Other KC Fiscal Focus Reports: 

“Ballot Measures Qualified for June and November 2010.”

“Federal Stimulus Funding Slow to be Spent in California, Other States.” 

“KC Fiscual Focus Guide to Searching for Federal Stimulus Funding in Your Community.”

The California Legislature enacted the modern day initiative process in 1911 as part of a package of reforms that were designed to protect the people of California from the unchecked power of a major corporation.  

Prop. 16, titled the “The Taxpayers Right to Vote Act,” uses the initiative process to solidify the monopoly power of one company at the expense of California citizens. 

Specifically, the measure requires local governments to obtain the approval of 2/3 of voters before providing electricity to new customers or expanding service to new territories if any public funds or bonds are involved.  The measure would make it very difficult for local communities to switch from PG&E and other investor-owned utilities (IOUs) to municipal-owned utilities (MUNIs) which have been proven to have cheaper rates. 

To date, PG&E has been the sole contributor to the Yes on Prop. 16 political action committee (PAC)—contributing a total of $19 million to support the measure as of March 9, 2010.  To view the filing for the Yes on Prop. 16 PAC click here. 

This brief seeks to summarize what is wrong with Prop. 16 and show how the Prop. 16 uses the initiative process to do the exact opposite of what it was designed to do. 

Prop. 16 Supporters State Their Case for the Measure, but Lawmakers Remain Unconvinced   

California lawmakers and energy experts blasted Prop. 16 at a legislative hearing held at the Capitol last month with many participants using harsh and colorful language to describe the measure.

Ed Bedwell, a senior director for PG&E, said PG&E introduced the measure to give voters the “right to decide” and believes that the higher 2/3 vote requirement is merited if public funds are at stake. 

Lawmakers questioned Bedwell about why PG&E seemed to be all alone in supporting the measure to which he replied “I don’t know that we’re all alone,” noting that SoCal Edison and SDG&E are also potential supporters. 

Marc Burgat, vice president of government relations for the California Chamber of Commerce, said the Chamber supports Prop. 16 because it would provide a “higher level of scrutiny” for the use of taxpayer money.

Michelle Pielsticker, vice president and general counsel for the California Taxpayers Association (Cal-Tax), said that Cal-Tax supports Prop. 16 because they welcome the right of taxpayers to decide about the use of such a large amount of taxpayer funds which could lead to higher taxes and fees. 

“I think this is a terrible initiative,” said Assemblymember Jared Huffman (D), who noted that the initiative creates a double standard by requiring a majority vote for PGE&E to annex new territory but requiring a 2/3 vote for a MUNI to annex a new territory.

Assemblymember Mark Leno (D) was highly critical of the measure and said he thought it was “astounding” that the California Chamber of Commerce would support a measure that would limit competition in electricity markets.   

John L. Geesman, former chair of the California Energy Commission, said he had never seen such an overstepping of corporate power and urged lawmakers to “do what you can to put this mongrel down.”

City and County Supervisor Ross Mirkarimi said he was amazed at the “brazen arrogance” of PG&E in submitting Prop. 16 and compared the company to the tobacco industry in the 1990s when they said “smoking is good for you.”

Summary of Arguments against Prop. 16

Opponents of Prop. 16 have raised numerous arguments against the measure.  The following is a summary of arguments against the measure: 

Prop. 16 Will Limit Competition in California’s Retail Electricity Market and Serve to Further Solidify PG&E’s Monopoly:  Requiring a 2/3 vote of the people to switch to a MUNI provider will make it very difficult for ratepayers to get out from under PG&E’s control of local electricity markets.  Such a vote requirement will make it much easier for PG&E to run successful opposition campaigns against such local measures—in effect allowing 1/3 of the population to veto a decision that is likely to be in the public’s interest.  The California Association of Realtors voted to oppose Prop. 16, noting that Prop. 16 “is aimed at stifling competition by privately owned utility companies and could result in higher utility bills for homeowners,” according to their website.  A Sacramento Bee editorial stated “in recent years PG&E has spent tens of millions of dollars to fend off efforts by ratepayers in San Joaquin, San Francisco, Marin and Yolo counties who’ve tried to form their own public utilities or annex themselves to public power agencies…the constitutional amendment makes it virtually impossible for any jurisdiction to escape the PG&E monopoly.”

Prop. 16 Will Serve To Lock In Higher PG&E Electricity Rates for Millions of Californians:  There is an overwhelming body of evidence which proves that PG&E’s electricity rates are higher than MUNIs.  Electricity rates are affected by season, usage, and area, but here is a summary of some data comparing PG&E rates to other California MUNIs: 

–Chart #1: Compares the average electricity prices of the state’s major investor owned utilities (IOUs) and municipal-owned utilities (MUNIs), including PG&E (IOU), Southern California Edison (IOU), San Diego Gas & Electric, Los Angeles Department of Water and Power (MUNI), and the Sacramento Municipal Utility District (MUNI).

–Chart #2: Compares the average residential electric bill (for 750 kWh) for PG&E (IOU), Southern California Edison (IOU), San Diego Gas & Electric, Los Angeles Department of Water and Power (MUNI), and the Sacramento Municipal Utility District (MUNI).

–Chart #3:  Compares the average retail electricity rates by class for 2008 ($/kWh) for PG&E versus the average of IOUs and MUNIs in California.

PG&E’s $35 million Plus Campaign to Pass Prop. 16 Will be Funded with Ratepayer Money, and Likely Lead to Higher Electricity Rates for Existing Customers:  “It ought to be illegal to take ratepayer money and use it against ratepayers,” said John L. Geesman, former chair of the California Energy Commission at the legislative hearing on Prop. 16.  Geesman noted that media reports have indicated that PG&E is prepared to spend $35 million or more to pass Prop. 16.  MUNI providers, on the other hand, are not allowed to use ratepayer money for political purposes.  PG&E has proposed an average 8.3% increase in residential rates for 2011, and a corresponding 3.3% to 5.4% increase for business customers, according to the Sacramento Bee.  The ballot argument opposing Prop. 16 states that PG&E’s proposed rates increase equates to a $5 billion rate increase for California customers.   

Prop. 16 Will Have a “Chilling” Effect on the California Economy:  Several contributors at the Prop. 16 hearing said the measure would have a “chilling effect” on the state’s economy by increasing retail electricity rates for residential, industrial, and commercial users, including small businesses and large corporations.  Paul Hauser, director of the Redding Electric Utility, said PG&E’s rate structure would require an additional $40 million to be paid in his county, which would come at a terrible time for ratepayers who are struggling with an 11% unemployment rate.  Michael Boccadoro, executive director of the Agricultural Energy Consumers Association, and Geesman also noted that Prop. 16 would have a “chilling effect” on California’s economy during these tough economic times. 

