Your State in meltdown

Please pardon me for straying from my usual local subject matter. I try to stick to only writing about Oakland on this blog – after all, that’s what I know best. Statewide and national issues are covered pretty thoroughly elsewhere, and even if I did want to write about them, I doubt I’d have much of anything unique to contribute.

But last night, while I was waiting to pick up some take-out, I ran into some friends I hadn’t seen in a while. Neither of them are news junkies, but they tend to be pretty in touch with what’s going on, certainly enough to have intelligent conversations about politics. So you can imagine my shock when I brought up my concern and frustration about the State, and they didn’t have a clue what I was talking about!

So just in case any of my readers aren’t aware, the State of California is in total crisis. An ultra brief summary of the situation: For months now, the State Legislature has been unable to pass a budget that will address California’s $42 billion deficit. There is absolutely no way to close a $42 billion hole that won’t be extremely painful for pretty much everyone. The Legislature’s Republican’s don’t seem to understand the concept of compromise, and are basically refusing to support any budget that includes measures to increase revenue. With a two-thirds vote required for passage, settling the issue without at least some Republican support is impossible.

At this point, the State is basically out of money. Most infrastructure projects have been cancelled, and without a resolution to the current crisis, the rest are going to have to stop soon. The State has already halted its payments to counties for welfare and other social services. Without an agreement on the budget in the Legislature, these payments cannot resume.

The Governor and the State’s Legislative leaders thought they had worked out a compromise last week. The plan to cut $15.8 billion, raise $14.3 billion with new taxes, and borrow $10.9 billion The Legislature tried, and fail on Saturday, then again on Sunday, to pass a budget. The stumbling block? A single Republican vote in the Senate. The Senate is convening again today, but I have to admit, I’m not feeling hopeful.

Anyway, if you weren’t seriously concerned about this problem already, hopefully you are now. I’ve listed some links below to help readers get caught up on the situation.

57 thoughts on “Your State in meltdown

  1. Christopher

    To put the $42B deficit in context, here are some budget details from 2008-2009 and (one of) the proposed 2009-2010 budgets.

    http://www.ebudget.ca.gov/BudgetSummary/BSS/BSS.html

    2008-09
    Total Resources available = $91B
    Total Expenditures = $105B
    Deficit = $14B

    2009-10
    Total Resources available = $73B
    Total Expenditures = $111B
    Deficit = $38B + odds ‘n’ ends = $42B

    I sometimes wish the budget process was more democratic. Our state representatives can’t get the job done. So let citizens submit ballots with their own budget percentages (which somehow averaged) or maybe vote for a ballot among a few (partisan) choices. Though I know that would lead to inevitable bread and circuses.

  2. Max Allstadt

    V, the more I learn about how much the Sacramento clusterfuck affects Oakland, the more I wish you’d blog about Sacramento from an Oaklander’s perspective more often. Thanks for turning your attention up river. We need a little lesson from time to time about how bigger forces affect us.

  3. 94610BizMan

    So with a deficit of $42B and about 14 million households (rough number) that’s about a $3000 per year gap per household in a period of rising unemployment and cutbacks.

  4. Hayden

    It’s interesting (though maybe not helpful) to note that the $42 billion deficit should be referred to as “the $42 billion General Fund budget deficit.” But–the State is also experiencing a significant cash flow problem that affects both the General Fund and the so-called “special funded” portion of the State budget, which is not in deficit.

    Many of the canceled infrastructure projects–particularly highway projects–are funded by “special funds” such as gas taxes and federal matching grants dedicated to specific purposes. While some canceled projects have been halted because they had a portion of General Fund dollars, others have been canceled to allow the State to conserve cash as our inability to do short-term borrowing and the growing gap between income and expenditures becomes a significant barrier to paying our bills.

    To obtain some modest savings and increase the political sense of urgency, the Governor imposed the well-known 2-day-per-month State employee furloughs. The furloughs were imposed regardless of how positions were funded (it’s hard to imagine how this could have been done differently in a timely and effective manner). Unfortunately, this creates a likely future problem. Those positions funded by federal funds (a number of State highway and environmental jobs, among others) typically see funding reductions in future years when those dollars aren’t fully spent in a current year. Imposing the furloughs ensures they will not be fully spent in most cases. So a potential effect of the furloughs is to create a future reduction in the State’s ability to approve and oversee work such as brownfields cleanups and urban redevelopment and transportation projects. In the grand scheme of things, this probably will have a modest effect Statewide, but a significant effect for specific projects.

