May 19, 2009 Special Election

I am voting NO on all of the propositions in the May 19, 2009 special election. The legislature needs to do the job it was elected to do. If not, then every one of them not willing to compromise in good faith should resign.

What will it take for the California legislature to do its job? Instead of passing a budget, it delayed the hardest decisions and deferred to voters. At what cost? The propositions do not even balance the budget or structurally change how budgets are made or how money is spent. The propositions only move money from one set of pots to to another in a apparently symbolic move. It is like moving deck chairs on the Titantic as cold Atlantic waters stream into a big gash in the side of the boat. Hello, there are structural problems causing California’s budget woes! Worse, these are temporary measures that delay or exacerbate the problems faced by the state government. Really, what do passing these initiatives get us?

via California Legislature: Where cost-cutting plans go to die – Los Angeles Times.

“Republicans pitched most of the plans to help deal with the deficit — which is expected to hit $8 billion by summer — but even some from moderate Democrats were rejected.

State officials have projected the midyear budget shortfall as a result of the recession. And if voters reject the budget-related ballot measures in the May 19 special election, the deficit could top $14 billion.”

via State will need to borrow more than $20 billion S.F. Chronicle.

“California will have to borrow more than $20 billion unless state leaders close another multibillion-dollar deficit that will deepen if voters reject budget-related ballot measures on May 19, according to a report Thursday by the nonpartisan Legislative Analyst’s Office.

In addition, California may have to pay hundreds of millions of dollars in additional borrowing costs as a result of the banking crisis. In previous years, the state was able to secure lower interest rates by purchasing loan guarantees from commercial banks.

But banks have told state finance officials that they can at best back about $1 billion in loans, far short of the state’s borrowing needs, said Tom Dresslar, a spokesman for state Treasurer Bill Lockyer.”

The articles say so much more than what I flash here. Really, they are worth reading to educate yourself. Really, these propositions do little to help the situation.

via Californiaâ??s Cash Flow Crisis: May 2009 Update.

Without significant budget-balancing and cash management actions by the Legislature or unprecedented borrowing from the short-term credit markets, the state will not be able to pay many of its bills on time for much of 2009-10.

  • $23 billion: Amount in loans from private investors needed in the fiscal year beginning July 1 if voters reject the May 19 ballot measures and the Legislature does not act;
  • $17 billion: Amount in loans from private investors needed if voters approve the ballot measures
  • $14 billion: Budget shortfall if voters reject Propositions 1C, 1D and 1E (i.e. the measures bring in $6 billion to budget).
  • $8 billion: Budget shortfall if voters approve Props. 1C, 1D and 1E

And here are highlights from the Official Voter Information Guide distributed by the Secretary of State followed by my commentary, labeled [DFB]. Highlights are mine.

Proposition 1A:

  • “Possible greater state spending on repaying budgetary borrowing and debt, infrastructure projects, and temporary tax relief. In some cases, this would mean less money available for ongoing spending.”
  • [DFB] In other words, we will borrow money now but we will be required to pay more for debt servicing and paying interest on that debt in future budgets. Moreover, we will need to cut spending in future years to pay for our budget woes now. Where will that money come from?

Proposition 1B: Fiscal Impact:

  • “Potential state savings of up to several billion dollars in 2009â??10 and 2010â??11.””Potential state costs of billions of dollars annually thereafter. “
  • [DFB] There are no estimates attached to this future cost. The voter guide says “it is difficult to know how this measure would change the state’s finances.” Voter Guide, page 21.

Proposition 1C:

  • “Impact on 2009â??10 State Budget: Allows $5 billion of borrowing from future lottery profits to help balance the 2009â??10 state budget.”
  • “Impact on Future State Budgets: Debt-service payments on the lottery borrowing and higher payments to education would likely make it more difficult to balance future state budgets. This impact would be lessened by potentially higher lottery profits. Additional lottery borrowing would be allowed. “
  • [DFB] Get this part: “would likely make it more difficult to balance future state budgets”? Yes, the authors of this measure are trying to address a difficult to pass budget by hamstringing future legislators by making it difficult to balance/pass future budgets. Isn’t that how we got into this mess? It infuriates me to no end to see this level of misfeasance. [bleeped out so I do not make a statement against my penal interests – sorry, I had a Criminal Procedure exam earlier this evening ;)]

Proposition 1D:

  • “Redirects existing tobacco tax money to protect health and human services for children, including services for at-risk families, services for children with disabilities, and services for foster children. “
  • [DFB]: This is an example of moving money from one pot to another. It is temporary and lasts five years. What happens in five years? This whole mess begins anew.

Proposition 1E:

  • “Amends Mental Health Services Act (Proposition 63 of 2004) to transfer funds, for a two-year period, from mental health programs under that act to pay for mental health services for children and young adults provided through the Early and Periodic Screening, Diagnosis, and Treatment Program.”
  • “The proposed temporary redirection in Proposition 63 funding would make less money available for mental health programs. To the extent that such programs are reduced, state and local governments could incur added costs for homeless shelters, social services programs, medical care, law enforcement, and county jail and state prison operations. The extent of these potential costs is unknown and would depend upon the specific programmatic changes that resulted from the redirection of Proposition 63 funding.”
  • [DFB] This is another temporary measure lasting two years that moves money from one pot to another. As the analysis shows, there is a big budget gap that will be left for cities and counties to make up, perhaps from thin air.

Proposition 1F:

  • “Encourages balanced state budgets by preventing elected Members of the Legislature and statewide constitutional officers, including the Governor, from receiving pay raises in years when the state is running a deficit.”
  • Minor state savings related to elected state officialsâ?? salaries in some cases when the state is expected to end the year with a budget deficit.”
  • [DFB] This is like being bitten by a minnow. A Delta smelt, perhaps? It lacks teeth big enough to pierce the skin. Worse, it will have a negligible effect on the budget. I’d rather see a sliding scale that forces the legislature to deliver a structurally balanced budget by July 1. Every week after would see a 10% reduction in pay for that period. If a legislator was paid $100,000 per year they would be paid based on $90,000/year the following week and $81,000/year the following week. At week 29, they would be paid based on $5,233/year salary. See the chart below. Now that ought to get their attention in contrast to the slap with the pinkie finger the legislature has given itself.

graph

Of course I only cherry picked the items that caught my eye or that I should call attention to. Read the propositions yourself.

To be fair, voters are part of the problem. We have tied the hands of the legislature with proposition after proposition to support our pet projects, idealogical views, and pocket books. What we have collectively done is force legislators to do the equivalent of cloud seeding. Fortunately, we’ve had a prosperous enough time where money came easily in coincidental alignment with those revenue seeding experiments. Now, the magic is gone and we need to fess up to reality. Money does not grow on trees or fall from the sky. Debt is not cheap. And California’s budget is a briar patch that needs to be dethorned.

There should be no “third rail” to this debate. That overused political colloquism should go out the window in this conversation. There is nothing that should be held too sacred in conversations about how to fix – how to truly fix – the state budget. Prop 13, Prop 98, Prop XX, all need to be considered without reservations. It may take a vote of the people to undo some of the mess we created but at least put something valuable and constructive for us to debate and vote on instead of something from a sewage plant, spit-shined and treated like Cinderella’s glass slipper. At the end of the day, the conversation must be about the balance sheet: revenue versus expenditures; and how to make each more stable and controlled.