Gov. Brown presentation of the annual May revise of the state budget this morning wasn’t the duck-and-shuffle we’ve grown used to, in which our gov du jour confesses that revenues weren’t nearly as good as “projected” (read: in our wildest dreams) when the budget was first released in January, then launches into a long list of proposed cuts.
Nope, the Prop 30 tax increase and an improved California economy have the state economy up and walking again … if a bit zombie-like. Brown led the zombies with a dreary but true warning that the economy is still under threat, with lots of stuff at the federal level (sequestration key among them) trickling down to hurt the state.
There’s also plenty wrong in California, as it trudges along dead-eyed and scary with a burden of up to $1.1 trillion of combined state and local government debt, and an over-sized, over-paid, over-coddled and under-performing quarter million state employees. We’re also waiting to see if the recent tax hikes and California’s ongoing regulatory zealotry will increase the exodus of business owners and the wealthy from the state, taking their tax payments with them.
Dem Response: Polite Hostility
The Democrat super-majority knows it has to say it’s dedicated to not squandering the current cash flow, but look at their reactions and you see some between-the-lines and not so between-the-lines clues that they are cued up and ready to spend, baby, spend. All quotes are from the SacBee.
I agree we must aggressively pay down our state’s debt and set aside money for a reserve, but there’s a disappointing aspect to this proposal. It’s important that we also begin making up for some of the damage done to tens of thousands of Californians. – Sen. Pres. Pro Tem Darryl Steinberg
Our economy is showing signs of recovery but our budget is sending us mixed signals. The modest surplus we now possess took a lot of sacrifice to obtain and we cannot squander it. With many Californians still out of work, this budget is not just about paying down debt and saving money for a rainy day. It is also about growing our economy and broadening opportunities for Californians to succeed through education and a better environment for small business. – Assembly Budget Committee chair Bob Blumenfield
The May Revise continues to shortchange the most vulnerable in our state–such as those who need health care, child care, access to justice, or essential support services to escape poverty. – Dem Assemblyman Robert Dickinson
California’s fundamentals are still wrong. We are too dependent on taxing the wealthy, we are a long way from getting control over burgeoning pension and benefit costs, far too much education funding is wasted on fulfilling unnecessary reporting mandates from Sacramento and paying under-performing teachers, and, as mentioned above, our social welfare programs need to be brought in line with other states’.
But at least the budget’s in the black for a change.
Public Servants or Buccaneers?
There’s a new retirement community for California’s public employees called Treasure Island. It’s a lovely place where they can “Harrr! Harrr! Harrr!” their way through their golden years as they live off their treasure chests piled high with the plunder they stole from the people during their working years.
Treasure Island appears to be located in Fresno County. Surprised? You shouldn’t be:
Fresno County’s pension costs are expected to grow in the coming year — again — continuing to tie up more than one of every four dollars at the county’s disposal.
County leaders have taken steps to address the increasing burden, but their actions are yet to turn around a retirement system in which promises far exceed cash flow.
The increase in costs, detailed in a retirement report released last week, has put county administrators on damage control — trying to absorb the hit in next year’s budget while sparing already-underfunded county programs, from unmaintained parks to short-staffed libraries to a scaled-back Sheriff’s Office.
“It’s going to be very difficult for the county over the next few years,” Supervisor Debbie Poochigian said. “As pension costs go up, it just takes more of the pie and leaves less for everything else.”
The new retirement report projects that the county will have to contribute about $7 million more during the 2013-14 fiscal year over the current year to stay on top of its pension obligations — a total of $176 million.
That’s up 50% over five years.
Including retirement debt, about $212 million of the county’s roughly $1.8 billion budget next fiscal year will go toward pensions. (Fresno Bee)
When it becomes this bad – inflated, over-promised pensions taking up one quarter of a county’s budget, with the amount growing every year! – why aren’t “public” servants rising up and saying, “Enough! This is unconscionable! We can’t steal from the public like a bunch of buccaneers sailing about plundering and raping! Re-write our contracts NOW!”
But of course, they aren’t saying that, or anything like it.