  5. Becks

    V – Thanks for bringing attention to this issue. I’ve been following the budget crisis closely and am too a bit appalled by the lack of knowledge about our state’s impending meltdown.

    Max – If you’re interested in someone blogging about California from an Oakland perspective, join me and blog on Calitics. Anyone can blog there, and though there are lots of excellent bloggers there, I’m pretty sure I’m the only Oakland blogger who blogs semi-regularly there.

  6. Deckin

    As much as it’s frustrating to see intransigence amongst Republicans over tax increases, I can speak from personal experience that their general mindset that the state wastes literally tons of money is dead on. I work at a state funded institution for higher learning and I can tell you that we currently pay at least several faculty to stay out of the classroom (and it’s not as if they’re doing research either), all the while having to fill their teaching obligations with adjunct faculty. This costs, in just my little corner of the world, hundreds of thousands of dollars a year. Imagine the other boondoggles I have no experience with. The reason we do this? Because these faculty too precious to actually do what they were hired to do are busy working for ‘social justice’ and ‘promoting diversity’. I imagine if you tracked down all the mau mauing for multi-culti bullshit under the state’s auspices and the dollars that have flown out the window with it, you’d be shocked.

  7. Christopher

    Why not just proportionally scale the budgets? This would not be entirely fair (perhaps some programs should be cut completely before reducing funding for some other program), but it would be nonpartisan. Let us “enjoy” one year of a balanced budget, *then* let the politicians reallocate the budget among their favorite programs.

  8. Carlos Plazola

    In times of prosperity (or false-prosperity created from a borrowed future) the entrenched extremes of each party dictate the trajectory of their own party, by their shear idealism, ignoring irrational aspects of their own arguments.

    For example, unions CAN become too strong and self-serving, destabilizing the host from which they survive; the free market approach IS naive and can lead to a total train-wreck if left unchecked; taxes ARE necessary for protecting the public realms and shared public values; government waste IS real because bureaucracies naturally want to grow and become bloated.

    When money is ubiquitous, irrational aspects of the extreme’s arguments are made to “disappear” when lawmakers, frustrated by the entrenchment of the extremes, patch up the fallacies in their arguments with spending.

    But now, it will get interesting. No one will have any patience with the extremes. Unions will have to be reasonable. Anti-tax advocates will have to be reasonable. Waste in government won’t be tolerated. The free market will be regulated. Order will come back to the machine. It will be painful, but the result will be that, finally, people will talk to each other, and the result will have to be reasonable. Everyone will move to the middle, where they need to be. Here in Oakland. In Sacramento. And in DC.

    And for a few years, things will run well, until again, things will get out of control.

  9. V Smoothe Post author

    I don’t think anyone would say there’s no waste in State government, Deckin. But no Republican in the Legislature has offered an alternative plan that would not raise taxes and would cut specific wasteful positions. They just wave their hands around and say “no,” endangering thousands of jobs, and making the deficit worse every day they refuse to behave like grown-ups. If this doesn’t end, there is a possibility that your institution of learning (and mine) could be forced to simply shut down. Those faculty you think aren’t necessary wouldn’t be getting paid anymore, but then, neither would you.

  10. TheBoss

    California already has the highest income tax in the country. With this bill’s passage it will own the honor for the highest sales tax.

    The problem with the democrat reasoning here is the presumption that no one would ever just give up and leave California. Problem is, statistics show this is exactly what people are doing in droves.

    Consider this – Washington state has an excellent set of technology employees (anyone ever heard of Microsoft, located there?) And, Washington has an income tax rate of 0 percent.

    How many Silicon Valley companies relocating there does it take to completely decimate California’s economy and tax receipts. Don’t think it’s possible? Would you move to Washington state for an instant 10 percent increase in pay? I would.

  11. Max Allstadt

    Boss,

    Do your comments reflect a documented difference in the after-tax take home pay between tech workers in Redmond and Silicon Valley, or is that just a hypothetical? And let’s not forget that weather like we’ve got today in Oakland is the norm up in the Seattle area. Not everyone would trade taxation for precipitation as readily as you think.

