July 28th California goes bust

<strong><a href="http://www.msnbc.msn.com/id/32010922/ns/us_news-life/">Calif. governor, lawmakers reach budget deal</a>

Agreement announced on plan to close state's $26 billion deficit</strong>



SACRAMENTO, Calif. - Gov. Arnold Schwarzenegger and California's legislative leaders agreed Monday on a plan to close the state's $26 billion budget shortfall, potentially getting the state back on firm financial ground so it can stop issuing IOUs.



The governor and leaders from both parties announced the compromise after more than five hours of closed-door talks. If the agreement survives its run through both houses of the Legislature, it would provide temporary relief to an epic fiscal crisis that has captured national attention, sunk the state's credit rating and forced deep cuts in education and social services.



Most analysts and top lawmakers expect that California will face multibillion-dollar deficits into the foreseeable future as the economy struggles to recover and tax revenue lags far behind the level of the boom years.

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On Monday, the focus was on balancing a state budget that had been thrown way out of whack by declining tax revenue since Schwarzenegger signed it in February during a rare emergency session of the Legislature.



"We are very happy to have a basic agreement," Schwarzenegger told reporters after emerging from his office shortly before 7 p.m.



The Democratic and Republican leaders of the Assembly and Senate were at his side.



No more tax hikes

The plan will include $15 billion in cuts. The rest of the deficit will be made up by a combination of borrowing, shifting money from other government accounts and accelerating the collection of certain taxes.



Schwarzenegger and Republican lawmakers refused to raise taxes any further, limiting lawmakers' options. Democrats had fought to preserve basic social services, including welfare, in-home support and health care for low-income children.



"We have closed the deficit. ... We have protected the safety net," said Assembly Speaker Karen Bass, D-Los Angeles.



Monday's announcement ends a little more than two weeks of intense negotiations that began shortly after the start of the fiscal year July 1, after the Legislature failed to pass interim steps that could have delayed the IOUs.



The state controller's office has been sending the pay-you-later warrants to thousands of state contractors and vendors that provide an array of state services. State finance officials hope a balanced budget will allow the state to obtain short-term loans to cover its daily expenses until most of the tax revenue arrives in the spring.



If it does get the loans, it would be able to stop sending IOUs, which have served as the most visible symbol of California's cash crisis and opened the state to ridicule. California last issued IOUs in 1992 and has done so only twice since the Great Depression.



Hallye Jordan, spokeswoman for state Controller John Chiang, said it was not immediately clear how quickly the state would stop issuing IOUs.



"We'll have to see what their assumptions are, stress-test those and assure that there is sufficient cash to pay off of the state's bills before we can stop issuing the IOUs," Jordan said. "It's going to depend on how much and how quickly cash comes into the state treasury."



Recession hits state hard

The state's ability to function by issuing IOUs to contractors was projected to last until early September without a balanced budget in place. Payments to the state pension funds and paychecks to state workers would have been in jeopardy beyond that point.



While California has been criticized for spending beyond its means, much of the current deficit can be traced to a steep economic downturn that has robbed the state of tax revenue.



Personal income fell this year in California for the first time in 70 years, leading to a 34 percent plunge in income tax revenue during the first half of the year.



The $26.3 billion shortfall amounts to roughly a quarter of the state's general fund, the account that pays for day-to-day state services. The sheer size of the deficit meant that any effort to balance the state's books would be felt throughout the state, from college students seeing a sharp increase in fees to local police and fire departments that face cuts as the state takes money from city and county governments.



"This is a sober time because there isn't a lot of good news in this budget," said state Senate leader Darrell Steinberg, D-Sacramento. "We have cut in many areas that matter to real people, but I think we have done so responsibly."



Details of the agreement were scarce beyond the total amount of spending cuts, but the governor and lawmakers said education would be fully funded.
 
Even if they do get this through their analysis of future income is always flawed (always to rosey) and i can almost bet that they will be in another 8 to 10 billion dollar hole in 3 or 4 months. Unfortunately we are going to have budget issues in this state for many years to come.
 
