.

2012 Tax Initiatives Chapter 3: The Guillotine Option - "Tax The Rich"

As of January 1, 2012, four "tax-the-rich" initiatives have been filed with the Attorney General:

1. The Unity High School Senior Class Free Resident Tuition for State Colleges Paid from Tax Increases on Incomes over $250,000 Initiative,
2. The Activist Heiress's California PTA Supported Proposal to Tax Millionaire Dad & Friends for Schools Initiative,
3. The Moonbeam Complex Free Up General Fund Money and Fix Nothing Tax Increase Initiative, and
4. The California Federation of Teachers & Friends Tax Millionaires for Education, Social Services, Safety Services, and Road and Bridge Maintenance Initiative.

The one currently getting the most press is the one filed by Governor Jerry "Moonbeam' Brown who issued a long letter to the "People of California" upon filing the initiative. In it he said, in part:

My proposal is straightforward and fair. It proposes a temporary tax increase on the wealthy...

• Millionaires and high-income earners will pay up to 2% higher income taxes for five years. No family making less than $500,000 a year will see their income taxes rise. In fact, fewer than 2% of California taxpayers will be affected by this increase.

Key issues related to context with regard to the State General Fund tend to be "old news" and therefore aren't explored by the press. And, in most cases, the key staff of the key newspapers in California - The Los Angeles Times, The San Francisco Chronicle, and The Sacramento Bee - are frequently "confused" by Moonbeam's spin, apparently cannot access the State's finacial history readily available on line, and frequently "misrepresent" the context.

In his letter, Governor Moonbeam referred to the unwillingness of the Republican minority to support a reasonable approach. For the most part, the three newspapers have repeatedly published attacks on the Republicans. This is understandable as the Republicans talk like ideologues (which may be all that they are). What the newspapers have not published repeatedly is the following information:

This chart shows that State General Fund spending rose 71% in a period when the combination of population and consumer price index growth justified a 42% increase. The Democrats were responsible for pushing the spending up, but now blame the Republicans for not helping with the deficit problem they, the Democrats, created.

The fact is, because of the obvious collapse in revenues due to The Great California Slump, enough Republicans along with the Republican Governor Arnold Schwarzenegger did approve temporary increases in the personal income and sales taxes for 2008-09 (also for 2009-10 and part of 2001-11) plus provided for accelerated collections of corporate taxes, all to prop up wildly excessive spending commitments some of which were directly approved by the voters.

The Republic legislators involved thought they were giving the Democratic majority a chance to put the State's financial house in order by reducing expenditures. Yeah, they're dreamers.

That's the honest context of the fight over tax increases. And it is boiling down to a public relations effort to make a part of 2012 conventional wisdom that the "tax-the-rich" mantra is "truth, justice, and the American way." Of course, real problems did develop during the first few years of The Great California Slump:

• Yes, during The Great California Slump education has taken an unprecedented hit in funding that must be corrected.
• Yes during The Great California Slump social and health services have taken a heavy hit in funding which combined with an increase in need is a problem for us all.
• Yes during The Great California Slump the State wasn't in a position to reduce the horrendous costs created by the good citizens who voted for the Three Strikes Law (the voters may support a proposed 2012 ballot measure in an attempt to correct this problem).
• Yes, during The Great California Slump revenues for schools, law enforcement, fire protection, etc., were horrendously impacted because of the good citizens who decided in 1978 through their votes for Proposition 13 that government shouldn't be supported by the stable property tax instead of the volatile income and sales taxes.

The funding problem is real because we made it that way voting our biases, prejudices, and selfish financial interests. And from a certain bias, the Republicans have called us on it by saying "don't spend so much," an idea that apparently makes many Californians grimace in pain.

In my introductory post on the initiatives, I reviewed the possible confusion over what constitutes  "the wealthy" or "the rich" from a general viewpoint. Let's review that term in terms of current tax policy to get some context. The Franchise Tax Board recently released income tax data for 2009 which offers this for context:

This tells us is that 64% of the folks filing tax returns paid 5% of the personal income tax California collected, and that 4% of the folks filing tax returns paid 55% of the income tax California collected.

