California Budget Crisis- Sources of revenue

It is clear that the California budget is in crisis and we can not simply cut our way out of the crisis.  Budget cuts and lay offs make the recession worse.

School funding reveals the nature of crisis.  In the last two years the k-12 budget “solutions” have cut 4.6 billion dollars from the schools. We have larger classes and fewer teachers.  School reform has stopped- except for the politicians hot air.  School funding makes up a total of 30% of the state budget.  Any crisis in the state budget and any cuts in the state budget will make school budgets worse.

California will need to raise taxes to fund the schools and to repair the social safety net.  Anti tax radicals and Republicans  oppose any tax increases.   The state ‘solutions’ of the last three years depended upon receiving federal stimulus money.  The stimulus monies are almost finished and with the Republican winning control  of Congress there will probably not be more funds.

The world wide economic crisis was created by  U.S. finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of U.S. unemployment rate and the loss of 2 million manufacturing jobs.  More than 15   million people are out of work.  At the national level almost all of the projected deficit through 2020 will be the result of three factors: the Great recession, the tax cuts of the early 2000s under George W. Bush, and the hundreds of billions of dollars of war spending.

The economic stalemate in California has produced school funding cuts far beyond reasonable levels.  At present,  the state ranks 47^th among all states in its per-pupil spending, spending $2,856 less per pupil than the national average.

  In California we need to spend more state money to improve schools, to develop roads and infrastructure, and to create jobs.  Those who are well educated are more employed and paying taxes while those with less education, those who leave school, are in a prolonged economic crisis.  It is well documented that our schools and our universities are in a finance crisis.  We need to be preparing young people for new jobs and to create new industries.  The success of students in higher education will significantly determine California’s future competitiveness and prosperity.   Improving education, including both k-12 and higher education, makes California more likely to attract investment and the creation of new jobs and new industries.

California government must protect and empower our citizens. To foster prosperity  it must prepare the young for civic participation. (BTW. This has been recognized since the first California Constitution of 1849).  Protection includes health care, social security, safe food, environmental protection, safe streets, job protection, etc.

Our economy needs roads, bridges, telephone lines, communications systems, energy and quality education.  These services make freedom and prosperity possible. Conservative opposition to these services ignore the economies need for infrastructure.

Specific revenue sources :

            Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon)  over the internet.  Gain. 1.2 billion $.

            Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain.10 Billions.  Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year.  This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs. Pay for the Jobs package with a new oil severance tax.    Imposition of an oil severance tax. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.     

            Establish a  public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank.   Gain.  6% of the budget.

            Continue efforts to eliminate waste, fraud and abusive where it exists.  There may be legitimate savings here.  For example not paying $13.2 billion for a Bay Bridge that originally was to cost under $6 billion.  There are some abuses in pensions revealed for high ranking police, fire and public safety officials and for some U.C. administrators. 

            Repeal the 2009 and 2008 tax cuts for corporations passed to gain the extra Republican votes for the budget.  Savings $1 billion.

            As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers,  Washington-based Citizens for Tax Justice estimate that  California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion.  State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects.  

            Sell state bonds to gain funds for investment. At present we pay bond holders a market rate.  Rates are so low at present we should borrow and invest.  To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.   Once started ( stimulated) debt financed building will stimulate more building bringing private  debt financing into productive investments.

            Many more sources of revenue need to be developed.  We have been thinking too small and looking in the wrong directions.  Please make suggestions.

            Unfortunately we would be unable to tap  a major source of potential revenue because it is tied to the national economy.  There should be a significant tax on the sale of stocks, bonds, and financial instruments.  The sources of this tax are in New York and can be easily moved around the globe.  Some planning is necessary to develop this source.  Potential Gain.  $30 billion per year.

            Since the state can not go into debt it will need to use tax policy to raise the funds necessary for public investments.  The state has also been targeting particular industries, notably the film industry with tax subsidies and local governments have been providing tax subsidies in the form of enterprise zones.  Along with needed  tax reform, these forms of subsidies (debt) should be reformed to focus on economic growth.   