Many ask why Muslims don’t speak out against terrorist jihad. It’s even worse with public employees, because they don’t just not speak out against unsustainable pensions. No, they (or the union reps they hide behind) shout down any voice of reason that calls these pirates’ pensions what they truly are – the legalized theft of public funds.
Time to Stop Bashing California?
Crazifornia has been taken to the woodshed by liberal columnist Froma Harrop. Her piece Thursday in Real Clear Politics, Tough Times for California Bashers, declares:
[W]hen the Golden State conspicuously succeeds, California bashers find themselves at a loss. Until recently mired in deep budget deficits, California’s general fund is set to end next year in a surplus.
Surely deeper evil lies ready to bubble up, the bashers warn. To them, California resembles the phantom Rollo Tomasi from “L.A. Confidential” — the criminal “who gets away clean.”It must especially pain conservatives that sunnier economic news partly results from voters directly rejecting Republican politicians and their agenda. A simplification here, but California’s famously dysfunctional politics have reflected Democrats’ desire to spend on certain public goals and Republican resistance to raising revenues needed to fund them.
So what did the voters do? Last November, they approved a temporary tax hike on themselves, expected to add $6 billion annually in revenues for the next seven years. And they handed Democrats a two-thirds supermajority in the state legislature, enabling them to raise taxes without Republican support.
Cornered by good news, some conservatives need to lash out.
I confess, I do lash a bit, but no, I’m hardly at a loss. Behind the liberals’ rush to launch into a rowdy rendition of Happy Days are Here Again remains a wealth of inconvenient truths they would rather ignore. Harrop certainly does.
She passes off the flight of companies and capital (both fiscal and intellectual) from the state with a Scarlet O’Hara-esque, “Right, and they’re no longer sewing sweatshirts in Manhattan or butchering cows in Chicago.” Cute, but it doesn’t turn the moving vans around. She lampoons our concerns about the costs inherent with the shift to subsidy-needing alternative energies without admitting our power costs are the highest in the nation and no one is predicting them to drop any time soon.
And she doesn’t even mention underfunded public employee retirement and health plans which will cost hundreds of billions of dollars to make whole. That’s billions, Froma, hundreds of ‘em. Oops. Was I lashing?
I could go on, but I sense you’re probably ahead of me on this anyway. If you’re not and still believe the Jerry Brown Choir that all is now better in California, I suggest you read Wayne Lusvardi’s response to Harrop at CalWatchdog, Is CA Really Barreling Down Recovery Road?
The State of the State of Despair
Governor Brown had something to say to Crazifornia this morning as he kicked off his State of the State speech:
Against those who take pleasure, singing of our demise, California did the impossible.
That would be me – about 300 pages worth of singing of our demise, or at least the increasing probability of our demise.
The impossible, as Brown defined it, is that “We have wrought in just two years a solid and enduring budget.” I agree it’s two years since he took office. I’m not at all ready to call the budget solid and enduring, as it is based on a lot of assumptions that still could go sideways.
Brown was quick to give credit to those who had a part in “doing the impossible.”
You, the California legislature, did it. You cast difficult votes to cut billions from the state budget. You curbed prison spending through an historic realignment and you reformed and reduced the state’s long term pension liabilities.
That’s a pretty impossible characterization of what the state did. Pushing prison expenses off to counties instead of addressing the root causes isn’t fixing anything, and it’s certainly not heroic. It just transfer to pain to counties that can’t fight back.
The touted reform and reduction of the state’s long term pension liabilities, while welcomed, was akin to the rate of speed of a great Roman galley when only one oarsman is rowing. Trimming around the edges is not a haircut. Reducing benefits for new hires still saddles us with 30 years of unaffordable liability from the previously hired. (More on this in a minute.)
Then, the citizens of California, using their inherent political power under the Constitution, finished the task. They embraced the new taxes of Proposition 30 by a healthy margin of 55% to 44%.
Yes they did, and now we get to watch the Legislature burn through that money instead of approaching it, to use a favorite word of the Sacramento majority, with sustainability as a goal. And watch tax revenues drop off in the latter years of Prop 30′s seven year life as business owners peel out to other states, taking their taxability with them.
Members of the legislature, I salute you for your courage, for wholeheartedly throwing yourself into the cause.