<strong><a href="http://www.msnbc.msn.com/id/31966634/">Untangling the California budget nightmare</a></strong>



The budget mess in California has readers in that state wondering: So just where does my tax money go, anyway? Unraveling that question helps explain why the Golden State's financial problem has so far defied a solution.

<em>

I know in California many services are paid for out of the general fund, but where do specific taxes go such as my property taxes, my gasoline taxes, my local sales taxes, etc.



I keep hearing about the services I'm at risk of losing due to the financial crisis, but I'm still paying all the above taxes, so I want to know what they are going toward. Can you help me?</em>

? Kevin H., Newbury Park, Calif.





We?ll try. In a 1,000-word column, we can only scratch the surface. But before we get started, have a good laugh and check out this flow chart showing how the budget process works in California.



OK, let?s start with the easy part. If you take all of the revenues that California collects through a variety of sources (more on that in a minute) and then lump them all together, the money last year was spent roughly like this:



The biggest item in the budget ? roughly half the general fund ? goes to pay for education. About $35 billion goes for K-12 and another $12 billion for higher education. (On a per capita basis, that?s just about average for the 50 states, according to census data.)



The next biggest chunk, about $31 billion, pays for various health and human services programs, the biggest of which is Medicaid. It cost about $10 billion to keep the prisons running last year and about $3.8 billion to pay for the three branches of state government: the governor's office, the legislature and the courts. Other services like environmental protection, labor, transportation and housing programs are all rolled up into another $4 billion or so.



All of this is paid for with a collection of taxes and fees that all go into one big pot called the general fund. The bulk of that, nearly $47 billion, comes from income taxes. (California is sixth highest per capita, according to the Tax Foundation.) The next biggest source of funds is the sales tax ? at 8.25 percent, the highest in the country ? which generated $28 billion last year. Corporations pay $10 billion, and the rest comes from a variety of other sources, including taxes on cigarettes and liquor, gasoline, motor vehicle fees, oil production, etc.



But that $91 billion just represents the so-called ?general fund? ? the money that all goes into one big pot and pays for programs proposed by the governor and approved (or not) by the legislature. Like most states, California has a list of separate ?special funds? that are paid for through a variety of dedicated taxes and fees.



By our count, there are more than 400 of these things ? from the Abandoned Watercraft Abatement Fund to the Wine Safety Fund ? which siphon up another $26 billion. You can check out the full list of those special funds here.



In theory, these funds are supposed to be ?lock boxes? ? dedicated programs that are walled off from the general fund so they won?t be cut. In some cases, they were mandated by referenda when voters decided to guarantee themselves a particular program or service they didn?t want the legislature to take away from them. In practice, though, the legislature has gotten skillful at raiding some of these programs to make up for budget shortfalls elsewhere.



With so much of its budget paid for with income and sales taxes, the shortfall in California has been severe. With an state unemployment rate at 11.5 percent, all of those people out of a job won?t be paying income taxes. And with consumers tightening their belts, the sales tax revenues have dried up rapidly. It?s hard to cut services that quickly without inflicting some serious pain on the voters.



But the Golden State?s penchant for managing state finances through a hodgepodge of referenda has made an even bigger mess of the budget. One of the biggest roadblocks at the moment, for example, is something called Proposition 98, a constitutional amendment approved by voters two decades ago that prevents the government from cutting funding for schools and community colleges below a certain level. With Proposition 13, however, voters in 1978 capped the amount local governments could charge in property taxes, which is by far the biggest source of funding for public schools in most states.



So it?s not hard to see why California is having such a tough time balancing the books. Not only is the government spending beyond its means, it?s required to do so by a state constitution created by voters at the referendum ballot box.



<em>(You recently wrote) "the IRS will continue to require that (California) employers withhold taxes from most workers? paychecks. So the (state-issued) IOUs can?t be used to offset that federal tax liability."

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I challenge you to show me anywhere in the IRS documents that would state the term 'liability' as it applies to these workers. You will not find it. Do yourself a big favor and stop using words that mislead the masses.</em>

? Salah



The word comes from me, not the IRS.



A "liability" is something you owe or some other obligation or potential future expense or claim.



