Both the Assembly and Senate have passed the tax increases and bad budget bill.
It took 5 GOP Senators to pass the Open Primary Bill to get to the tax increases.
Both the Assembly and Senate have passed the tax increases and bad budget bill.
It took 5 GOP Senators to pass the Open Primary Bill to get to the tax increases.
The five are:
Abel Maldonado, Dave Cox, Dave Cogdill, Roy Ashburn, and Jeff Denham
Oh, will it pass the voters? Sen. Mark Leno (D-San Francisco) predicted: "It is going to get killed for sport."
Then it took three GOP Senators and a Democrat flip flopper, Correa, to pass the tax increases:
Dave Cogdill Roy Ashburn Abel Maldonado
After this vote, it is reported that Ashburn and Correa hugged.
The State Assembly has just passed all the bills, and they are on their way to the Governors desk to be signed. This means the May 19 Special Election will have a minimum of eight bills for the voters to disapprove, including taking money from trust fund, phony spending caps, "borrowing" $5 billion from the Lottery, and more.
By Jordan Rau, Evan Halper, Patrick McGreevy and Michael Rothfeld, LA Times,2/19/09
February 20, 2009
Reporting from Sacramento — Voting at dawn to end a three-month impasse, the California Legislature approved a deal that Democrats and Gov. Arnold Schwarzenegger reached with a GOP holdout to resolve the state’s fiscal emergency.
Under the arrangement, Sen. Abel Maldonado of Santa Maria provided the final Republican vote needed to pass a spending plan with billions of dollars in tax hikes. In exchange, Democrats agreed to rewrite election rules that Maldonado said had allowed the Capitol to become paralyzed by partisanship, leading the state to the brink of financial ruin.
The plan gelled Wednesday night following seven unsuccessful votes held throughout the day and into the night in the Capitol, which Sen. President Pro Tem Darrell Steinberg (D-Sacramento) had locked down Tuesday, barring senators from leaving. California’s financial state had deteriorated to the point where Schwarzenegger had ordered layoffs of 10,000 state workers and the suspension of hundreds of public-works projects. Early income-tax refunds have been delayed, and public anger has grown.
"I’m very relieved for the people of California," Steinberg said. "There’s not a lot of good news to come out of a $41-billion budget deficit, except that we in fact solved it."
The final plan incorporated most of the framework of the original budget compromise from Democratic and Republican leaders. It included billions of dollars in cuts to schools, healthcare institutions, higher education and programs for the poor. If signed by Schwarzenegger, who helped devise the package, it also would raise personal income taxes and the state sales tax, although a 12-cent per-gallon increase in gasoline taxes was eliminated in the final hours.
Democrats initially said Maldonado’s call for "open" primaries, in which voters could cross party lines and candidates of all parties would compete in the same primary, followed by a runoff of the top two vote-getters, was too substantial to be pushed through in a budget deal. But Maldonado said the current budget stalemate proved that California could not return to fiscal sanity without fundamental changes in the way it elects its representatives.
"Without an open primary, we’re going to be here again and again and again, voting on budgets," he told reporters. "This system is broken and we need to reform it."
Modeled on election rules in Washington state, the change — if approved by California’s voters next year — would undermine the influence of political parties. It was unpopular with Democrats, but their leaders pressed them to accept it as the price of ending the political logjam.
"My caucus understands we have to do some things we don’t like," said Assembly Speaker Karen Bass (D-Los Angeles).
Wednesday had begun in uncertainty, with Dennis Hollingsworth of Murrieta elected as the new Republican leader in the state Senate shortly after a midnight coup unseated Dave Cogdill of Modesto. Hollingsworth promptly insisted that months of negotiations over how to close California’s deficit budget talks begin anew and lawmakers abandon the sales, income and gas taxes hikes that were part of the fiscal package Cogdill helped negotiate.
"We should reopen negotiations and we should pass a no-tax budget," Hollingsworth said. "The majority of the Senate Republican caucus said we want to stand for a no-tax budget."
But the coup appeared to marginalize him and the 10 GOP senators who had already ruled out any new taxes. Democrats and the governor refocused their efforts away from the caucus leadership and on the small group of GOP dissidents who signaled they were prepared to vote for the package. Cogdill remained ready to vote for the package, as did Sen. Roy Ashburn of Bakersfield.
Three GOP votes are needed in each house for the two-thirds vote required to pass budgets; they had been secured in the Assembly since last week. "I want to be very clear: We are not starting over," Steinberg said.
Schwarzenegger agreed, telling reporters at a Wednesday afternoon news conference: "We are still one vote short and we’re going to find that one vote."
The Senate convened every few hours, but the debate on the chamber floor was unproductive. Democrats read letters from constituents beseeching them to pass the budget so state services could resume. Republicans parried with correspondence from their backers decrying the imposition of higher taxes on already struggling families.
Behind the scenes, negotiators stayed focused on Maldonado and GOP Sen. Dave Cox of Fair Oaks, both of whom had indicated they might be persuaded to cross the aisle and vote with Democrats to pass the budget. Legislative leaders and Schwarzenegger’s aides pored over wish lists from both senators.