  12. TheBoss

    I can tell you that the firm I work for would transfer me to an office in Seattle at exactly the same pay, which translates to a 10 percent increase in pay because of CA’s absurd income tax rates. Why haven’t I moved yet? Not sure. Maybe I will.

    V – here’s a suggestion for the state. Declare bankruptcy and admit that we can’t afford to pay cops $100k a year for a job that would pay $40k a year in any other state of the union. Rewrite the union contracts and essentially reboot our government spending.

  13. V Smoothe Post author

    Boss, declaring bankruptcy is far from the catch-all solution that anti-tax ideologues like to pretend it is. For starters, the long-term impact on the State’s bonding capacity would be devastating. But aside from that, a declaration of bankruptcy would be a long process, and would do nothing to address today’s crisis. Even if you did decide you wanted bankruptcy, you still have to pass a budget today. So that’s not actually a solution to the current problem at all.

  14. Chris Kidd

    The elephant in the room that I haven’t heard anyone talk about is the prison system and prison guard’s union. If we want to talk about government waste, let’s start right there. We’ve averaged more than 1 new prison a year for over twenty years now, where only 12 prisons were built between statehood and 1964. The penal system and guard’s union is a bloated institution that feeds itself on overcrowding their prisons through mandatory sentancing guidelines like the “3 strikes” law so it can have outcry about said overcrowding and justification for more prisons and more funding from the state. Now I’m not a super-lefty Social Justice type, but part of our state’s realignment to create responsible budgets needs to include reform of our penal system.

  15. TheBoss

    V – You’re wrong. If you declare bankruptcy, you can immediately get DIP financing — in this case probably from the federal government, but you never know — California undoubtedly has the money to pay back the financing, so private parties might be interested.

    This is why plenty of companies (airlines, for example) go bankrupt but continue to operate as normal during the reorganization process. Look at Vallejo. They’re bankrupt and yet the city continues to operate.

    Next, in conjunction with the bankruptcy court, the state can determine which parts of the budget are “essential” and ensure funding continues to flow for those.

    Then, across a longer process, the state can break its union contracts to rationalize its spending.

    The problem here is that state budgeting is done under the presumption that there’s an infinite pot of money available to spend. Going bankrupt deals with the reality, which is that the pot is not infinite.

  16. V Smoothe Post author

    Boss, the State needs a budget to operate. The State has to approve a budget regardless of whether or not they planned on declaring bankruptcy. Again, bankruptcy would do absolutely nothing to address today’s problem. I think you’re confused both about the State’s financial situation and how State budgeting is conducted. I’d encourage you to try to read up a little on the situation and getting some more information before commenting further. Simply repeating that we should do something that will have no impact on the immediate problem isn’t a productive or interesting conversation.

  17. Max Allstadt

    Chris,

    There are multiple elephants. Another is the fact that the enormous horde of people born in 1946 think they deserve to stop working forever in 2011, and be paid a comfortable pension, despite the fact that advances in diet, exercise, and healthcare have made this group of people healthy enough that many could conceivably continue to be productive workers into their late 70s.

    Carlos’ comments are spot on and also totally depressing. What we’re experiencing is a tragedy of the commons, only this time the way it’s manifesting itself is more like a dam bursting. If it keeps up at it’s current pace, the only thing left to do will be to learn to hunt boar, tan leather and identify edible wild plants.

  18. V Smoothe Post author

    Max -

    Responding to your comment from yesterday, the reason I don’t write about Sacramento much is because, like I said in the post, I don’t think I have that much to add. When I write about Oakland-related issues, I’m watching public meetings, reading staff reports, and often conducting independent research on the subject so I can present as complete as picture of the situation as possible, and I think (or hope, at least), that I’m giving my readers something they couldn’t get from the Trib or the Chronicle. When it comes to the State, pretty much everything I know comes from like four newspapers and two or three blogs, so I don’t feel like I’m adding anything new to the discussion by writing about it. I have been trying to tag more stories about the State for my news feed recently, and I may increase the frequency of that in the future.

    I think I could probably do something, though, with your suggestion of writing about how State decisions impact Oakland. That puts me back on familiar ground while still giving me an opportunity to highlight issues I think are important and not getting nearly enough attention. I’ll try to start incorporating that theme into my rotation.

