California voters exercise their power -- and that's the problem
Residents relish their role in the lawmaking process, but they share the blame for the state's severe dysfunction.
By Michael Finnegan
May 20, 2009
Californians are well known for periodic voter revolts, but on Tuesday they did more than just lash out at Gov. Arnold Schwarzenegger and the Legislature over the state's fiscal debacle.
By rejecting five budget measures, Californians also brought into stark relief the fact that they, too, share blame for the political dysfunction that has brought California to the brink of insolvency.
Rightly or wrongly, voters in the special election refused either to extend new tax hikes or to cap state spending. They also declined to unlock funds that they had voted in better financial times to set aside for special purposes.
Nearly a century after the Progressive-era birth of the state's ballot-measure system, it is clear that voters' fickle commands, one proposition at a time, are a top contributor to paralysis in Sacramento. And that, in turn, has helped cripple the capacity of the governor and Legislature to provide effective leadership to a state of more than 38 million people.
Clogged freeways, the decline of public schools, an outdated water system and a battered economy are just a few of the challenges demanding action by state leaders. Instead, they are consumed by yet another budget crisis, one that voters worsened Tuesday.
"No one's really stepping back and confronting the harsh realities that face our state in a critical sense, because of constraints put on our elected leaders," said Mark Baldassare, president of the Public Policy Institute of California. "We're unable to focus on the long term and the big picture at a time when we desperately need to do so."
The results Tuesday fit Californians' long-standing pattern of demanding what is ultimately irreconcilable, all the more so in an economic downturn: lower taxes and higher spending.
"We all want a free lunch, but unfortunately that doesn't exist," said former Gov. Gray Davis, whose 2003 recall stemmed largely from a budget crisis brought on by the dot-com bust. For decades, Davis said, Californians have been "papering over this fundamental reality that the state has been living beyond its means."
Davis and many other elected officials bear some responsibility for that. But so do voters.
In the Proposition 13 tax rebellion of 1978, Californians voted to require a two-thirds approval by the Legislature to raise taxes, a major obstacle to budget agreements. Over the last couple of decades, voters have also passed a patchwork of ballot measures directing billions of dollars to favorite causes, among them public schools and transportation projects.
On Tuesday, Californians showed they were unwilling to scale back their demands in tight times: Voters turned down propositions that would have freed up money that they set aside years ago for mental-health and children's programs.
"The irony is that the more the hands of the Legislature and governor are tied up, the more frustrated people are," said Tim Hodson, director of the Center for California Studies at Cal State Sacramento.
Together, voters' piecemeal decisions since the 1970s have effectively "emasculated the Legislature," said John Allswang, a retired Cal State L.A. history professor.
"They're looking for cheap answers -- throw the guys out of power and put somebody else in, or just blame the politicians and pretend you don't have to raise taxes when you need money," he said.
"This is what the public wants, and they deceive themselves constantly. They're not realistic."
The public's contradictory impulses were laid bare by a recent Field Poll. It found that voters oppose cutbacks in 10 of 12 major categories of state spending, including the biggest, education and healthcare. Yet most voters were unwilling to have their own taxes increased, and they overwhelmingly favored keeping the two-thirds requirement for tax hikes.
"They clearly want more in services than they're willing to pay for in taxes," said Ethan Rarick, director of the Robert T. Matsui Center for Politics and Public Service at UC Berkeley.
Also intensifying California's troubles is a surge in debt, often with voter consent at the ballot box, which makes future budgets harder and harder to balance. Under Davis, outstanding general-obligation debt jumped from $26 billion to $37 billion; it has soared to more than $70 billion under Schwarzenegger, according to the state treasurer's office.
Adding to the state's difficulties is the complexity of many ballot measures, no doubt a factor in the defeat of the main budget measures that lawmakers put before voters Tuesday.
"We pay the legislators to go to Sacramento and figure these things out," said Denise Spooner, a lecturer on California history at Cal State Fullerton.
As for the cumulative problems created by the last few decades of ballot-measure voting, she said, "I certainly don't think this is what the Progressives had in mind."
To John Hein, a veteran Sacramento campaign consultant, the absence of any master vision by voters appears to be a key flaw in the state's recent history with ballot measures.
"They kind of take each issue in a microcosm, rather than relate the decision to prior decisions, or future decisions that they might make," he said. "Voters don't think about the consequences of how one thing fits with another."
Others point to the term limits that voters imposed on state officials in 1990 as an enduring problem. Lawmakers who focus on quick career advancement tend to neglect California's long-term problems, they say.
Whatever the ups and downs of the proposition system, California's voters have seen themselves for a full century as "the arbiters of the future of the state," said social historian D.J. Waldie. To Waldie, the grim circumstances of Tuesday's election suggest that they are losing faith in any grand ambitions for public investment in California's future.
"I'm rather pessimistic at this point," he said. "We're reaching the point where Californians are throwing in the towel."
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May 20 (Bloomberg) -- California may run out of cash by July, the second time this year the most-populous U.S. state confronts a fiscal crisis.
Voters yesterday added $6 billion to a budget deficit when they defeated five measures backed by Governor Arnold Schwarzenegger, a Republican, and the Democrat-led Legislature. The governor said lawmakers will be forced to cut deeper into spending on everything from schools to jails as the state prepares to borrow record sums from investors.
The rejected package was intended to shore up the finances of a government that the governor and state treasurer say has $21 billion less than needed to pay its bills over the next 13 months.
“The voters have spoken and they are telling us that government should do the best it can with the money it has,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento. “We will immediately and responsibly get to work to balance the budget.”
California is among the states hardest hit by the worst recession in more than half a century, which has caused its tax collections to tumble faster than politicians can respond. The depth of the problem was underscored when MDA DataQuick reported yesterday that Southern California house and condominium prices fell 36 percent in April from a year earlier, with foreclosures accounting for more than half of all sales.