After lunching on salmon and swordfish with Schwarzenegger at an Italian restaurant a few blocks from the Capitol, Maldonado emerged enthusiastic.
"The governor is on board with my constitutional amendments," Maldonado said, referring to his request that state election law be changed to help moderate politicians such as him and to penalize lawmakers when the state’s budget is late.
"If everybody is happy with the drafts, we’ll have a budget for the state of California," he said.
Maldonado’s proposal did not go down well with many Democrats. Many lawmakers in both parties hold safe seats that would become competitive if Maldonado’s request were enacted.
Others said they objected to rewriting California’s fundamental rules of democracy in the middle of the night, all to secure a vote to keep the state from financial ruin. They also accused Maldonado, who is in his last term in the Senate, of trying to leverage his budget vote to make a future statewide run easier.
"I’m not here to worry about Abel’s political future," said Sen. Gloria Romero (D-Los Angeles).
Maldonado denied such a motive, and the final version appeared to have little use for his aspirations for statewide office in 2010, because it would not take effect until 2012.
Democrats remained dubious about the entire idea.
"I’m open to discussion on the merits of the open primary," said Sen. Joe Simitian (D-Palo Alto). "But I’m hard-pressed to understand what on earth it has to do with solving the state budget deficit."
Sen. Denise Moreno Ducheny (D-San Diego) said Maldonado’s suggestion that legislators’ pay be docked whenever the state budget was not on time was "particularly offensive" and could give wealthy legislators inappropriate leverage in negotiations.
"You could have rich people telling everyone else, ’Vote now if you want to feed your family.’ " Ducheny said. "I think it’s unethical . . . to tie your pay to your vote."
Maldonado ultimately agreed to drop that measure out of the package. This morning, Democrats agreed to another provision pushed by Maldonado that would keep legislators from getting pay raises in years when the state ran a budget deficit.
Just before 5 a.m., the Senate approved the open-primary measure. Several Democrats were so resistant to the notion that the Senate had to recess while they were coaxed into giving their support. Near tears, Romero called it "a disgusting process" and "not good government" as she changed her vote to yes.
The sun had risen when the state Assembly passed the tax bill at 6:30 a.m. Assembly GOP leader Mike Villines of Clovis, Roger Niello of Sacramento and Anthony Adams of Hesperia provided the three GOP votes to put the measure over the top.
"Mark our words: There’s not going to be any more taxes from this body," Villines said.
Dissenting Republicans — who have been warning for years that California was spending recklessly — told their colleagues that this budget also would develop holes.
The deal with Maldonado emerged Wednesday after negotiations with Cox deteriorated. Schwarzenegger and Democrats never agreed to Cox’s call to postpone enactment of California’s landmark law limiting greenhouse-gas emissions.
That law, which won Schwarzenegger international acclaim, is one of the governor’s proudest achievements. But many business groups in California complain that it would be expensive to implement.
Democrats also did not budge on other Cox demands: to give employers more leeway in scheduling meal and rest breaks for their workers, and his insistence that legislators reduce some of the $14.4 billion in taxes contained in the budget package. Maldonado, however, incorporated that latter issue into his demand, and Democrats stripped out the gas taxes, worth about $2 billion.
The final version of the plan would raise the state sales tax by 1% and nearly double the vehicle license fee, to 1.15%. It would also reduce the dependent credit Californians are allowed to claim on their taxes. The package would increase personal income tax rates by 0.25%.
"It’s just plain wrong," Hollingsworth said just before the vote.
Ashburn took to the floor to recall Ronald Reagan’s decision to raise taxes in 1967 as California governor. "As president of the United States, my hero, my role model, the person who I have looked at for inspiration, raised taxes three times," Ashburn said.
He said his fellow GOP senators had failed to understand the difference between being a politician and being an elected official.
"You know this deficit cannot be solved by cuts alone," he told them as they closed their eyes or looked away. "What would Ronald Reagan do? Ronald Reagan would vote yes."
After his speech, Democratic senators came over and hugged Ashburn, who had negotiated $100 million in tax credits to help home builders and tax breaks for horse-racing tracks.
All the taxes in the budget package would last for two years, but they would be extended another two years if voters approve a permanent spending cap that would be placed on the May 19 ballot as part of the complex deal worked out with Republican leaders over several months. That spending cap would prevent future legislators from hiking state spending when California’s treasury is flush and instead deposit that money into a giant rainy-day fund for unexpected deficits. Only when that reserve exceeded an eighth of the state’s revenues could legislators dip into it for other purposes.
The open-primary measure would go on the June 2010 ballot, giving opponents plenty of time to work up opposition. The rules would apply not only to state legislators but also to members of Congress, who may tap their ample war chests to defeat it.
Sen. Mark Leno (D-San Francisco) predicted: "It is going to get killed for sport."
Some argue that the reason we do not have a fix on the $60 billion deficit (the correct number) is that one GOP Senator will not vote for the tax increase.
That is not true. The reason we do not have a fix is because the Democrats demand higher taxes, though this will push thousands of California families over the edge and harm rest of us.