For a cynical politician, it would appear getting approval from the voters to increase taxes on that 4% should be easy and the amount generated should be significant. The problem is that getting approval from the voters may be easy because it is a dumb idea on two accounts.

First, the swings in annual changes in adjusted growth income (the number that determines income tax revenue) in California in the 50 years between 1959 and 2009 look like this:

If California governments (including schools) had limited their spending budgets to a modest increase each year regardless of public's demand for new or expanded services, there would be no deficit problem today.

But the voters and the people who represent them lack the discipline needed to not spend all the money in their collective pocket.

When adjusted gross income, and therefore income and sales tax revenues, skyrocket we expand programs to spend it all.

That's our way in our private lives. Sales tax revenues wouldn't track as close to the AGI change as it does if the residents of California had any sense of economic discipline - because when their income goes up they spend it all (and more) creating higher sales tax revenue.

Our habits aren't going to change. So when we rely more heavily on personal income tax, we are setting our future selves up for failure.

And when we depend upon the income of billionaires, we make it worse. You don't have to do much research on this. The revenue from an already existing voter approved special 1% tax rate on income over $1 million fell 25% between fiscal years 2007-08 and 2008-09. Billionaires gamble with their future - that's how a some get richer and some don't.

The problem is you can't operate government like a business. Even if revenue falls by 20% we can't shut down one of five assembly lines like some manufacturer. The same number of school kids and college students still need classrooms and teachers. Criminal continue to commit crimes. Wildfires continue to burn. And clients for social and public health services climb.

Only fools fund their public services from volatile revenue sources. Welcome to California, the ship of fools, where financial irresponsibility is enshrined in our Constitution and in far too many of our lives.

The other problem with the "millionaires tax" is that increasing the tax burden on the personal income of the people who decide where to locate their businesses is betting against human nature. As I've explained in previous posts, Texas does not tax their businesses less. Simply, Texas does not have a personal income tax.

If you are a CEO, CFO, COO, or whatever, who is looking at paying $100,000 a year in state income tax in California versus none in Texas, why would you not relocate your business office and primary residence in Texas? Heck you can always keep your home in Carmel as a second home to visit. After all, the property tax on it is relatively low compared to Texas.

Sadly, it is more likely that the marketing spin on one of the "tax-the-rich" measures I will discuss in my next posts may appeal to voters.

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

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

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

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

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

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

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

The Kern County Assessor noted this year:

Most of our oil and gas properties are at the Proposition 13 Base Value, and taxes are paid on this base value, even though the market value of these properties is a great deal higher. Kern County remains the largest oil producing county in the State, with an estimated 70% of all of the State’s reserves.

What has happened is that California homeowners typically sell their homes every 7 to 8 years at which time under Proposition 13 the assessed value is increased to the then market value. Typically most homes today are being assessed at close to current market value, and even one that has not sold since 1978 is being assessed at 49% of market value (based on the California home median sales price for 1977 compared to the median sales price as of November 2011).

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

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

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

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

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

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

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

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

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

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

Burton has a long record of public service as a Democrat:

• 1965 - 1974 member of the California State Assembly
• 1975 - 1982 member of the U.S. House of Representatives
• 1988 - 1996 member of the California State Assembly
• 1996 - 1998 member of the California State Senate
• 1998 - 2004 President of the California State Senate
• 2009 - Present Chairman the California Democratic Party

Burton, 79, has long been among the California Democratic Party leaders and is part of the Party's ruling gerontocracy along with Governor Jerry Brown, 73, Senator Diane Feinstein, 78, and Senator Barbara Boxer, 71. (It is worth noting that among this group, only Boxer has experienced any significant time working in the private sector, and she has been in Congress since 1982.)

When Burton left the State Senate in 2005, the California Journal noted:

Gone will be the Senate's most vehement partisan for social services for the poor, the Senate's angriest voice against tax breaks for businesses and the wealthy, its loudest voice for protection of workers, its fiercest pro-labor advocate and its disciplinarian.