  19. TheBoss

    V –

    Your comment betrays that you are falling into the trap that the unions set for most citizens. Essentially, they pay off legislators to ratify contracts that the state government has no ability to pay on. Then, when the legislature “discovers” this fact a couple years later, they say things like, “the government can’t operate without a budget!” Such statements are bogus and are just designed to wring as much money out of citizens’ pockets as possible.

    What’s really going on here is the government is unwilling/unable to pass a budget that only spends the amount of money it expects to receive over the next year under current tax rates.

    This is for two reasons. First it’s because the democrats want to increase spending at above-inflation-plus-population-growth rates forever. This, incidentally, will eventually mean the government runs the whole economy, but I digress. Second, it’s because they’ve obligated the state under multiyear union contracts.

    The first one is just a consequence of the legislators being crooks. The second is a real issue that can only be resolved by negotiations or bankruptcy. There’s no way the unions will negotiate, so we have only one remaining option.

    Now, if you want a “detailed” proposal from me, here it is — pass a budget that violates the union contracts by reducing wages and benefits 25-30% across the board. When the union sues, go bankrupt.

  20. TheBoss

    Let’s see… His first point is the VLF fee reduction. Of course, that has nothing to do with spending, as it was a revenue decrease. Then he talks about 3 strikes with zero effort to quantify its cost in terms of inmate population.

    Then he talks about debt service, which validly explains $2B of the $15B.

    Next he talks about Prop 42, which again has nothing to do with spending increases as all it did was decrease state revenue.

    Finally there’s just a bunch of unquantified blah about health care, education and global warming (?!).

    Is this seriously the best you can come up with? The article doesn’t even hold together logically. Surely you must admit that him bringing up 2 revenue decreases in an article that purports to explain why our budget has grown at $15B over the rate of population growth plus inflation is just an attempt to distract us.

    Look around you, V! California police and fire make over $150k a year on average when you factor in benefits! Same goes for the prison guards!

    The truth is, those few Republicans in the senate are the only real patriots out there. Guys like Leno are just shilling for the unions.

  21. V Smoothe Post author

    The math is pretty simple, Boss.

    1998-2008, General Fund spending increased by $46 billion.

    Inflation and population growth accounted for $31 billion, leaving $15 billion in increases to account for.

    The loss of the vehicle license fee required the General Fund to fund the local government programs it had been covering, at a cost of $6 billion, leaving us with an unaccounted for $9 billion in General Fund increases.

    The Department of Corrections and Rehabilitation increased $3.5 billion in cost beyond what is accounted for by population growth and inflation, due largely to California’s bizarre justice system structure. That leaves $5.5 billion.

    $2 billion of what’s left over goes to debt service on the 2004 Economic Recovery Bonds approved by CA voters, leaving $3.5 billion to account for.

    $2 billion more goes to debt service on infrastructure bonds approved by voters in 2006, leaving $1.5 billion.

    The remaining $1.5 billion was allocated to state and local transportation projects by the voter approved Proposition 42.

    This accounts for the full increase in costs to California’s General Fund since 1998.

    To call the State’s Republicans, who appear determined to plunge the State into complete crisis and create further expense to California’s taxpayers through their obstinancy and refusal to offer anything resembling a solution of their own, patriots, is nothing short of sick. Their behavior is so mind-bogglingly irresponsible that I seriously question how any of them are able to look themselves in the mirror.

  22. TheBoss

    V -

    I understand your math. The reasoning is where the problem lies. On the $6B from the VLF, there’s a presumption that spending on that was $0 before the VLF was reduced. This assumption is false. No spending increase took place because of the VLF cut. All that changed was where the money came from. In other words, if the VLF had not been cut, the state budget would be the same size. Same argument goes for Prop 42.

    Further, there’s the presumption that things like infrastructure bonds, and even “Economic Recovery Bonds” shouldn’t be covered by population growth. What is the basis for this assumption?

    I’d love to see proof that “bizarreness” in the prisons budget and not the prison guards union is to blame for the $3.5B there.

    And, I noticed you didn’t try to justify the $150k our public “servants” make in salary plus benefits. That’s because it’s indefensible.

    Look at this situation a different way. California already has a 10.3% income tax for its highest earners. Now they want to raise it to about 10.9%.

