And Still We Have No Budget

I rarely comment in this space about comments to other posts, but given that I am trying to bring together multiple threads into a single article, it actually works quite well.

The anonymous commenter said:

"I agree the State Legislature is bad and has been that way for more than a few years. The self serving Nunez and Perata are gone and that helps. I think Arnold has been trying to get everyone to see the light for a couple of years now. But they all have their special agenda's to follow."

Having covered the state government for over two months now as my "day job," I have to strongly disagree with the Mr. Anonymous here. The Governor is the problem--he does not lead, he issues fiats and then goes on extravagant trips.

Let us for a few moments throw out politics altogether and forget about whose side we agree with and whose side we disagree with. Let us also throw out the fact that California's two-thirds requirements are unworkable. On a side note, the Public Policy Institute of California's poll shows for the first time ever a majority (bare as it is) support for reducing the two-thirds requirement to pass a budget to 55%.

But back to the problem. Everyone talks about how they do not like politicians. Let's face it, they are unsavory. They are often cold, calculating, and bent on scoring political points over sound public policy. But there comes a time when you just need to get things done. And let's face it, we are long past that in California.

When there is a budget deal, and there will be at some point, no one is going to like it. The Republicans are going to have to accept the fact that taxes have to go up because you simply cannot make enough cuts to balance the budget without causing more problems than you solve. Democrats are going to have to accept the fact that we are spending too much money and have to cut and that unfortunately they are not going to be able to just cut programs that they don't like, they are going to have to cut into programs that they do like and from their perspective, do work.

Everyone is going to hate something about this budget.

So back to the Governor. The Governor cannot do this by fiat. The Governor cannot try to do this from afar. If he wants to portray the severity of the problem, then he needs to be traveling around explaining the problem to constituents. He needs to park himself in Sacramento and he needs to roll up his sleeves and work. Until he is willing to do that, this budget problem is not going to be solved.

Moreover, the Governor has one primary responsibility in this process, he must get enough of his own party on board with him to strike a deal. This is a complete and total failure on his part. If Arnold were merely having to work with the Democrats, there would have been a deal a long time ago. The Democrats for the most part have been willing to compromise far more than the Legislative Republicans. I am sorry, but in my book that is Arnold's failure. All he needs is three votes from the Republican party. He should be able to offer enough inducements to get three members of his party to sign on, but he has not been able to do this so far.

There is a ripple down effect here that is going to be tremendously devastating. First, the governor is trying to balance the budget on the backs of state workers right now. Folks, most of these guys aren't like the Davis Firefighters making $150K per year in total compensation. These are people who make maybe $30 to $40K. A ten percent cut in their salary means somewhere between $300 to $400 per month in cuts for people who are largely living paycheck to paycheck.

Budget cuts are preferred by many over tax increases. Sales tax may be regressive, but think about it this way, a 1% sales tax increase means, one additional cent per dollar, it means one dollar additional tax per $100, it means ten dollars additional tax per $1000. You are telling me that people who make a $1000 purchase are going to notice $10 additional in sales tax?

On the other hand, budget cuts mean people will get laid off. One proposal for example had Republicans suggesting $10 billion in education cuts. Let us not forget what that would actually do to education, probably the most important thing we spend our money on, that's probably 20,000 teachers laid off. What would that do to the economy. We've had to suspend construction projects to the tune of $660 million per month. For crying out loud, the stimulus plan that Obama is looking at is trying to create construction projects to stimulate the economy. And we are cutting those jobs?

A lot has been made about furloughing state workers. People seem anti-state worker until of course they can't get their unemployment check or go to the DMV, because it's closed on a Friday when they should be open to collected revenue for the state. Then suddenly they realize that they need state employees to run our state. They provide a service. They are "public servants." We actually need them. Of course you say, private sector is laying off their workers, local government is also furloughing their workers. But wait, there is one big difference, let's start at Yolo County by way of example.