 A state can not print money, but it can sell bonds to fund development. California currently sells bonds.  We could develop bonds for more  growth oriented public investment.  At present we pay bond holders a market rate. To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.  These are among the largest investment funds in the nation. Their investment strategies should be re designed to promote in state economic growth.  After all, the money in PERS and STRS is California money.  And, the best way to keep these funds financially solvent is to improve the California economy.  So, directing investment in a manner to promote growth would provide significant capital for public projects.  We could sell bonds to PERS and STRS at a better rate than they are presently getting.  Further, by working with PERS and STRS we could develop a system where they serve as a marketing director to sell state bonds to their members.  There are many people interested in investing in public bonds.

 After a 2-4 year transition period, a similar pool of available funds would develop in the new California Public Bank.

Alternative;

We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy.  Then, since the nation is poorer and has less income you will need to raise more taxes and cut more services all in an effort to protect the excessive profits of bankers and bond holders.

California can continue the current process of cuts and reductions.  The fiscal crises of the states – all the states- has caused major cut backs and retrenchment and made the economic crisis approach a depression.  The state cut backs are greater than the federal stimulus producing a prolonging of the crisis for working people.  Continuing on the present direction produces obscene profits for billionaires along with growing poverty and hardships for the majority.

Sources

Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy.  (2005) John Wiley and Sons

Dean Baker,  Plunder and Blunder: The Rise and Fall of the Bubble Economy, (2009)

Campbell, Duane.  Choosing Democracy: a practical guide to multicultural education. (2010)

Justin Fox,  The Myth of the Rational Market: a History of Risk, Reward, and Delusion on Wall Street. (2009)

Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future- and What It Will Take to Win It Back. ( 2006)

William Grieder,  The Soul of Capitalism: Opening Paths to a Moral Economy. (2003).

David Harvey, The Enigma of Capital and the Crisis of Capitalism.  (2010)

Paul Krugman,  The Return of Depression Economics and the Crisis of 2008.  (2009)

Robert Kuttner,  A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle To Control Our Economic Future. (2010)

Nomi Prins.  It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to  Wall Street. (2009)

Joe Schwartz,  The Future of Democratic Equality; Rebuilding Social Solidarity in a Fragmented United States. (2008)

Joseph E. Stiglitz.  Free Fall, America, Free markets, and the Shrinking World Economy.  (2010

California Budget crisis grows

States’ Budget Woes Go Deep Below the Surface

New Brookings report shows seeds of deficit troubles were planted years ago, and problems may be larger than they appear

Washington, D.C. — As state governors and lawmakers begin work on their daunting budget challenges in the aftermath of the Great Recession, new research from the Brookings Institution’s Mountain West project and the Morrison Institute for Public Policy at Arizona State University shows this situation actually has been building for several years, and may be worse that it first appears.

The new paper by the two research organizations, Structurally Unbalanced: Cyclical and Structural Deficits in California and the Intermountain West, looks at four states—Arizona, California, Colorado, and Nevada—and shows how these problems may go far beyond shorter- term revenue declines associated with the economic slowdown. Solving states’ budget challenges may be more difficult than is generally thought as they can involve massive, entrenched imbalances than will not disappear with economic recovery.

These four states have been among the hardest-hit by the Recession, and several are contending with deep, chronic imbalances that should serve as a caution to other states.

“The budgetary condition of many states is, if anything, worse than is recognized,” said Mark Muro, a senior fellow and the policy director of the Metropolitan Policy Program at Brookings. “The gravity of states’ short-term and especially longer-term deficits underscores that this is a time when state policymakers must break their bad habits and turn to more responsible budget planning practices that looks in a balanced way at the long-term fit of revenues to spending.”