The ballot measures’ defeat paves the way for the renewed fight over the budget -- three months after a previous showdown ended when Schwarzenegger broke with fellow Republicans by agreeing to raise taxes and endorse the ballot measures.
Defeated Plan
The package would have extended a $16 billion tax increase for two years, raised $5 billion by borrowing against the lottery, and shifted money from voter-approved programs to the state’s discretionary budget. The only measure to pass was a ban on lawmaker pay raises during financial crises.
The proposals, arranged behind closed doors during an all- night session of the Legislature in February, drew opposition from tax-increase foes and those fearing more cutbacks. The outcome may fuel the divide between Republicans and Democrats that Schwarzenegger sought to bridge, since both can claim victory.
“Everyone is going to extrapolate from the defeat of these initiatives exactly what suits their ideological purposes,” said Dan Schnur, a former Republican consultant who now runs a political institute at the University of Southern California in Los Angeles. “It becomes that much harder to put together working coalitions, particularly on issues such as this.”
Budget Fights
Fights over California’s annual spending plan may occur because it takes a two-thirds vote to pass one. The state’s persistent deficits, and the political difficulty of erasing them, helped California get the lowest credit rating among U.S. states.
The three major credit-rating companies, citing the magnitude of California’s deficits, reduced the grades on more than $46 billion of bonds in February and March. California’s full faith and credit pledge is rated A by Standard & Poor’s and an equivalent A2 by Moody’s Investors Service, five steps below the top investment ranking.
The state has little time for delay. In statements last night those who backed the measures -- including Republicans who bucked others in their party -- vowed to move quickly to address the California’s problems.
‘Frustrated’ Public
“I respect the will of the people who are frustrated with the dysfunction in our budget system,” Schwarzenegger said in a statement from Washington, where he had previously scheduled meetings with Obama administration officials.
“Delay is not an option,” Steinberg said. “The necessary decisions we must make will only get harder with time.”
According to the state Legislative Analyst’s Office, the state may run through its cash as soon as July. That would force the state controller to shut off some payments, as he did in February, unless California can raise money from Wall Street. The Legislative Analyst’s Office estimates the state may need to borrow as much as $23 billion of one or two-year notes, absent further spending cuts.
Controller John Chiang, a Democrat, said the governor and lawmakers need to move swiftly because one option he employed earlier this year -- delaying income tax refunds -- won’t be available this summer.
“They have to take action now,” he said. “At this point, we have fewer tools in the toolkit.”
Short-Term Notes
The state’s battered credit rating prevents it from selling its short-term notes to money-market funds, which demand lower returns than other investors, without some type of insurance guarantee. Treasurer Bill Lockyer has expressed doubt about whether the state may secure those guarantees from banks and sought help from the federal government. Without such a backstop, he said a $15 billion note sale may cost the state as much as $1 billion in fees and interest.
California would have little trouble raising money from investors, said John Flahive, who oversees more than $20 billion in municipal debt at BNY Mellon Wealth Management in Boston. However, he estimated that the state may pay as much as 3 percent on the notes, more than three times what it would pay if it might sell into money market funds.
A California bond maturing in 2037 traded for as much as 94.72 cents for every $1 face value to yield 5.37 percent yesterday, up from as little as 80.40 cents on Dec. 29. “I believe there to demand enough to do it,” he said. “It’s just a question of how much yield, how much interest cost it’s going to take.”
Much will depend on what kind of plan the state advances to assure investors they will be repaid, he said. “You want assurance they are not going to get into a complete political stalemate,” he said.
Governor’s Plan
On May 14, Schwarzenegger introduced his own proposals for eliminating the budget gap, including the deeper cuts that will result from last night’s vote. Among those are plans to deport undocumented immigrants in the state’s jails, increase income tax withholdings, cut more from schools and borrow some $2 billion of property tax revenue from local governments in the state.
Richard Robinson, the chief executive of Stanislaus County, a swath of farm land in the Central Valley battered by home foreclosures, said the proposals have upended his own budget plans. The county may be squeezed particularly hard by proposed cuts to state funding on in-home health services for the elderly upon which about 6,100 rely, he said. Any proposals will have to pass through the Legislature.
“All we know is that we won’t walk away from this unscathed,” Robinson said.
To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; William Selway in San Francisco at wselway@bloomberg.net.
Last Updated: May 20, 2009 11:12 EDT
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California braces for brutal budget cuts
10:28 PM PDT, May 20, 2009
Reporting from Sacramento — Gov. Arnold Schwarzenegger and lawmakers scrambled Wednesday to avert a financial meltdown, and public officials across California braced for annihilating cuts on the day after voters trounced their leaders' rescue plan for the state.
Within two hours of returning from Washington, D.C., the governor huddled behind closed doors with Democratic and Republican legislative leaders to grapple with a projected $21.3-billion budget shortfall for the coming fiscal year and stop state government from running out of money by July.
But the Republican governor delivered at least a bit of good news: Obama administration officials had backed off their threat to rescind $6.8 billion in federal stimulus money.
The hacking of government began quickly, by the hand of a little-known state panel that sets elected state officials' pay. Citing a need for shared sacrifice, the group decided to reduce those salaries by 18% starting next year.
Otherwise, on a bright, clear morning in the capital, the most certain thing was the dark and angry mood of the voters. They had overwhelmingly rejected a package of ballot measures intended to produce about $6 billion through the middle of next year with taxes, borrowing and other means; limit future government spending; and bolster the state's rainy day fund.
Only a measure to punish elected officials by denying them pay raises in deficit years won approval -- easily.
Schwarzenegger, who alienated himself from fellow Republicans in February by reversing his pledge not to raise taxes, took the results as a mandate for the plan he unveiled last week to slash billions from education, healthcare, law enforcement and social programs, and to borrow $2 billion from local governments.
"The people told Sacramento, 'Go and do your work yourself. Don't come to us with your problems,' " Schwarzenegger told reporters in Washington before flying home. "So now we have to recognize that and move forward and make all of the changes through cuts."