Prop. 16 Will Serve to Reduce the Use of Renewable Power and Is Bad for the Environment:  The Sierra Club has voted to oppose Prop. 16 because it requires a 2/3 supermajority vote before communities can purchase clean power or power from renewable resources.  Prop. 16 “is a dagger aimed directly at a movement to enable municipalities to offer renewable green power to their residents in competition with private utilities,” said Michael Hiltzik, a columnist for the Los Angeles Times.  PG&E provides less renewable power as a percentage of total sales than it did in 2002, while MUNI providers are well known for their development and use of renewable resources.  “It is unacceptable for a company that is falling behind in meeting state adopted goals for clean energy to impede the efforts of others who would attain those goals through innovative means,” wrote Senate Pro Tem Darrell Steinberg and seven other state Senators in a letter opposing Prop. 16.   

Prop. 16 Drafting Error May Require a 2/3 Vote of Electorate for Public Agencies to Provide Power to New Subdivisions or Businesses:  “Attorneys for the Northern California Power Agency say the way the initiative is drafted may prevent public agencies from providing power to a new subdivision, apartment building or business built within their own jurisdictions without first getting a 2/3 vote of approval from the public,” states the Sacramento Bee.  This drafting error was a major reason why the California Association of Realtors voted to oppose Prop. 16.   

History Shows that Prop. 16 Uses the Initiative Process for the Exact Opposite of What It Was Designed for

The California Legislature enacted the modern day initiative process in 1911 as part of a package of reforms that were designed to protect the people of California from the unchecked power of the Southern Pacific Railroad Company.

In the late 1800s, Southern Pacific created a political machine, dubbed the “Big Four,” which rivaled New York’s Tammany Hall.  The “Big Four” included Leland Stanford, California’s eighth Governor, and reigned strong for nearly 40 years until Republican Governor Hiram Johnson succeeded in beating back the Southern Pacific political machine in 1911—marking the dawning of the Progressive Era.  

Southern Pacific was organized right after the Civil War in 1865 but had established monopoly control of shipping goods in and out of California by 1870.  Southern Pacific had the power to isolate opponents by withholding goods and controlling shipping rates.  The company charged farmers exorbitant rates to ship goods, controlled party politics, and threatened those who dared to get in their way, including journalists, according to historian Spencer Olin.    

State lawmakers were given free train tickets from Sacramento to San Francisco and their hotel bills were sent directly to the railroad company.  The “Big Four” spent at least $3 million influencing legislation which was a fortune at the time. 

Author Frank Norris referred to Southern Pacific as the “Octopus”–a metaphor for the company’s vast network of corruption and unlimited influence.  “I saw the Octopus nominate and elect Governors, U.S. Senators, judges….,” wrote Thomas Storke, a long-time publisher of the Santa Barbara News-Press. 

Southern Pacific controlled both political parties through their Political Bureau.  “Southern Pacific maintained an expert political manager…to see that the right men were chosen…,” according to Norris.  Prior to the reforms of 1911, the parties elected their candidates through the convention process which made it easy for the machine to control which candidates were nominated.  The direct primary, enacted in 1911, discontinued the practice of parties electing candidates through conventions.   

“Scarcely a vote was cast in either house that did not show some aspect of Southern Pacific ownership, petty vengeance, or legislative blackmail,” remarked one Republican State Senator in 1907. 

By the turn of the century there was a general belief that Southern Pacific as well as other corporations had overreached their bounds—through political corruption and monopoly control of markets.  Reforms were discussed that sought to give power back to the people.  Southern Pacific was “the greatest single influence operating in California politics,” according to Spencer Olin.      

Both parties nominated progressives in 1911.  Republican Hiram Johnson beat his Democratic opponent rival Theodore Bell.  As Governor, Johnson quickly made good on his campaign promises—even mentioning Southern Pacific four times in his inaugural address. 

Johnson spearheaded the effort to pass a series of progressive reforms through the California Legislature.  Johnson asked the Legislature:  “How best can we arm the people to protect themselves hereafter?”  His answer was a package of major constitutional reforms that included the initiative, referendum, and recall processes that were passed by the California Legislature in 1911, according to historian Gladwin Hill. 

The constitutional amendments were supported by both Republicans and Democrats; the direct democracy legislation passed the Assembly on a vote of 106 to 1.  President Theodore Roosevelt described Johnson’s reforms as “the most comprehensive legislation ever passed at a single session of any American legislature.”

Conclusion

California’s initiative process was designed to serve as an added check to corporate greed and corruption by giving California voters a direct way to participate in the democratic process. 

On its face, Prop. 16 may appear to some voters to benefit them by setting a higher bar, namely requiring a new 2/3 vote requirement for the use of taxpayer funds, however, a closer examination of the measure reveals that Prop. 16 is not really about protecting taxpayers at all.      

PG&E, through Prop. 16, is trying to use the California initiative process to further solidify their monopoly of regional electricity markets and advance their own narrow corporate interests at the expense of all Californians.

Hopefully California voters will see through this veiled attempt to use the initiative process against the public interest. 

###

California has received approximately $32.7 billion of the estimated $85 billion in ARRA benefits that will eventually be allocated to California, but only 54% of the money awarded has been spent.  The chart below shows California’s estimated allocation, the amounts awarded and expended, and the percentage of the state’s award that has been expended by spending category. (Note:  the remainder of California’s $85 billion in benefits will come in the form of tax benefits)

Nationwide, just over one quarter of the ARRA funds have been dispersed by federal agencies, including $92.8 billion of the $288 billion total for tax benefits, $73.3 billion of the $275 billion total for contracts, grants, and loans, and $102.8 billion of the $224 billion total for entitlements, according to the federal government.   

The funds are dispersed among 28 federal agencies, with each agency determining how to allocate their funds to states and local agencies and directly to schools, hospitals, contractors, or other organizations.  Recipients or sub-recipients are federally mandated by Section 1512 of the act to report jobs created or retained through a variety of different formulas.

The California Budget Project (CBP) has recently completed its own analysis of the impact and use of ARRA funds in California.  The CBP analysis is available by clicking here. 

Some California Departments Risk Losing ARRA Funds

The Joint Legislative Audit Committee held a hearing in January to examine the expenditure of stimulus dollars in California.  The State Auditor’s office found that the California Energy Commission (CEC) has been alarmingly slow in spending stimulus money, with the CEC only having contracted out $40 million of the $226 million in stimulus dollars awarded.  Furthermore, none of the money contracted to sub-recipients has been spent. 