Some argue that the reason we do not have a fix on the $60 billion deficit (the correct number) is that one GOP Senator will not vote for the tax increase.
That is not true. The reason we do not have a fix is because the Democrats demand higher taxes, though this will push thousands of California families over the edge and harm rest of us. Democrats prefer cutting education, while supporting unions and special interests. The 25 Democrats in the Senate are holding up a budget fix because they prefer junk science to jobs.
Yes it is ideology, the ideology of the Left—government knows better than people. Obama tells us we need to cut taxes—Democrats in California tell us we need to raise taxes—of course Obama is able to print his own money.
The media shows its bias every time it blames the Republicans for not raising taxes. Why not blame the Democrats for not allowing spending cuts and repealing junk science job and revenue killer bills?
The major newspapers are losing readers, subscribers and credibility—could this be the reason? They prefer higher taxes to responsible government? Seems that way.
Senate Democratic Leader Darrell Steinberg blames Republicans no-new-tax "ideology" for the state’s budget impasse. But the ideological problem cuts two ways.
As of our deadline, Mr. Steinberg still had failed to coerce, bribe or browbeat another Republican senator into voting to increase Californians’ taxes by $14 billion. Not that he hadn’t tried. Despite plenty of arm-twisting, offers of pork and scolding on the Senate floor, he still was one vote short of the two-thirds majority needed to pass perhaps the largest tax increase in state history. Mr. Steinberg vowed to keep all senators "locked in" until someone breaks.
Part of the mirage of the Democrat majority’s proposed budget fixis the reliance on voter approval. It’s a good bet voters would say "No." One ballot measure would seek authorization to borrow from future Lottery revenue, money voters designated in 1984 to be spent solely on education. A recent poll shows voters overwhelmingly oppose the borrowing idea.
Other ballot measures would divert $600 million in cigarette taxes restricted to children’s programs and $227 million in taxes collected from the richest Californians financing mental health programs. Well-financed campaigns by special interests benefiting from those funds can be expected to vigorously oppose using that money to bail out the Legislature.
Although, as Democrats portray Republicans obstinate impediments to balancing the budget, the same accusation can be made about them.
Government employee unions resist turning over the job of collection of $10 billion in owed taxes to private collectors, and unions influence Democratic legislators. About $1.5 billion of that money is recoverable, according to Republican Assemblyman Chuck DeVore of Irvine. Another Republican Assemblyman, Dan Logue of Marysville, says offering tax amnesty in the past has reaped as much as $3 billion in unanticipated revenue.
The state could save another $1 billion by conforming to federal welfare reforms opposed by Democrats, but that most states operate under. Perhaps another $800 million can be saved by contracting with less costly out-of-state facilities to house felons now incarcerated in overcrowded California prisons, according to Mr. DeVore. Prison guard unions oppose the idea, hence so too do Democratic legislators.
If Democrats dropped their obstinate ideological opposition, California could reap as much as $5 billion a year in taxes from offshore drilling from environmentally safe, existing platforms to tap what Mr. DeVore says may be 30 years worth of underwater oil.
What Mr. Steinberg objects to is principled Republicans’ loyalty to their ideology, as opposed to the ideology he and his Democrat colleagues hold dear.
We have an ideology too. It holds that no amount of new revenue ever will satisfy those who want to expand government, and expanding government is the opposite of what the Legislature – Democrats and Republicans – should be doing.
Finally, an adult in Sacramento. GOP Insurance Commissioner Steve Poizner, understands two things: First, that this budget deal harms families. Second, it is not going to be passed, so an alternative needs to be decided, now.
"They don’t have the guts to raise taxes on rich people because rich people have lobbyists and rich people are mobile and rich people will leave," Poizner said in a meeting today with The Bee Capitol Bureau.
Finally, an adult in Sacramento. GOP Insurance Commissioner Steve Poizner, understands two things: First, that this budget deal harms families. Second, it is not going to be passed, so an alternative needs to be decided, now.
"They don’t have the guts to raise taxes on rich people because rich people have lobbyists and rich people are mobile and rich people will leave," Poizner said in a meeting today with The Bee Capitol Bureau. "And yet they’re raising taxes on people who aren’t mobile, who don’t have lobbyists. This is really the most disgusting, terrible thing I’ve heard in a long time - the idea of raising $14 billion of taxes on working class people who are about to lose their homes."
Why not pass and implement the budget cuts, now? Why not announce the May 19 Special Election and see if the public agrees to the borrowing and the use of Prop. 10 and 63 money to cover the deficit?
Steve Poizner, candidate for Governor (and I am proudly working for him professionally) noted this in his interview with the Sacramento Bee editorial board:
"Afterward, Poizner said lawmakers should develop a budget for the following 12 months that would streamline state government and balance the books without raising taxes.
"You can solve the short-term problem," Poizner said of the Legislature. "The reason we’re in lockdown right now and in a crisis is that they’re trying to solve the full 18-month problem. They should just solve the problem that keeps us from going over the cliff tomorrow."
The big reason the legislature is unable to solve the budget issue is that instead of "solving" it, they are looking to solve the budget problem of next year. Of course, we do not know how big the deficit really is, do we?