    What do you think the rate needs to get to before high earners en masse just give up and leave? Aren’t you worried about that prospect at all? (I’m obviously talking about the non-public-servants)

    And, what will that do to revenue? If you love government spending so much, aren’t you afraid of that prospect?

  23. V Smoothe Post author

    Boss, the topic at issue is the General Fund deficit. You claim increases in spending due to unions, and I’m explaining where the increases in General Fund spending have come from. You seem to be trying to lump all State spending into one pot, which isn’t how budgeting works. I assume you grasp the concept of debt service, so when it comes to that, all I can imagine is that you’re being intentionally obtuse. If you have any information at all about the State’s finances and spending that can support your assertions, please share with us. Because so far all you’ve offered is unsubstantiated and frankly, pretty tired, rhetoric.

  24. TheBoss

    Fair enough. My general point is to try and convince you to stop thinking about the budgeting process using their methodologies, because their methodologies are pretty much designed to keep government as large as possible.

    On the “obtuse” point, you’re just wrong. Are you saying it’s impossible to borrow money for capital projects and then pay for those projects using revenue gathered from population growth + inflation? I assure you other states handle that just fine.

    I have two critical pieces of data for you. They’re 10.9% and $150k per year. Those two numbers are what’s really crushing California. Not a few senators voting no.

  25. Max Allstadt

    V,

    Absolutely, please think about writing more on state house issues when they matter to Oakland. There are certainly times when it’s as valuable for you to call on people to write to Sandre Swanson about a vote as it is to hear your take on City Council issues. I for one, would be glad to learn more about that kind of issue.

  26. Christopher

    @TheBoss:

    Even if public servant salaries are high, do you have any references for how much the state spends on salaries in total? I poked around in the Guv’ner’s proposed 2009-10 budget, but I couldn’t find the actual numbers. I’m trying to get the big picture.

    Also, I’ve read that an employer’s “total cost” (for benefits/insurance/etc) for an employee is about 2x their annual salary. So a $150K prison guard is really making a ~$75K salary. That is high, but does not sound unreasonable for someone who faces dangerous situations and long hours.

  27. V Smoothe Post author

    Okay, Max, here’s a fun one. The budget that the State has yet to approve, but hopefully will at some point, sets a Statewide special election with five measures (PDF) for May 19th. Previously, everybody thought the special election would be on June 2nd.

    The deadline for the Council to place something on the ballot for a June 2nd election is March 6th. On Tuesday, the Council’s Finance and Management Committee will be discussing four ballot measures (some new taxes, repealing Measure OO) to place on the June 2nd ballot. But if the State schedules a May 19th Special Election, two weeks earlier, it will be too late by the time the Council can vote on them to place the items on that ballot. Meaning that if the Council wants to have an election to raise taxes, they’ll have to pay for it themselves.

  28. Max Allstadt

    So write a letter to Sandre Swanson asking him to oppose the May 19th date, and to hedge your bets, make sure you also order “Rat and Pigeon Recipes for Dummies” from Amazon.

  29. V Smoothe Post author

    I don’t care if the Council can’t stick new taxes onto the special election ballot! Hell, it wouldn’t surprise if the reason the date got changed was so cities wouldn’t have a chance to load it up with taxes of their own.

  30. Max Allstadt

    I’m worried about a situation where the repeal of OO gets cockblocked by the state election. If we don’t kill Kakishiba’s idiotic boondoggle, we’re another 25 mil in the hole. I’m also curious as to what new taxes they’re proposing. If they’re carefully designed to target the wealthy, I’m fine with it. The class schism in this country has to be attacked by any means necessary.

  31. V Smoothe Post author

    I’ll write about the new taxes next week, but no, they aren’t carefully deisgned to target the wealthy. And Quan and Kernighan’s proposal for repealing OO offers several options for the Council to pick from, two of which would only slightly reduce the amount it would take from the General Fund. The Council and their taxes suck. They could have stopped OO if they wanted to, they didn’t, they are now using the existence of OO as an excuse to defund existing programs (claiming that they will be able to get the new OO money instead), while at the same time talking about repealing it, but more likely only slightly reducing it. I don’t envy the City’s budget situation, and I know that very tough decisions will have to be made, but they need to make things work with the hand they’ve been dealt.

