The California Legislative Analyst’s Office just issued a report that found that federal funds spending in California for the 2010-11 budget year is estimated to be $91.46 million, compared to General Fund spending which is estimated to total $91.48 million.  The total California State Budget including federal, General Fund, Special Funds and bond funds is estimated to total $227.35 million for 2010-11.

For the 2011-12 State budget year, General Fund spending in the enacted budget is $85.94 million, federal funds spending is $79.18 million, special fund spending is $34.18 million and selected bond funds spending is $9.36 million for total spending of $208.66 million.  The drop in Federal fund spending is due to the expiration of the federal stimulus.

To view the LAO report click here.

To view this report click here:  SharedVision

 The source for this article is the California Institute Capitol Hill Bulletin published by the California Institute for Federal Policy Research:

        Two-thirds of Californians say a special election on Governor Jerry Brown’s tax and fee proposal is a good idea, and a majority are generally satisfied with his budget plan. These are among the key findings in a statewide survey released on January 26, 2011 by the Public Policy Institute of California (PPIC) with support from The James Irvine Foundation. Findings are based on a telephone survey of 2,004 California adult residents interviewed from January 11–18, 2011. PPIC’s State-wide Survey examines the social, economic, and political trends that influence public policy preferences and ballot choices.

        In Early Reaction to Budget, 58 Percent Satisfied

        When read a description of the Governor’s proposed budget, 58 percent of Californians are generally satisfied (29% dissatisfied). Across party lines, there is more satisfaction (64% Democrats, 57% independents, 49% Republicans) than dissatisfaction (26% Democrats, 31% independents, 37% Republicans) among residents. Still, overwhelming majorities (75% adults, 73% likely voters) are at least somewhat concerned about the spending reductions in the Governor’s plan. Brown’s proposed special election on a tax and fee package to prevent further budget cuts is a good idea, according to 67 percent of adults. Majorities agree, regardless of party affiliation (73% Democrats, 64% independents, 55% Republicans). By comparison, just 40 percent of likely voters said in September 2005 that the special election called by Governor Arnold Schwarzenegger was a good idea, and 50 percent felt that way in the weeks before a 2009 special election called by the Governor and Legislature. A smaller majority—53 percent of adults and 54 percent of likely voters—favor the general plan they would be voting on, which would extend tax and fee increases and divert some revenues from state to local governments.

        Strong majorities (71% adults, 73% likely voters) favor the general concept of shifting tax dollars and fees to local governments to take on the responsibility of running certain programs. Most residents are also confident (14% very confident, 49% somewhat confident) that local governments would be able to operate programs currently run by the state, and so are likely voters (18% very confident, 51% somewhat confident).

        Brown Approval Rating Falls Short of 50 Percent

        So far, Californians approve of the ideas the new governor has advanced more than they approve of the new Governor. Less than half of adults approve of the overall job he is doing so far (41% approve, 19% disapprove, 39% don’t know) or of his handling of the state budget and taxes (41% approve, 27% disapprove, 32% don’t know).

        Most adults (55%) disapprove of the new legislature—largely composed of incumbents. Likely voters are still more negative: 68 percent disapprove. The legislature fares even more poorly on its handling of the budget and taxes: 65 percent of adults and 74 percent of likely voters disapprove.

        Even though Californians give approval ratings of less than 50 percent to both the new legislature and Governor, a majority of adults—58 percent—say the two will be able to work together and accomplish a lot in the next year. By comparison, just 28 percent of all adults and 20 percent of likely voters felt this way in January 2010.

        Most Would Pay Higher Taxes to Spare Schools

        Most Californians regard the state budget as a big problem (68% adults, 83% likely voters). Solid majorities of adults oppose spending cuts in K–12 education (75%), higher education (63%), and health and human services (60%) to help reduce the state budget deficit. But 70 percent support cuts in prisons and corrections. Californians say they are willing to increase taxes to spare K–12 education (71%), higher education (59%), and health and human services (57%) from budget cuts. Just 17 percent are willing to pay higher taxes to maintain current funding for prisons and corrections.

