Thursday, January 15, 2009

The State Of The State Is, Well, You Know

From D-Day:

"For too long we have been split by ideology. Conan's sword could not have cleaved our political system in two as cleanly as our own political parties have done. Over time ours has become a system where rigid ideology has been rewarded and pragmatic compromise has been punished. And where has this led us? I think you would agree that in recent years California's Legislature has been engaged sometimes in civil war. Meanwhile, the needs of the people became secondary. Our citizens do not believe that we in government are in touch with their needs."
 - Schwarzenegger's "State of the State" Address today

Arnold Schwarzenegger delivered the State of the State Address at 10am this morning. Typically he has done this speech to coincide with the evening news. This year he's trying to hide it.

I don't blame him. As David Greenwald discusses, people pretty much know the State of the State already.

As Governor Schwarzenegger prepares to report on the State of the State tomorrow, California’s families today declared that “the State of the People” is increasingly grim with a record number of Californians having lost their jobs and health care and their homes. California educators, students, health care workers, seniors and people with disabilities said more state budget cuts are exactly the wrong prescription after they’ve suffered the consequences of more than $16 billion in state budget cuts to critical services over the last 3 years.

“California families are here to report what you won’t hear from the Governor tomorrow: budget cuts over the last three years have deeply wounded our families’ health and well-being, diminished our children’s opportunity for the future, and damaged our economy.” said Evan LeVang, Director, Independent Living Resource Center of Northern California.

Californians who have personally been affected by budget cuts detailed the severe consequences that the cuts, including $10 billion in cuts already this year, have had on California families who have already been hit hard by the nation’s economic meltdown.

“Before our elected leaders slash another dollar from our hospitals, they should think about what health care would be worth to them if their husband, their daughter, or their father needed care. Because every patient that comes to our hospital is someone’s parent, spouse, or child,” said Beverly Griffith, an environmental services worker and SEIU member at Summit Medical Center in Oakland. “While longer hours and staff shortages caused by budget cuts have been rough on hospital workers, they’ve been unbearable for our patients.”

And of course, this is bound to get worse. It's important to split the two major problems into their discrete parts - we have a budget crisis AND a cash crisis. Even if the budget hole is at least partially filled (and with any luck, we'll be able to access some federal stimulus money, either through direct payments or tax revenues on increased economic activity, by February), the cash crisis would persist, and we could see IOUs even after a budget deal because of the inability for California to go to the bond markets and borrow. And the converse is also true. In sum, it's a different problem which needs a different solution. The LAO is obscure here, but I believe "restricted funds" refers to Prop. 98 money:

The Legislature's budget analyst, Mac Taylor, says that schools, colleges and bondholders will have first call on the state's money if its cash flow crisis hits home in a few weeks.

But Taylor says in a report on the looming cash flow crisis that even if the Legislature fails to reach agreement on closing the state's budget deficit, the cash crisis could be relieved with some emergency legislation to allow more internal borrowing of restricted funds.

Gov. Arnold Schwarzenegger and legislative leaders have been conducting closed-door negotiations this week on both the budget and the cash crisis, which are related but separate issues. Controller John Chiang has said that the state will be forced to curtail state disbursements sometime in February unless there's rapid action on the budget and/or cash flow-related legislation [...]

The administration has asked the Legislature to approve measures that would free up about $2 billion in restricted funds that could be borrowed by the state general fund and thus stave off the cash crunch. It's also said that rapid action on the budget would allow the state to defer more than $1 billion in payments to schools that otherwise would have to be made.

As a budget solution would at least have some impact on loosening the bond markets, this could be the intent of Schwarzenegger's delay - so he can raid dedicated funds for schools and health care. It's important for us to start figuring out Arnold's gambit. When I talked to State Senator Fran Pavley at one of the election meetings last weekend, she said "It's hard to negotiate with someone if you don't know what they want." My next several posts here will seek to figure that out.

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