Remember as I said earlier, Arnold likes to govern by fiat. There is a process by which furloughs should be considered. It is the collective bargaining process. If the County cuts employee work days and salaries it occurs in negotiation. If the school district cuts employee work days and salaries it occurs in negotiation. If the city of Davis cuts employee work days and salaries it will occur by negotiation. That is how the rights of workers are protected. Almost every agency has been willing to sacrifice so that employees are not laid off. For all the perception out there, that is an amazing thing.

However, Arnold wouldn't and won't do that. This despite public employees groups publicly suggesting that they would be willing to work with the state to make things work to avoid layoffs. This despite what Speaker Bass said on New Year's Eve that the Democrats would be fine with holidays and furloughs as long as it was part of the collective bargaining process.

Yolo County is in many ways in deep trouble. They will be $18 million in deficit. That is one-third of their operating budget. There was a good story Friday in the Sacramento Bee on the relative success of Yolo County in instituting voluntary furloughs since May. That's right, voluntary furloughs. That is how job losses have been avoided. But this occurred with the help and consent of the bargaining units as opposed to forcing furloughs upon them.

That, at least, has been the experience of Yolo County government workers – for whom unpaid time off has become the norm over the last seven months.

Beginning last spring, when county officials realized they had to cut costs, Yolo County employees either volunteered to take time off or eventually faced mandatory furloughs.

Many say their experience has been surprisingly positive, despite the pay cut.

The Governor does not operate that way. He issues demands and fiats and expects people to comply. What he discovered is that that type of approach produces resistance rather than cooperation.

Let us not kid ourselves, the situation would be dire no matter what given the nature of the economic crisis before us, but had Arnold agreed to a budget in December, California would be in far better shape.

For one thing, we would be working with real budget numbers rather than assumptions. People's lives have been torn apart based on these assumptions.

Look no further than the school district. They are going to have to put people on pink slip notice once again because they cannot assume budget flexibility. If we had a budget, they might not have to do this. They are going to have to ask teachers to take a 2.5% pay cut. This will be negotiated. It is not preferred, but it will be done if need be in order to prevent job losses right now.

I actually think Sheila Allen summed it up the best:

"It's just so frustrating that we have deadlines that we have to meet and other elected officials are not. So we're working with 'fiction' and we're messing with real people's lives when it's based on fiction, it's very frustrating."

I agree. I'm sorry anonymous, but from my standpoint, Arnold doesn't know how to negotiate. He doesn't know how to lead. The departed President found himself in a similar situation. Oh he had conviction to the point of stubbornness, but like George Bush, Arnold never learned the most valuable lesson of all, you aren't a leader if no one is following you. Until Arnold learns that lesson, these budgets will only get more difficult and more and more people's lives will be torn apart.

Come on Mr. Governor, it's time to step up and solve the budget crisis not by will, not by fiat, but by cooperation and in true spirit of negotiation.

---David M. Greenwald reporting

State Budget Bad News For Davis Schools?

At first glance one might believe that passing the state budget without the cuts to education that the Governor originally proposed would be good news for schools around the state.

However, at the school board meeting on Thursday night, Superintendent James Hammond reported that the district's budget outlook remains uncertain and even gloomy.

The first problem is that the budget contains within it the authority for the governor to make midyear budget cuts. That was one of the sticking points for the Governor and it makes it very difficult for school districts to plan. Imagine the expectation of state money and to have that state money cut in the middle of a school year. Suddenly the district could be scrambling around for money that it had planned on having. Districts like Davis have almost no margin for error. Across the state, school districts are very concerned about this possibility.

School Board member Richard Harris who also works as a lobbyist in the state Capitol said that he thinks the district is probably worse off now than before the budget was adopted.

The second problem is that there will be little or no cost-of-living adjustments for school districts from the state. Basically that means that while inflation is occurring, the state is not adjusting the amount of money which is equivalent to a budget cut along the rate of inflation in a given district.

The worst problem by far is that the state budget does not address the state's own structural budget deficit. It merely punts the problem until next year's budget. And making matters even worse, the economic condition in the state does not appear to be improving any. Thus the state budget picture looks worse next year than it was this year.

For a district like Davis, that makes it even more imperative that the local voters pass the parcel to enable the school district to continue to operate at current levels. The good news for a district like Davis that resident have been generous in the past with support for the schools in the form of parcel taxes and bond measures.