        Most Would Raise Taxes for Corporations

        Majorities (60% adults, 55% likely voters) favor raising the state taxes paid by California’s corporations to address the budget deficit, up 13 points among likely voters since last September. Other revenue-raising ideas received far less support: 27 percent of likely voters favor raising state personal income taxes, 34 percent favor raising the state sales tax on all purchases, and 36 percent favor increasing the vehicle license fee.

        Californians’ Knowledge Gap

        Most Californians’ views about the budget are not based on an understanding of where the money comes from and where it goes. A majority of adults say they have some knowledge (39%) or a lot of knowledge (15%) about how state and local governments spend and raise money.

        The Tax System: it Needs Changes but It’s Moderately Fair

        As Californians face the prospect of a special election to determine whether to extend temporary tax increases, most (58%) say the state and local tax system is in need of major changes. And 53 percent say they pay more in taxes to state and local governments than they should. Despite these attitudes about their own tax burden, most say the present state and local tax system is at least moderately fair (4% very fair, 53% moderately fair).

        More Hopeful, Still Worried about Year Ahead

        Californians are feeling better about the direction of the state and their own financial futures, but most are still not feeling good. A majority (54%) continue to say that things in California are going in the wrong direction. However, the share of those who see things going in the right direction—38 percent—is up 22 points since October and the highest percentage since September 2007. Most independents (58%) and a large majority of Republicans (81%) remain pessimistic about the direction of the state. But for the first time since September 2007, Democrats are more likely to say the state is going in the right direction (51%) than in the wrong one (39%).

        Turning to economic conditions in California, a majority of adults (56%) expect bad times financially in the next 12 months. But the percentage expecting good times—36 percent—is up 11 points since October. Despite their sunnier view of the economic outlook, most (86%) still believe the state is in a recession, with 48 percent viewing it as a serious recession.

        For more information: http://www.ppic.org/ .

The Legislature has begun voting on a budget deal reached by the “Big 5” that includes a rollback of pension benefits for new state employees and budget reforms that significantly strengthen the state’s rainy day fund.

As of this writing at 1pm today, the main budget bill, SB 870, was still on call in the Assembly, well short of the 2/3 vote required for passage.  The Senate was still in caucus.    

“I can’t tell you what’s in this budget,” said Assemblymember Kevin Jeffries (R), who said he has had very little opportunity to review the budget bill which spans three volumes.  “This is not an example of open and transparent government,” Jeffries said. 

Assemblymember Diane Harkey (D) said the bill did not cross the desk until 9:30am this morning. 

Assemblymember Bob Blumenfield (D), speaking in support of the budget bill, called such concerns “nonsense” because 95% of the budget has been known for weeks and was included in the Budget Conference Committee versions of the budget. 

The budget deal, spanned by the main budget bill and several related trailer bills, makes significant changes to the state’s “rainy day fund” and rolls back pension benefits.    

The language of these proposals had not been released as of this writing but a brief eight-page summary released by the Senate Budget Committee gives a brief outline of the proposals as well as the overall budget deal.   To view the summary click here.  

Strengthened “Rainy Day Fund”

The Senate analysis says the deal makes three major changes to create a stronger “rainy day fund” for California.  Specifically, the proposal “makes the existing Proposition 58 rainy day fund larger and harder to suspend an annual contribution.”

The proposal increases the maximum size of the state rainy day fund from five percent to 10 percent of General Fund revenue and requires the state to always make three payments into the fund, except in years when the state has a deficit big enough to start using the fund.  Half of the annual payments into the rainy day fund would be allowed to be used for one-time infrastructure and debt service. 

Funds in the rainy day found would only be allowed to be used to “cover a budget shortfall—up to the previous year’s expenditures adjusted for inflation and population growth,” according to the Senate summary.  A regulator provision prevents using all of the funds in one year. 

Provisions are also included that capture “unanticipated revenue” for transfer into the rainy day fund based on projections made by the Department of Finance.  Any revenue that is received above the trend line of the state’s last twenty years of revenue performance is designated “unanticipated” and must be put into the rainy day fund.  