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

For whatever reason, Burton chose to provide for a 12.5% severance tax rate instead of the 15% in the other measures which likely would reduce the revenue to $2.5 billion. The measure specifically provides as follows:

...One-third of all taxes, interest, penalties, and other amounts collected pursuant to this part shall be deposited into the California Higher Education Fund. The remaining two-thirds shall be deposited into the General Fund.

In other words, it would put $1.6 billion into the General Fund for the Legislature and Governor to spend as they see fit. Only $0.8 billion or ⅓ of the revenue pursuant to the measure titled "The Higher Education, Schools, Public Safety and Health Care Preservation Act" is allocated for a specific purpose.

To collect spend the allocated money, a complex new bureaucracy is created called "The California Higher Education Endowment Corporation" which is to have a very large paid Board, CEO, and employees, along with the hiring of an Auditor to perform a very complex annual audit. The Corporation's costs and expenses are subtracted from the $2.5 billion first, and the remaining $0.8 billion not sent to the General Fund is to be allocated as follows:

The corporation shall annually allocate the moneys in the California Higher Education Fund, for purposes of funding direct classroom instruction for higher education, as follows:
(1) Fifty percent to the California State University.
(2) Twenty-five percent to the University of California.
(3) Twenty-five percent to the California Community Colleges.

The measure also provides for a complex sub-allocation for medical and nursing education, the latter based on a complex formula for determining need county-by-county.

Only someone who has spent most of his life in legislative positions in California could propose a measure this complex. The facts are:

1. It is mostly just a tax to add revenue to the State General Fund,
2. It creates a large bureaucracy including politically appointed paid board positions to accomplish a simple task of distribution of a comparatively small amount of funds among our state higher education institutions.

I guess Burton has allies for this measure as it has received a lot of press compared to the other two oil and gas severance tax measures. It will be interesting to see which of these measures gets enough signatures to be on the November 2012 ballot, if any.

Again, the severance tax measure petitions that are circulating or likely will be circulating would:

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

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

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

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

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

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

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

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

The proponents amusingly entitled this "Protect Homeowners and Close Corporate Tax Loopholes Act". Actually, it would be a tax increase on most, but not all, business property. I do think it is the one and only ballot measure that would stabilize income for California government and thereby stabilize government. Here's what it would do:

1. Its only impact on residential property is to double the owner occupied dwelling exemption (from $7,000 to $14,000) in 2015-16 and doubles the renter credit on income tax returns at the same time.
2. It excludes from the definition of non-residential property real property "used and zoned for producing commercial agricultural commodities."
3. It requires that non-residential property currently subject to the property tax be reassessed every three years to the fair market value beginning after 2014-15.
4. It exempts from taxation the first $1,000,000 of tangible personal property (specifically excluding from the exemption boats and airplanes not used in the day-to-day operation of the business), primarily intending to exempt the first $1,000,000 in business equipment and inventory providing a significant relief from the impact of the reassessment of business property to small businesses.
5. It provides that the additional revenue derived from the reassessment be used to cover the reasonable cost of reassessing commercial property with the balance allocated (a) 90% to the State General Fund and (b) 10% distributed to local entities based on law.
6. It provides that some of the money placed in the State General Fund be remitted back to the counties to cover the exemptions described in "1." and "3." above.

I should point out that the business community already has an "expert" report The Economic Effects of California Adopting a Split Roll Property Tax explaining how this would just be a disaster for businesses.

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

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

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

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

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

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

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



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

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

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

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

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

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

And the great owners,...the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.
                        -John Steinbeck, The Grapes of Wrath

Many types of uprisings occur when the working class feels aggrieved and oppressed. Certainly today we are beyond the French Revolution, making use of the guillotine. In a political system that basis itself on "democracy", many "pressure relief valves" have been created to keep the ruling oligarchy free of the falling knife blade.