Matthew Murray, the report’s lead author and a professor of economics at the University of Tennessee notes, “The ongoing deficit problems confronting these states have compelled the states to resort to an unattractive mix of tax increases, spending cuts and one-time fixes to bring budgets into alignment.

Governor Brown and budget cuts

Governor Brown and the Republicans  propose to reduce the budget deficit  through cut backs in services, cuts to public employment, and reduction in public pensions.  This will not work.

Budget cutting to balance the budget will not get us out of this hole.  Look at Ireland, Greece, or Spain.  Budget cuts only start a downward spiral of pain.  Budget cuts and lay offs make the recession worse.

There are kids who need teachers, hospitals that need nurses, neighborhoods that need police and fire protection.

 As a result of the just passed federal tax reductions,  California’s richest taxpayers –those making over $310,000  per year -will be saving about $ 20  billion annually on their federal taxes. The Legislature should capture these tax resources to pay job creation  for the needed services in our state. 

Natomas school district budget crisis

A news story in today's Bee recounts the budget balancing of the Natomas School District by teachers giving wage concessions.

How did we get into this fix?  Well, first was the economic collapse caused by the bankers and the real estate fraud artists.  That took 13 Trillion from the economy crashing the U.S. and the international economy.  That produced a dramatic drop in sales tax and property taxes and a California economic crisis.  School funding reveals the nature of crisis.  In the last two years the k-12 budget “solutions” have cut 4.6 billion dollars from the schools. We have larger classes and fewer teachers.  School reform has stopped- except for the politicians hot air.  School funding makes up a total of 30% of the state budget.  Any crisis in the state budget and any cuts in the state budget will make school budgets worse.  The crisis will get worse.

California will need to raise taxes to fund the schools and to repair the social safety net.  Anti tax radicals and Republicans  oppose any tax increases.

Natomas was one of the early casualties.  Many more will follow- even with the teachers giving up salary.  The states and California are in a downward spiral and it will continue for at least 3-4 years.  The children, and the working people are paying for the robbery of the financial classes. And, they just held up unemployment benefits until the Republicans gave them a $700 Billion tax benefits. 
See the prior posts on the financial crisis and the state budget crisis.

California Budget crisis

 Feeding the Goose that lays the golden eggs.

It is clear that the California budget is in crisis, and the issues were  clarified in the budget summit sponsored by Governor elect Jerry Brown on Wednesday, December 7. There are no quick nor easy solutions. We can not simply cut our way out of the crisis, budget cuts and lay offs make the recession worse.

School funding reveals the nature of crisis.  In the last two years the k-12 budget “solutions” have cut 4.6 billion dollars from the schools. We have larger classes and fewer teachers.  School reform has stopped- except for the politicians hot air.  School funding makes up a total of 30% of the state budget.  Any crisis in the state budget and any cuts in the state budget will make school budgets worse.

California will need to raise taxes to fund the schools and to repair the social safety net.  Anti tax radicals and Republicans  oppose any tax increases.   The state ‘solutions’ of the last three years depended upon receiving federal stimulus money.  The stimulus monies are almost finished and with the Republican winning control  of Congress there will probably not be more funds.

The California economy , if it were a country, would be the 8^th. largest economy in the world.   The California economy is larger than that of Brazil, Spain, Canada, India, Russia, Australia and most of the rest of the world.  California can and should use Keynesian economic policies to find  our way out of this economic crisis.  We are, of course, a state integrated into a national economy, so the collapse of the U.S. economy will have a direct effect on our ability to use Keynesian stimulus to grow the economy.   For description of Keynesian economics see here.  http://www.newdeal20.org/2009/07/01/keynesian-economics-101-894/

The world wide economic crisis was created by  U.S. finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of U.S. unemployment rate and the loss of 2 million manufacturing jobs.  More than twenty-five  million people are out of work. 

Since we are integrated into the national economy and effected by the decline of the U.S. economy,  some stimulus money generated and spent in California will be spent in other states, thus stimulating other states- and of course money spent in other states will stimulate the California economy.  However, over 60% of all economic business is local.  Money spent in California will help the California economy to grow.  Keynesian stimulus will work- it just won’t work as directly as the original theory predicted.