Pension Reform

The budget deal also includes provisions that significantly rollback pension benefits for new state employees hired on or after November 10, 2020.  The changes do not apply to current employees.  

“These changes would impact state employees in bargaining units that do not currently have a Memorandum of Understanding (MOU) with the state, as well as employees of the California University, the judicial branch of government, the Legislature, and classified school employees,” according to the Senate summary.

The proposal would roll back new state employees’ retirement benefits to the pension benefit levels that existed prior to the adoption of SB 400 (1999).  Click here for a scanned chart which shows a comparison of current benefits to the new benefits. 

The proposal would also end pension “spiking” by requiring pension benefits to be based on the three-year final compensation method of calculating benefit levels for new state employees who are not already under this calculation method.  The proposal also “requires additional analysis and oversight of CalPERS’ actuarial assumptions” but no additional details are provided. 

Summary of Other Aspects of Budget Package

The budget deal seeks to close an $18 billion budget gap through $7.5 billion in expenditure reductions, the assumption of $5.3 billion in additional federal funds, $2.5 billion in revenue “solutions,” and $2.8 billion in fund shifts, according to the Senate summary.

The deal maintains a “modest increase in education funding on per-pupil programmatic basis for 2010-11, and begins paying “settle-up” payments for the 2009-10 fiscal year with a $300 million payment in 2010-11.” 

The budget makes a number of reductions in health and human services programs, but rejects the Governor’s proposals to eliminate CalWORKs, community health programs, Adult Day Health care, and the significant reductions proposed to the In-Home Supportive Services program. 

“The budget package reduces spending for state employees by about $1.5 billion consistent with collective bargaining agreements that have been already reached or are in negotiation,” according to the Senate analysis. 

The deal contains some budget reductions that are not likely to fully materialize based on past experience.  The agreement includes corrections savings of more than $1.1 billion, primarily from reduced inmate medical care costs.  The budget package also assumes new or extended federal funds to provide $5.3 billion in budget solutions. 

More than half of the $2.5 billion in “revenue solutions”, or $1.4 billion, is captured by using the Legislative Analyst’s revenue forecast which was $1.4 billion higher than the Governor’s May Revisions three months into the fiscal year. 

The package would also extended the suspension of the net operating loss (NOL) for an additional two years which is estimated to result in increased tax revenue of about $1.2 billion in 2010-11.

The Los Angeles Times has noted that Republicans have succeeded in getting additional tax breaks included in the budget deal including a $30 million provision that will only help one company.  These tax breaks are unlikely to show up in any analysis because they are buried deep within the budget bill or trailer bills. 

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Published on California Progress Report (http://www.californiaprogressreport.com/site)

Created 08/18/2010 – 12:42pm

By David Kersten

California’s 32-year failed experiment with minority rule has proven the principal of majority rule is essential to the efficient and effective functioning of the California State Legislature.  

Majority rule is a fundamental principal embodied by the United States Constitution, but something that has been hijacked by the initiative process in California to provide for the tyranny by 1/3 of the population to the detriment of a majority of Californians.

Research undertaken by Kersten Communications has found that in left-leaning academic circles, there is a consensus that Prop. 13’s 2/3 vote requirement needs to be replaced with a majority vote or 55% vote.   Political scientists on the right, on the other hand, support the 2/3 vote requirement because it restrains the size of government.  (Note: right-leaning academics were contacted for this analysis but chose not to comment).   

In California, we allow representatives for 1/3 of the population to thwart the will of the remaining 2/3 of the population on two essential government functions—the passage of a state budget and any tax measure which increases taxes on a single taxpayer.  This principal of minority rule was enshrined in the California Constitution when a majority of voters passed Proposition 13 in 1978.       

Majority rule was utilized by the framers of the United State Consitution to ensure that the wants of the median voter are represented in government, but the reverse is true in California where 1/3 of the population controls the wishes of the other 2/3 of the population on the two most important government functions—the budget and taxes. 