“The Energy Commission continues its slow pace in implementing the necessary processes to obligate the Recovery Act funds, the state is at risk of either having the funds redirected by the U.S. Department of Energy or awarding them in a compressed period of time without first establishing an adequate system of internal controls, which increases the risk that Recovery Act funds will be misused,” stated State Auditor Elaine Howle in a letter to the Governor. 

State Auditor Howle has also noted that the California Department of Community Services and Development is at risk to lose $93 million in ARRA funding if important federal milestones are not met by September.  California was awarded $186 million under the Department of Energy’s Weatherization Program.

Despite being awarded the first installment of $93 million in June 2009, as of January 2010, none of these funds had been dispersed.  “Delays in program implementation make it unlikely that Community Services will attain the performance milestones,” states a report by the State Auditor’s Office, which notes that it seems unlikely that California will receive its remaining $93 million ARRA allocation. 

One significant milestone for meeting federal guidelines is that the state must weatherize 30 percent of 50,080 (15,024) homes in the state’s approval plan by September, according to the report.  To read the Audit by the Bureau of State Audits click here.  

Summary of ARRA Spending in California

KC Fiscal Focus has compiled a summary of federal stimulus money allocated to California.  The list of projects below is not intended to be comprehensive in nature and was produced from the best available information. 

$2.3 Billion for High Speed Rail – In January the Governor announced that California had received $2.3 billion of the $8 billion in ARRA funding that Congress allocated for high-speed intercity rail.

California received more funding than any other state.  The Governor credited the award to California being further along in planning than any other state receiving federal funding.  California’s high-speed rail system will stretch over 800 miles, from Sacramento to San Diego, and will be capable of travelling 200 plus miles per hour.  Construction of the project will likely start in 2011 and is estimated to create 160,000 jobs in construction and operations, according to the California High Speed Rail Authority.  Once completed it is estimated that California’s high-speed rail will create 450,000 jobs. 

California’s high-speed rail will operate without an operational subsidy.  The project’s planning and engineering phases have been ongoing for over 13 years.  In 2008, voters passed Proposition 1A, a $9.95 billion high-speed rail bond act.  To learn more click here.   

Governor Signs Race to the Top Application for $1 Billion in Potential Federal Education Funding – Last July, President Obama and Education Secretary Duncan announced the Race to the Top Initiative – a competitive national discretionary federal grant program for education.  At the time California was ineligible for the program.  Last August, Governor Schwarzenegger proposed reforms, which were introduced as SBX5 1, to make California eligible.  By January, the Legislature had passed a number of reforms that made California eligible for Race to the Top funds. 

In January, the Governor signed California’s Race to the Top application for $4.35 billion in total federal funding available under the race to the top initiative.  A successful application could be worth as much as $1 billion for California, according to the Governor’s Office.  For a list of chaptered legislation click here.  Recent reports indicate that California’s application for Phase #1 of the Race to the Top funding was rejected by federal officials but the state is still eligible to apply for Phase#2 of the funding.     

$2 Billion in Funding for Highways – Last September, the Governor announced that California has obligated $2 billion in federal funding to transportation projects in the state.  To view a list of 620 projects that have been fully obligated in California click here.

$800 Million for Affordable Housing Projects – In January, State Treasurer Bill Lockyer announced the final distribution of $800 million in stimulus funds for affordable housing projects across the state.  The funds are administered by the California Tax Credit Allocation Committee (CTCAC), chaired by Treasurer Lockyer.  The funds have been used to help build 9,600 affordable units and to create 24,000 jobs in 34 counties, according to the Treasurer’s Office.  

$700 Million for Water Quality Improvement Projects – Last October, the Governor announced that California had received $717 million for 160 water quality improvement projects across the state.  For a full list of water projects county-by-county click here. 

$535 Million Federal Loan for Construction of New Solar Energy Plant – Last September, the Department of Energy finalized a $535 million loan to Solyndra Inc, a solar panel manufacturing company based in Fremont, California. Construction of the new solar panel plant is estimated to create 3,000 jobs and eventually contribute to 1,000 employed directly or indirectly by the company.

$400 Million to Help Unemployed Californians – Last April, California received $415 million in federal ARRA funding to assist California’s unemployed.  The amount doubles the amount of Workforce Investment Act funds the federal government allocates to California annually. The funds are distributed by the Employment Development Department.  

$318 Million to Neighborhoods Hit by Foreclosures – In January, the Governor announced that $318 million had been awarded to California under the federal Neighborhood Stabilization Program (NSP).  The funds can be used to acquire land and property, demolish or rehabilitate abandoned properties, and offer down payment and closing cost assistance to low or middle income homebuyers.  For a list of non-profit and local government agency recipients click here.

$175 Million for Smart Grid Energy Projects - Last November, the Governor announced that California received $175 million from federal funds from the U.S. Department of Energy’s Smart Grid grant program. “I applaud President Obama for investing in a national smart energy grid that will help reduce electricity demand and increase accessibility to clean, renewable energy sources like wind and solar around the nation,” the Governor said.  For a full list of recipients statewide click here. 

$170 Million for Transit Operators – Last July, the U.S. Department of Transportation’s Federal Transit Administration approved $170 million in grant funding to 11 California transit operators.  For a full list of operators and entities that received grants click here.

$150 Million To Prevent Homelessness – Last July, California received $150 million for 70 communities through the federal Housing and Urban Development Department.  These funds must be used for short or medium term rental assistance, housing relocation, and stabilization services including housing services and credit repair, among other things, as designated by the federal government.

$75 Million for Clean Energy Training Program – Last July, the Governor announced the Clean Energy Workforce Program that would train or retrain 20,000 workers to build a capable workforce to meet California’s climate change goals, and to better prepare California’s workforce for the economy of the 21^st century.  The investment of $75 million marks the nation’s largest green training program.  

$71.6 Million for Federal Education Technology – Last August, State Superintendent of Public Instruction Jack O’Connell announced the California received $71.6 million from the Department of Education to integrate technology into instructional development.

$68 Million for Weatherization of Homes for Low-Income Families – Last October, the Governor announced that California had been awarded $68 million through the U.S. Department of Energy for California’s low-income Recovery Act weatherization program.  Families that are 75 percent below the state median income are eligible.  The funds will help nearly 50,000 families decrease their energy bill annually on average by $350, according to the Governor’s office.  For a full list of recipients click here.

$51 Million for Clean Water Projects – The State Water Resources Control Board has announced $83 million in funding for clean water projects of which $51 million came from ARRA funding.  The funds are in the form of grants and zero interest and low-interest loans, according to the Board.  For a list of recipients click here.