What else is he going to say to his Democrat super-majorities? Now came the most telling 22 words of the speech:
I salute the unions–their members and their leaders. You showed what ordinary people can do when they are united and organized.
And there you have Jerry Brown. A union guy through and through. A guy who knows who’s buttering his bread. A guy who knows that big, fat public employee unions equal big, fat Democrat election margins.
Things are looking better in California since I wrote the last word of Crazifornia. Unemployment is down. That’s good; we’re all for less human suffering. And tax revenues are up. That’s certainly one way to close a deficit – not my favorite way, but certainly a way.
Still, sorry Jerry! I’m still singing of our demise. I’ll change my tune when taxes go down and California starts treating businesses like assets instead of asses; when the union grip on Sacramento is loosened and we seriously address the $250-$500 billion shortfall in public employee benefit funding by rewriting contracts and reducing benefits for existing employees; and when we have a governor who kills High Speed Rail and stops trying to single-handedly save the world from climate change.
It’s not too much to ask. But in California it is, to use Brown’s words from earlier today, doing the impossible.
The Eleventh Day of the Twelve Days of Crazifornia
“On the eleventh day of Crazifornia,
Gov. Moonbeam gave to me eleven propositions
Ten UC tuition hikes,
Nine “high-speed rail links,”
Eight states’ worth of takers,
Seven-ty percent underfunded pensions,
Six billion in debt
Five fleeing comp’nies,
Four bankrupt cities,
Three falling bridges,
Two super-majorities
And a tax hike on millionaires.”
California voters were asked to ponder 11 ballot measures in November (and another two in the June primary election,but there aren’t 13 days of Crazifornia).
The eleven included three tax measures, each of them highly complex, each with their own impacts on the state. There were proposals to change the “three strikes” law and another to drop the death penalty, both of which would have profound legal consequences (even if they were sold to voters based on the cost of maintaining them). Voters also were asked to ponder the pros and cons of genetic engineering of crops, a debate that has raged in scientific circles for years.
There were also three propositions proposing complex and significant changes to governance in California – one that would make major structural changes to the legislature, another that would change the way campaign funds could be raised, and another regarding redistricting.
And there were two that never should have been on the ballot – one on human trafficking, which is already well covered in existing law, and one on car insurance that should have been handled legislatively or administratively and never brought to the ballot.
Discounting the two stupid ones, voters were challenged to make nine important and exceedingly complex decisions. To help them, voters pamphlets were compiled, printed and mailed at considerable expense to every registered voter in the state. Included were the entire text of all the propositions, an objective statement from the Legislative Analyst, and pro and con arguments from both sides. If you can find me a voter who read them all (not a journalist or analyst who was paid to) before deciding how to vote, I’ll give you a signed copy of Crazifornia.
Instead, most voters relied on short ballot statements that hardly brushed the surface, television and radio ads and campaign mailers that mostly misled (just look at the mailer for Prop 32 above – what in the world does limiting public employee union power have to do with gas prices?), and the word of trusted friends and media. None of these can be trusted to give a fair and thorough analysis. (In all honesty, neither did Crazifornia’s Propositions Voters Guide – but California would be a better place today if more voters had followed it.)
This is no way to run a government. Giving power to the people is a foundational principal, of the Progressive movement, but it’s a lousy way to ensure the best decisions are made for California. We should scrap the entire system since the chances of correctly modifying it are nil.
Doing so would require a proposition – and what do you think the chances are Californians would vote to relinquish their power to the Legislature?
The Ninth Day of the Twelve Days of Crazifornia
“On the ninth day of Crazifornia,
Gov. Moonbeam gave to me nine “high-speed rail links,”
Eight states’ worth of takers,
Seven-ty percent underfunded pensions,
Six billion in debt
Five fleeing comp’nies,
Four bankrupt cities,
Three falling bridges,
Two super-majorities
And a tax hike on millionaires.”
First of all, Merry Christmas to all of you. I hope there was nothing “crazi” about your Christmas – just friends, family and lots of the reason for the season.
Secondly, you may be wondering why here it is Christmas and we’re just on the ninth day, not the twelfth. Truth be told (Wikipedia style), the twelve days of Christmas traditionally begin the day after Christmas, December 26, which is St. Stephen’s Day (also my birthday), and run to the day before Epiphany, or the Feast of Epiphany (January 6). Crazifornia’s twelve days, conversely, started when we were darn well ready to start them, with something useable for each of the 12 days.