There was a sense that the warnings this time, unlike some earlier ones, were real -- that state officials had no options left but to deliver devastating cuts that could force Californians to reconcile the desire for programs they have routinely approved by initiative with an insistence on limiting taxes.
"People are going to have to figure out: Do they want schools, do they want roads, do they want public safety, do they want to take care of the less fortunate?" said John Burton, a former state Senate leader who is now chairman of the California Democratic Party. "At some point, that's going to happen."
The protests were already underway.
In Los Angeles, Mayor Antonio Villaraigosa said the governor's plan to "balance its books on the backs" of local government could force the city to cut services and seek loans of $68 million to $120 million from the private sector.
"I for one will not sit idly by while this process runs its course," the mayor said.
Los Angeles County risks losing more than $300 million from recent and proposed state actions, which could affect county welfare, drug prevention and other programs. "A lot of people are going to get hurt," Supervisor Zev Yaroslavsky said.
The urgency of the state's troubles seemed sure to galvanize advocates of far-reaching solutions.
They include a Bay Area group seeking to hold a constitutional convention, a committee exploring revision of the state's volatile tax structure and proponents of allowing lawmakers to pass budgets and tax increases with a simple majority vote instead of the stalemate-inducing two-thirds threshold now required.
In Washington, the governor lobbied for other solutions. He learned in a meeting with U.S. Health and Human Services Secretary Kathleen Sebelius that the Obama administration would not withhold the stimulus money from California over the state's decision to save $74 million by cutting the pay of unionized home healthcare workers.
The federal government initially appeared to take the side of the Service Employees International Union, which represents the healthcare workers and objected that the wage cut ran afoul of the stimulus law.
Schwarzenegger is also seeking a federal waiver so the state can cut $750 million from Medi-Cal healthcare programs for the poor without violating the terms of the stimulus package. And the state is discussing an unprecedented U.S. government guarantee for at least $15 billion in borrowing.
But in Sacramento, the focus was squarely on reducing the size of government. Although Democratic legislative leaders did not rule out new taxes or fees, they said they would not hesitate to make deep cuts that could antagonize their allies.
Assembly Speaker Karen Bass (D-Los Angeles) has banned any legislation with a price tag attached. Senate and Assembly lawmakers will hold regular sessions starting today to hash out budget plans.
The last round of discussions lasted for months amid partisan gridlock, which resulted in halted construction projects and delayed tax refunds. Senate President Pro Tem Darrell Steinberg (D-Sacramento) predicted a smoother outcome this time.
"The world is not coming to an end here," he said.
Still, the negotiations resumed exactly three months after the governor and lawmakers announced a budget deal they said would keep the state solvent until the middle of next year. That erroneous prediction, like others before it, helped stoke the fury of Californians who feel they are watching the same movie over and over again, analysts say.
Republican lawmakers also spoke of moving quickly but said they had drawn from the voters' ire a longer-term mission to fashion a drastically more limited and less costly state government. They said they would propose capping the number of days lawmakers spend in Sacramento, reducing pensions for state workers and shifting traditional state jobs to the private sector.
"The people have clearly spoken, that they want to see the way Sacramento does business change," said Senate GOP leader Dennis Hollingsworth (R-Murrieta).
The Citizens Compensation Commission wasted no time getting started, with its vote to cut the salaries of the governor, legislators and other state officials elected next year. In the meantime, salaries for those positions will be frozen.
"They should share in the sacrifices that everyone else has had to encounter," said Commissioner Kathy Sands -- a former mayor of Auburn, near Sacramento -- after the panel's 5-1 vote Tuesday at a meeting in Burbank.
Schwarzenegger does not accept his salary of $212,000, but whoever is elected governor next year will receive only $173,840 -- meaning California's top position will no longer be the highest paid in the nation. New York's governor gets $179,000 a year.
State lawmakers will remain the best-paid in the nation even with the scheduled wage cut from $116,208 to $95,291. They also retain paid living expenses of $35,000 a year.
patrick.mcgreevy
@latimes.com
michael.rothfeld@latimes.com
Times staff writers Eric Bailey, Peter Nicholas, Ann M. Simmons and Phil Willon contributed to this report.
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Schools prepare for devastating losses of funding
With California in ever-more-dire financial straits, many districts are facing further layoffs, school closures, bigger classes and possibly shortening the school year. Some may even face insolvency.
By Seema Mehta and Jason Song
May 21, 2009
After voters rejected ballot measures that would have restored state funding for schools, educators across California on Wednesday braced for $5.3 billion in cuts over the next 13 months. State and district officials predicted increased class sizes, additional teacher layoffs, more school closures and fewer arts and music offerings. Some districts could face insolvency.
"When there are such ludicrous amounts of money being cut, I don't know what other choice they are going to give us," said Steve Fish, superintendent of the Saddleback Valley Unified School District in south Orange County, which is already planning to shutter libraries and computer labs, lay off 100 teachers and eliminate nearly half its high school guidance counselors.
Voters on Tuesday overwhelmingly rejected five ballot measures intended to shore up the state's finances, leaving legislators to bridge a $21.3-billion budget gap. Gov. Arnold Schwarzenegger has proposed cutting education funding by $1.6 billion for the remainder of this fiscal year, which ends June 30, and nearly $3.7 billion for next year.
Unpleasant options
Districts could tap their reserves and federal economic stimulus dollars to lessen the effect of the cuts, said H.D. Palmer, a spokesman for Schwarzenegger's finance department. He said these reductions will be difficult but noted that schools are bearing 30% of the cuts even though they account for 40% of the state's general fund.
State officials will probably loosen regulations -- such as allowing districts to cut seven days off the school year, delay replacing old textbooks and divert class-size reduction funds to other purposes.
California already has received about $4.3 billion in education funding from the economic stimulus package approved by Congress earlier this year, but there remain billions more that will be dependent on how California uses the first round of money. States that use the money to reform troubled schools will be rewarded.