  32. len raphael

    Increasing state sales tax seems a strange thing to do when retail sales are plummeting, apart from fairness issues. good time to buy amazon. raising gas taxes makes sense to do when the economy recovers but now would impose great hardship on many residents.

    over the years, haven’t seen much of an effect on business location decisions based on income tax rates imposed on corps or their employees.

    certain types of businesses such as trucking cos and wholesalers have moved out of Ca to Nevada because of combo of taxes, cheaper land and housing costs, weak unions, central location.

    would have thought if there were an income tax effect, it wb most noticeable on very high income owners of non service businesses (service business’s and their employees are income taxed where the services are performed so moving doesn’t reduce their taxes. Product businesses are income taxed where their stuff is shipped if they have almost any physical pressence in the state.). but if anything that group of wealthy owners prefers urban CA to Nevada.

    Not saying there isn’t a point where there will be an effect, but i think high calf housing prices was a bigger influence on employee relocation decisions than calif income taxes.

    still chewing over v / TB thread. Thinking maybe growth of CA pop is not valid escalator if say because of immigration shifts, increased population hasn’t proportionately increased tax revenues.

    MA, nigh impossible for Oakland to craft a tax based on ability to pay because it doesn’t have the authority to levy an income tax. Suppose if you could persuade renters to vote in an off election to pass a draconian parcel tax with exceptions for property owners whose gross income as reported to Calif was below a certain amount, you could approach that goal. But then all the higher income renters would escape the increased tax burden for several years until landlords could raise rents.

    Calif will have the first and last crack at increasing taxes. Oakland will suck hind tit.

    -len

  33. Deckin

    It seems to me, when arguing about General Fund obligations increasing and whether it’s owing to X or Y, we’re missing the point. Why is it assumed that the preceding year’s obligations to the General Fund (or even the preceding 10 years) ought to be accepted lying down? Isn’t that the whole problem? Here’s a question no one can seem to answer with any clarity. The economy is in the tank for the whole nation. Many parts actually have it worse. Question: Why is it that California is stuck in this mess and most other state are relatively (I said ‘relatively’) doing OK? What is the cause of our systemic problem? We’ve been in a budget crunch of one form or the other for most of the past 20 odd years. Is it because our taxes are too low? As one of the highest taxed states in the country how does that fly? So we can forget about haggling over year over year General Fund obligations, the general point is clear enough. California systemically outspends its resources year in and year out. Unless one thinks that the source of that imbalance is insufficient taxation, there’s only one conclusion to draw. It is most definitely to the R’s discredit that they don’t offer a point by point budget that addresses these systemic problems–that was Arnold’s original promise, remember? A pox on all of their houses.

  34. V Smoothe Post author

    It’s not a question of whether our taxes are too high or too low – it’s a deeply screwed up tax structure that flings California into financial crisis with even a relatively minor dip in the economy. Prop 13 forces us to have an unstable tax base and the natural result of that is a higher tax rate. The only real way to stabilize the State budget would be done do away with Prop 13.

  35. Max Allstadt

    Len:

    How about taxing marina spaces and enacting much more street sweeping in wealthier neighborhoods? I live in GhostTown and they sweep each side once a week. My girl lives in Temescal and they sweep each side twice a month. In montclair, sometimes they don’t sweep at all.

    Raise parking meter fees to double in Montclair Village and on Piedmont and College.

    Can you legally do a parcel tax that only affects owners of multiple parcels? An exemption for owners of only one parcel?

    The Chamber of Commerce, I hear, has been trying to protest the cost of keeping a Yacht in Oakland. Way to make yourselves look like the bankers from the WAMU commercials, guys! Way to win friends. We should raise the fees/taxes on Yachts just because they had the obnoxious audacity to ask for a cut.

    There are ways to get money from rich people only. We just have to be creative.

  36. VivekB

    i think CA is in a more precarious position than ever before, primarily because of all the recent transplants who don’t feel as strong an allegiance to it as in the past. I moved here myself from the East Coast in ’97, out of everyone I know probably >50% have moved here in the past 10 years. The weather & diversity is great, but it ain’t all that, and I certainly have my price point for when i’d move. There’s a ton of great places to live around the US, i’ve had the great pleasure of working in >80% of the major metro areas during my 10 years in consulting.

    Because of that lack of deep roots by a greater % of CA population than ever before, I personally believe the tipping point is a lot closer than anyone thinks. And a 10.9% tax rate in a down economy means that the ones who’ll leave are the ones who can afford it.