$50 Million for Emergency Preparedness – Last September, California received $50 million for emergency preparedness from the ARRA.  Grants were made directly to local entities by the Department of Homeland Security, according to the Governor’s office.  For a full list of local government recipients click here.

$34 Million for Transit Grants – Last September, California received $34 million in ARRA transit grants.  These funds are federally designated to promote public transportation in rural areas.  The grants are distributed through Caltrans to 77 rural transit agencies for 141 projects statewide.

$31.1 Million for Coastal Restoration Projects – Last June, the U.S. Department of Commerce Secretary Cynthia Bryant announced $167 million in restoration projects in 22 states and two territories.  California received $31.1 million for nine projects.  For a full list of projects statewide click here.

$26.5 Million in Clean-Air Grants for Southern California – Last October the Governor announced that Southern California had been awarded $26.5 million in clean air grants.  These grants will be used to retrofit diesel engine vehicles, in the Southern California air basin, which includes Los Angeles, Orange, San Bernardino, and Riverside counties.  

$25 Million to “Green” State Buildings – Last October, the Governor announced $25 million to retrofit state buildings to make them more energy efficient.  The Department of General Services will administer the funding, which was awarded by the California Energy Commission.  In 2004, Governor Schwarzenegger issued California’s Green Building Initiative.  The initiative requires the state to reduce grid-based energy use by 20 percent by 2015, according to the Governor’s office. 

$17.8 Million for Data Centers and Telecommunications Industry – In January the California Recovery Task Force announced that California companies were awarded 17.8 million to improve efficiency in data processing, data storage, and telecommunications, according to the Governor’s office.  For a full list of ARRA recipients click here.

$15.5 Million to Clean Contaminated Tank Sites – Last July, the State Water Resources Control Board received $15.6 million for the Environmental Protection Agency to clean up petroleum contamination from leaking underground storage tanks at abandoned or orphaned properties.  There are approximately 150 orphaned properties in California, most of which were former gas stations, according to the Board.

$11 Million for Jobs in Growing Industries – In January the California Recovery Task Force announced that California had received $10.7 million in federal economic stimulus to provide 2,100 Californians with training in skills in a wide variety of industries.  Full a full list of recipients click here.

###

Specifically, this guide provides instruction on how to search the internet for ARRA funds and projects by county, search for the largest fund recipients, and search by zip codes.

To search ARRA funded projects by county click here.  To search ARRA funding by zip code, Congressional district, top recipients, and job creation statistics click here.  

The federal government has created a user-friendly website that has a variety of state and national statistics.  To visit the federal ARRA website click here. 

The State of California has also created a website that allows users to track stimulus spending by issue area, among other things.  To visit, the state recovery website click here. 

 To learn more about how ARRA provides tax relief for business, infrastructure, and individuals click here.   

###

Proposition 13: Technical, Non-Controversial Property-Tax Exclusion for Seismic Retrofitting

Summary:  This measure was placed on the ballot with unanimous support of the California Legislature with the passage of SCA 4 (Ashburn, 2008).  The measure revises the 15-year property tax exclusion for seismic safety improvements made to unreinforced masonry buildings.  To view the language of the measure click here.

The author states, “The purpose of SCA 4, and its companion bill SB 111, is to ensure equal treatment of property owners who incorporate seismic safety improvements when they remodel an existing building regardless of the type of building.  Currently, two types of property owners who install seismic safety technologies are treated differently for property tax purposes.  One receives an exclusion from reassessment, and the other, the owner of an unreinforced masonry structure, receives only a 15-year exclusion from reassessment. This is problematic, particularly since the older unreinforced masonry buildings are in greatest need of retrofitting.  These proposals correct this flaw in the law.”

Fiscal Impact: The State Board of Equalization (BOE) would incur minor absorbable costs related to informing and advising local county assessors, the public, and staff of the law changes. This measure would have a negligible revenue impact. (Source: BOE)  

Proponents: California Assessor’s Association.

Opponents: None. 

PAC: No committees have been formed to support or oppose the ballot measure.

Proposition 14: The Top Two Candidates Open Primaries.

Summary: This measure was requested by Senator Abel Maldonado (R) as a condition of gaining his vote to break the 2009 impasse over the state budget. This measure proposes a constitutional amendment to voters that would create a “top two” primary system in California for elective state offices and for Congress.  Under this system voters in the primary election would receive a ballot that lists all candidates for a given office and would be free to vote for any candidate, regardless of the partisan affiliation of the voter or of the candidate.  The two candidates who receive the largest number of votes in the primary election would move on to the general election–even if one voter receives more than 50% of the vote in the primary election.  Under such a system, it would be possible that the two candidates who appear on the general election ballot could be members of the same political party.  Variations of the “top two” primary system are used in Washington and Louisiana.  To view the floor analysis for the measure click here.  To view the language of the measure click here.

Fiscal Impact: Unknown 

Proponent Argument:  Proponents assert that Proposition 14 will help reduce partisan gridlock by ensuring that more moderates are elected to the Legislature and Congress.  Proposition 14 would also give independent voters an equal voice in primary elections. “The best part of the open primary is that it would lessen the influence of the major parties, which are now under control of the special interests.” (Fresno Bee, 2/22/09.)

Opponent Argument: Opponents argue that Prop. 14 will increase the cost of elections and will not help moderates get elected.

Proponents: Senator Abel Maldonado, Governor Arnold Schwarzenegger, Steve Westly, and the California Chamber of Commerce are supporters of this measure, among others. The largest contributors to the Yes on 14, “Californians for an Open Primary,” are Hewlett-Packard $100,000, California Association of Health Underwriters PAC $100,000, and Blue Shield of California $50,000.  The political action committee (PAC) in support of Prop. 14 had just over $137,000 as of February 22, 2010.   

Opponents:  The chairs of both the California Republican Party and California Democratic Party, among others. The registered opposition PAC named “Protect the Democratic Primary – Say No To the Open Primary” has not electronically filed with the Secretary of State as of February 22, 2010.

Proposition 15: Political Reform Act of 1974: California Fair Elections Act of 2008.

Summary: This measure was placed on the ballot by the California Legislature on a party line vote in 2008 with the passage of AB 583 (Hancock).  The Governor signed the measure.  The measure would create a pilot project whereby candidates for Secretary of State will be eligible to receive public campaign funds for the 2014 and 2018 elections if they agree not to accept most private contributions and if they collect a specified number of $5 contributions.   To view the supporters’ website for the measure click here.  To view the floor analyses of the measure click here.  To view the language of the measure click here.  