We can fix the immediate problem, if we wanted to. the longer term can also be fixed, but first we must admit we have a problem. Steve Poizner admits the State has a problem and a short term solution to the problem.
To see the complete story in the Sacramento Bee, go here.
A week ago, the Democrats complained that Republicans were negotiating on the budget, hence it was an illegal act. That was a publicity stunt.
The buying of votes to pass the $70 billion tax increase is not a stunt, it is serious.
In order to get the vote of GOP Assemblyman Anthony Adams, the Governor and Democrats added millions in redevelopment funds to the City of Glendora—in Adams district. This is money stolen by the State in the first place from the city.
A week ago, the Democrats complained that Republicans were negotiating on the budget, hence it was an illegal act. That was a publicity stunt.
The buying of votes to pass the $70 billion tax increase is not a stunt, it is serious.
In order to get the vote of GOP Assemblyman Anthony Adams, the Governor and Democrats added millions in redevelopment funds to the City of Glendora—in Adams district. This is money stolen by the State in the first place from the city.
Democrat Lou Corea is having $35-50 million in property taxes restored (stolen to begin with by the State) to Orange County—his district—to buy his vote.
The Governor and Democrats think they can buy the vote of Senator Roy Ashburn in return for a $10,000 homeowners tax credit.
Several years ago GOP Assemblyman Mike Briggs, sold his vote for a tax credit for agricultural equipment. In the next election his "sacrifice" was rewarded with a massive defeat in the GOP primary. He had taken a pledge not to raise taxes, and the people of his district took him at his word.
I should note that Briggs represented approximately the same area as Assemblyman Villines and Senator Cogdill.
Where is the Attorney General? Why didn’t he open an investigation in the middle of the night.
The good news is that this budget has stalled. The bad news is that some in Sacramento believe every lawmaker has a price for their suicide and the murder of the people of California.
I should note that whatever they offered to Senator Dave Cox of Sacramento did not sway him to vote for the $70 billion tax increase, he firmly came out against it. Congratulations to Senator Cox.
While the Assembly has not taken up the key portion of the murder pact, ur, I mean tax increases, one GOP Senator has voted "aye" on it—Senator Dave Cogdill.
Aaron Park on his blog is reporting that Assemblyman Jim Nielsen has been calling Assembly members to see if they will overthrow GOP Assembly Leader Mike Villines. Assemblyman Chuck DeVore resigned as Chief GOP Whip over the Villines tax increases. Will a similar effort be started in the GOP Senate.
The buying and selling of votes, I should note is not surprising. In this case the Members who sell are getting two things for their vote. First they get a little something for their district—nothing close to the $70 billion being taken from their constituents. Second, they get a chance to end their political careers.
My suggestion: Call off the votes, unleash the hostages (members are not allowed to leave the Capitol building) admit the destructive factor of the tax increases and start negotiating to fix the structural problem of the budget—AB 32 and all other job and revenue killers.
It is now known that the official date of the statewide Special Election if May 19. Even if passed by vote selling, the people of California could, and will, kill the deal at the ballot box. Will we permit the borrowing of $5 billion from the Lottery—with education as the guarantor of the loan?
Will we permit a "cap" on spending when approval of that will mean $42 billion in taxes from hard pressed families? Will voters allow taking money from trust funds meant to help children and the mentally ill?
Of course not. Instead of doing the right thing, Sacramento has put together a proposal that looks like a debate team plan—looks pretty but does not work.
Buying votes is wrong. Selling votes is wrong. Fixing the cause of the budget problem is right. What do you think?
Reporting from Sacramento — Lawmakers are in lockdown in the state Capitol after an all-night session has failed to result in passage of a budget, as GOP legislators troubled by the plan’s tax hikes demand last-minute concessions.
Gov. Arnold Schwarzenegger and legislative leaders spent the early morning hours scurrying to round up a final Republican vote believed to be needed for the plan to pass out of the Senate. Lawmakers and staff said there was enough GOP support for Assembly approval.
Republican and Democratic leaders had expressed confidence late Saturday night that the Legislature would finally break its three-month logjam and approve a bipartisan proposal to close what is projected to be a $41-billion deficit by the middle of next year.
But several hours after voting on the package of 27 bills began Saturday night, the momentum stalled. Sen. Dave Cox (R-Fair Oaks), who Democrats say indicated in private talks he was prepared to vote for the budget plan put together by the governor and legislative leaders, announced he would not support it. A spokeswoman for Cox said the senator was never on board with the budget plan.
Other GOP lawmakers launched into floor speeches sharply critical of the $14.4.billion in tax increases. Some also used parliamentary maneuvers hoping to delay the vote.
The budget package includes several concessions that minority Republicans have been seeking for years. Among them are $1 billion in tax breaks for businesses and constitutional limits on government growth. Other concessions were targeted at several GOP lawmakers, such as redevelopment and transportation funds for their districts.
Despite the continued horse-trading even after voting started, there had been a sense of momentum in the Capitol most of Saturday night, with lawmakers and staff expressing cautious optimism the package would be approved overnight – until Cox announced he was not on board.