However, many districts across the state are not so fortunate. School dodged a large bullet when the May revised budget forecast put back a lot of the money that the Governor was threatening to take out in January. The budget largely mirrored the May revise. However, with the prospect for midyear cuts and a worse budget forecast looming for next year, schools are hardly out of the woods. Those districts and students who are most vulnerable will take the brunt of this.

While from the standpoint of many, having a state budget passed was a good thing. At the end of the day, they did not resolve any of the tough issues. As a result, school districts will once again have to look for ways to cut money without cutting teachers and programs, a prospect that will become more and more difficult as time goes on. Luckily for Davis, the voters have the opportunity this fall to bypass many of those problems by approving a modest $120 per year increase in the parcel tax that will enable the Davis schools to continue to function at their present high level.

---Doug Paul Davis reporting

A Budget That Nobody Wants--And We're Probably Stuck With

Despite a veto from the Governor, this is likely going to be the budget. The legislature expects to override the Governor's Veto this is coming on Friday. If that happens, California will finally have a budget. The Governor will shown to be a powerless figure who occupies the statehouse of the nation's largest state.

As the Bee Editorial says:

"Gov. Arnold Schwarzenegger will reclaim the high ground on the issue that propelled him into the Governor's Office five years ago but has bedeviled him ever since: the state's badly broken finances."

Of course it's hard to feel for this governor after some of the antics he has pulled including threatening the livelihood of tens of thousands of state employees, laying off thousands of temporary state employees, and now threatening to have a temper-tantrum and veto every bill that comes before his desk.

Polling shows that Governor Schwarzenegger is at an all-time low in his approval, but most of the public does not have the stomach for recall. Heck, recall did not work last time and it will not work this time.

No one is really happy about the budget.

Jim Sanders of the Sacramento Bee on Monday reported:

"A key element of the deal would increase by 10 percent the amount of income taxes withheld from workers, and from taxpayers who earn income from investments.

Much of the $15.2 billion budget shortfall would be bridged by advancing revenues to be collected in future years, shifting or borrowing money from other state funds and employing accounting maneuvers. The plan would generate immediate revenue but leave gaping holes in future budgets."

Dan Walters, who I rarely agree with, blasted the budget deal:

"Nobody could have dreamed up a less responsible, more gimmicky, sure-to-backfire state budget than the one California's political leaders cobbled together and were jamming through the Legislature on Monday night to end a months-long stalemate...

"They violated every principle of fiscal responsibility by conjuring up billions of dollars in sham revenues - basically money borrowed from corporate and personal taxpayers that would have to be paid back later - to cover a huge deficit so they could blow town."

Assemblywoman Lois Wolk's comments were surprisingly and refreshingly honest.

"The best you can say about this budget is that it's done. We have managed to keep our schools funded without raiding funds from local government and transportation. That's good.

"The disappointing part is that we have only, as the Governor says, kicked the can further down the road. We failed to address the structural deficit and next year's budget will be even more difficult to solve than this one. Yes, this is a compromise, but it's not one that anyone should be especially proud of. I'm not.

"On the plus side, in addition to avoiding teacher layoffs, I am satisfied that we were able to keep our local law enforcement and rural sheriffs fully funded and prevented some of the most onerous cuts in health services for children and seniors.

"This experience has reinforced my belief that we need to reform the budget process as soon as possible. Allowing a minority of legislators to hold the Governor and the entire state hostage is unacceptable. I am currently working with an independent bipartisan reform effort going on right now called California Forward. This is the most serious reform effort in decades and I am looking forward to supporting their recommendations."

On the other hand, what has the Assemblywoman done to change the outcome? She voted for the compromise.

Basically what the legislature is doing is kicking the can down the road to the next legislative session. They have not done anything to solve the problems that underlie the budget. Schools will face budget cuts again next year. Worker's will face uncertainty about their job security and their benefits. Millions still have no health insurance.