Fiscal Impact: According to the Senate Appropriations Committee: 1) Anticipated special fund revenue between $6 million and $7 million during each four-year election cycle, with all public campaign financing and administrative expenses paid for by that special fund revenue. 2) General Fund costs of approximately $480,000 in 2009-10 to include the provisions of this measure on the June 2010 primary election ballot.  The special fund revenue would be raised through a $700 fee every two years on lobbyists and lobbyist employers and a newly-created voluntary tax check-off that allows taxpayers to donate to the special fund on their income tax returns. 

Proponent Argument:  According to the author, “The current campaign finance system is widely decried across the political spectrum.  It requires elected officials and candidates to devote substantial amount of time to incessant fundraising diminishing the time which candidates have to communicate with voters.  The ever-increasing amounts spent in campaigning are a substantial hurdle that diminish the free speech rights and create a pressure that focuses campaigns on fundraising rather than emphasizing competition in the marketplace of ideas.  The increasing influence of money and special interests in campaigns is one of the biggest challenges facing our democratic system.  As legislators’ time spent on fundraising has increased, both the confidence in elected officials and voter participation has decreased.  Providing public funds for campaigns is a voluntary alternative form of financing which provides candidates with the means to run a competitive, issues-based campaign on a level playing field.  Experience in other states shows that Clean Money holds down spiraling campaign costs while increasing voter participation in the process.”

Opponent Argument:  NA

Proponents: There are three registered PACs in support of this measure: California Common Cause Fair Elections Committee, Californians for Fair Elections Sponsored by California Clean Money Action Fund, and the California Clean Money Action Fund.  Californians for Fair Elections Sponsored by California Clean Money Action Fund is the only PAC of the three that has filed, according to the Secretary of State.  The largest contributor is the California Nurses Association $100,000.

Other supporters of this measure include: League of Women Voters of California, Sierra Club, and a number of elected officials, among others.

Opponents:  There was no registered opposition PAC as of February 22, 2010.

Proposition 16: New Two-Thirds Vote Requirement for Local Public Electricity Providers, “Taxpayers Right to Vote Act.”

Initiative Constitutional Amendment: Qualified January 12, 2010.

Summary:  Requires local governments to obtain the approval of two-thirds of the voters before providing electricity to new customers or expanding such service to new territories if any public funds or bonds are involved. Requires same two-thirds vote to provide electricity through a community choice program if any public funds or bonds are involved. Requires the vote to be in the jurisdiction of the local government and any new territory to be served. Provides exceptions to the jurisdiction of the voting requirements for a limited number of identified projects (Source: California Secretary of State).

Fiscal Impact: Summary of impact on state and local governments by Legislative Analyst and Director of Finance: Unknown impact on state and local government costs and revenues, depending on future voter decisions, due to the measure’s potential effects on electricity rates and publicly owned utility operations.

Proponent Argument: The Taxpayers Right to Vote Initiative does one thing: It requires voter approval before local governments can spend public money or incur public debt to get into the electricity business. And like most other major local special tax and bond decisions in California, this would require two-thirds voter approval. Currently, local governments in California can take over private electric businesses without letting local voters have the final say in the decision. This measure establishes clear voter approval requirements before local governments can go into the retail electricity business (Source:  Yes on 16 Website).

Opposition Argument: PG&E sponsored this initiative to try to prevent local efforts to switch from private investor-owned utilities, such as PG&E, to public providers which may be a better deal for taxpayers.  The Sacramento Bee editorial board called the measure a “power grab” that would “protect the investor-owned utility from dissatisfied customers angry about bad service and high costs.”  “In recent years PG&E has spent tens of millions of dollars to fend off efforts by ratepayers in San Joaquin, San Francisco, Marin and Yolo counties who’ve tried to form their own public utilities or annex themselves to public power agencies…the constitutional amendment makes it virtually impossible for any jurisdiction to escape the PG&E monopoly,” states the Bee editorial which is available by clicking here.  To view the text of the measure click here. 

Proponents: Despite the “Yes on 16” PAC being billed as a coalition of taxpayers, environmentalists, renewable energy, and business and labor, PG&E was the only contributor to the PAC as of February 17, 2010. PG&E has contributed over $19 million to “Yes on 16” PAC to date.  PG&E is likely to spend $25 to $35 million on the campaign, according to the Oakland Tribune. The California Taxpayers Association and the California Chamber of Commerce are also in support of the measure.  

Opponents: The “No on 16” PAC is sponsored by the Utility Reform Network (TURN), a consumer watchdog and consumer rights group. The Sierra Club, City of Palo Alto, and SMUD all oppose this measure. In December Senator Darrell Steinberg along with eight of his colleagues sent an opposition letter to PG&E CEO Peter Darbee criticizing the measure. The letter ends by asking PG&E to “refrain from pursuing this initiative.” 

Proposition 17: Allows Auto Insurance Companies to Base Their Prices in Part on a Driver’s History of Insurance Coverage.

Summary: This initiative is sponsored by Mercury Insurance.  The measure changes current law to permit insurance companies to offer a discount to drivers who have continuously maintained their auto insurance coverage and establishes that lapses in coverage due to nonpayment of premiums may prevent a driver from qualifying for the discount.  (Source:  California Secretary of State)

Fiscal Impact: Summary fiscal impact on state and local governments by Legislative Analyst and Director of Finance: This measure would probably have no significant fiscal effect on state and local governments.

Proponent Argument:  Under current California insurance laws, drivers who have been insured with the same insurance company are eligible for a “continuous coverage” discount. But, an inconsistency in the law prohibits drivers from taking this continuous coverage discount with them if they switch insurers. Proposition 17 corrects that inconsistency and ensures that all drivers who continually maintain their automobile insurance are eligible for this discount even if they change insurance companies.  Proponents assert that the measure will provide more choice and more competition for California consumers by allowing them to shop around for the lowest auto insurance rates without being punished if they want to change insurers. (Source:  Yes on Proposition 17 Website)

Opponent Argument:  The Campaign for Consumer Rights has already challenged this measure in court.  The group, primarily sponsored by Consumer Watchdog.org, has criticized the measure for trying to “trick voters into paying higher auto insurance premiums.”  The groups says the measure would “surcharge” drivers who have had a lapse in car insurance coverage for virtually any reason during the past five years, including people such as soldiers who did not need insurance.  “The measure would gut a provision of the 1988 insurance reform measure Prop. 103, which prohibits companies from raising rates on people because they did not have auto insurance in the past,” states a press release by the Campaign for Consumer Rights.  To visit the website against the measure click here:  www.stopthesurcharge.org.  To view the text of the measure click here. 