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

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

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

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

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

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

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

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

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

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

Right at the moment, the following tax measures have been submitted, listed in order of date filed with the Attorney General, using my descriptive titles and the official file number as the link to the text of the measure:

1. The Nickle (5¢) Tobacco Tax Increase to Fund Cancer Research and Other Stuff  Initiative (approved for the June 2012 ballot). 09-0097.
2. The California Center for Public Policy 15% to 25% Extra Personal Income Tax on Annual Pension Income Exceeding $100,000 Derived from The California Public Employees and Teachers Retirement Systems Initiative (currently circulating). 11-0021.
3. The Community College Professor's Oil and Gas Severance Tax to Fund Education Initiative (currently circulating). 11-0044.
4. The Happy Pills Tax Initiative (currently circulating). 11-0045.
5. The Occupy-the-Elections Severance Tax on Oil and Gas to Create a North-Dakota-Type California State Bank Initiative (currently circulating). 11-0051
6. The Unity High School Senior Class Free Resident Tuition for State Colleges Paid from Tax Increases on Incomes over $250,000 Initiative. 11-0086.
7. The California Teachers Association Increase and Equalize Property Tax Values on Non-Residential Non-Farm Properties by Splitting the Property Tax Rolls Initiative. 11-0087
8. The Activist Heiress's California PTA Supported Proposal to Tax Millionaire Dad & Friends for Schools Initiative. Version 1 11-0088 was recently replaced by Version 2 11-0100 apparently in an effort to get more political support.
9. The Moonbeam Complex Free Up General Fund Money and Fix Nothing Tax Increase Initiative. 11-0090.
10. The California Federation of Teachers & Friends Tax Millionaires for Education, Social Services, Safety Services, and Road and Bridge Maintenance Initiative. 11-0091.
11. The California Democratic Party Chairman John Burton's Oil & Gas Severance Tax, some for Higher Education (⅓) and most for the General Fund (⅔) for the Legislature to Play With. 11-0096.

Obviously many of these titles reflect sarcasm on my part. I want to emphasize that each one of them offers in preambles lofty language and sincere, laudable goals. Some of them may even be worth considering seriously.

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

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

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

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

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

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

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

What we should be aware of from The Long Depression is in truth it began with a major economic collapse, followed by some growth in between a series of recessions. In fact the period was a sustained period of painfully slow growth with bumps and dips. As one economist who likens our current situation to that period notes:

New technologies and industries were being created. The telephone was invented, and the foundations of new industries based on the petrol engine and electricity were put into place. The people who got it right still made huge fortunes, and the workers in the right industries prospered. Overall, however, times were hard.

This brings me, then, to what I am calling The Great California Slump. Simply put, California has not been able to create enough new jobs for its growing workforce for two decades. From a worker standpoint, California's economy looks like this:

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

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

I'll explore those proposals in my next post.

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

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

---

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

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

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

---

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

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

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

Essentially, the spending power of a family's income has plunged for the poorest among us and skyrocketed for the richest Californian's. As the report explains:

Not only did the Great Recession strip away any gains in income at the 10th and 25th percentiles that followed the bust of the dot-com bubble, but it also pushed incomes at these levels to near-record lows. By 2010, families at the 10th percentile had incomes roughly 24 percent lower than the 10th percentile did in 1980, and families at the 25th percentile had incomes 12 percent lower. The 10th and 25th percentiles have not yet fallen to the lows of the 1990s recession, but by 2010 there is no evidence that incomes have yet troughed in the Great Recession.

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

The 75th percentile of income saw larger declines than the 90th percentile during the Great Recession, bringing it to a level last seen in the late 1990s. However, over the longer term, income at the 75th percentile is still substantially higher than it was in previous decades. By 2009, the 75th percentile was earning over 18 percent more than in 1980.

The troubling trend relates to the size of the middle-class which is declining as can be seen in this chart:

The study explains:

Most Californians live in middle-income families. In 1980, the proportion of these families reached a 30-year high of 60 percent, a number that has been trending downward ever since. The percentage of individuals in middle-income families reached a new low of 49.7 percent in 2010.