“Right now you can change the rules of the game as Proposition 13 did, with only 50% plus one person.  Most political scientist say if you are going to change the rules of the game that should be hard, you should not make that too easy because that is going to mess things up often,” said Henry E. Brady, professor of public policy and Dean of the Goldman School of Public Policy at the University of California at Berkeley a budget forum hosted by the university last year.

“Most political scientists, including all that I know, say this is just backwards.  We got it backwards,” Brady said.

“The right 45% loves the 2/3 vote requirement because, they believe, it reduces the size of government,” said Roger Noll, professor of economics emeritus at Stanford University.

“You are correct to note that there is a consensus among academics that the 2/3 rule is “backwards,” while conservatives (including conservative academics) oppose this change because it might lead to bigger government,” said Thad Kousser, an associate professor of political science who is spending the 2009-10 year at Stanford University working on California constitutional reform. 

“But I think it is important to note that us lefties don’t support shifting to a majority rule on the budget because it will lead to bigger government—in fact, most of us doubt that it will lead to much higher spending.  I think the major justification is that it allows budget deals to happen more quickly, and for the final deal to represent what the median voter wants.  It’s about representation and the lack of gridlock, rather than a preference for larger government,” Kousser said. 

Bruce Cain, Heller Professor of Political Science at the University of California Berkeley, said a consensus of conservative political scientists would likely “agree in principle that a majority vote is best but do not trust the legislature, and so are reluctant in this instance to favor the majority vote.”

“If we went to a simple majority to raise taxes in all likelihood the Democrats would raise taxes to solve California’s budget problems.  They would over reach.  They would get thrown out of office and the Republicans would have their best chance of gaining a majority in the Legislature,” said University of California Berkeley professor of public policy John Ellwood.  

“Now the Democrats can propose anything because they know that with the Republican veto nothing will pass.  And the Republicans know that they can get away with simply saying no,” Ellwood said, adding that “nothing gets done either way” and we are just stuck with gridlock. 

“The problem is, I’m not sure the voters want it,” Ellwood said, noting that Proposition 56, which proposed a 55% vote for a budget and taxes was handily defeated in the early 2000s. 

Given that the state is in the midst of yet another prolonged budget stalemate, the debate about the 2/3 vote requirement has flared up again as a way to reduce future budget gridlock.  The existence of Proposition 25 on the November ballot, which would lower the legislative vote requirement to pass a state budget from 2/3 to a simple majority, but retain the state’s 2/3 vote requirement for increase taxes, has thrown additional fuel on the fire. 

A minority of Californians will always support the 2/3 vote requirement because it provides them with overrepresentation of their desires when it comes to state spending and taxes.  This does not mean that they are justified in their beliefs–they have simply been spoiled over the last 32 years by being overrepresented by Prop. 13’s 2/3 legislative vote requirement. 

The time has come for the majority of Californians to reassert their desire for adequate political representation, uphold valid principals of majority rule, and pass Prop. 25 on the November ballot.

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This article was written by David Kersten, president of Kersten Communications—a Sacramento-based public policy research firm.  Kersten is an expert in tax, budget, and fiscal issues. 

With the state and local governments facing large budget deficits, a group of community activists and labor and education leaders staged a series of protests on August 10 to deliver a giant $17 billion bill itemizing the ways Wall Street banks are shortchanging California residents and state and local governments. 

The organizers released a report titled, “Wake Up Wall Street: While Californians Must Choose Between Education and Public Services…Wall Street Banks Owe California Billions,” which itemizes the $17 billion owed to California.  The protests, which occurred in Sacramento, Alameda, San Francisco, Santa Clara, Los Angeles, and Fresno counties, were organized by the Service Employees International Union (SEIU) and the Alliance of Californians for Community Empowerment (ACCE).  SEIU and ACCE also authored the report referenced above. 

Kersten Communications provided research support for the report which details how banks and other Wall Street private equity firms have bought major properties in California in recent years, but are not paying the correct amount of property taxes. 

According to a San Francisco Chronicle report, during an August 10 protest at JP Morgan Chase’s offices at 560 Mission Street in San Francisco, protestors demanded to speak with a Chase representative but Chase declined to send a representative to meet with the crowd of approximately 35, whose grievances included unpaid property taxes, the costs to counties associated with blighted residential foreclosures, a decline in small business loans, and lost retirement savings due to reckless investments by financial institutions. 