Thirdly, high speed rail. Many pundits thought Gov. Brown would sacrifice his expensive high speed rail fantasy on the alter of Prop. 30, which would have made sense. Brown could have shown he was committed to cutting needless money out of the budget, thereby reassuring voters that if they voted for higher taxes, the money wouldn’t be spent on ridiculous government programs.
But California’s high speed rail project lives on – an indication new tax money will continued to be frittered away, no matter what the rhetoric. Even so, the train is presented in quotations here because the nine links of the line remain anything but certain. “Nine links?” you ask. Yes: (1) near Fresno to near Bakersfield, (2) near Fresno to Merced, (3) near Bakersfield to Palmdale, (4) Palmdale to Los Angeles, (5) Merced to San Jose, (6) San Jose to San Francisco, (7) Los Angeles to Anaheim, (8) Merced to Sacramento and (9) Los Angeles to San Diego.
Dates haven’t even been dreamed up yet for the last three links, but promoters are sticking to the idea that by 2028 someone could park their butt in a train seat in San Francisco and ride that seat all the way to Los Angeles.
Here’s more on California’s high speed fail, from Crazifornia:
It turns out the original, $34 billion cost promised by in Prop. 1A was a bit too low …. By 2009, a year after the measure’s passage, the Rail Authority said the cost would actually be almost one-third higher, or $43 billion. Then, just after Halloween 2011, it released a frightening new estimate that more doubled the two-year-old estimate, to $98.5 billion … or maybe $117.6 billion, who could really tell for sure?
At about the same time, a report by the California Transportation Commission found a $294 billion deficit in funding needed to maintain the state’s existing transportation infrastructure over the next nine years – or more than $30 billion in shortfall annually. While the high-speed rail pot of money is separate from the general transportation pot, its deficit emphasized the dubious sanity of continuing to pursue the costly, new and shiny when the future viability of the state’s established and dull system of roads and rail is in such bad shape.
To keep their new estimate under $100 billion (or maybe a little over it), the Rail Authority staff stealthily redefined the project, whacking out Sacramento and San Diego. Oh, they’ll still get their promised stops on the high-speed rail route, but not until some ill-defined future phase, which could add another $80 billion to the price tag. The Rail Authority’s November 2011 revised business plan shows a total of $15.55 billion available to build the core route – the original bond, $3.3 billion in federal matching funds and $3.25 billion in federal stimulus funds – which we’re told should be just enough to build the much-anticipated 160-mile route from just outside Bakersfield to somewhere outside Merced in the Central Valley. No other route could be built for that little, given the high cost of purchasing or condemning private property along more populous segments of the proposed route. …
The Rail Authority also says the finished route will be profitable – with a definition of profitability only a government employee would be comfortable with: A profit will be declared if the train covers its operating and maintenance expenses. Never mind the $100 billion or more it will cost to build it; that doesn’t count under California’s proposed definition of high-speed rail profitability. The profitability projections are based ridership projections of 28.6 to 37.1 million passengers a year. Prop. 1A was sold to the voters on projections of 90 million riders a year, so the Rail Authority is being more honest than it once was.But it is still a long way from being able to make any claim of honesty. If California’s high-speed trains end up capturing the same ridership levels enjoyed by Amtrak’s most successful train, which services the highly populated, rail-friendly run from New York to Boston, it would transport about five million riders annually, not 28 or 37 million.
Even so, the Rail Authority’s PR firm, Ogilvy, assured Californians the system will be profitable – right up until they resigned their $9 million contract. The Rail Authority’s spokesperson explained that Ogilvy resigned to avoid being fired as criticism of the contract amount and their performance grew.
The Seventh Day of the Twelve Days of Crazifornia
“On the seventh day of Crazifornia,
Gov. Moonbeam gave to me seven-ty percent underfunded pensions,
Six billion in debt
Five fleeing comp’nies,
Four bankrupt cities,
Three falling bridges,
Two super-majorities
And a tax hike on millionaires.”