The economic stalemate in California has produced school funding cuts far beyond reasonable levels.  At present,  the state ranks 47^th among all states in its per-pupil spending, spending $2,856 less per pupil than the national average. The Brown briefing at the forum  detailed our standing in class  size, counselors, and librarians. To continue on this path is to produce another Mississippi or Alabama for our children.

The finance capital collapse and theft on Wall Street produced this crisis, not immigration.   Now Wall Street has recovered, but the states and specifically California is left with the destruction.  The best available response is for California to tax and spend to stimulate the economy- that is Keynesian stimulus. The anti tax radicals and the Republicans will oppose this approach.  They must be defeated.  

Specific proposals :

            Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon)  over the internet.  Gain. 1.2 billion $.

            Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain. Billions.

            Establish a  public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank.   Gain.  6% of the budget.

            Continue efforts to eliminate waste, fraud and abusive where it exists.  There may be legitimate savings here.  For example not paying $13.2 billion for a Bay Bridge that originally was to cost under $6 billion.  And, not paying to import the steel for the bridge from China.

            Many more sources of revenue need to be developed.  Unfortunately we have been thinking too small and looking in the wrong directions.  Please make suggestions.

            Unfortunately we would be unable to tap  a major source of potential revenue because it is tied to the national economy.  There should be a significant tax on the sale of stocks, bonds, and financial instruments.  The sources of this tax are in New York and can be easily moved around the globe.  Some planning is necessary to develop this source.  Potential Gain.  $30 billion per year.

A limit on Keynes.

            A major limit on the use of Keynesian theories within one state is that most states- particularly California- are not allowed to go into debt.  Keynesian theory and practice call for public expenditures  and going into debt to pay for these expenditures.  Of course California has been going into debt each year for the last three years, it is just that accounting moves have been used to disguise the debt.

Since the state can not go into debt it will need to use tax policy to raise the funds necessary for public investments.  The state has also been targeting particular industries, notably the film industry with tax subsidies and local governments have been providing tax subsidies in the form of enterprise zones.  Along with needed  tax reform, these forms of subsidies (debt) should be reformed to focus on economic growth.    Tax suggestions were in the prior section.

California currently sells bonds.  We could develop bonds for more public investment.  At present we pay bond holders a market rate. To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.  These are among the largest investment funds in the nation. Their investment strategies should be re designed to promote in state economic growth.  After all, the money in PERS and STRS is California money.  And, the best way to keep these funds financially solvent is to improve the California economy.  So, directing investment in a manner to promote growth would provide significant capital for public projects.  We could sell bonds to PERS and STRS at a better rate than they are presently getting.  Further, by working with PERS and STRS we could develop a system where they serve as a marketing director to sell state bonds to their members.  There are many people interested in investing in public bonds.

 After a 2-4 year transition period, a similar pool of available funds would develop in the new California Public Bank.

Alternative;

We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy.  Then, since the nation is poorer and has less income you will need to raise more taxes and cut more services all in an effort to protect the excessive profits of bankers and bond holders.

California can continue the current process of cuts and reductions.  The fiscal crises of the states – all the states- has caused major cut backs and retrenchment and made the economic crisis approach a depression.  The state cut backs are greater than the federal stimulus producing a prolonging of the crisis for working people.  Continuing on the present direction produces obscene profits for billionaires along with growing poverty and hardships for the majority.

Arguments against this view:

            Most academic economists will argue either that Keynesian economics does not work or that you can not apply Keynesian stimulus to a state rather than a nation in part because states do not have the levers of economic control.  Well, granted  you can’t apply Keynesian ideas to smaller states such as New Hampshire, Arizona, Mississippi or Alabama, but perhaps you can apply them in an economy as large as California.  If you can stimulate an economy in France,  Brazil,  or Canada, each of which are about the same size as California, perhaps you can stimulate an economy to growth in a state like California with a    $1.8 trillion dollar   economy.  It is worth a try.