Rank and file lawmakers were ordered early Sunday morning not to leave the building as their leaders work furiously to secure another vote. One clear target is Sen. Abel Maldonado (R-Santa Maria), a moderate who has parted ways with his caucus in the past. The governor held a meeting with Maldonado in the early morning hours.
At least three Republican votes are needed in each house to pass a budget, which must be approved by a two-thirds majority of the Legislature.
Gov. Arnold Schwarzenegger is likely to sign the budget once it is approved.
"I believe the Legislature, and more importantly the people of California, are ready to put this behind us," said Senate leader Darrell Steinberg (D-Sacramento). "I hope people will say we solved the single biggest budget deficit in California history and tonight represented a real turning point in California in a real positive way."
The plan would nearly double the vehicle license fees Californians pay, increase sales taxes by 1 cent, increase gasoline taxes by 12 cents per gallon and add a surcharge of as much as 5% to income tax bills.
It also would reduce the dependent care credit by about $200 per year. The increased taxes would remain in effect for two to four years.
In addition to the tax hikes, the proposal includes $15.1 billion in program cuts and $11.4 billion in borrowing, some of which would be erased by the stimulus package Congress just approved.
Sacramento’s spending plan would balance the state’s books through mid-2010.
But even some Democrats were hedging Saturday.
Sen. Lou Correa (D-Santa Ana), a moderate who pledged never to raise taxes, demanded some last-minute concessions for his own district. He insisted on a late addition to the package of budget bills that boosts education spending in Orange County by allowing the county to keep $35 million to $50 million more property tax revenue a year.
"I’m hoping that will be part of a possible agreement tonight," Correa said.
The state program cuts would be felt throughout California. They include reductions for the state’s public schools, universities and colleges; cuts in programs for the developmentally disabled; and the elimination of cost-of-living increases for the blind and disabled as well as people on welfare.
Transportation and transit programs would also take a hit, as would some payments to local governments. If California does not get as much federal stimulus aid as budget experts anticipate, an additional $1 billion in cuts would kick in.
Even if the deal makes it through the Legislature and Schwarzenegger signs it, it will unravel if voters do not approve several provisions that would be on the ballot this spring.
One of those would allow the state to borrow $5 billion against the California Lottery’s future receipts.
Two others would allow the state to siphon away hundreds of millions of dollars voters had previously set aside for mental health and children’s programs. A fourth measure would change the formulas in Proposition 98, the 20-year-old initiative that sets minimum funding levels for public schools and community colleges.
As lawmakers struggled with the budget, a union representing state workers reached a deal with the administration that will end the mandatory furloughs of 95,000 workers two Fridays a month.
Under the agreement, state offices that had been shut on those days would reopen. The tentative contract, which includes the workers making alternative sacrifices that would save the state money, must still be approved by the rank and file.
Don’t believe the hype. This is NOT a $14 billion tax increase. This is a five year tax increase. In total it is a $70 billion tax increase, money transferred from families and businesses to an incompetent government.
The good news is that Democrats have started to notice how bad it is, while Republicans knew it all along. Even Democrats do not want to spend $70 billion on this government.
Don’t believe the hype. This is NOT a $14 billion tax increase. This is a five year tax increase. In total it is a $70 billion tax increase, money transferred from families and businesses to an incompetent government.
The good news is that Democrats have started to notice how bad it is, while Republicans knew it all along. Even Democrats do not want to spend $70 billion on this government.
Listen to talk radio—folks are angry—Democrats and Republicans. The teachers union has ads all over the State demanding no education cuts. At the same time Federal judges are wanting to release 58,000 criminals from prison, this new budget cuts 10% from prison health care—we may wind up with 70,000 active criminals back on the streets of California.
Those responsible for this need to pass it by Saturday. If they can not do that, the firestorm will overwhelm them by Tuesday. Dozens of protests are planned around the State, organizations have geared up over night.
We had a voter revolt in 1978 over property taxes—will 2010 see another voter revolt due to taxes?
Will all those who are happy with the Legislature, its handling of the state’s $40 billion budget hole, and the way it’s communicating about what happens next please stand up?
I don’t see anyone... and that’s not just because I’m staring at a computer screen.
It’s now been more than 24 hours since the buzzing began over a budget deal, and the slings and arrows are coming from all corners at the elected officials who hang their hats under the Capitol dome.
Embarrassing. Out of touch. Deadbeats. Those aren’t my words, but descriptions of state government expressed today by supervisors from counties across southern California. Their joint meeting, held with assistance from the California State Association of Counties, was the prelude to a lawsuit being filed tomorrow over the state’s decision to defer some payments to social services programs administered by California’s 58 counties.
"Enough of the nonsense," said Riverside County supervisor John Tavaglione. "Start leading. Start governing."
A small group of legislators sat and took the 90 minute verbal beating, which included a pretty stern scolding for the practice of legislative leaders and Governor Schwarzenegger handing rank and file legislators a budget document with scant time to read the proposal before being asked to vote.