"Actions speak louder than words," said U.S. Education Secretary Arne Duncan, who will meet with educators in San Francisco on Friday. "The state is at a fork in the road and they will either decide to have the courage to do the right thing by its children and create the possibility of bringing in literally hundreds of millions of dollars in competitive grants at a time of tremendous financial need, or the state can choose to perpetuate the status quo and leave those resources on the table."
He was particularly dismayed by the proposal to clip seven days off the 180-day school year.
"The school day, the school week and the school year I think are all too short, and particularly hurt children who come from tougher economic backgrounds," he said in an interview.
Educators and state officials -- already reeling from years of state cuts, including $7.4 billion this year -- seemed frustrated yet resigned to the inevitability of new reductions.
Los Angeles Unified School District Supt. Ramon C. Cortines anticipates $131 million in new cuts this year and up to $273 million next year.
The district has already cut almost $560 million from this year's budget and is considering laying off up to 2,500 teachers. The school board is scheduled to vote on a final budget by July, and district officials are generally prohibited by state law from laying off more instructors, so the cuts will have to occur elsewhere. The district may eliminate summer school, reduce after-school programs and switch some employees to a 10-month work year.
Cortines said he was worried about the district's ability to remain solvent.
"Here's where we are, right on the precipice," he said. "I am telling you I cannot balance the budget at this moment for the [next] three years."
Lacking backup
Fish, the Saddleback Valley superintendent, said he expects many districts to declare themselves unable to meet their financial obligations, including possibly his own. In the past, such a move would have led to a state loan and intervention.
But Supt. of Public Instruction Jack O'Connell said he doesn't know how the state will be able to help districts facing bankruptcy. "We don't have any money for a loan," he said.
Higher education will also be affected. The University of California system faces up to a $531-million shortfall next year as a result of the failed measures and other factors. And the California State University system faces a $410-million shortfall for next year.
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MICHAEL HILTZIK
Schwarzenegger missed his golden opportunity to give Californians the truth
May 21, 2009
Marx Brothers fans will recall that the political philosophy of Rufus T. Firefly in "Duck Soup" boiled down to this:
"If you think this country's bad off now, just wait 'til I get through with it."
I've often considered that to be the secret slogan of Arnold Schwarzenegger's administration. (Just substitute "this state" for "this country.") After Tuesday's election, it's no longer a secret.
Schwarzenegger had the kind of voter support in 2003 that would have allowed him to tell the voters the harsh but necessary truths about California governance and force real reforms down their throats.
Instead, he uttered the same lies about state government and proposed the same nostrums as many of his predecessors: Californians are overtaxed and underserved, the budget can be balanced by cutting waste, fraud and abuse, etc. Like everyone else who has made these claims, he never delivered on his promise.
His cut in the car tax cost the state $3.6 billion per year, making him directly responsible for pretty much all of today's $21-billion budget deficit.
He hoped he could avoid reaping the whirlwind sown by these cliches. Unfortunately, Tuesday was Harvest Day.
Let's list a few of the lies he and our other political leaders have peddled about California's government and examine how they contributed to this week's debacle at the ballot box.
The most onerous lie is that Californians are burdened by the highest state taxes in the nation. The truth, according to 2006 figures derived from the U.S. Census, is that as a percentage of all personal income, California's tax and fee schedule ranks 18th in the country.
Then there's the canard that we unfairly soak our rich. This is supposedly a no-no, because the rich might flee, taking with them their sterling job-creating potential.
The dirty little secret, according to Citizens for Tax Justice, a left-leaning nonprofit group, is that California's wealthiest residents shoulder the lightest burden of any income group in the state. The top 1% of California income-earners (average 2007 income: $2.3 million) paid 7.4% of their income in various state taxes last year, counting the federal deduction for state taxes. The highest rate was paid by the poorest residents. Those earning $20,000 or less, with average income of $12,600, forked over 10.2% of their earnings in sales, excise, property and other levies.
This year's budget deal increased the disparity, raising the effective rate on the rich to 7.8%, but that on the poor to 11.1%.
The theme of the ballot campaign was that the state's chronic budget gridlock could be solved by more gridlock and more borrowing. All lies.
By no means does the governor deserve all the blame for the budget fiasco. Democrats and Republicans alike have abandoned any claim to statesmanship in Sacramento.
And what of the business community? Big corporations, entrepreneurs and mom-and-pop stores all have a huge stake in functional state government.
Yet the state Chamber of Commerce traditionally has offered one nostrum for California's budget ills: Cut taxes. But since it also claims to support better education and improved infrastructure, its approach has simply amounted to throwing the hard challenges back into the laps of a nonfunctional political establishment.
The truth is that real solutions to the budget crisis are obvious.
One: Eliminate, or at least loosen substantially, the two-thirds legislative requirement to pass a budget or raise taxes.
This rule has allowed a small Republican minority to hold up all budget progress unless its reactionary program is incorporated in the deal. If the supermajority were pared back even to 60%, the minority lawmakers would be unable to block a budget unless they could enlist at least a few moderates in their cause. The improvement in the tone of legislating would be immediate.
Two: Remove legislative term limits. This ridiculous provision has reduced the Capitol to a nursery full of would-be legislators needing afternoon naps. Worse, it has sapped legislative leadership of its vigor.
Since mid-1995, there have been nine speakers of the Assembly. Over the previous 20 years, there were two, including Willie Brown, the original target of the term-limit movement. You want to tell me that government in Sacramento has improved since then? As long as term limits exist, we'll never have a 21st-century state government.
Three is the Big One: Revise Proposition 13. Prop 13 is often described as a tax-cutting measure, but that scarcely does justice to the damage it has caused.
By rendering the property tax useless as a revenue device, Prop 13 hit local governments especially hard. Key budgeting authority devolved from cities and counties up to Sacramento, where they have to compete with the state government for money. You want your streets paved or more teachers for your third grade? Stand in line behind the health department, or the corrections department, or Caltrans.