One thing this whole mess has convinced me to do is take another look at the redistricting reform bill. Personally, I think term limits have been a disaster. As this process unfolded, it was clear that there was no big five who could get together and hammer out the details of the budget and then get their members to support it. It was also clear that Governor has absolutely no influence in his party. Some might say that's a good thing, but the problem with it is that he cannot get the membership of his party to agree to his proposals. That leaves the Republican party with the power only to hijack and to negotiate and bargain.

Why might the redistricting plan help? For starters we can hold politicians accountable. Right now, 90 percent of the legislators live in safe districts. It is difficult to hold politicians accountable when they do that, except in the rare condition when one of their own party members can take them out like what happened with Mark Leno defeating Carole Migden.

If you look at the groups supporting Prop 11 there are some pretty good reformist groups on the list--League of Women Voters, AARP, Common Cause, ACLU, advocates from blacks, Hispanics, children, and seniors, among others from the other side which includes Chamber of Commerce, Police Chiefs Association, Taxpayers' Association, Business Roundtable, the list goes on.

I have not decided to support the measure, but I am looking again. Some have suggested that the two-thirds vote is a problem--it is but it is not going to go away. The only way this gets solved rather than postured is if both sides go into negotiations and recognize that they have to do things that they do not want. For Republicans that means some taxes have to go up, perhaps they can decide which ones. For Democrats that means there has to be cuts. If you do not want education cut--and they should not--then you have to find some cuts.

If I were they, I would appoint a six member bipartisan group of legislators at the beginning of the session to come up with a way to reform the system and avoid this trouble from the start. Go through the budget and figure out what can be cut and then agree on revenue enhancements. When both sides hate it, then you know that there has been a good job done. Until that happens, we are going to keep repeating this year's scenario.

The worst part is that the people who get caught in this are not the legislators. Last night on the news they showed all of these state funded senior housing care centers where people have had to borrow from their own savings in order to keep them afloat. If these centers go under, thousands of senior could be put on the street. That would look good right before an election.

---Doug Paul Davis reporting

City in Dire Financial Condition

Throughout this campaign, Incumbents Don Saylor and Stephen Souza have made the bold claim that we have balanced our budget with a 15 percent reserve. However, that claim has been disputed by Incumbent Mayor Sue Greenwald and several of the challengers who argue that the balanced budget claim masks the huge problem of unmet needs.

Indeed the residents of the city of Davis saw the dire warning signs on Thursday when the Davis Enterprise ran the startlingly truthful and bold headline:

"City lacks funds to keep up with needed street repairs."

Below that is the ominous warning:

"But while streets, bike paths and sidewalks will stay in good condition for the immediate future, the city's current proposed funding allows streets to deteriorate while the cost to repair them will climb exponentially."

The unmet needs are not some kind of budgetary extra that require funding when we get the money--they are essential upkeep and repairs and upgrades that if we do not act on them now, will cost far more in the future.

City Manager Bill Emlen acknowledged the problem:

"There's lots of concern about the sidewalks and the bike paths. Realistically, it's going to be hard to address them."

The Public Works Department report is rather dire. The bottom line:

"This backlog will continue to increase steadily if additional funding is not allocated. The higher maintenance backlog will result in increased future costs because expensive treatments will, unfortunately, be necessary if less expensive treatments aren't utilized in a timely manner.

"The cost to maintain or repair roads exponentially increases as time goes on."

As the Mayor Sue Greenwald pointed out this is part of the deficit. And if we do not meet these needs, the costs increase.

"Citizens consider sidewalk maintenance, roads and bikeways essential services, so we can't just redefine it away and say we have a balanced budget. We call them unmet needs, but they're really part of the deficit. I consider that semantic."

Meanwhile, in Wednesday's Davis Enterprise column, Rich Rifkin described in vivid details the trainwreck approaching if we do not contain costs.

Mr. Rifkin rightly sounds the warning:

"By drastically reducing spending on capital projects, the all funds budget appears to be in surplus.

And counting just ongoing expenses and income, the general fund is sort of balanced. The city expects general fund revenues of $39.7 million and plans to spend roughly that next year. However, that "balanced budget" is misleading.