 “We came here today to get Chase to pay their fair share in taxes…They foreclosed our homes and got government money and put it in their own pockets,” said Dorothy Hicks, a retired nurse from Oakland and member of ACCE, who spoke through a bullhorn outside the downtown San Francisco high-rise, according to the San Francisco Chronicle report. 

“We have all played by the rules…It’s time for banks to do the same,” said demonstrator Veronica Rodriguez out of a bullhorn at an August 10 demonstration in front of a Watsonville Chase bank, according to a report by the Santa Cruz Sentinel.  

Specifically, “under Proposition 13, properties in California should be reassessed at fair market value upon a change in ownership, but loopholes has led to banks skipping out on an estimated hundreds of millions of dollars in property tax revenues,” according to research by Kersten Communications. 

JP Morgan Chase merged with Washington Mutual Bank (WaMu) in 2008 in a deal reportedly worth $1.9 billion, but two years later many WaMu banks and other WaMu assets have still not been reassessed at current property values.  Wells Fargo and Company purchased Wachovia Corp. in 2008 for a reported $15.1 billion in an all stock deal, but many of Wachovia’s California assets have not been reassessed to date.

In a small sampling of properties in just 11 of California’s 58 counties, research provided by Kersten Communications shows that Chase owes an estimated $15.3 million in back taxes to state and local governments.  Statewide, Chase is estimated to owe tens of millions of dollars in back taxes, according to estimates prepared by Kersten Communications. 

A sampling of specific properties owned by Wall Street private equity firms and other corporations are estimated to owe $34.8 million in back taxes.  “These numbers represent just the tip of the iceberg.”  Estimates provided by Kersten Communications show that banks, Wall Street firms and other corporations are conservatively estimated to owe California $51.6 million in just 11 counties for a small sampling of properties.  Statewide, Kersten Communications estimates that banks and corporations currently owe hundreds of millions of dollars in additional property taxes. 

The report also urges banks to “step up to fix the foreclosure crisis” and estimates that the foreclosure crisis has cost California state and local governments $13.9 billion.  “Banks must agree to real and effective loan modification that includes reducing principal; and pay for blight and safety hazards that foreclosures unleash on our neighborhoods.”     

“Big banks like Goldman Sachs, JP Morgan Chase and Bank of America continue to bill taxpayers for millions a year on risky derivatives called “interest rate swap deals,” according to the report.  Since September 2008 banks have profited $1 billion through these deals that have locked local governments in at high interest rates. 

“Before the crisis hit, big banks peddled toxic swap deals to states and cities on the promise that they would be protected against interest rate spikes.  But now that interest rates are near zero, banks are refusing to renegotiate or cancel these deals,” the report states.    The U.S. Department of Justice and Attorney General in California, Florida, and Connecticut are all investigating potentially illegal behavior by the banks in connection with these deals. 

Cities such as Los Angeles, Oakland, and Frenso have filed lawsuits against the banks over interest rate swaps and other municipal derivatives and bank of America has admitted to a criminal violation of antitrust laws.

The report also blames Wall Street’s reckless behavior for devastating Californian’s retirement security.  “Big banks gambled with and lost the retirement savings of hard-working Californians like nurses, college professors, firefighters, and child protection workers.”  Between October 2007 and December 2008, the top 1,000 U.S. pension funds lost $1.75 trillion, nearly are quarter of their value. 

“The losses were no accident,  In several cases, pension funds like the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) have uncovered deceptive and dishonest practices on the part of banks.  CalPERS and CalSTRS have filed class action lawsuits against banks like Bank of America and State Street Corp. to protect retirement security for more than two million Californians,” states the report. 

The report also urges banks to restore small business loans which have been significantly cut back since the financial crisis began in 2008. 

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On May 14, 2010 Governor Arnold Schwarzenegger released is May Revised budget proposal which outlines a series of solutions to close the $19 billion budget gap projected for 2010-11.  To view the proposal click here.   Legislative deliberations on the proposal have already begun.  Below is a list of the various analyses of the Governor’s May revision: 

“The 2010-11 Budget: Overview of the May Revision.”  Legislative Analyst, May 18, 2010.