So city streets deteriorate and local schools get worse. Police and firefighters are laid off. All the places where the voters come into face-to-face contact with their governments crumble.
The result? Voters get more cynical, more convinced that government is expensive and useless. It's a vicious circle -- the more government is unable to do the things voters want it to do, the less faith the voters have in government and the less they're willing to spend on it. Which leaves it with less money to do the things voters want. And on and on.
Reversing the worst effects of Proposition 13 doesn't take rocket science. Commercial property should be subject to regular reassessment -- the "split roll" that, inexplicably, can't gain traction in Sacramento. Cash-strapped homeowners can be provisionally protected from the burden of higher residential assessments -- say by allowing some assessments to be deferred until the home is sold.
Plainly, local government needs to recover its authority to collect revenue directly. That would help our political leadership make the case that, considering the quality of the services and institutions state and local government provide, Californians aren't overtaxed but undertaxed -- and the wealthy are the most undertaxed of all.
If Tuesday's election proves anything, it's that California's political sacred cows all need to be herded into the abattoir and dismembered, once and for all.
Breaking the cycle that has brought us to this pass will take political courage and real statesmanship. California's voters have been trained for too long to think they can have roads, schools, universities, clean air and other amenities without paying their true cost. The task of our next generation of leaders will be to show that California is not ungovernable -- it's just been ungoverned.
Michael Hiltzik's column appears Mondays and Thursdays. Reach him at michael.hiltzik@latimes.com, read his previous columns at www.latimes.com/hiltzik, and follow @latimeshiltzik on Twitter.
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California elected officials' pay will be cut 18%
May 21, 2009
Reporting from Burbank and Sacramento — A state panel this morning slashed the salaries of the governor, legislators and other elected state officials by 18% -- a day after voters rejected a plan by the leaders to address the budget crisis.
The cut will apply to officials elected next year.
Citing pay decreases and layoffs being imposed on rank-and-file state workers, the California Citizens Compensation Commission approved the reduction, which also applies to the state attorney general, superintendent of public instruction, controller, insurance commissioner, treasurer, lieutenant governor, secretary of state and members of the Board of Equalization.
"I think they should share in the sacrifices that everyone else has had to encounter," Commissioner Kathy Sands, a former Auburn mayor, said after the panel's 5-1 vote at a meeting in Burbank.
The commission had wanted to decrease current officials' pay, but the panel's attorney said California law does not allow that.
Commission Chairman Charles Murray said the panel's move would allow savings close to those that would have been achieved if a 10% cut had gone into effect this year and continued through next year.
"We see nothing on the horizon that is going to bring us out of" the state budget crisis, Murray said. "How do you find $21 billion in one year?"
Gov. Arnold Schwarzenegger, who appoints the commissioners and supported their action today, does not take a salary. One legislator, Sen. Abel Maldonado (R-Santa Maria), said he would voluntarily accept the pay cut effective June 1.
But state Sen. Denise Moreno Ducheny (D-San Diego), who will be termed out of the Legislature next year, called the decrease "excessive" and "punitive" and said it may discourage some people from running for state office.
A month ago, members proposed a 10% cut. Today, they cited Tuesday's election results, which will push the state budget deficit as high as $21.3 billion, in making the larger reduction.
They also noted that Schwarzenegger in February mandated two unpaid furlough days a month for most state employees, equal to a 9.2% pay cut, and recently proposed laying off 5,000 government workers.
Schwarzenegger is entitled to an annual salary of $212,000. The next governor will receive $173,840, which would no longer be the largest paycheck for a governor in the country. The current No. 2 in pay is the governor of New York, who receives $179,000.
Most state legislators currently are paid $116,208 annually in salary and $35,000 in per diem living expenses. The 100 lawmakers who will be elected in November of next year will receive the same per diem, but a salary of $95,291. Legislative leaders make more.
Even with the pay cut, California lawmakers will be the country's highest-paid. The next best compensated are in Michigan, which pays legislators $79,650.
Tuesday's pay cut was opposed by Commissioner William Feyling, executive director for Carpenters 46 Northern California Counties Conference Board, who has argued for a 5% reduction. And Commissioner John Stites had proposed cutting the salaries more, by 25%.
patrick.mcgreevy@latimes.com
ann.simmons@latimes.com
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Guv responds to ballot losses, seeks D.C. aid
California Gov. Arnold Schwarzenegger, tin cup out in Washington, said today that Obama administration Health and Human Services Secretary Kathleen Sebelius would not punish California by withholding $8 billion in federal stimulus money for the MediCal program.
Schwarzenegger called the ruling a "great victory," coming a day after a great defeat when voters rejected five ballot measures aimed at narrowing a $21.3 billion budget gap.
He said the message from voters came through "loud and clear," but he also bemoaned the fact that voters want the state to cut spending to fix its budget mess, but then recoil from actually making the cuts.
Schwarzenegger said the message he got from voters was, "'Look, we have to go off and sell off our motorcycles and our boats and our second cars, and shrink and have yard sales and garage sales in order to make ends meet. You do the same thing with government. Don't come to us for extra help.' That was the message, it was very loud and clear.
"And you know something, I appreciate that, when you hear that from the people, it gives us a chance to go and adjust, and say okay, we went the wrong direction. Now let's go in the right direction, let's go with what the people want.
"And of course it's very difficult for the people also, because when you ask them about the cuts, when you say, "Do you mind if we have to make an official $6 billion in cuts in education?' They say, 'Oh, no, no, no, no, no, not education.'
"And then you say, 'Well, how about in health care?" And they say, 'No, I wouldn't go after the vulnerable citizens.'
"Then you say, 'Well, then you have to make some cuts in law enforcement. And they say, 'Law enforcement, I want to keep that in place.'
"So people don't know themselves where they want to cut. They just say, 'Make the cuts and you figure it out.'
And so the governator who promised to sweep Sacramento with a broom winds up in Washington pleading with the feds, who do not have to balance their budgets.
