There were not many pieces of good news in the budget however there was some. For environmentalists the defeat of the Tranquillon Ridge oil drilling project in the majestic waters of the Central Coast was the result of strong and almost unanimous pressure from environmental organizations. Republicans in the Assembly fought the reimbursement of education for the funds that were raided but were defeated in that effort. Cities won some on Friday as monies that were raided on Monday were restored in the floor fight.
All told, the legislature ended up falling short of closing the entire budget deficit. In the meantime education, health care, support for disabilities, state workers, and other programs took huge and devastating hits.
Transportation Money Given Back to Local Cities in New Budget
The biggest winners may have been local governments who as late as Wednesday were lining up to sue the state over raids to monies that were supposed to go to local governments through Proposition 1A and HUTA (Highway Users Tax Act).
The deal struck by the “Big 5” struck by the big 5 included a plan to transfer roughly $4.4 billion from local tax revenue to Sacramento. Over 130 cities signed on to sue the state government. As we reported on Wednesday, the deal would have dealt a huge blow to Davis who is precariously perched with a balanced budget. The original budget deal would have meant an additional $2 million deficit for the general fund of Davis.
Chris McKenzie, head of the League of California Cities was pointed in his criticism of the budget agreement that was reached on Monday:
“California’s legislative leaders and Gov. Arnold Schwarzenegger have agreed on a proposal to “balance” the state budget with illegal raids of local government gas tax, public transit and redevelopment funds, according to recent court decisions and a legal analysis obtained by the League of California Cities, as well as a “loan” of local government property taxes that is unlikely to be repaid.”
He continued:
“By relying on illegal mechanisms and fund shifts, this budget resembles a Ponzi scheme that the League of California Cities condemns in the strongest possible terms.”
Because of these omissions of course, the budget falls short of actually closing the budget deficit, only erasing $23 billion of the $26.3 billion gap that the Governor’s finance experts have projected.
Attempts to raid local monies have prompted lawsuits in the past and the cities have often won these. The Assembly in the end excluded both the Redevelopment Agency and the HUTA raids. That puts local governments in a far better position than they appeared to be just a few days ago. It was a huge victory for cities.
In the end the gas plan (HUTA) was defeated as Democratic Mayors of big cities such as Antonio Villaraigosa and Gavin Newsom joined with Republicans.
Speaker of the Assembly Karen Bass:
“Assemblymembers on both sides of the aisle were deeply concerned about taking gas taxes away from local governments. We are protecting the still-vital local governments.”
The budget plan however retains a $1.7 billion shift in local redevelopment revenues into the state’s general fund. Will state governments continue to sue? That is anyone’s guess.
Education Hammered
Assembly Republicans fought and lost on efforts to eliminate a reimbursement of $11.2 billion that will restore funding to schools in future years. That “maintenance factor” reimbursement will not take place until the state’s economy stabilizes. Education leaders question the state’s ability to repay this funding at all.
All told the damage is roughly $5.7 billion in cuts in 2009-10 which is a number on top of the cuts that were made back in February and before that in September. Proposition 98 will not be suspended, however an accounting maneuver has been utilized to make a $1.6 billion cut from Proposition 98 in the fiscal year that ended June 30 in order to reduce the base for 2009-10.
State Superintendent of Education Jack O’Connell appreciated the budget conclusion but lamented the cuts to education.
“I am glad to see that the Governor and Legislative leadership have reached an agreement that addresses our budget shortfall and resolves our cash-flow crisis, at least for this year. Sadly, the agreement includes $7.6 billion in cuts in Proposition 98 funding. This new massive reduction, which is added to the $11.6 billion in school funding cut just last February, will result in very real consequences for students. Larger class sizes, canceled summer school, a shorter school year, and no new textbooks are just a few of the painful results. I fully recognize that given the magnitude of our state fiscal crisis, the pain for schools could have been worse than that created by the agreement that was reached. I am pleased that the agreement did not include a suspension of Proposition 98 and that schools eventually will get the approximately $9.2 billion that is owed under the Prop. 98 guarantee.”
He continued:
“The reductions that our schools must absorb now will heighten the challenge educators face in trying to increase student achievement and close the achievement gap, and I fear that the last decade of progress in statewide student test scores will be interrupted. I continue to have faith in the hard work of our teachers, administrators, school staff, parents, and students, and I sincerely hope that this fear is proven unfounded.”
David Sanchez, president of CTA, said earlier that while the compromise budget agreement may limit further damages to our students and schools by repaying billions owned to the law, the budgets cuts will be damaging and painful.
“Suffering the largest budget cuts since the Great Depression, the casualties of the state’s budget battlefield will be starkly apparent when our students return to their schools this fall to find fewer teachers, fewer course offerings, and fewer resources. School funding was cut more than $12 billion. Class sizes will be painfully larger and many art, music, career technical education and other vital programs are gone. More than 17,000 teachers, nurses, school librarians and counselors lost their jobs. Community colleges and universities will turn away thousands of students.”