"I cannot comprehend how you could possibly vote for a budget that you’ve never seen," said Imperial county supervisor Gary Wyatt, who also serves as president of CSAC. "We would never do such a thing."
Meantime, advocates of liberal and conversative causes alike are taking aim at legislators, as more details of the supposed agreement continue to trickle out.
That includes information on a corporate tax modification sources say is part of the package. The proposal would allow companies who also do business outside of California to pick a tax liability formula that works to their liking, something that’s being discussed as a loss of several hundred million dollars a year in tax revenues. "No hearings or discussion has occurred with regard to the proposal," writes Lenny Goldberg of the California Tax Reform Association in an email to reporters this afternoon.
On the right, outrage continues over the proposed tax increases. Bill Leonard, a member of the state Board of Equalization and former Asembly GOP leader, says the sales tax hike is particularly bad. "This will suppress consumer demand, and/or divert it to online vendors," he writes in a recent posting on the Republican Flash Report blog. " In many jurisdictions it would take the overall rate to 10 percent. This would be a catastrophe for our retailers."
Elsewhere, environmental advocates are unhappy with word that the deal may also include a delay in some newly adopted clean air regulations.
And the list goes on and on. Even would be governors are taking aim at the building with the big white columns.
There were chuckles yesterday when Senate President pro Tem Darrell Steinberg balked at calling the budget proposal a "deal." As of now, though, it looks like he was right.
Few Capitol watchers believe that the necessary votes have been corralled, especially on the Republican side in the state Senate. While the official word remains that "the actual language is still being drafted"... perhaps that’s because it’s still being negotiated; Big Five negotiations continue even today. The earliest predictions for a floor vote are now Friday night, with the Assembly actually aiming for the sure-to-be chaotic Saturday; and some are now predicting that this will all spill into next week.
With all the angst toward lawmakers, it’s not surprising that three powerful words are starting to get bandied about more and more... from chatter after today’s meeting of counties to a caller during KQED’s Forum program and this morning’s discussion of the budget mess, three words for which there may be growing support in this season of discontent:
Senator Inhofe of Oklahoma has noted that the Obama stimulus bill is 93% payoff and 7% stimulus.
First less than half will be spent in two years. Next, while there are no earmarks (items added without notice or hearings), most of the bill is special interest stuff having little to do with helping society—museums for mobsters in Chicago, bike paths around the country, billions spent on "climate change research" and other items that are to payoff the special interests, not improve communities or create real jobs.
Senator Inhofe of Oklahoma has noted that the Obama stimulus bill is 93% payoff and 7% stimulus.
First less than half will be spent in two years. Next, while there are no earmarks (items added without notice or hearings), most of the bill is special interest stuff having little to do with helping society—museums for mobsters in Chicago, bike paths around the country, billions spent on "climate change research" and other items that are to payoff the special interests, not improve communities or create real jobs. The nation has a dramatic decrease in crime, but Obama wants to spend a billions on more cops. We can have more of a drop in crime if we deport the criminals illegal aliens—that would cut 15-20% of the cost of crime in this nation—and would not add a dime to our costs. Lower crime, no added costs.
The idea you can spend your way out of this fiscal crisis is not only wrong, but will backfire. In 2-5 years taxes will need to be increased, the Feds will have to borrow money, crowding out private borrowers, hence raising the interest costs, massive inflation only seen in the days of the Wiemar Republic in Germany that brought Hitler to power.
We are in trouble and borrowing will not save it—repealing the laws killing the economy and jobs will.
It began as a subprime surprise, became a credit crunch and then a global financial crisis. At last week’s World Economic Forum in Davos, Switzerland, Russia and China blamed America, everyone blamed the bankers, and the bankers blamed you and me. From where I sat, the majority of the attendees were stuck in the Great Repression: deeply anxious but fundamentally in denial about the nature and magnitude of the problem.
Some foretold the bottom of the recession by the middle of this year. Others claimed that India and China would be the engines of recovery. But mostly the wise and powerful had decided to trust that John Maynard Keynes would save us all.
I heard almost no criticism of the $819-billion stimulus package making its way through Congress. The general assumption seemed to be that practically any kind of government expenditure would be beneficial — and the bigger the resulting deficit the better.
There is something desperate about the way economists are clinging to their dogeared copies of Keynes’ "General Theory." Uneasily aware that their discipline almost entirely failed to anticipate the current crisis, they seem to be regressing to macroeconomic childhood, clutching the Keynesian "multiplier effect" — which holds that a dollar spent by the government begets more than a dollar’s worth of additional economic output — like an old teddy bear.
They need to grow up and face the harsh reality: The Western world is suffering a crisis of excessive indebtedness. Governments, corporations and households are groaning under unprecedented debt burdens. Average household debt has reached 141% of disposable income in the United States and 177% in Britain. Worst of all are the banks. Some of the best-known names in American and European finance have liabilities 40, 60 or even 100 times the amount of their capital.
The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.
The United States could end up running a deficit of more than 10% of GDP this year (adding the cost of the stimulus package to the Congressional Budget Office’s optimistic 8.3% forecast). Nor is that all. Last year, the Bush administration committed $7.8 trillion to bailout schemes, in the form of loans, investments and guarantees.