The Obama administration had been in a standoff with the state over whether California violated rules in the stimulus program by cutting programs. The stimulus package requires "maintenance of effort" by states to continue funding programs. The idea is to prevent states from cutting their own spending on programs and substituting federal stimulus money. That wouldn't stimulate much of anything.
"There is tremendous will by the secretary and the White House to help California," Schwarzenegger said. "We're going to work with them to get as much money as possible."
Behind the scenes, the Obama administration has been loosely interpreting some of the rules governing stimulus money, allowing states to receive funds on the promise that they will maintain their own funding. The rules put California in a real bind: the state has to cut programs to balance its budget, but in doing so risks losing the federal aid intended to help states through the recession.
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organ_donor
5/20/2009 12:45:56 PM
Don't blame me. I voted for the stripper.
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State lawmakers begin battle over budget anew
Wednesday, May 20, 2009
(05-20) 04:00 PDT Sacramento - --
After voters soundly rejected five budget-related ballot measures, Gov. Arnold Schwarzenegger and state lawmakers agreed Wednesday on one thing - they need to act quickly to solve the state's budget woes on their own.
"With an overwhelming majority, the people told Sacramento, 'Go and do your work yourself, don't come to us with your problems,' " Schwarzenegger said in Washington before flying back to Sacramento.
But how the state's leaders will erase a $21.3 billion deficit barely three months after closing a $42 billion shortfall remains murky.
Schwarzenegger and legislative leaders said Wednesday they aim to find a compromise solution by the start of the new fiscal year on July 1. Leaders have a pressing deadline: Without prompt action, the state could run out of cash to pay all its bills by the end of July.
The governor returned Wednesday from a two-day trip to the nation's capital, where federal officials agreed that the state's planned cuts in in-home support services for disabled residents would not void terms of $8 billion in economic stimulus funds coming to California.
But whether the federal government will deliver all of the billions of dollars in stimulus funds it promised the state remained up in the air. If state officials cut spending too much to reduce California's cavernous deficit, they risk losing stimulus money under federal rules.
Schwarzenegger said the defeat of five of six measures in Tuesday's statewide special election carried a clear message from voters. Propositions 1A through 1E would have changed the state's budgeting process, ensured funds to schools in the future and generated nearly $6 billion in revenue.
Meanwhile, Prop. 1F, which freezes salaries of top state officials, including lawmakers and the governor in lean budget years, was approved by nearly 74 percent of voters.
Pay cuts
The California Citizens Compensation Commission, which sets pay for state officials, took a step further Wednesday, voting to slash the pay for lawmakers and constitutional officers by 18 percent beginning December 2010.
With the measures' failure on Tuesday, there's little choice for state leaders in solving the state's huge deficit, the governor said.
"I think that the message was clear from the people. Go all out and make those cuts and live within your means," said Schwarzenegger, who has maintained he won't support new taxes to close the latest deficit, although he backed the February budget plan that included more than $12 billion in temporary tax increases.
Legislative leaders in both parties said drastic cuts will be made to close the gap, although Democratic lawmakers hinted that bridging the gap with cuts alone may be too difficult in a $92 billion general fund budget.
Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he agrees with the scope of Schwarzenegger's proposed cuts, which total about $9.8 billion. The big debate, he added, will be over how to close the rest of the gap.
The governor's plan, which he released last week, relies heavily on borrowing, collecting more taxes earlier and increasing tax withholdings from workers' paychecks to raise more than $10 billion.
Lawmakers from both houses of the Legislature will convene a committee hearing on the state budget today, said Steinberg and Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County).
Cash crisis
Today's hearing will feature nonpartisan Legislative Analyst Mac Taylor, who will detail his analysis of Schwarzenegger's budget proposal. On Friday, state Controller John Chiang and state Treasurer Bill Lockyer are expected to testify about the state's looming cash crisis.
Senate Republican leader Dennis Hollingsworth of Murrieta (Riverside County), said the budget gap will have to be closed without taxes or borrowing. But he did not detail how he would do that.
Hollingsworth, who opposed some of the key ballot measures in Tuesday's special election, said voters have lost "faith in the institution of government."
That was the sentiment of Jim Wunderman, president of the Bay Area Council, a business group, who announced a formal effort calling for a constitutional convention to revamp state government and its budgeting process.
"Our government has failed us," he said. "It's clear voters no longer trust Sacramento."
While lawmakers said they welcome ideas that reform state government and the budgeting process, one legislative leader said this may not be the right time.
"I think it is very alluring and enticing to talk about reforms on the horizon," said Assemblyman Sam Blakeslee, R-San Luis Obispo, who will become the lower house's minority leader June. 1. "I think it is a discussion that needs to occur, but not until we get through with the business of balancing the budget."
Aftermath of ballot measures' defeat
-- The California Citizens Compensation Commission, which sets salaries of state lawmakers and statewide elected officials, voted Wednesday to slash the officials' pay by 18 percent effective December 2010.
-- Federal officials agreed with Gov. Arnold Schwarzenegger that wage cuts for In Home Support Services workers do not violate terms of $8 billion in federal economic stimulus funds coming to the state.
-- Today, the state Assembly and Senate begin a joint committee hearing on the budget, starting with the legislative analyst's assessment of the governor's budget proposal.
-- State Controller John Chiang and Treasurer Bill Lockyer are expected to testify Friday on the state's looming cash crisis.
Chronicle staff writer Carolyn Lochhead contributed to this report from Washington. E-mail the writers at myi@sfchronicle.com and wbuchanan@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/20/MNL717O4J6.DTL
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Defeat is sharp rebuke to governor, Legislature
Wednesday, May 20, 2009
(05-20) 04:00 PDT Sacramento --
California voters soundly rejected a package of ballot measures Tuesday that would have reduced the state's projected budget deficit of $21.3 billion to something slightly less overwhelming: $15.4 billion.