Based on established laws that a handful of tax cranks choose to ignore, most people owe taxes on income ? unless they earn too little or have enough offsetting deductions or credits. All of which is clearly spelled out in laws that have been upheld by the courts for decades.



Nonetheless, there are a surprisingly large number of readers (not all of them from California) who seem to believe that government could continue to provide all the services they want and need ? even if we all stopped paying our taxes.



It doesn?t work that way. People who ?volunteer? for military service, for example, still expect to get paid. If you believe government should provide fewer services, by all means vote for representatives who believe in smaller government.



But you can?t just decide to stop paying your taxes. All that does is raise taxes on the rest of us.
 
[quote author="OCCOBRA" date=1248174652]Even if they do get this through their analysis of future income is always flawed (always to rosey) and i can almost bet that they will be in another 8 to 10 billion dollar hole in 3 or 4 months. Unfortunately we are going to have budget issues in this state for many years to come.</blockquote>
Yup, we will be back to drawing board next year because California lawyer makers were a bit too "optimistic" about tax revenues rebounding with a v-shaped recovery.
 
<a href="http://www.sacbee.com/walters/story/2041808.html">Dan Walters tells it like it is.</a>



<blockquote>The governor and legislative leaders are implicitly telling us that as flawed as it may be, the budget is the best they can do.



The most damning aspect of this tiresome situation is that the best budget our political system can produce is deceptive and fundamentally dishonest.<strong> It should tell us that we have a much bigger problem than an unbalanced budget.</strong> </blockquote>
 
So the Governor and Legislature stumble through to a compromise that kind-of, sort-of, maybe solves most of the budget problem. Unless, of course, their revenue estimates are too optimistic (again) or the state employees go on strike, or the cities and counties that are screwed are successful in their lawsuit to stop the raids on their funds, or...



I'm with those that think that Sacramento will be back arguing about this within a month, trying to find an additional $5 - 10 billion to cover what they haven't done yet. Maybe we should start a pool! When will the arguing start, and how much of a shortfall needs to be covered.



To me, the most disappointing item was the last-minute removal of the plan to allow drilling for oil from an existing off-shore oil platform north of Santa Barbara. The company that wanted to drill was offering $100 million to the state this year, with a billion more over the life of the project. Jobs would have been created here in California. Oil revenue and royalties would provide a continuing support to the state coffers. The infrastructure to deliver the oil already exists. Producing oil here in the US is preferable, both economically and environmentally, to foreign oil production. (Does anybody believe the Nigerians, Russians or Chinese will operate their oil fields in as responsible a manner as companies under U.S. regulation and oversight?) Finally, even if a "silver bullet" solution to our current dependence on oil was discovered today (it hasn't been), and a crash program was immediately started to convert to that solution, it would take decades. And we will need to produce oil, and use it for the duration of the conversion process. Just saying "no" to oil does not provide an alternative that is feasible.



(sigh) I'm glad I sold my house and rent. I'm glad I don't have kids in school to worry about if I relocate. I'm practicing up on regaining my midwestern accent.



[quote author="EvaLSeraphim" date=1247616201]



On another note, I do have responses to NSR and GoIllini coming, I just want to take my time so that my replies are cogent and as respectful to them as their replies were to me. Silence should not imply agreement. ;-)</blockquote>


Eva -- I really would like to read your response!
 
[quote author="GoIllini" date=1248562252]

[quote author="EvaLSeraphim" date=1247616201]



On another note, I do have responses to NSR and GoIllini coming, I just want to take my time so that my replies are cogent and as respectful to them as their replies were to me. Silence should not imply agreement. ;-)</blockquote>


Eva -- I really would like to read your response!</blockquote>


Me too.
 
[quote author="No_Such_Reality" date=1248566768][quote author="GoIllini" date=1248562252]

[quote author="EvaLSeraphim" date=1247616201]



On another note, I do have responses to NSR and GoIllini coming, I just want to take my time so that my replies are cogent and as respectful to them as their replies were to me. Silence should not imply agreement. ;-)</blockquote>


Eva -- I really would like to read your response!</blockquote>


Me too.</blockquote>


Sorry folks, I've been slammed lately. We recently got our year end fiscal numbers: workload up ~30% and staffing down ~10% in FY 08-09, as compared to FY 07-08.
 