    BTW, I think the cuts aren’t nearly enough on an absolute $$ basis, we’ve been living beyond our means and it is time for the party to end and begin the financial hangover. It is far beyond the need for using scalpels to target cuts, begin with a 10% across the board hatchet, let the bodies lie where they may, then begin using the scalpel. Anything short of that risks having the fiscally conservative but socially liberal folks (ie, the MoDems) migrate to supporting the right wing despite their abhorric social policies because we can’t afford the other option.

  37. V Smoothe Post author

    Putting it another way – despite having apparently the highest tax rate and also being one of the wealthiest states, California is not collecting a significantly greater amount of tax revenue per resident than most states. But the tax revenue is far less stable.

  38. Andrew

    Why does anyone think that someone in California’s highest tax bracket is going to move out of state over a 0.6 percent rise in the marginal rate? Even if you make a million dollars at the highest rate, that’s chump change, $6,000 in extra taxes.

  39. Robert

    In 2008 combined state and local spending per capita was about 20% greater in CA than the country as a whole. So I think that higher taxes in CA are generating significantly higher revenues than the rest of the country. Also, between 1998 and 2008, CA spending increase from 108% of the national average to 120%. It would seem that CA is not doing a very good job of controlling governmental spending. From the average taxpayers perspective, it doesn’t matter if the political process has created different funds for the money. To most of us, it is all one big pot.

  40. len raphael

    MA, would think Oakland would have to make a much better argument for the special benefits of a special assessment for “wealthier” sections of town” than it did for the LLAD for all property owners.

    i don’t have a boat, but my biz is located in the emeryville marina. 90% of the boat owners are upper middle class who probably can’t afford their boats.

    V, thought i saw a stat that decline in Ca income tax collections was largely a drop in capital gains taxes on stock sales. Ca taxes cap gains at same rates as wages or int or divs (unlike the Feds which taxes cap gains and divs at very low 15% rate).

    Yes that’s unstable compared to real estate tax collections but relying on cap gains taxes as they have since the dot com era is especially ridiculous.

    There is also a truism? that if you exclude cap gains tax collections, the bulk of income tax normally comes from the vast middle. so raising highest rates doesn’t do much for revenue but arguably scares off people most likely to take chances on investing in job creating biz rather than just putting their bucks in completely tax free calif bonds.

    -len

  41. VivekB

    Andrew, it’s not the 0.6% increase, it’s the reminder of what the overall burden is now which would trigger someone to mentally disconnect from CA love. Even if they don’t move, it’s hard to fight back the feeling of “screw it, let someone else figure out how to fix Oakland/CA/etc. I’m already paying through the nose, let somebody who pays less in taxes figure this out”. That ‘disengagement’ from caring about society is the deathknell of a thriving community, and the increase in tax burdens lowers the threshold at which people stop giving a crap about what the good things are that gov’t does for the underprivileged, because they’re struggling to survive.

    VS – i didn’t know that about CA not making much more per resident, where did you find that out? I’d like to get some context around it, because it’s contrary to what I would have expected (higher than average salaries * higher than average tax rate should = much higher than avg tax per resident). Unless, like that paleoconservatist link shows above, there’s something else hinky going on.

  42. V Smoothe Post author

    I took the Tax collections by State (PDF) info from the United States Statistical Abstract and put it in a spreadsheet, added State populations, and then sorted by the tax/resident. Looking for it now, I stupidly realize I closed the spreadsheet without thinking to save it. But from what I recall the highest ones were some you’d expect and some you wouldn’t. California was towards the top but not dramatically higher than most. There were about 20 states that were really low, then a big bump, and the next 20-something were relatively close together in terms of tax/resident, California was towards the top of that, then another big bump for the top five or so.

  43. mark

    The state is so out of control. As a state, we were not able to save any money in the best years, so it should be no surprise that we are broke in a bad year. As a local business owner, I can tell you that this is scary. With the tax increases, and service cuts, many businesses in CA will leave, or shut down altogether. All of these costs increases and service cuts really add up. While our business won’t leave the state and is not in danger of going BK, I know a lot that will leave or shut down. Not because they want to, but because they are forced to. Many are hanging on by a thread! The threat is real! Just look at the cost of warehousing in our local market. The price is down by over 40 percent in the last 6 months. That means a lot of people have left or shut down. The problems in our local commercial market is becoming worse than our residential market. This will make our budget issue even worse.