Academic economists will dismiss these proposals as not possible.  They are by and large not interested  in the  looking at real alternatives to their present theories  like applying Keynesian economics to a state economy.  University departments and their publications  continue to promote the same  neo classical economic theories.  Recall, these are the very scholars who gave us the “myth of the rational market” and argued that markets would correct themselves we did not need governmental intervention.  Now, in this depression, we see the results of their theories.   Foundation based economists such as those in the Hoover Institute or the Peterson Institute, are funded by the super rich and are unlikely to see alternatives that would require significant taxation of the super rich. These economists  have, in fact, been deeply implicated in the construction of the new systems of technocratic  politics which serves  them well and the oligarchy.   Few seem predisposed to engage in self-critical reflection of why their theories missed the greatest economic crisis of the last 50 years.  

Sources

Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy.  (2005) John Wiley and Sons

Dean Baker,  Plunder and Blunder: The Rise and Fall of the Bubble Economy, (2009)

Justin Fox,  The Myth of the Rational Market: a History of Risk, Reward, and Delusion on Wall Street. (2009)

Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future- and What It Will Take to Win It Back. ( 2006)

William Grieder,  The Soul of Capitalism: Opening Paths to a Moral Economy. (2003).

Paul Krugman, The Return of Depression Economics and the Crisis of 2008.  (2009)

Nomi Prins.  It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to  Wall Street. (2009)

Joseph E. Stiglitz.  Free Fall, America, Free markets, and the Shrinking World Economy.  2010.

The California budget crisis

What caused this  budget crisis?

The proposed state budget takes 3.1 billion from k-12 schools, closes parks, forces state worker furlough’s and more.  County and city budget cuts reduce our police protection, cause limits on fire protection, and close mental health facilities pushing some of the mentally ill into jails and prisoners out of our jails early  on to the streets.

While  state budget reforms are needed, the basic cause of this crisis is the economic crisis in the nation.

 Crisis in the states.

The current  economic crisis has forced the cutting of higher education, of k-12 education, and of social welfare systems.  This crisis was caused by the greed and avarice of the financial class and aided by the politicians of both major political parties.

First came the housing bubble and the selling of near fraudulent home mortgages.  To make a profit m ajor banks and corporations looted the economy creating an international meltdown.  Now, they have been rewarded with bail out money.  The crisis was not caused by students, teachers, public employees  nor recipients of social security.   Now we have cuts in parks,  in universities, in nurses, libraries.  School children did not create this crisis.

The major bankers, finance capitalists in the U.S. robbed the bank last year  – and the federal treasury.  They took hundreds of billions of dollars.  – Goldman Sachs alone took $10 Billion.  For example,  Ken Lewis of Bank of America received an $ 81 million dollar pension.  They have not even been punished.  One thing we should do is arrest the top 100 executives and CEO’s of these companies, give them a fair trial, and throw them in jail.  Until we arrest some people – there will be no real changes.”

Our financial system as a whole crashed not because of one bank. Goldman Sachs ( with Meg Whitman on the Board) certainly played a major role as did JP Morgan Chase, Morgan Stanley, and CitiCorp, along with the many corporate finance institutions  like Bear Sterns, Merrill Lynch, Lehman Brothers, WaMu, Depfa.  We had a systemic breakdown because nearly all of our policy makers, academics, politicians, and pundits promoted  a failed, self serving  ideology of self-correcting financial markets. Finance  profiteers walked off with big bucks while contributing to the  crash  of the system.  

As of  this week we know that the TARP bailout of the banks worked.  While $700 billion was allocated to rescue the banks, now all but $50 billion of that has been repaid.  It was a successful intervention to stop the Wall Street Crisis.  But, now the crisis remains in the states, the counties and the cities.

While we look at the California budget crisis, lets keep the issues in perspective.  

