State of California

While the Governor argued that he was forced to do by the Assembly which removed some of the money from the budget they passed including taking local money that goes for infrastructure and also removing offshore oil leases as a solution, Democrats such as Assemblymember John Perez (D-Los Angeles) immediately cried foul.

During the budget agreement cities threatened lawsuits against the state if the state followed through with a suspension of Proposition 1A which was passed by the voters to prevent the state from raiding monies that are designated for cities and counties.  While the cities and counties were able to get a devastating take away from transportation funds, the state prevailed in taking monies from redevelopment and also Prop 1A.  Cities and counties are now in the position where they will have to decide whether or not to sue the state.

Taking the brunt of the blow once again is education which has now had over 17 billion dollars in cuts in the last two budget deals.  That represents nearly one-third of the funding for education which is also the single largest line item on the budget.

Late last night it was announced that talks had stalled and word leaked out that the point of difference was what to do about education, specifically Proposition 98.  Education has already suffered cuts of well over $10 billion and that number could increase even more if the legislature agrees with the Governor to suspend it.

Ten days have passed since that point, the state is out of cash, had the Governor simply taken the partial solution, at least we would be solvent at this point and would have enough cash to pay our bills.  Instead people are not being paid with IOUs.  The average person probably has not felt this yet, but that will be coming.  The Governor is now talking about a fourth furlough day or another 5% paycut for state employees (which is functionally the same thing) and state employees are talking strike.

The California Debt and Investment Advisory Commission consists of the State Treasurer, the Governor or the Director of Finance, the State Controller, two local government finance officials, two Assembly Members, and two Senators.

An additional problem with this interpretation is that of the propositions, only Proposition 1A impacted taxes and even that only two years down the road and only to continue already implemented tax increases for an additional two years.

The voters rejected such overtures and probably Assembly Majority Leader Albert Torrico hit the nail on the head when he said last night:

It is ironic that in the last week, the very measures that Governor Schwarzenegger has trotted out to “scare” voters into for the measures, are the very reason I am now going to vote against all of the propositions.  The deficit is too large and passing the propositions makes too little impact on the budget deficit to warrant holding my nose.  I will briefly get into each one of them individually, but many of them rely on simply shifting and borrowing monies.  That’s not much of a solution to the longer term problem.

At this point, six billion is helpful if Propositions 1C, 1D, and 1E pass.  That state would gain six billion dollars against the total total deficit by virtue of shuffling monies around.

According to a recently released survey from the Public Policy Institute of California (PPIC), Californians are extremely pessimistic about the California economy, give the governor and legislature approval ratings that hover near record lows, and show less trust in state government than they have ever before. The PPIC survey found that a mere 16 percent of likely voters say they can trust the government in Sacramento to do what is right.   And they think the nation as a whole is in better shape than California.

As it turns out that is just the tip of the iceberg for education.  To see that we need to do a little math.  In March, it was announced that the state was already $8 billion in the hole despite the budget agreement from February 20, 2009.  Frankly, it may be worse than that by now, but let us assume that is the case.  The ballot propositions provide for a variety of shifting and borrowing on monies.  If they do not pass, the state will have to find another $7 billion.  So the total impact will be roughly $15 billion that the state has to find.

At present, there are competing health care bills working their way through the California Legislature.  In addition, President Obama is working hard to find a way to pass national health care reform.