In its analysis of Proposition 17, the Department of Insurance said, “If an insurer offers a continuous coverage discount for some drivers it will result in a surcharge for other drivers.  This is because automobile insurance discounts and surcharges must offset one another.”   

Proponents: Mercury General has contributed over $3.5 million to Californians for Fair Auto Insurance Rates and Mercury Insurance and affiliates, a PAC for Yes on Proposition 17.  The California Chamber of Commerce and a number of a number of taxpayer groups support this measure.    

Opponents:  The opposition PAC is funded by Campaign for Consumer Rights.  The PAC has just over $96,000 cash on hand.  USSA, an organization that offers military veterans and military families auto insurance, opposes Proposition 17.

Summary of November 2010 Ballot Measures

Changes California Law to Legalize Marijuana and Allow It to Be Regulated and Taxed, “Regulate, Control and Tax Cannabis Act of 2010.”

Status:  Signatures pending verification.

Summary: Allows persons 21 years old or older to possess, cultivate, or transport marijuana for personal use. Permits local governments to regulate and tax commercial production and sale of marijuana to people 21 years old or older. Prohibits persons from possessing marijuana on school grounds, using it in public, smoking it while minors are present, or providing it to anyone under 21 years old. Maintains current prohibitions against driving while impaired.

Fiscal Impact: Summary of fiscal impact on state and local governments by Legislative Analyst and Director of Finance: Savings of up to several tens of millions of dollars annually to state and local governments on the costs of incarcerating and supervising certain marijuana offenders. Unknown but potentially major tax, fee, and benefit assessment revenues to state and local government related to the production and sale of marijuana products.

Safe, Clean, and Reliable Drinking Water Supply Act of 2010

Summary: Governor Schwarzenegger and state lawmakers successfully crafted a plan to meet California’s growing water challenges. A comprehensive deal was agreed to, representing major steps towards ensuring a reliable water supply for future generations, as well as restoring the Sacramento-San Joaquin Delta and other ecologically sensitive areas. The plan is comprised of four policy bills and an $11.14 billion bond act.

The Safe, Clean, and Reliable Drinking Water Supply Act of 2010 is an $11.14 billion general obligation bond proposal that would provide funding for California’s aging water infrastructure and for projects and programs to address the ecosystem and water supply issues in California. The bond is comprised of seven categories, including drought relief, water supply reliability, Delta sustainability, statewide water system operational improvement, conservation and watershed protection, groundwater protection and water quality, and water recycling and water conservation. (Source:  California Department of Water Resources).  Recent polling indicates that this measure is in serious trouble.

Fiscal Impact: Provides for a $11.14 billion general obligation bond.

Accompanying Legislation

SBX7 1 (Simitian; D-Palo Alto): Creates a seven-member council to develop a comprehensive management plan for the Delta by 2012.

SBX7 6 (Steinberg; D-Sacramento): Requires water agencies to report water levels in underground basins or risk losing grants for non-compliance.

SBX7 7 (Steinberg): Contains conservation provisions, including a 20 percent reduction in per capita water use for urban water agencies statewide by 2020, with water agencies not meeting the targets being ineligible for state grants and loans. Not all water districts would have to meet the requirement. Farm water suppliers would have to submit efficiency plans.

SBX7 8 (Steinberg): Gives state water regulators more power to police illegal water diversions. Specific penalties are to be added later by the Legislature.

How the Bond Money Will Be Spent:  Summary of Water Bond Projects

Drought Relief – $455 million. This funding would be available for local and regional drought relief projects that reduce the impacts of drought conditions, including the impacts of reductions to Delta diversions. Projects will include water conservation and water use efficiency projects, water recycling, groundwater cleanup and other water supply reliability projects including local surface water storage projects that provide emergency water supplies and water supply reliability in drought conditions.

Delta Sustainability – $2.25 billion. This funding would provide funds for projects to assist in maintaining and restoring the Delta as an important ecosystem. These investments will help to reduce the seismic risk to water supplies derived from the Delta, protect drinking water quality and reduce conflict between water management and environmental protection.

Water Supply Reliability – $1.4 billion. This funding would provide funds for water supply projects in 12 regions throughout the state and would also be available for local and regional conveyance projects that support regional and interregional connectivity and water management.

Statewide Water System Operational Improvement – $3 billion. This funding would be dedicated to the development of additional water storage, which, when combined with other water management and flood system improvement investments being made, can increase reliability and offset the climate change impacts of reduced snow pack and higher flood flows. Eligible projects for this funding include surface storage projects identified in the CALFED Bay-Delta Record of Decision; groundwater storage projects and groundwater contamination prevention or remediation projects that provide water storage benefits; conjunctive use and reservoir reoperation projects; and local and regional surface storage projects that improve the operation of water systems in the state and provide public benefits.

The bond act provides that water suppliers who would benefit from new storage pay their share of the total costs of the project while the public benefits of new water storage can be paid for by the bond act.

Groundwater Protection and Water Quality – $1 billion. To protect public health, this funding would be available for projects to prevent or reduce the contamination of groundwater that serves as a source of drinking water. 

Water Recycling and Water Conservation – $1.25 billion. This funding would be available for water recycling and advanced treatment technology projects that recycle water or that remove salts and contaminants from water sources. Funds will also be available for urban and agricultural water conservation and water use efficiency plans, projects, and programs.

Conservation and Watershed Protection – $1.79 billion. This funding would be available, through a 50-50 cost share program, for ecosystem and watershed protection and restoration projects in 21 watersheds throughout the state, including coastal protection, wildlife refuge enhancement, fuel treatment and forest restoration, fish passage improvement and obsolete dam removal.

Proponents:  Association of California Water Agencies, California Chamber of Commerce, California Cotton Growers Association, California Groundwater Coalition, California Farm Bureau, Friant Water Authority, Kern County Water Agency, Metropolitan Water District of Southern California, State Building and Construction Trade Council of California, Wateruse Association, Westlands Water District

Opponents: California Rural Legal Assistance Foundation, California School Employees Association, Contra Costa Water District, Environmental Justice Coalition for Water, Friends of the River, Planning and Conservation League, Restore the Delta, Service Employees International Union, Sierra Club California, Yolo County Board of Supervisors.

###

Other KC Fiscal Focus Reports: 

Lawmakers Budget Forum Illustrates Deep Partisan Divide, Foreshadows Budget Stalemate for 2010 and Beyond

Poll Highlights Need for Better Public Education on State Budget and Tax Issues

Want more frequent updates from KC, we now have a more frequent publication than KC Fiscal Focus–this monthly E-Newsletter.

Earlier this month, KC debuted KC Blog Blast, which provides email subscribers with up to date email blasts when significant new KC reports or blogs are released.  To subscribe, click here.  Here are some recent archives of recent updates. 