Clean up the California budget mess

 The budget resolution being hammered out at the Capitol could have been completed and signed by July 1,2010. They are negotiating how schools will be repaid for past spending cuts- a Prop. 98 requirement, and how to deal with the 2.1 billion dollar tax  giveaway to the corporations last year.

This deal was not completed earlier because the two sides; Republicans and Democrats refused to compromise, and because of the 2/3 requirement to pass a budget which allowed the minority party (the Republicans) to block passage of any reasonable tax increase and to insist on harsh budget cuts.

Irrespective of how you support or do not support these tax devices, the 2/3 vote rule imposes minority rule on the legislature and produces these stalled budgets. Prop. 25 would eliminate the 2/3 vote rule for the budget.

Without the ability of a minority party to hold the budget hostage, the Democrats would have passed a budget in June, and the Republican governor would have used his line item veto to eliminate many programs.  At present the Governor is holding out for a deal that would cut pensions for state workers.  Only a 2/3 vote could overturn the line item vetoes.   We would be in the place we are now, but we would have been there in July.

I urge all to vote Yes and Prop. 25 and stop this minority rule.  It does not serve the people of California.  The majority should make decisions and should be held accountable.

I urge you to vote Yes on Prop 24.  This would take away the tax windfall given to several corporations in the budget negotiations last year.  The Republicans insisted on a tax windfall to large corporations  to get the needed 2/3 vote.

It is past time to fix the budget mess. Vote Yes on Prop. 25.

Duane Campbell

This message has not been approved by the Sacramento Bee. 

The economic consequences of state budget cuts

by Ken Jacobs, Laurel Lucia and T. William Lester May 2010

When it comes to jobs and the economy, not all solutions to California’s budget shortfall are equal. Most measures designed to reduce the deficit will have a depressing effect on employment and economic growth in the state, but the magnitude of that impact will vary significantly depending on which measures are enacted.

 In this brief, we estimate the economic impact of Governor Schwarzenegger’s proposed 2010–2011 budget using IMPLAN 3.0, an industry-standard input-out- put modeling software package. We further compare the economic impacts of these cuts with an alternative approach that mixes spending cuts with targeted revenue increases sufficient to avoid cuts in programs that bring in a federal match.

We estimate that the Governor’s proposed budget would result in a loss of 331,000 full-time equivalent jobs, increasing the unemployment rate by 1.8 percentage points.1 More than half of the jobs lost would be in the private sector. Because many of the jobs lost are part time, the actual number of Californians affected would be much greater. The number of jobs estimated to be lost is much greater than the entire employment growth for the state projected by the Legislative Analyst’s Office for 2011.2

An alternative approach that mixed spending cuts with $5.4 billion in targeted revenue increases would save an estimated 244,000 jobs compared with the Governor’s proposal.

Ken Jacobs is the chair of the University of California, Berkeley, Center for Labor Research and Education. Laurel Lucia is a policy analyst at the University of California, Berkeley, Center for Labor Research and Education. T. William Lester is a postdoctoral fellow at the Institute for Research on Labor and Employment at the University of California, Berkeley, and the assistant chair of the Don Vial Center for Employment in the Green Economy at the University of California, Berkeley. The greatest part of the job loss due to the Governor’s budget would result from cuts to major health and human service programs that bring in significant federal matching funds. These cuts would result in the loss of:

261,000 full-time equivalent jobs, increasing the unemployment rate by 1.4 percentage points.

This is fifteen times greater than the number of jobs that would be lost through an

equivalent sized revenue increase. $21 billion in economic output, compared to a loss of $3 billion through an equivalent revenue increase.

$1.3 billion in state and local tax revenue, compared to a loss of $0.2 billion for an equivalent revenue increase. This means that potentially close to one-quarter of the budget savings would be negated due to the loss in economic activity.