Let’s imagine a California utility that installs 30 percent of the required air scrubbers on its power plants. Or a California manufacturer that disposes of 30 percent of its hazardous waste materials correctly, but dumps the other 70 percent in a nearby river. Do you think the state would let them get away with it? Of course not!
Then why are the voters of the state letting the state get away with promising its employees the moon, but never getting around to funding 70 percent of those promises?
The managers of the state’s pension programs and the legislators who oversee them would quibble with my analysis. They would say they don’t need to fully fund the pensions because investment income will fill the gap before the employees all retire. I could easily draw another “imagine a California company that” analogy, but you all are quick and don’t need it.
The falseness of the pension income claim – a deliberate falseness, also know as a lie – is that the pension funds lost money on bad investments during the recession, and have not yet made that money up. They’re continuing to estimate their return on investments will be over seven percent, when the actual return is now one or two percent.
The Little Hoover Commission – California’s Grand Jury – reported in 2011 that, “California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and unwillingness to plan prudently.”
Brown’s pension reform plans are deemed by taxpayer organization leaders to be about 25 percent of what’s needed. And those are only plans. As they move through the pack of wolves at the California Legislature, most hungry for the next wad of cash doled out by the public employee unions, they will be watered down. And if anyone sues over this mismanagement, the case will be heard by judges awaiting their pensions, who won’t do anything to jeopardize their promised pot of gold.
Besides, the proposals are mostly directed at new hires and ignore the vast and growing sums due those hired before even the current meager reforms go into effect. Here’s what I write about that in Crazifornia’s chapter on the budget and pensions:
The major problem is that most current public employees are guaranteed defined-benefit plans, under which their benefits are guaranteed no matter how well, or badly, the underlying pension investments perform. Reforms include, at a minimum, a shift to defined contribution plans for new hires, under which employees contribute a certain amount, usually with matching contributions from the taxpayers. The final pension payout then is not guaranteed, but depends on how well the investments perform. The taxpayers are not on the hook for poor investment performance.
Jack Dean, proprietor of Pension Tsunami, a website that has succeeded in raising journalists’ awareness of the public-employee pension crisis, explained to me over lunch why the public employee fat cats will continue to present a problem no matter what the younger employees do, or what sort of lesser pension plan they are forced to accept.
“I do talk radio shows,” he said between bites of his sandwich, “and people will call in and ask, ‘What can we do to stop this right away?’ and my answer is, ‘You can’t stop it.’
“We’re stuck with what’s in the pipeline right now – all the current employees with contracts that spell out their pensions, and judges who rule those contracts cannot be breeched. So, all we’re left with is switching to a defined-contribution plan for new hires, instead of the defined-benefit plan the earlier employees have.”
I said that would help in 30 or 40 years when the new-hires retire with fully vested benefits, and wondered if the state could survive the long and well-paid retirements of the current generation of workers.
“You’re right,” he said. “We’re going to have to live through something that’s like the Deepwater Horizon oil leak in the Gulf. You can cap it off so there’s no more oil coming out – but then you have to deal with everything that’s floating around in the Gulf, and you say, ‘What in the Hell do we do with all this stuff now?’ What do we do with all the liabilities from the current employees’ defined benefit plans, which we’ll have to pay on from when they retire until they die?”
The Sixth Day of the Twelve Days of Crazifornia
“On the fifth day of Crazifornia,
Gov. Moonbeam gave to me six billion in debt
Five fleeing comp’nies,
Four bankrupt cities,
Three falling bridges,
Two super-majorities
And a tax hike on millionaires.”
When I started writing Crazifornia, the state’s budget deficit was $24 billion. As I wrapped it up, the deficit was about $6 billion. The Legislature shouldn’t be taking any credit for the improvement. Rather, we can thank a slightly improved economy … and revenues from taxes on new Facebook millionaires.They didn’t get as rich as the state bean-counters hoped, but when you’re drowning in red ink, any black ink looks good.
With November’s passage of new taxes – Prop. 30 and Prop. 39 – Legislative Analyst Mac Taylor is projecting an FY 2103 deficit of “just” $1.9 billion. Let’s not kid ourselves. When there’s a $1.9 billion hole in your pocket, it doesn’t mean you’re solvent, even if it makes you less of a laughingstock.