Shocker: <a href="http://www.sacbee.com/737/story/2086698.html">Public employee wages have not kept pace with inflation.</a>





<blockquote>So let's look at one big group, Service Employees Local 1000, which represents 95,000 state employees.



Last year it took $1.60 to buy what it cost a dollar to purchase in 1991, according to the CPI. Meanwhile, Local 1000 employees' cumulative salary increases over the same period added about 30 cents to that 1991 dollar.



To be fair, Local 1000 members who are in highly demanded professions, such as nursing, have gained more raises. But those exceptions aside, the union's cumulative raises last year trailed inflation by about 50 percent.



Then Gov. Arnold Schwarzenegger ordered two furlough days for nearly all state workers. In July, he added a third, a roughly 14 percent pay reduction.



Now Local 1000 wages are back down to where they were five years ago, about 15 cents above that 1991 dollar.



Of course, inflation hasn't taken any furlough days, so the union's wages now trail the CPI by about 77 percent.</blockquote>
 
[quote author="EvaLSeraphim" date=1250685637]Shocker: <a href="http://www.sacbee.com/737/story/2086698.html">Public employee wages have not kept pace with inflation.</a>





<blockquote>So let's look at one big group, Service Employees Local 1000, which represents 95,000 state employees.



Last year it took $1.60 to buy what it cost a dollar to purchase in 1991, according to the CPI. Meanwhile, Local 1000 employees' cumulative salary increases over the same period added about 30 cents to that 1991 dollar.



To be fair, Local 1000 members who are in highly demanded professions, such as nursing, have gained more raises. But those exceptions aside, the union's cumulative raises last year trailed inflation by about 50 percent.



Then Gov. Arnold Schwarzenegger ordered two furlough days for nearly all state workers. In July, he added a third, a roughly 14 percent pay reduction.



Now Local 1000 wages are back down to where they were five years ago, about 15 cents above that 1991 dollar.



Of course, inflation hasn't taken any furlough days, so the union's wages now trail the CPI by about 77 percent.</blockquote></blockquote>


I'm sorry, Eva. But my sympathy meter just doesn't move one bit. IR has his <a href="http://www.irvinehousingblog.com/blog/comments/the-reservoir-of-schadenfreude/">Reservoir of Schadenfreud </a>for failed real estate flippers. Those of us who have dealt with government employees in our professions and our daily lives have our own reservoirs accumulated by the governmental waste and poor management of staff and resources we've seen; and the inability of the legislative bodies to take corrective action because they are captives of organized labor. Instead of complaining, why not tell us how agencies are trying to improve efficiency and reward productive individuals while weeding out the non-productive? I suspect the reason you can't give us examples of moves to increase efficiency and productivity is that there is no focus on that. Staff reductions are NOT a goal, and they should be.
 
[quote author="EvaLSeraphim" date=1250685637]Shocker: <a href="http://www.sacbee.com/737/story/2086698.html">Public employee wages have not kept pace with inflation.</a>





<blockquote>So let's look at one big group, Service Employees Local 1000, which represents 95,000 state employees.



Last year it took $1.60 to buy what it cost a dollar to purchase in 1991, according to the CPI. Meanwhile, Local 1000 employees' cumulative salary increases over the same period added about 30 cents to that 1991 dollar.



To be fair, Local 1000 members who are in highly demanded professions, such as nursing, have gained more raises. But those exceptions aside, the union's cumulative raises last year trailed inflation by about 50 percent.



Then Gov. Arnold Schwarzenegger ordered two furlough days for nearly all state workers. In July, he added a third, a roughly 14 percent pay reduction.



Now Local 1000 wages are back down to where they were five years ago, about 15 cents above that 1991 dollar.



Of course, inflation hasn't taken any furlough days, so the union's wages now trail the CPI by about 77 percent.</blockquote></blockquote>


Is SEIU the one with the explosive growth of the home health care workers for taking care of a person in their family?



Is salary increases, literal? Meaning they didn't count COLA? That would be a classic tactic. Typically, in discussing salary increases with State Unions, the salary increase is the amount ABOVE COLA.