Reactions to the Governor's budget proposals

Jean Ross, California Budget Project

Largely because of the economic downturn, California once again faces a very difficult budget year. But the Governor's May Revision is not the balanced, responsible approach called for at this critical time. It relies too heavily on proposed cuts, threatens the state's economic recovery, and recklessly gambles with our future. It pulls the rug out from under families already struggling with double-digit unemployment rates and the worst economic crisis this country has seen since the Great Depression and would leave the state ill-prepared to compete in an ever more competitive global economy.

Senator Lelan Yee (D)

When you propose to lay off teachers, close domestic violence shelters, and take away critical social services and health care, there is no doubt you have a revenue problem. I have opposed and will continue to oppose all budgets that are balanced on the backs of our students, elderly and working poor. We must claw back tax credits for corporations that abandon California, implement an oil severance tax like all other states, and ensure the wealthy pay their fair share. For too long, we have allowed Republicans to keep taxes off the table. Democrats need to stand strong and say draconian cuts to education and other critical services will not be tolerated.

California majority rule campaign

 Campaigns  are up and running throughout the state  to place an initiative on the  California ballot for majority rule- that is for democracy.  The campaign is particularly strong on U C campuses and is seeking to spread to CSU and Community college campuses as well as to the general public.  Volunteer  field directors and county coordinators are distributing petitions and organizing a structure to gain 1 million signatures by April 3,2010. 

  The California budget  is in deep trouble  for the next several years , and the problem is aggravated the  anti democratic limits on the legislature’s ability to pass a budget.   George Lakoff  sent to the Attorney General a ballot proposition for the 2010 ballot called The California Democracy Act,  which simply says,

All legislative action on revenue and budget must be determined by a majority vote.

It’s just  this one sentence.  It would change two words in the Constitution, turning "two-thirds" to "majority" in two places.

Democracy is the main issue in  here.  More democracy  is required for progress on the budget.  The two-thirds rules have an anti-democratic effect. Our legislature is currently under minority rule. One-third plus one -- only 34% -- of either the Assembly or Senate can and do  block the will of the majority.  

 Readers of the California Progress Report know well that minority rule has produced a  stalemate in the legislature and regressive  and punative budgets.   Changing the vote requirement to a majority for budget and revenue will allow  the  budget to  meet the state's needs and be passed on time.

Qualifying this initiative requires  a serious campaign making the case for democracy  and allowing the voters to see that minority rule is the root of the problem. The campaign  needs volunteer  county and precinct workers, campus volunteers, fund raisers, and media workers.

Campaign information is at : www.trivalleydems.com/CA4D.htm.

Duane Campbell,

Sacramento County coordinator. Majority Rule Campaign

www.choosingdemocracy.blogspot.com

Money for California's schools

When teachers argue that school funding should not be cut, we are told by the  Republicans in the legislature that there is not choice, there just is no money.

Well, that is not really true.  Here is where reasonable people would get the revenue.

1.     Repeal the September 2008 and February 2009 tax cuts.  As a part of the Sept. 2008 and Feb. 2009 budget deals, the legislature created huge new corporate tax breaks.  That right.  To respond to a budget crisis, they gave new tax reductions to corporations.  These take effect in 2011 and will make the budget crisis worse.  What is to be done ? Repeal of tax credit sharing to  raise 2009-10 revenues by $80 million, over time, the permanent tax cuts will cost the state $2.0 billion to $2.5 billion.

2.      Reinstate 10 percent and 11 percent tax rates to 1991 levels, adjusted for inflation. The February tax increases disproportionately affect low- and middle-income taxpayers. Reinstatement of the top brackets would restore balance to the state’s tax system and raise $4 billion to $6 billion in additional revenues.

3.     Impose on oil severance tax. California is the only oil producing jurisdiction in the world without a severance tax. A tax of 9.9 percent, such as that proposed by the Governor, would raise upwards of $1 billion dollars.

We, the people, own this oil.  It is under California soil.  Oil companies only take it out.  They should pay to take our oil out of the ground and to sell it to us.  Even arch conservative Texas, Louisiana, and Alaska have oil severance taxes.