The defeat of the measures means that Gov. Arnold Schwarzenegger and the state Legislature will have to consider deeper cuts to education, public safety, and health and human services, officials have said.
Propositions 1A through 1E - which would have changed the state's budgeting system, ensured money to schools in future years and generated billions of dollars of revenue for the state's general fund - fell well behind in early returns and never recovered.
The only measure that voters approved was Proposition 1F, which will freeze salaries of top state officials, including lawmakers and the governor, during tough budget years.
In a written statement Tuesday night, Schwarzenegger said that he believes Californians are simply frustrated with the state's dysfunctional budget system.
"Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions," the governor said.
Senate President Pro Tem Darrell Steinberg, D-Sacramento, said voter rejection of the propositions reflects the fact that people are facing difficult economic times and he is prepared to return to the budget negotiating table today.
"We're going to get right to work ... and finish by June 30," before the new fiscal year begins, he said. "It's not going to be a long, hot summer."
Opponents of the measures on Tuesday labeled the package as "flawed proposals."
"The governor and the Legislature must develop budget solutions that put California on a real path to fiscal stability," said Lillian Taiz, president of California Faculty Association.
The six ballot measures stemmed from a budget deal Schwarzenegger and legislative leaders brokered in February to close a nearly $42 billion budget shortfall through June 2010.
Budget fixes included $17 billion in cuts, more than $12 billion in temporary tax increases, reliance on billions of dollars in federal economic stimulus funds - and asking voters to approve ballot measures to generate more revenue for the cash-strapped state.
Despite all that, California's budget fell deeper into deficit as a result of plummeting revenue and rising costs. With the ballot measures trailing in polls, Schwarzenegger last week announced the state's shortfall could grow to $21.3 billion this summer if voters reject the measures.
His critics accused Schwarzenegger of using scare tactics on the eve of the special election, but the governor argued that Californians had to know what the consequences would be before they voted.
Three of the propositions - 1C, 1D and 1E - would have had immediate impact on the state's budget by raising nearly $6 billion in the new fiscal year that begins July 1.
Prop. 1B would have ensured that schools would get more than $9 billion beginning in the 2011-12 fiscal year, but it would have become valid only if voters also approved Prop. 1A, which Schwarzenegger promoted the most.
Prop. 1A represented the elusive budget reform Schwarzenegger has sought since he was elected more than five years ago. It would have limited spending and created a rainy-day fund while extending the recently enacted tax increases from two years to four.
The measure's spending limit was aimed at getting Republican backing for the budget compromise, which included temporarily increasing vehicle license fees and taxes on sales and income.
But even that wasn't enough to get the plan through the state Senate, resulting in the addition of Prop. 1F, the pay freeze.
Last week, while unveiling the grim prospects for the state budget, Schwarzenegger insisted that the ballot measures are not about him but about the future of the Golden State.
"It's about California's future and California's legacy. It's not about me or any legislator," he said Thursday, adding that the combination of the ballot measures' passage and his budget solutions would put California back on track for a "slow and steady march back to prosperity."
Schwarzenegger tried to build a broad coalition of proponents of the measures, but he did much of the heavy lifting, helping to raise more than $15 million for the "yes" campaign. The proponents of the measures together raised a total of about $29 million.
The opposition, made up mostly of anti-tax groups and some labor unions, raised about $5 million.
The complexity of the ballot package created unlikely allies for both sides. Schwarzenegger was on the same side as the California Teachers Association. The measures' opponents included anti-tax groups, unions and advocates for the poor who often are at odds over state budget priorities and policies.
E-mail the writers at myi@sfchronicle.com and wbuchanan@sfchronicle.com.
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Ballot defeat doesn't dampen state bond sales
Wednesday, May 20, 2009
Given the severity of the state's budget and political woes, you'd think investors would be staying away from California's municipal bonds.
They're not.
On Wednesday, the day after voters torpedoed five ballot measures designed to help close the state's gaping budget deficit, prices of California municipal bonds went up, reflecting investor demand.
Quite a few bond funds that invest in California municipal bonds, including Fidelity California Municipal Income and Vanguard California Long-Term Tax-Exempt, hit new highs for the year Wednesday.
Investors shrugged off the failure of the ballot measures because it was widely expected and doesn't really affect the state's ability to repay its general obligation debt.
Political rhetoric aside, states cannot declare bankruptcy - although cities, counties and other municipal-bond issuers can. A state could miss payments on its debt - known as defaulting - but it can't get rid of or restructure its debt in bankruptcy, like companies can.
Despite its very serious problems, California has more than enough revenue to make principal and interest payments on its general obligation bonds.
The state's debt payments are $4 billion to $5 billion per year. California's first priority is to schools, which automatically get 40 percent of state revenues. After that, it must pay its bondholders.
This year and next, the state expects $88 billion in revenues. Subtracting 40 percent of that for schools leaves $53 billion - more than enough to service its general obligation debt.
If California or any state were at risk of defaulting on its bonds, it could and almost certainly would raise taxes to make the payments.
The state "is a sovereign entity," says Gabe Petek, a director in the bond-rating group with Standard & Poor's. "No matter how difficult the financial and economic conditions get, it can't just go away. It's not like Circuit City."
It is also widely believed that the federal government would not allow California to default, under the ever-expanding "too big to fail" doctrine. That said, investors are still taking risks when they hold general obligation bonds.
One is headline risk, or the chance that political scare tactics or inflammatory news stories will cause investors to dump bonds, pushing down their price.
In the last year or so, individual investors have bought a bigger portion of the state's bond issues, partly the result of a retail marketing push and partly because some institutions that had been big buyers, such as hedge funds, have mostly fled.
Retail investors, more so than institutions, "read the paper, read that the state of California is bankrupt. They perceive the risk of default to be elevated," says Ken Naeuhu, managing director with Bel Air Investment Advisors.
Although investors shrugged off the defeat of the ballot measures, "we think there will be more headline risk," when the Legislature starts wrestling with alternatives, Petek says.