    There will never be enough revenue until we get spending under control. Notice that we are not talking about major pay cuts/ pension cuts for state workers, changing our prison systems so that we are not locking up most of the poor in CA, or reviewing state laws that penalize small business and manufacturing with well intentioned but misguided labor laws. . Until we address these issues, no amount of service cuts or tax increases will ultimately help. We need to make it easier to open and run a business in CA than to shut it down.

  44. len raphael

    i can see v’s point about the instability of tax revenues based on income, especially on capital gains. no matter what level of state and local govt spending you favor, we need stability in the revenue.

    what level is a big deal. always assumed that as california’s economic growth slowed, and poorer people grew relatively larger portion of electorate there wb a big demand for higher govt spending and support for higher income and property taxes because what you can’t get from higher wages it’s only human to try to get from greater public spending.

    curious, has “middle class” shrunk in Calif as “lower class” grown? or is that just impression i get from coastal urban areas?

  45. len raphael

    V, now that the immediate crisis is papered over, there has been been coverage of State Senator Abel Maldonado’s political blackmail which forcibly put a constitutional amendment on the ballot for open primary voting. His proposal was highly principled and based on his belief, shared by out of office democrats and republicans (and yes the Schwartz) that open primary voting will result in elected officials who are more moderate than the current batch of both parties, and thus more likely to work out budget compromises before a crisis. He might be wrong, but the only people who seem convinced he’s wrong are democrat and republican elected officials. the same crew who have created the mess over many years.

  46. Becks

    len – you must be joking, right? Whether or not you agree with the open primary idea, it should be pretty clear that his proposal was not “highly principled.” He did this for one reason – so he could have any hope of getting elected to a statewide position in the future. Last time he ran for statewide election, he lost miserably in the primaries, and certainly in the future it would be even more difficult for him as Republicans are out to get him after his budget votes this year and last.

  47. Robert

    Becks, what are you smoking. You think somehow that pissing off the leadership in both parties is going to help his chances?

  48. len raphael

    B, sounds to me like Sen M is just the kind of moderate republican who deserves to benefit from open primaries. Nothing wrong with his self interest dovetailing with his principles :)

  49. Becks

    Robert – I never said that I thought Maldonado’s ploy would be effective. I think just the opposite – the open primaries initiative is unlikely to pass, and I think his political career will be over very soon.

    Len – I have a hard time thinking of Maldonado as principled in any way. I’m not sure how closely you followed the budget process, but I would have had a lot more respect for Maldonado if he had voted for the budget weeks ago. Instead, along with the rest of the Republicans, he held up the budget for weeks, which brought the state to the brink of collapse. I just can’t think of such behavior as principled. He should have made his demands early on, and we could have had a budget passed weeks ago.

  50. len raphael

    B, i didn’t follow the state budget debacle very closely. my impression is that Maldonado played his hand the same way that the three republican us senators ran their game on a much much bigger scale with much scarier risks than california’s budget. you hear more praise than criticism of them. if Maldonado hadnt played brinkmanship he would not have gained the leverage he needed to get what he wanted.

    but yes, his open primary change will probably fail at the polls but its worth fighting for.

  51. Becks

    Len – I wish that Maldonado had played his hand in the same was as the three Republican senators! They immediately expressed interest in supporting the stimulus and started negotiations. They did not hold out for several weeks, saying they couldn’t support the package, and then at the end change their minds and railroad in significant changes. The Republicans in the Senate came over quickly and made detailed negotiations with the Democrats, and I can respect that, even though I don’t support all of the cuts that they made. Maldonado’s behavior, on the other hand, I cannot respect.

  52. Max Allstadt

    Hey, Len, quick question for the CPA in the house:
    If the state sends me an IOU for my tax refund…
    Can I send it back as payment on taxes I owe this year?

  53. len raphael

    MA, it has always been ok to send back uncashed refund checks and attach a letter requesting that the irs or calif ftb to apply them to next year’s taxes. They will do that retroactive to the date the refund was created eg. tax return filing date. No reason CA ftb wouldn’t handle a returned IOU the same way.

    you’re the second person who asked me about ca iou’s today. the other person said she’d actually gotten one. i asked for an image of same.