–DOF Proposes Controversial Budget Trailer Bill Language to Defer State Payments    

–Senate Democrats Introduce Jobs Bill Package

–CTA Kicks In $500,000 For Signature Drive To Repeal Corporate Tax Loopholes

KC Fiscal Focus is an electronic newsletter that focuses on California State public policy issues from a fiscal perspective.  Kersten Communications is a Sacramento-based consulting firm which specializes in public policy research and analysis.  To sign-up for KC Fiscal Focus click here. 

Finally, we welcome your feedback on this newsletter and our other publications.  To submit your comments, click here. 

Sincerely,  

Kersten Communications

The event, titled “2010 Budget Debate,” held at the downtown Sheraton Hotel on January 28^th included a panel discussion of Republican and Democratic Legislative budget leaders, including Sen. Robert Dutton (R), vice chair of the Senate Budget Committee and future Republican minority leader, Assemblymember Jim Nielsen (R), vice chair of the Assembly Budget Committee, Sen. Denise Moreno Ducheny (D), chair of the Senate Budget Committee, and Assemblymember Noreen Evans (D), chair of the Assembly Budget Committee.  To view a tape of the event click here.    

But Democrat and Republican budget leaders appeared to reach a consensus on one issue—the deep partisan divide over the state’s structural budget gap would continue long into the future.  Towards the end of the debate when the partisan divide became more apparent, the panel was asked if the state’s structural budget gap would continue into the future–the entire panel agreed that it would but did not elaborate much. 

Republicans Advocate for Spending Cuts to Close Budget Gap, Criticize Governor for Not Making Enough Spending Cuts

“Some way, somehow, we have to get this thing to zero by cuts,” Sen. Dutton said.  Asm. Nielsen agreed adding that the Legislature should “rein in the excesses of government.”

Both Dutton and Nielsen called on the Governor to do more to help the economy by easing environmental regulations to hasten construction projects and promote growth in the private sector.

Republican leaders, Sen. Dutton and Asm. Nielsen, criticized the Governor for not going far enough in making cuts to close the budget gap.  They also criticized the Governor for supporting climate change and said it was preventing economic growth in the private sector. 

In early January the Governor released his 2010-11 budget proposal which proposes $8.5 billion in budget cuts, $4.5 billion in alternative funding and fund shifts, and $6.9 billion from the federal government to close the $20 billion budget gap projected for 2010-11.  The Governor described the cuts as “painful” and “difficult” but said he “would not raise taxes” to help close this year’s budget gap. 

Last year the budget approved by Legislature included both cuts and a series of temporary tax increases to close the budget gap, but Republicans have stepped up their anti-tax rhetoric this year, saying that additional tax increases are out of the question.

Democrats’ Oppose “All Cuts Budget”

Democratic lawmakers on the panel, Sen. Ducheny and Asm. Evans, described the Governor’s January budget proposal as an “all cuts budget” that serves to protect Republican tax cuts. 

Asm. Evans advocated for “a mixture of solutions” and that the Legislature should look at cuts, fees and tax increases as possible solutions because “recessions are temporary, but the elimination of programs is permanent,” alluding to the Governor’s proposed elimination of the CalWORKs, healthy families and In-Home Supportive Services programs.

Sen. Ducheny also questioned the Governor’s decision to unilaterally decrease state workers’ compensation by 5% by Executive Order S-01-10.  “We’ve taken down 25 restaurants here in Sacramento because of those furloughs,” Ducheny said, noting that she thought the furloughs could actually be costing the state money in lost revenues as opposed to saving money.  

Evans declared that her support for education was “the highest priority, next to jobs”, while Sen. Ducheny insisted that jobs and the economy were important but stressed that investing in education was the way to improve California’s economy.

Rocky Road Ahead

The Legislature is currently in an emergency special session on the budget and has until late February to come up with a proposal for making $6.6 billion in reductions in the current budget year to help close the $20 billion budget gap projected for 2010-11. 

The Legislative budget battle will then resume in May 2010 with the release of the Governor’s May revise.    

###

To illustrate, only 16% of California residents correctly identified K-12 education as representing the area of the most state spending and 49% of all residents said the most money goes to prisons and corrections—despite the fact that prisons and corrections represents a mere 10% of the state budget, while K-12 education composes just over 40%. 

Only 28% of Californians correctly identified the personal income tax as the area representing the most revenue in the state budget, while 30% named the sales tax.  In the 2009-10 budget, the state’s personal income tax accounted for 55% of the state’s general fund revenues, followed by the sales tax at 31% and corporate tax at 10%. 

Perhaps the most shocking finding of the poll is that 72% of the public, despite their lack of a basic understanding of budget and tax issues, the public believes that they should make reform decisions at the ballot box, not the Governor and Legislature. 

The poll asked:  “And when it comes to long-term issues of reforming the state budget process, both in terms of changing the way the state taxes and spends money, which approach do you most prefer:  the Governor and Legislature should pass new laws; or the California voters should decide at the ballot box?”  Some 72% of all adults said California voters should decide at the ballot box, while only 22% said the Governor and Legislature should pass laws. 

Public’s Misunderstanding of Budget and Tax Issues Leads to Flawed Perception of Political Discourse on These Issues

The public’s lack of an understanding of these issues inevitably leads to a flawed perception of the political discourse on these issues in the media and in other public forums.  One can only speculate about the depth of the public’s lack of knowledge on other more complicated budget issues such as the causes of Legislative gridlock and impact of the 2/3 vote requirement in the Legislature to pass a budget and close even the most egregious tax loopholes.

Furthermore, when asked “how would you prefer to deal with the state’s budget gap—mostly through spending cuts, mostly through tax increases, through a mix of spending cuts and tax increases, or do you think that it is okay for the state to borrow money and run a budget deficit?”  Some 41% of adults said through a mix of spending cuts and tax increases, while 37% said mostly spending cuts, 9% said mostly tax increases and only 6% said that it was okay to borrow money and run a deficit. 

However, in two separate questions asked later 66% of adults said they would pay higher taxes for K-12 education and 82% of adults said they opposed cutting K-12 education.  If more California voters knew education composed nearly half of all state spending, as opposed to prisons, they would likely be more adverse to severe spending cuts as an option, and likely prefer for the Legislature to examine tax loophole closures or other tax increases to fund education. 

If voters knew more about the budget process it is likely that more than 51% of voters polled by PPIC would believe replacing the 2/3 vote requirement with a 55% majority vote is a good idea.  Increased education on tax issues could also increase the 13% of adults who believe the state and local tax system is fine the way it is. 