Another risk is that California's credit ratings get downgraded, which could cause the price of its general obligation bonds to fall. California already has lower ratings than any other state, although they are still higher than they were in 2003 and early 2004.
S&P lowered its rating the day after the state failed to meet its Feb. 1 budget deadline. Petek says S&P won't lower its ratings again just because the propositions failed. "We never expected them to pass," he says. But S&P could reconsider if things don't get better. "Ratings stability is not meant to convey serenity," he says.
Emily Raines, a senior analyst with Moody's, also says her firm is not planning an immediate ratings change.
When Moody's lowered its rating on California in March, "we were aware that many things could happen ... including downward revenue revisions, the failure of the ballot propositions and the Legislature getting called back and having difficulty coming to conclusions. The A2 rating level encompassed those risks," she says.
However, "if they all happen, or some happen to a greater extent (than anticipated) we might want to re-evaluate the rating."
Chris Alwine, head of Vanguard's municipal funds group, says that when states' credit ratings fall as low as California's has, "they start making budgetary cuts or fiscal policy that takes them back" into higher territory. "They can raise taxes and fees, services can be cut. Even though the headlines are negative, by and large, these state and local governments will do what is needed to balance budgets."
California bond prices have been mostly rising since early March, when the state was issuing an enormous amount of new debt and investor confidence was at a low. As bond prices have risen, their yields, which move in the opposite direction, have fallen.
In late March, the state sold 25-year bonds at a yield of 6.43 percent. Last week, those bonds were yielding 5.81 percent. On Wednesday, they were around 5.6 percent, according to Vanguard.
Yet California bonds are still yielding quite a bit more than bonds from higher-rated states.
A 10-year North Carolina general obligation bond is yielding 2.85 percent, versus 4.25 percent for a 10-year California bond.
Alex Reyes, owner of Reyes Capital Management in San Francisco, is buying California general obligation bonds, up to seven years in maturity, for his clients.
The budget crisis "is serious. But we don't think it's the end of the world. We think it is more of a political issue than an economic issue," he says.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/blogs/pender.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/20/BUN117O60Q.DTL
This article appeared on page C - 1 of the San Francisco Chronicle
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Angry voters send message: 'It's not our job'
Thursday, May 21, 2009
(05-20) 19:56 PDT -- In the end, the only question about Gov. Arnold Schwarzenegger's package of budget-reform measures was: How badly will they lose?
For weeks before Tuesday's special election, polls inside and outside of the campaigns had shown that California voters were mad at politicians and eager to express that anger on election day.
Voters crushed Propositions 1A through 1E, which Schwarzenegger and legislative leaders said were desperately needed to avoid a new budget meltdown. At the same time, voters overwhelmingly approved Prop. 1F, which stuck a virtual thumb in the eye of Sacramento politicians by banning any raises when the state faces a budget deficit.
The results were no surprise to the governor and his allies.
"We talked about reforming government and found that people didn't believe Sacramento was capable of reforming itself," said Adam Mendelsohn, a political adviser to Schwarzenegger. "Then when we changed and talked about the budget cuts that would have to be made, people said 'that's terrible' but didn't change their vote.
"It didn't matter what we said, there was no way we were going to change that outcome."
Focus groups run by the "yes" campaigns were so uniformly negative that consultants thought there was a problem with the groups.
"We moved to different cities and tried different questions, but we got to the same place with every group," said Gale Kaufman, a consultant for education groups supporting the ballot measures. "People sent a very simple message: 'It's not our job.' "
Opponents of the ballot measures were quick to take credit for steamrolling the governor's ballot package, with conservatives arguing that the results showed that voters want smaller government and lower taxes and liberals saying the election vindicated their call for fewer cuts in government services.
"Right out of the box, we wanted to define (Prop. 1A) as a tax increase," said Jon Coupal, president of the anti-tax Howard Jarvis Taxpayers Association. "And since the core turnout was driven by conservatives, that was an important message."
But to Mike Roth, spokesman for the labor-backed opposition to Schwarzenegger's effort, the election wasn't about taxes.
"Voters want to stop balancing the budget on the backs of average Californians," he said. "We reject the notion that the election outcome shows that voters are willing to take a $21 billion cut to state services," which the governor said would happen if the measures failed.
While turnout for the election stands at about 23 percent, that number is likely to rise to about 30 percent when all the ballots are tallied, said Mark DiCamillo, director of the Field Poll.
There's little indication that any single, specific issue drove the election results, he added.
"This was a very broad-brush defeat," DiCamillo said. "I don't see how anyone can read the tea leaves and say 'This is how voters felt about tax increases' or spending caps or anything."
The narrow range of the final results, with support for Props. 1A to 1E ranging from 34 percent to 37 percent, showed that plenty of Californians voted "no" on the entire package, he said.
"This was more of a message election than one where voters were picking and choosing," DiCamillo said.
There are plenty of suggestions about what should happen next.
Rick Jacobs of the liberal Courage Campaign thinks voters were angry because conservative legislators can block progressive change, so he's calling for an end to the requirement of a two-thirds majority vote to approve taxes and the state budget.
Ron Nehring, chairman of the state Republican Party, argues that the vote was against higher taxes and government spending and in favor of deeper cuts in state programs.
The League of Women Voters of California, which opposed most of the ballot measures, wants wholesale government reform, including changes in the state's tax structure, a review of Prop. 13's limits on commercial property taxes and a new look at many state tax credits.
But what's most likely to happen immediately is the type of deep, wholesale cuts in state programs that Schwarzenegger has promised to make to close the budget gap.
Tuesday's election gave voters a choice and they decided, Mendelsohn said.
"There are going to be a lot of apathetic voters out there who are going to be shocked when they realize the consequences the governor talked about are real," he said. "Nobody is going to be able to point fingers and say 'You didn't tell us.' "
E-mail John Wildermuth at jwildermuth@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/21/MNBC17O57T.DTL
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