Now the talk is of a new "bad bank" to buy the toxic assets that the Troubled Asset Relief Program couldn’t cure. No one seems to have noticed that there already is a "bad bank." It is called the Federal Reserve System, and its balance sheet has grown from just over $900 billion to more than $2 trillion since this crisis began, partly as a result of purchases of undisclosed assets from banks.
Just how much more toxic waste is out there? New York University economistNouriel Roubini puts U.S. banks’ projected losses from bad loans and securities at $1.8 trillion. Even if that estimate is 40% too high, the banks’ capital will still be wiped out. And all this is before any account is taken of the unfunded liabilities of the Medicare and Social Security systems. With the economy contracting at a fast clip, we are on the eve of a public-debt explosion. And similar measures are being taken around the world.
The born-again Keynesians seem to have forgotten that their prescription stood the best chance of working in a more or less closed economy. But this is a globalized world, where uncoordinated profligacy by national governments is more likely to generate bond-market and currency-market volatility than a return to growth.
There is a better way to go: in the opposite direction. The aim must be not to increase debt but to reduce it.
This used to happen in one of two ways. If, say, Argentina had an excessively large domestic debt, denominated in Argentine currency, it could be inflated away — Argentina just printed more money. If it were an external debt, the government defaulted and forced the creditors to accept less.
Today, America is Argentina. Europe is Argentina. Former investment banks and ordinary households are Argentina. But it will not be so easy for us to inflate away our debts. The deflationary pressures unleashed by the financial crisis are too strong — consumer prices in the U.S. have been falling for three consecutive months. Nor is default quite the same for banks and households as it is for governments. Understandably, monetary authorities are anxious to avoid mass bankruptcies of banks and households, not least because of the downward spiral caused by distress sales.
So what can we do? First, banks that are de facto insolvent need to be restructured, not nationalized.(The last thing the U.S. needs is to have all of its banks run like Amtrak or, worse, the IRS.) Bank shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalization, but only after losses have been meaningfully written down. Those who hold the banks’ debt, the bondholders, may have to accept a debt-for-equity swap or a 20% "haircut" — a disappointment, but nothing compared with the losses suffered when Lehman Bros. went under.
State life-support for dinosaur banks should not and must not impede the formation of new banks by the private sector. It is vital that state control does not give the old, moribund banks an unfair advantage. So recapitalization must be a once-only event, with no enduring government guarantees or subsidies. And there should be a clear timetable for "re-privatization" — within, say, 10 years.
The second step we must take is a generalized conversion of American mortgages to lower interest rates and longer maturities. About 2.3 million U.S. households face foreclosure. That number is certain to rise as more adjustable-rate mortgages reset, driving perhaps 8 million more households into foreclosure and causing home prices to drop further. Few of those affected have any realistic prospect of refinancing at more affordable rates. So, once again, what is needed is state intervention.
Purists say this would violate the sanctity of the contract. But there are times when the public interest requires us to honor the rule of law in the breach. Repeatedly in the course of the 19th century, governments changed the terms of bonds that they issued through a process known as "conversion." A bond with a 5% return was simply exchanged for one with a 3% return, to take account of falling market rates and prices. Such procedures were seldom stigmatized as default.
Another objection to such a procedure is that it would reward the imprudent. But moral hazard only really matters if bad behavior is likely to be repeated, and risky adjustable-rate mortgages aren’t coming back soon.
The issue, then, becomes one of fairness: Why help the imprudent when the prudent are struggling too?
One solution would be for the government-controlled mortgage lenders and guarantors, Fannie Mae and Freddie Mac, to offer all borrowers — including those with fixed rates — the same deal. Permanently lower monthly payments for a majority of U.S. households almost certainly would do more to stimulate consumer confidence than all the provisions of the stimulus package, including tax cuts.
No doubt those who lost by such measures would not suffer in silence. But the benefits would surely outweigh the costs to bank shareholders, bank bondholders and the owners of mortgage-backed securities.
Americans, Winston Churchill once remarked, will always do the right thing — after they have exhausted all other alternatives. If we are still waiting for Keynes to save us when Davos comes around next year, it may well be too late. Only a Great Restructuring can end the Great Repression. It needs to happen soon.
Niall Ferguson is a professor at Harvard University and Harvard Business School, a Fellow of Jesus College, Oxford, and a senior fellow of the Hoover Institution. His latest book is "The Ascent of Money: A Financial History of the World."
The horror of it all. $60 billion deficit (the real number), $114 billion in debt, $275 billion in unfunded liabilities, yet the Steinbergs, Basses, browns and Newsoms of the California Democrat Party have only one issue: This economic massacre of California could cause responsible government policies, regulations and laws. The horror of it all.
The horror of it all. $60 billion deficit (the real number), $114 billion in debt, $275 billion in unfunded liabilities, yet the Steinbergs, Basses, browns and Newsoms of the California Democrat Party have only one issue: This economic massacre of California could cause responsible government policies, regulations and laws. The horror of it all.
