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Saturday, February 14, 2009

This is the Worst Possible Budget Deal But It Needs to Pass

Given the fact that this is the bicycle capital of the world, I risk a lot by saying this, but the priorities of people are a bit off in this country. Originally the state legislature was going to meet at 9 am this morning to vote on the budget agreement.

However there is one problem. Tomorrow in Davis there will be the Amgen Bike Tour. In Sacramento that will be today from 1 pm to 4 pm. There will be 100,000 people in downtown Sacramento today. Not of course to watch the budget vote, but to watch Lance Armstrong.

As a result, the State Legislature will be pushing off their vote on the budget to 5 pm on Valentine's Day Evening. If you're keeping score at home bike racing > Budget > Love and Marriage.

Now that we're clear on our priorities, let us lay out the stakes as if you do not know it. The most immediate stake is that there will be 20,000 state workers laid off their jobs if the budget does not pass. I am certain that some people reading this thinks this is a good thing, I would strongly suggest they put themselves in the shoes of those who make a modest income to begin with and will suddenly not know where their next paycheck is coming from.

That is just the immediate impact. The state is literally out of money. So right now, as we learned from Yolo County's Assistant Administrator Pat Leary on Wednesday, the County is not receiving its normally $5 million in monthly payments from the state in order to carry out its state mandated functions. Those are all of the social service functions the county provides. The county is still performing them, but they are taking the money from an emergency joint fund that is shared money from the cities and other jurisdictions in this county. They have to pay the money back with interest. They will get the money back probably but again, they will lose the interest. This is on top of the $22.5 million deficit the county is facing next fiscal year.

At some point, the state will not only be issuing IOUs to state employees, but to jurisdictions themselves. That means that at some point schools, counties, and municipal governments will have to operate without any state money. That will be an interesting challenge.

The bottom line, and I have spoken to a lot of people about this. There will come a point when the state starts defaulting on its obligations and those entities will basically have to shut down. If that happens, the entire state could come crashing down and then the state's economy will go from on the brink of disaster as it stands now to over the cliff. This is not an exaggeration.

Let's be honest up front--nobody is going to like this deal. No one. It's a bad deal. It's a horrible deal. And it is one that we have to sign because if we do not, things get so much worse. I cannot tell you how many different people have said this same thing in their own words.

On Wednesday, Senate Republican Leader Dave Cogdill called this deal the best they were going to get.
"My deal, one more time, has always been that I would try my best to get it to a position where I felt it was as good as I could get and I was willing to release my members. That's where I am. So I'm not guaranteeing any votes; it's up to them (his members) to make that decision… But I've negotiated it to the point where I think it doesn't get any better…"
He did say he was turning them loose to allow them to vote if that’s their decision.

In fact, the Senate leader himself would not commit to supporting the package saying:
"We're waiting to see all the language and all of that so I'm not ready to commit who the votes will be at this point."
The question is whether or not they have the votes and one-by-one Republicans announced that they were not voting for it. Until there were just three Republicans who had not announced that they were not voting for it, but they also hadn't announced that they were not voting for it.

This is what Shane Goldmacher from the Sacramento Bee said:
"The field of potential Republican votes for the budget compromise in the Senate -- widely viewed as the most challenging caucus to corral support -- has narrowed so significantly that only three members have yet to throw cold water on the tentative deal.

That happens to be the bare minimum of Republican votes needed to pass the $40 billion-plus budget plan.

Those three are Senate Republican leader Dave Cogdill, Sen. Dave Cox of Fair Oaks and Sen. Roy Ashburn of Bakersfield."
Here's the Senate Republican Caucus' Morning release:

"What They Are Saying About the Bipartisan Budget Solution...

"...what lawmakers and voters must understand is that the choice is not between this budget and some theoretical better deal; it is between this budget and fiscal meltdown."

-- Los Angeles Times editorial, February 13, 2009

"... there is one overpowering, compelling reason that legislators should approve it: It is the best possible deal that we can imagine out of a dismal reality - economic and political - that has left California government at the brink of insolvency."

-- San Francisco Chronicle editorial, February 13, 2009

"...the tentative budget deal being worked out by the governor and legislative leaders is probably the best we can get. Perhaps the only positive thing about the proposed deal is that its spreads the pain fairly evenly."

-- Fresno Bee editorial, February, 13, 2009

"Given the scope of the state deficit, any budget compromise will contain ugly and unpopular components. But further delays are an even worse option."

-- Modesto Bee editorial, February 13, 2009)

"When Republicans unveiled their budget draft back in December, they put forward their wish list of government changes they wanted as part of any budget agreement. And though details are still coming into focus on the tentative budget deal, it looks as if Republicans made progress in nearly all of the areas they wanted changed."

-- Capitol Weekly article, "Republicans win concessions in budget plan," February 12, 2009)

"While this budget contains a painful mix of cuts and tax increases that nobody loves, the cost of inaction is much, much greater. Every day we wait to pass a budget means further economic devastation, the loss of thousands more jobs, and the shuttering of small businesses up and down the state."

-- Jim Earp, Executive Director of the California Alliance for Jobs, press release, February 12, 2009

"If we don't pass this budget now the pain will only get worse and the budget hole will only get deeper. It took courage for the Governor and our legislative leaders to make these hard decisions but they stepped up to the plate and addressed their responsibilities."

-- Danny Curtin, Director of the California Conference of Carpenters, press release, February 12, 2009"
So do we have the votes? Find out tonight.

What's in the bill?

A mix of spending cuts, tax increases, and borrowing. $15.8 billion in spending cuts, $14.3 billion in tax increases, and borrowing of $10.9 billion some of which will require voter approval.

How bad are the cuts? $5.646 billion from education this year. Another $2.955 billion next year. Higher education will get a 10% cut across the board. In other words, it's really bad. We do not know to what extent this includes budget flexibility. It looks like Class Size Reduction remains however.

The Los Angeles Times declared business the big winner in the budget plan. While we are having to pay more taxes, there is $1 billion in corporate tax breaks.
"About $1 billion in corporate tax breaks -- directed mostly at multi-state and multinational companies -- is tucked into the proposal. Opponents say the breaks will do nothing to create jobs, and the Legislature has rejected such moves repeatedly in the past. But now, to secure enough Republican votes to pass a budget that would raise taxes on everyone else, the Legislature is poised to write them into law with no public hearings at a time when the state treasury is almost out of cash."
Some of this was contingent upon the federal stimulus giving at least some money to California. Some of that borrowing is coming from stimulus money. We will have to see how that plays out.

The bottom line, this is again an awful budget. Horrible things will happen as the result of it. But if it does not pass, it is going to affect everyone's life in profound ways that you cannot imagine.

---David M. Greenwald reporting