“Governor Releases May Revision With, As Promised, ‘Absolutely Terrible Cuts,’ No Tax Increases.”  California Budget Project, Updated May 19, 2010. 

“Highlights of the Governor’s May Revisions 2010-11.”  Assembly Budget Committee, May 14, 2010. 

“May Revision Highlights.”  Senate Budget and Fiscal Review Committee, May 14, 2010. 

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 The California Institute for Federal Policy Research (CIFPR) reports that House and Senate negotiators on May 20, 2010 reached a compromise on the conference agreement to H.R. 4213, the American Jobs and Closing Tax Loopholes Act.  The original legislation, the Tax Extenders Act of 2009, passed the House of Representatives on December 9, 2009.  The Senate passed a similar package, the American Workers, State and Business Relief Act, as an amendment to that bill on March 10, 2010, according to CIFPR.

The House hopes to garner sufficient support for the measure from moderate Democrats to allow it to pass the bill early next week. The Senate will need to find at least one Republican supporter to reach the 60 votes it will need to overcome a filibuster. Leaders of both bodies hope to secure final passage of the bill before the beginning of the Memorial Day recess, which begins on May 28, 2010, according to CIFPR.

Below is a CIFPR summary of the numerous provisions contained in the bill, the cost of which could total in the neighborhood of $200 billion, are the following:

        - extend eligibility for unemployment insurance benefits and COBRA health care tax credits through December 31, 2010;

        - extend the American Recovery and Reinvestment Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75% to 90%;

        - extend the Build America Bonds (BABs) program for two years (through 2012);

        - exclude bonds financing facilities that furnish water and sewage facilities from state volume caps;

        - extend for one year (through 2010) the expensing of costs associated with cleaning up hazardous “brownfield” sites;

        - distribute the Projects of National and Regional Significance (PNRS) and National Corridor Infrastructure Improvement (National Corridor) surface transportation program funding among all States based on each State’s share of FY 2009 highway apportioned funds rather than to only 29 States and Washington, D.C., that had PNRS and National Corridor projects under SAFETEA-LU; the bill would also distribute “additional” highway formula funds (which the bill makes available in lieu of additional Congressionally-designated projects) among all of the highway formula programs rather than among just six formula programs;

        - reinstate for one year (through 2010) the research and development tax credit;

        - extend for one year (through 2010) the designation of certain economically depressed census tracts as Empowerment Zones;

        - support over 300,000 jobs for youth ages 14 to 24 through summer employment programs;

        - expand the Trade Adjustment Assistance for Communities – Community College and Career Training Grant Program to include individuals who are eligible for unemployment insurance, or are likely to be eligible for unemployment insurance, or have exhausted their unemployment insurance;

        - extend for one year (through 2010) the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes;

        - extend for one year (through 2010) the above-the-line tax deduction for qualified education expenses;

        - extend for one year (through 2010) the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid for books, supplies, and other supplementary materials;

        - extend for one year (through 2010) the $1.00 per gallon production tax credit for biodiesel and the small agri-biodiesel producer credit of 10 cents per gallon, and also extend for one year (through 2010) the $1.00 per gallon production tax credit for diesel fuel created from biomass;

        - extend for one year (through 2010) the provision that allows film and television producers to expense the first $15 million of production costs incurred in the United States ($20 million if the costs are incurred in economically depressed areas in the United States);

        - prevent 20 percent reduction in Medicare physician payment rates in June and allow rates to increase in 2012 and 2013 if spending growth on physician services is within reasonable limits, with an extra allowance for primary and preventive care; and

        - provide a 6-month extension of the temporary 6.2 percent increase in Federal Medicaid Matching Rate (FMAP), as well as the additional percentage points for states with high unemployment.

        Detailed information on the bill can be found at:

http://waysandmeans.house.gov/press/PRArticle.aspx?NewsID=11185 .

By John Howard | 05/07/10 12:00 AM PST