What this tells us is that the goal of our California grandfathers and fathers as reflected by the writings of Steinbeck and the speeches of Pat Brown were being achieved in the 30-year period from 1950-1980. In the next 30 years, 1980-2010, there has been a slow, but systematic decline in access to the middle class, culminating in the effects of The Great California Slump which I now believe will be the period from November 2007 through late-2017.

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

• Three-quarters of those babies are being born to nonwhite mothers, which means there's a widening generational gap between a fast-aging and shrinking white population and a young and still-growing nonwhite segment.
  
• While Asian American and white kids are doing relatively well in public education, the data on academic achievement and high school graduation are miserable for Latino and black kids, which could mean a looming shortage of trained and trainable labor if and when the recession ends.
  
• The combination of demographic factors and recession are producing an increasingly stratified society with a predominantly white and Asian overclass, a largely Latino and black underclass and a shrinking middle class, as new studies by the Public Policy Institute of California graphically demonstrate.

This is a trend that is dangerous, it is a trend that would have been unacceptable to the grandfather, Edmund Brown, and to the father, Governor Pat Brown. That the son Jerry "Moonbeam" Brown was Governor when it started (1975–83) and is Governor again is troublesome.

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

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

A bachelor in his first term as Governor and as Mayor, Brown was a darling of the press

1. because he dated high-profile women, the most notable of whom was the singer Linda Ronstadt, and
2. because he staged appearances at high profile technology events appearing to be the cool technology and environment guy.

In fact it was the combination of these two facts that earned him the name "Governor Moonbeam."

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

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

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

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

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

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

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

The Great California Slump & The Bear Bones Era collide

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

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

As I noted in May 2009 (emphasis added):

In Grapes of Wrath, John Steinbeck told a story about how folks migrated to California to find hope within The Great Depression. We are now in what Time Magazine calls "The Great Recession" but California is not going to be a place to find economic hope.

By July 2010 I noted:

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

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

So at the end of June of this year, 2011, when the Legislature adopted and Governor Moonbeam signed a "timely" and "balanced" budget, I noted:

...It's a budget predicated on significant revenue growth.

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

This may be the worst California General Fund Budget ever adopted. But it is truly the Will-of-the-Voters Budget.

The adopted Budget provided for "Trigger Cuts" should the revenues fall short. So here we are at the end of November reading in The Sacramento Bee:

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

The analyst's report is not the sole determinant of whether the state will impose those cuts, but it is one of two tools the Department of Finance must rely upon before deciding whether to slash spending. The finance department will issue its own forecast in December.

On the same day The Bee reported:

Gov. Jerry Brown's finance director said Wednesday that some mid-year cuts are "likely," increasing the possibility the state will slash education and social services in the coming months.

The latter article also noted that State Legislative Analyst Mac Taylor at his press conference "seemed to discourage lawmakers from taking action to avoid trigger cuts in light of a nearly $13 billion hole staring at them in 2012-13." He was aware that desperation was increasing in the Legislature.

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

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

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

Related to law enforcement are the predictable results of the Governor Moonbeam plan approved by the Legislature to save money by shuffling prisoners off to county jails. Los Angeles District Attorney Steve Cooley, whose office generates one-third of California's felony convictions, is training his personnel to prosecute as many offenders as possible for the most charges available so they will go to state prison, not to LS. County jail. As noted in The San Francisco Chronicle:

In a recent interview, Cooley said he is trying to mitigate the "public safety nightmare" that realignment will bring - particularly in a county like Los Angeles, where the jails are overcrowded and the sheriff regularly releases offenders early.

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

Cooley and his senior staff said the office may take this training to other counties as well.

Two years from now we Californians will be blaming someone, anyone but ourselves, for the mess that will result from the "realignment."

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

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

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

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

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

This is happening all over California. What we learn from the followup article is:

Officials are hoping that Gov. Jerry Brown will make good on his promise to go to the Legislature with a constitutional amendment that will set aside funds for both realignment plans.

Erin Treadwell, spokesperson for the California State Association of Counties, said counties are hopeful that the Legislature will come through with some funding.

Of course that was before the Legislative Analyst "said the deficit for the year beginning July 1, 2012 would be nearly $13 billion."

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

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