Restructuring of the CSU- budget cuts

'Restructuring' of CSU is more a requiem

By Joseph A. Palermo

Like the GI Bill that gave access to a college degree for the first time to a generation of Americans, the creation of the California State University system 50 years ago did the same for Californians. In the decades that followed there was an explosion of innovation in all fields and an era of unprecedented economic growth. These mid-20th century public investments tapped into the talent of millions of people who would otherwise be denied access to a quality education. The highly skilled labor force these investments created helped make California the nation's most vibrant state economy.

In a document titled, " 'Restructuring' the CSU or Wrecking It?: What Proposed Changes Mean and What We Can Do about Them," the California Faculty Association, the largest faculty union in the state (to which I belong), has identified the perilous path our so-called leaders, both in Sacramento and among CSU administrators, are leading us down.

"On every one of our campuses, we are seeing signs that a profound change in the mission of our California State University is being implemented from the top under cover of the economic crisis," said CFA President Lillian Taiz, a professor of history at CSU, Los Angeles.

The state that brought the world microprocessors, cell phones, computers and the Internet is in the process of gutting its system of public higher education in the name of "restructuring." In effect, they're killing the goose that lays the golden eggs.

Gov. Arnold Schwarzenegger and the Republicans in the Legislature who control California's finances have apparently concluded it is not even worth trying to compete with India and China anymore. California's leaders, by abandoning the CSU, are throwing in the towel. They've given up.

One would think even Republicans such as Senate Minority Leader Dennis Hollingsworth and Sen. Dave Cogdill would care about maintaining America's competitive edge against its commercial rivals. Yet they are pursuing an irresponsible and cynical restructuring of the CSU that is terrible for California's future and bad for the United States' position in the world economy.

CSU Chancellor Charles Reed and the board of trustees show zero leadership amidst the severest fiscal crisis the CSU has faced. They, with visionless state politicians, are presiding over the systematic dismantling of public higher education in California.

In the midst of the current economic crisis brought about by the failure of unregulated financial markets and twisted profit maximization schemes, California's leaders have concluded that investing in higher education is no longer affordable. "There's no money!" Chancellor Reed proclaims.

Yet the CFA's position paper connects the "trillions of tax-payer dollars" that have been "spent in just the past year on bailing out banks," with the bogus claim that there is no money available for higher education. It also notes that the draconian cuts to higher education in California contradict President Barack Obama's stated commitment to a more enlightened educational policy.

Not only are we able to find the money to bail out banks and fight foreign wars but there are potential revenues right here in California that could be tapped to save public higher education.

Perhaps Paris Hilton, Lindsay Lohan, Jay Leno and other wealthy people who choose to live in the Golden State could be asked to chip in a little more? Or maybe the Taco Bells and the KFCs and the Burger Kings and the McDonalds and the Home Depots and the Wal-Marts and all the other giant corporations that make a killing each year off California consumers could be asked to pay a little extra?

Or perhaps we could pass Assembly Bill 656 to create a severance tax on oil extraction just as George W. Bush's Texas and Sarah Palin's Alaska do? Or maybe we could modify Proposition 13 to remove huge commercial real estate holdings from tax exemption while retaining it for residential homeowners?

The public must be made to appreciate what's at stake here: A precious public resource that took decades to build is in the process of being "restructured" out of existence. Once it's gone it will be very difficult – if not impossible – to build up again. And it will undermine the quality of life in California for decades. The governor, the Legislature and the CSU administrators have formed a wrecking crew. They seem willing to allow California's work force to become low wage and less educated, even though a low-wage society can never be an affluent society.

The recent protests by  University of California students and faculty show that those who support public higher education in California won't go down without a fight. The CSU will survive only if students and their families heed the alarm bells CFA is ringing and stand up together and say: "Enough!"

Joseph A. Palermo is an associate professor of history at California State University, Sacramento.