The reality is the general fund will be in deficit for the third year in a row. Next year's shortfall, made up of one-time expenditures, will be $436,286, almost $100,000 worse than was projected last year. Since 2006, the general fund reserve has declined by one-third, from $9 million to $6 million.

We are also short an additional $3 million in 2008-09 needed to pay for ongoing repairs to our streets and sidewalks. That is not a one-time deficit. We will be short this money every year for the foreseeable future, inevitably leading to brutal and unsafe road conditions in Davis."

But all of this really gravy. The real problem lies in the unfunded debt of around $40 million for retiree benefit liability:

"As bad as that sounds, it doesn't approach what is really wrong. The biggest problem is the rapidly growing retiree medical benefit liability. This unfunded debt stands at around $40 million, more than six times what we have left in the general fund."

This was not a good news week for the some of the incumbents or the firefighters. The firefighters, pardon the pun, must be feeling the heat.

They felt the need to respond in the Davis Enterprise with a letter to the editor. Something that they have never done. But unfortunately, their response does not address the heart of the concerns.

"We, the Davis Professional Firefighters Local 3494, would like to thank the citizens of Davis for their ongoing support for the job we do. Performance surveys consistently show that the public is "very satisfied" with the service we provide. "

This is a typical sleight of hand. No one, has complained about the service that the fire fighters perform. No one. The complaint is strictly about the cost of that service to the taxpayers of Davis and the impact of that cost on the city budget.

Moreover, do not try to turn this into a public safety issue. If we do not have the funds to repair our roadways, bike lanes, and sidewalks, that is a safety hazard that far exceeds the hazard of paying the firefighters less in medical benefits when they retire, paying them less than the $150,000 they receive on average in pay and benefits, etc.

The firefighters go on to say:

"Contrary to recent reports, none of the candidates we are supporting this year was a member of the City Council when our retirement plan (the industry standard across the state) was approved in 2000. "

It is true that none of the current candidates they are supporting this year was a member of the City Council when their retirement plan was approved. It is also largely irrelevent.

"The statement in a recent letter to the editor that, "Saylor and Souza have already voted to sweeten our firefighters ' retirement to way beyond fair! Only our mayor, Sue Greenwald, had the courage to say no" is completely false."

It is true that Saylor and Souza did not vote on the 3% at 50. But because of the way that formula works, they did in fact sweeten the firefighters' retirement by drastically increasing their salary, so it is not "completely false."

"The Davis City Council approved this plan on July 12, 2000, with a motion made by Susie Boyd and seconded by Sue Greenwald. With one member absent, the motion carried with Mayor Ken Wagstaff, Sheryl Freeman, Susie Boyd and Sue Greenwald voting yes."

As Mike Syvanen, Sue Greenwald's husband explains in a response letter in today's Enterprise:

"Sue voted for this, along with the rest of the council, accepting the argument that it could be dangerous for firefighters to work in the extreme heat with heavy gear."

However, when the firefighters' contract came due again, Sue argued vociferously against the contract and did not vote for it."

Why? Because total compensation had risen to nearly $147,000 per person before overtime. Captains receive $166,000 per year plus they averaged $29,000 in overtime last year.

The firefighters go on to discuss criticisms about overtime pay--again missing the point.

"Additionally, we are being questioned about overtime pay. The fire chief or a qualified representative must approve any overtime hours worked beyond our normal 56-hour workweek."

Again this is a misdirection, the real question is not who approves the overtime, but the amount of overtime and the reason why captains receive overtime, and the reason why firefighters receive more in salary and benefits than the Fire Chief, Police Chief, and City Manager.

It is obvious that the firefighters are feeling the heat. But they have not addressed a number of the key complaints including the level of influence peddling that dwarfs any other campaign expenditure in this race.

In closing their letter they write:

"The safety of the citizens is our top priority."

One must question that. We have this week the announcement about the inability to repair our streets. That is going to lead to safety problems for the citizens. The city is going to need to probably raise revenue to address these concerns, but at the same time, the firefighters are pushing for another tax to pay for a fourth fire station, a new truck, and more personnel. If we cannot keep our streets in good condition, that is a real safety problem for the citizens.