How'd their benefit and retirement package do over that period?



http://www.sacbee.com/1098/story/1666249.html



Over a 1/3rd of CHP make over $100K. Nearly a quarter of the 60,000+ Correctional workers make over $100K.



And of course, SacBee examined the accuracy of your link <a href="http://www.sacbee.com/static/weblogs/the_state_worker/2009/07/the-truth-about-state-worker-p.html">in this follow-up.</a>



Here's highlights of their old <a href="http://www.dpa.ca.gov/pv_obj_cache/pv_obj_id_B150C27531BE8C791E9B87C97E75BC8FD8060100/filename/seiutasummary.pdf">contract</a>.



Read section 11.7 on page 75 of bargaining Unit #1's terms of <a href="http://www.dpa.ca.gov/pv_obj_cache/pv_obj_id_188416DF8EDB4CC906B2A62E439B44E9D9B60800/filename/mou.pdf">understanding.</a>



Employees still get Merit Salary Adjustments above the above general salary increases.
 
It never ends..



The Metropolitan Water District will vote on a new labor contract that increases long-term pension obligations as well as employee salaries.

<a href="http://taxdollars.freedomblogging.com/2009/09/04/met-says-new-contract-hikes-employee-pay-and-pensions-and-save-money-ocs-not-buying-it/34733/">New MWD Contract </a>
 
Saw this chart yesterday re: fed govt pay. Hadn't heard of <a href="http://www.businessinsider.com/chart-of-the-day">Clusterstock</a> before, but it seems like a pretty cool site.



<img src="http://static.businessinsider.com/~~/f?id=4a982ffe33b676021318cfd2" alt="" />
 
[quote author="Daedalus" date=1252287328]Saw this chart yesterday re: fed govt pay. Hadn't heard of <a href="http://www.businessinsider.com/chart-of-the-day">Clusterstock</a> before, but it seems like a pretty cool site.



<img src="http://static.businessinsider.com/~~/f?id=4a982ffe33b676021318cfd2" alt="" /></blockquote>


Daedalus: While, I agree with your general sentiment, I don't completely trust that chart. The chart author's response to critics makes me especially leery of the data he used to make it:

<a href="http://www.cato-at-liberty.org/2009/08/26/federal-pay-response-to-the-critics/">http://www.cato-at-liberty.org/2009/08/26/federal-pay-response-to-the-critics/</a>



Doesn't seem like he did an apples to apples comparison because of the way the BEA structures their data. I do think, though, that if there was a fair comparison of data (similar sample data, including benefits) the public sector would definitely win out.
 
<a href="http://latimesblogs.latimes.com/money_co/2009/10/pimco-total-return-bill-gross-california-commentary.html">http://latimesblogs.latimes.com/money_co/2009/10/pimco-total-return-bill-gross-california-commentary.html</a>



Bill Gross isn't leaving OC (it's the weather, yo!) but he kicks them once more. Here are the comments from the blog which, to me, are far more interesting.



<blockquote>All of that is well-put, but Gross, 65, isn?t telling demoralized Californians anything they don?t already know.



What his fellow Californians really might like to read are Gross? ideas for beginning to fix what?s wrong with the state. Raise income taxes? Cut them? Junk Proposition 13? Offer new incentives for entrepreneurs? Forcibly annex Arizona?</blockquote>


Prop 13 isn't going anywhere, but it should. This is exactly what it's opponents said would happen in 1976.
 
Controller John Chiang is on CNBC right now. They've overestimated revenues to the state and apparently need to cut another couple billion out or do something else like raise taxes.



The state furlough program has been a failure if containing costs was the objective - the main failure being at the prision system. They would schedule a guard to have a furlough day, and then call them in anyway because they are chronically understaffed. Being chroniclly understaffed causes a saftey issue for prisoners and guards both.



<a href="http://www.latimes.com/news/local/la-me-furlough14-2009oct14,0,7601041.story?track=rss">http://www.latimes.com/news/local/la-me-furlough14-2009oct14,0,7601041.story?track=rss</a>



The shadow of Willie Horton lies long and dark over our current budget crisis.
 
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