Taylor couched the $1.9 billion prediction with enough disclaimers to make a Wall Street lawyer dizzy. It’s predicated on assumptions about economic growth, job growth, investment returns, bond rates, General Fund spending levels (gulp!) and several others, any one of which could crash the projection. As we’ve said before, this is today’s California, so it’s safe to assume the worst … especially with Democrats having unassailable majorities in both houses and the governorship.
Sacramento Bee columnist Dan Walters nailed it when he wrote recently,
When push comes to shove, will Democratic leaders tell their political allies that even more austerity is needed to reduce debt and balance the budget, or will they cave in to the pressure to restore spending?
The numbers may change, but the political equation remains the same. There are always more demands than there is the money to meet them.
The Second Day of the Twelve Days of Crazifornia
“On the second day of Crazifornia,
Moonbeam gave to me two super-majorities
And a tax hike on millionaires.”
I finished writing Crazifornia immediately after the June 2012 primary election, so it ended a bit more up-beat than I thought it would. After all, voters in San Diego and San Jose had just voted overwhelmingly to aggressively address those cities’ public employee pension programs. What could go wrong?
November could go wrong – and boy, did it!
California voters passed two tax hikes and rejected a much-needed end to public employee unions’ ability to mandate political contributions from their members, which was bad enough. Then they made things infinitely worse by granting the Democrats – who are most responsible for the state’s sad condition – super-majorities in both the Senate and Assembly.
Their new super-majorities mean the Democrats will no longer have to look for a Republican or two who will join them in voting for tax increases. With two-thirds of the votes in both houses in the Democrats’ hands, they will now be free to raise taxes whenever, on whomever and however much they want to.
Do you think the wealthy and successful will stand for this? Or will they pack their bags?
And it gets worse. Two super-majorities mean Democrats can impose new legislation retroactively, rush legislation through the process and increase the amount of high jinx they can pull off during marathon end-of-session legislation orgies.
And it gets even worse. Gov. Brown is now our only defense against Dems Gone Wild – how scary is that? – but with super-majorities, the Assembly and Senate can override the governor’s vetoes.
Happy New Year … not.
The First Day of the 12 Days of Crazifornia
“On the First Day of Crazifornia, Moonbeam gave to me a tax on millionaires.”
In November, California voters listened to Gov. Brown’s continuous shilling of the tax-hiking Proposition 30 and voted in a new tax on millionaires (and many others) and a new sales tax.
Even before the November election, California had nearly the highest income tax burden in the nation. The old income tax rate of 10.55% for high earners squeaked in just behind Hawaii to be America’s second highest.
Our sales tax rate, 7.25%, was the highest.
And don’t forget our other exorbitant taxes, from what you pay at the pump (the highest gas tax in the nation) to what your employer pays in workers’ comp. One thing California is certainly good at is squeezing every available “revenue” from its residents.
So it came as no surprise that when faced with the carefully engineered choice between laying off teachers and firemen or raising taxes yet again, Californians chose to raise taxes. After all, most voters weren’t raising their income tax rates, only rich peoples’ taxes, to a highest-in-the-nation 13.3% for people making more than a million a year! Prop 30 will also raise taxes on everyone who makes more than $250,000 a year (or what we call middle class in the Tarnished State).
The Prop. 30 increase to the state’s sales tax protects our leadership in that sad stat – pity residents of Los Angeles, San Francisco, Oakland and a handful of other cities that now will suffer a combined state and local sales tax rate of over 9%.
Of course, Prop. 30 called both the income and sale tax hikes “temporary” – we’ll see about that!
Brown optimistically thinks the higher taxes will bring in $9 billion in revenue to the state – or about what it spends annually paying down its debt. But that’s assuming that those Californians faced with a new tax burden – most of whom are job-generators, and none of whom are on the state’s dole – won’t look to move to cheaper states. Like Texas or Nevada, which have no income tax at all. Or maybe Arizona, which set up a program to help California CEOs relocate to the Grand Canyon State just days after Prop 30 passed. As a Christmas present, Brown might as well send a nice new suitcase to California’s wealthy – along with a bill for the tax on it.
Come back tomorrow for the Second Day of Crazifornia!