Political Leaders Need to Step Up to the Challenge  

California voters will not be likely to make responsible, informed decisions on future budget and tax-related proposals, and the leaders who advocate for them, until they acquire a basic understanding of state tax and budget issues. 

Reform advocates, including the California Teachers’ Association and Repair California, have filed a series of budget and tax ballot measures–of which at least a handful are likely to appear on the November 2010 ballot—but any successful public education campaign will take years as opposed to months to achieve significant results.      

Political leaders and advocates for reform must improve the public’s education of these issues to have any real chance of achieving meaningful reform at the ballot box—the most likely place for reform to occur given the gridlock in the Legislature.

Governor Sets Bad Example for Political Leaders

Governor Arnold Schwarzenegger has continued to obscure the magnitude of the state’s budget crisis proposing a misleading and flawed budget trigger in his January budget proposal, while calling on the federal government to help close the state’s $20 billion budget gap by providing $7 billion in additional federal spending for California.     

The Governor sets a bad example for the state’s political leaders by saying it is OK to distort the state’s budget crisis by shifting the focus to what the federal government can do, as opposed to accepting responsibility for the need to balance the state budget through realistic means.  The Governor’s actions do not honestly represent the state’s budget situation and the tough choices needed to close the $20 billion budget gap for 2010-11. 

Political leaders need to stop playing political games with the budget and instead begin a true and honest education of the public on budget issues.  Only then will voters truly understand the need for budget and tax reform and be able to make informed decisions among potential reform options.  

###

Last month the Governor convened a special emergency session of the Legislature to address the state’s budget situation but the relative mildness of the state’s cash crunch situation this spring, as opposed to last year at this time, suggests that the real budget battle will begin later in the spring. 

Under Proposition 58, the Governor has the power to declare a fiscal emergency and call a special session of the Legislature to address the situation, which he did with the release of his budget last month. 

According to an analysis by the Assembly Budget Committee, “Under this Special Session the Governor may submit legislation to address the fiscal emergency and has done so with his proposed amendments to the 2009-10 Budget and his proposed 2010-11 Budget.  The Legislature is required to take action to address the problem within 45 days of the special session being called (by Monday February 22^nd).”

The Legislature is currently in the process of holding budget hearings on the various aspects of the Governor’s January budget proposal.  A chart developed by the Controller’s office shows that the Governor’s January budget proposal is far from balanced and projects the emergence of a $7 billion plus budget deficit by December 2010 if the Governor’s 2010-11 budget proposal is fully enacted.  

Controller Chiang and Legislative Analyst Taylor Advise Legislature to Act Soon To Avert July Cash Crisis  

California Controller John Chiang and Legislative Analyst Mac Taylor testified before the Assembly Budget Committee on February 3^rd to discuss Prop. 58 requirements and the state’s cash flow crisis.  To view a video of the hearing click here. 

“What do you need to do now?  You have an obligation to pass some bill,” Taylor said, noting that Prop. 58 does not specify a specific criteria for what action the Legislature has to take (i.e. close the full budget deficit). 

Taylor said the special session can still go on after February 22, but the Legislature cannot take action on other legislative items until they pass something. He said the only real deadline they have in late February is if they want to pass a proposal in time to place it on the June ballot. 

Taylor recommended that the Legislature enact a deficit reduction plan by sometime in March because budget solutions will take three months to implement to obtain the full amount of revenue savings in the 2010-11 budget year which begins in July.  

Absent corrective action, Chiang said the state will run below its responsible $2.5 billion cash cushion sometime in late February and will run out of cash by the end of March or early April.  According to documents provided by Chiang, the state’s cash reserves are estimated to decline from $3 billion at the beginning of this month to $1.2 billion at the beginning of March, dropping to a low point of minus $200 million by early April. (Click here to view a chart prepared by the Controller’s Office)

Beginning in early April, the state will begin collecting an estimated $6.6 billion in tax receipts and will have an estimated $6.6 billion in cash reserves by the end of May.  The state’s cash situation will deteriorate in June and the state will run out of cash by early July. 

“I encourage you to act promptly and quickly,” Chiang said, noting that the state will encounter virtually the same circumstances as last year, when the state narrowly avoided a “fiscal meltdown.” 

Chiang urged the Legislature to resolve as much of this year’s $6.6 billion budget problem as possible, noting that the solutions need to be both “credible” and “sustainable.”   He said the current year deficits have a compounding effect in the budget year. 

“If solutions are slow to emerge and if they are neither credible nor sustainable, California will once again be unable to timely meet all of its payment obligations and my office will be forced to seek costly emergency financing, or conserve cash by delaying payments or issuing IOUs,” Chiang wrote in a letter to legislators.

Chiang said “students, the blind, the aged, the disabled, and taxpayers suffer” by the state failing to make the tough decisions necessary to bring its budget into balance.   

Chiang said it will be very expensive for the state to borrow, through revenue anticipation notes (RANs), to cover these cash shortages because the state already has the “worst bond rating in the nation.”  “Refrain from borrowing…it only exasperates our problem immediately and downstream,” Chiang said, noting that the credit agencies already have California on negative credit watch. 

“We’re not sure if we can get a short term note,” Chiang said, noting that his cash flow projections already include borrowing from approximately 710 state funds.        

Taylor agreed with Chiang’s assessment of the impending fiscal crisis in July but said he thought it was a relatively mild cash problem at the end of March, beginning of April, due to the short time window and small dollar amount of the problem.  Taylor said he thought the Legislature or Controller would be able to cover this cash shortage without much difficulty by deferring some payments. 

###

The trailer bill language was submitted to Legislative Counsel last week and presented to lawmakers in an Assembly Budget Committee hearing on February 3, 2010.  DOF representatives said they needed the authority to act quickly to realize cost savings. 

“We think it’s way too broad,” said Legislative Analyst Mac Taylor, who encouraged the Legislature to narrow the authority granted to the DOF and make it more discrete. 

Taylor said giving the DOF such authority would create a problem for K-12 schools and other state programs that depend on state funding by not allowing them to plan ahead.  “What are the schools supposed to do if they know the Dept. of Finance can take money at any time?” Taylor said.    

Taylor said he thought the Legislature should make choices about intra-year payment deferals to meet cash obligations and grant specific authority under certain windows of time. 

Assembly Budget Committee chair Noreen Evans (D) was also skeptical.  She asked if the DOF had ever been given this type of authority and DOF representatives said no.  Evans described it as a “historic request” and said she was “skeptical” because it was essentially a “blank check.”  Evans was not comfortable with the DOF having the authority to decide which programs to not fund. 

KC has requested the trailer bill language but it is not clear if it has been made public yet or not.