We question the IEs in the Assembly Race, but how about questioning an IE from an interest party in the Council Race. They have likely spent in excess of $25,000 to $30,000 in this race both in direct contributions and their IE. We also see the stakes--protecting their overtime pay, their $150,000 base salary and benefits, and their 3% at 50. All of which is going to lead to the citizens of Davis not to be more safe, but to be less safe because of deteriorating road conditions.

---Doug Paul Davis reporting

City Budget Plan A Tax and Spend Mirage

If you read the Davis Enterprise's Wednesday addition you would have seen a small and scant article depicting the discussion from Tuesday Night on the City's Budget. This article glossed over some very serious concerns with the city's fiscal situation to paint a fairly rosy picture. The picture fails to inform the public of the magnitude of the fiscal problems facing the city or the fact that the city council majority's plan to deal with these problems is in essence their own version of tax and spend while at the same time they ignore serious structural problems with the current budget.

City Finance Director Paul Navazio is recommending that the city consider three separate tax increases.

First he wants a public safety tax on the ballot sometime in 2009. Now City Councilmember Stephen Souza wants that on the ballot by November 2008 and made an impassioned plea as to why we need to fund police and fire immediately, however, that did not seem feasible to Mr. Navazio .

Second, Mr. Navazio wants a new sales tax on the ballot--asking for a renewal of the sales tax and an additional quarter-cent increase to pay for street and road maintenance. This would be placed before the voters in 2010.

Finally he wants to replace the parks tax with an increase in the municipal services tax in June of 2011.

So, the Davis voters will be looking at three new taxes over the next four years.

Mayor Sue Greenwald warned that seniors and others on fixed incomes are already stressed by the sales tax system, this increase could potentially put them at risk while really not adding much in additional revenue to the city.

However the most alarming statement came from Councilmember Don Saylor who proclaimed the end of the structural deficit.

"Today we really can look at the structural deficit as we refer to so often as something within our grasp. The numbers are so small that they will be taken care of by small increases in the economic development plans that are already underway."

Councilmember Lamar Heystek remains very concerned about the structural deficit and is reluctant to support new taxes without a demonstration up front that we have improved things with current funds before we ask for additional funds.

The bottom line is that we really have not even dealt with the issue of a structural deficit.

According to Mayor Sue Greenwald

"We have a structural deficit, we haven't really done anything to improve it, we've just changed our accounting principals, made them less conservative. But that also means it's going to be more sensitive to downturns in the real estate market and other potentially recessionary phenomena."

In fact the problem is far worse than that. She continued:

"We have not only not reduced it [structural deficit] but we've also made ourselves more vulnerable to our PERS contributions."

If a problem occurs our payments may go up greatly increasing our structural deficit

We have also not begun to account our unfunded liability which would take $4.2 million a year to pay off.

The 800 pound gorilla, according to the Mayor, is the combined water and sewer capital improvement costs; current projections place costs around $335 million. What this means is that the tax increases in the next four years being proposed by council will be in a way dwarfed by the "fee" increases we will have to pay over the next 20 years in order to simultaneously expend money on a new water supply system and a sewer capital improvement system.

As one councilmember explained to me, we have not even really dealt with the structural deficit that is really looming--that of unfunded mandates in terms of employee retirement pensions. These are not even included on the books. So to suggest that we have solved our structural deficit is very misleading. We have not even touched on the real problems.

All of these tax increases are basically what is necessary to maintain current level of service with perhaps a small increase in police and fire with the public safety tax. None of these will deal with the ballooning entitlements we are handing out to city employees upon retirement. These are lifetime benefits that we are handing out and they are right now not even on the books. That does not mean that the problem is gone. It is simply a matter that this council is trying to get reelected and push off this problem to future councils and future generations.

To me that is the heart of fiscal irresponsibility. And, when the city's budget director says:

"Our revenue and expenditures are getting pretty well balanced."

And when the city's only newspaper agrees with it and does not dispute that information:

"The city has slowly and diligently chipped away at that budget gap, bringing its spending plan more stability and reliability."

We are not being well-served and we are really not aware of the burdens that are headed our way down the road.

---Doug Paul Davis reporting