Instead of being concern about failed schools, 30% drop out rates, bad roads, $10 billion a year spent on illegal aliens, crime, corruption and incompetence—the Liberals, the Democrats are concerned all of this to cause California to act responsibility for the first time in years. That would mean the end of deficit spending, unions forcing workers to pay bribes, school choice, tax cuts, spending cuts, 20% reduction in government employment, the end of numerous commissions, boards, agencies and departments.
Yet the Democrats main concern is that if California was forced to be responsible they would be exposed as the cause of the problem. Imagine, California government working for the people, not the special interests—that is a good thing.
By Steven Harmon, MediaNews Sacramento Bureau, 1/27/09
SACRAMENTO — Liberal activists are worried that Democratic legislators are considering a deal to institute permanent curbs on government spending in order to win Republican support for tax increases as the Legislature seeks solutions to a $42 billion deficit facing the state over the next 18 months.
They are imploring Democrats to rethink any deal that they say will effectively cripple government, leaving future generations unable to respond to the more complex needs of a growing state with Draconian cuts required at every level of government.
"I’m very concerned from the conversations I’ve had that Democrats may agree to something like this," said Lenny Goldberg, executive director at the California Tax Reform Association. "There’s no hope for the future if we do this. This would mean that if there’s a huge need that we can’t even anticipate right now, we won’t be able to meet it. If they do this, they better do it with the notion that we’ll put together a campaign and fight like hell to defeat this on the ballot."
That could be a problem. Any change in the way the state spends money would have to go before the people in a vote on a constitutional amendment. But Republicans are insisting that a spending cap be vote-proof: if a spending cap is defeated at the polls, any agreed-upon tax increase would be rescinded, possibly with rebates for taxes collected.
Democrats have for years resisted calls for spending caps, treating them as little more than the ultimate dream of one of the foremost conservatives of the country, Grover Norquist, who once spoke of shrinking government "down to the size where we can drown it in the bathtub."
It would be the ultimate coup for Republicans, particularly at a time when government spending, at least on the national level, has been come to be seen as the only way out of the national economic crisis.
Even taxpayer groups that typically are profusely opposed to tax increases say they would embrace a budget package that includes spending limits.
"It’ll have the effect of stabilizing the budget situation year to year by making sure that money isn’t overspent," said Jon Coupal, president of the Howard Jarvis Taxpayers Association. "Everything that would be a restraint on spending would be anathema to those who want to spend as much as they want."
Lawmakers have refused to divulge details of their negotiations over what a spending cap would look like, but Republicans have dusted off a constitutional amendment from last year, ACA 19, as a blueprint for what they would like.
In that bill, sponsored by Assembly Minority Leader Mike Villines, R-Fresno, government spending would be allowed to grow by about 5 percent from the previous year, based on inflation and population growth.
Any revenues collected above that 5 percent would be placed in a budget stabilization fund, to be used in years when revenues are low. Other extra revenue would be used to pay off debt and returned to taxpayers.
"I don’t know why Republicans took so long to get around to this," said Tony Quinn, co-editor for the California Target Book and former GOP legislative staff member. "We’ve been chasing our own tails for 10 years, where the level of spending annually exceeds revenues. I don’t think Democrats can resist this. The public’s going to say let’s cap spending."
A Democratic analysis of Villines’ bill predicted that school funding would take an ever increasing share of the general fund budget, thus crowding out spending for other areas such as higher education, the environment, health care and transportation.
Spending limits would "lead to dramatic cuts to every area of the budget, an inability to invest in education and infrastructure, and economic uncertainty," the analysis said.
If that were to happen, lawmakers probably would be compelled to suspend the Proposition 98 guarantee to ease cuts on other services, effectively eliminating the guaranteed funding for schools. Some Democrats say they won’t allow that to happen; that the only spending cap they’ll agree to is one that has enough flexibility to respond to fiscal emergencies.
"If they’re talking about limiting our contributions to education — that’s a line in the sand for some of us," said Assemblyman Sandre Swanson, D-Oakland, who serves on the Assembly budget committee. "If they’re talking about a spending cap that’s not flexible enough to deal with an economic crisis, it’s unrealistic. So, how would it be written?"
The growing elderly population would be at greatest risk with a spending cap, said Jean Ross, executive director of the California Budget Project.
"The fastest growing part of our population are the old and very old," Ross said. "And they’re disproportionate users of services — those services with costs that going up much faster than inflation."
Health care costs, which include nursing home care and prescriptions for medication, have risen at a far greater rate than 5 percent and are expected to continue to grow in the future as the baby boomer generation heads into its retirement years, Ross said.
Any spending limitation agreement, she said, "is implicitly saying we’re going to do dramatic cuts" on services the state provides to the elderly.
"This would be extraordinarily shortsighted and would severely limit California’s ability to have a reasonable quality of life or to meet the demands of a growing, aging and diverse population," Ross said. "We would be essentially trading the future for getting through this budget crisis. I don’t think that’s a wise trade."
The California Budget Project produced a study showing that if a spending cap had been enacted in 1995, the state’s general fund spending would have been $31 billion less than this year’s $102 billion budget.