Marty Hittleman, President of the California Federation of Teachers, the other major teacher’s union in California was more critical.
“The priorities are wrong. Massive cuts to all levels of education while, at the same time, preserving unproductive corporate tax breaks, is a blueprint for further California decline.”
He continued:
“The governor and Republicans refuse to provide more state revenues to cover necessary education programs. Meanwhile, they’ve been busy handing out huge tax breaks to corporations. That is exactly contrary to the people’s view that education spending should be increased. We look forward to giving the people a chance to vote against the tax loopholes punched in the budget for corporations with a ballot measure to repeal them.”
Scott P. Plotkin, executive director of the California School Boards Association:
“Once again, the Governor and legislative leaders have failed our students. Our kids are paying the consequences for the state’s unacceptable funding system. These cuts will cause lasting harm to our students and our state’s ability to compete and succeed in the future.”
Paula S. Campbell, CSBA President added:
“Increased class sizes, cuts to key education programs, additional layoffs for teachers, librarians, counselors and administrators and a shorter school year are just a few of the overwhelming consequences our districts face with this budget plan. When schools re-open next month for the new school year, we will all see the profound impact of these draconian cuts.”
When we last checked, the Davis Joint Unified School district was in reasonable shape to ride out further cuts for this year. We will check in next week to see if anything has changed in that regard. However, there is little doubt that statewide the three consecutive rounds of cuts to education have to be taking a huge toll on the quality of education to children.
Oil Drilling Plan Nixed
By a vote of 43-28, the California Assembly defeated a proposal that would have allowed the first first new oil drilling lease in California State waters since the 1969 Santa Barbara oil spill.
Assemblymember Pedro Nava represents Santa Barbara in the legislature:
“The Governor made Santa Barbara a target for new oil drilling. I am proud that we rejected this insidious proposal. The plan would have unraveled critical environmental protections, put the coast at risk, and set a terrible precedent while the federal government is considering their 5 year drilling plan for the outer continental shelf.”
It was a proposal that every major environmental organization in the state opposed. As Assemblymember Nava put it:
“This bill has only two supporters, the Governor and the oil company.”
Under the proposal, the Governor would submit his oil drilling plan to an ad hoc committee where he is assured approval. The three member committee would include two appointees from the Governor (Secretaries of Resources Agency and Cal EPA) along with the Attorney General.
“This is a sham. Other than the Attorney General, the Governor controls the ad hoc committee and there is little doubt that two of the three votes will quench the Governor’s thirst for more oil. If your child’s little league team tried this kind of do-over, they would be disqualified and kicked out of the league.”
In a letter from 53 environmental organizations published Friday:
“While the precise language has not been released for legislative or public review, and may not be in time for any legitimate discussion, it is our understanding that it overrides the State Lands Commission’s legitimate denial of this project, creates an ad-hoc commission dominated by gubernatorial appointments, instructs this commission to find that the lease is in the best interest of the state, extends the duration of drilling operations, gives the public a mere five days of notice prior to a hearing, and fails to include any specifics on royalty payments that are supposed to be the rationale for approving this lease in this most unprecedented manner.”
The State Lands Commission report stated in part:
“The goals of the agreement could not be reliably enforced and the legal context for the public benefit requirements of the agreement prevented staff from devising mechanisms to improve enforceability. The Commission cannot reliably require PXP to stop and close production on federal leases.”
Victoria Rome of the Natural Resources Defense Council said,
“I think it should be very troubling to the public that a decision that was made through a public process in the light of day can be overturned by a few leaders behind closed doors.”
Speaking on the Assembly floor Assemblymember Nava,
“The Governor’s proposal implies that when times are tough we ignore long established public policy, set aside our values, and if the state needs money it is acceptable to put our environment at risk.” He continued, “I strongly oppose this approach to development of environmental policy.”
Lieutenant Governor John Garamendi said earlier this week,
“The Governor just put California’s coastline up for sale when he had other options that don’t put our natural resources at risk. He refused to approve a plan to tax oil companies that now extract oil in California to fund health care services, children’s programs and education. California is the only oil producing state without an oil severance tax, and it would generate $1.2 billion dollars annually for our state. Instead, we are taking dirty money. Big Oil has offered to California $100 million dollars to seduce the state into granting the first new oil drilling lease in California since the Santa Barbara oil spill 41 years ago. The loan must be repaid by forgiving future royalty payments to California. This is an incredibly reckless fiscal policy.”
Willie Pelote, California Political & Legislative Director, American Federation of State, County and Municipal Employees:
“This individual project off the Santa Barbara coast simply is not a Budget issue. If the Governor really wants to generate more revenues he should charge oil companies for extraction just like they do in Texas, Alaska, and other oil producing states.”
Richard Charter, of Defenders of Wildlife, has 35 years of experience in coastal drilling issues.
“The Administration has triggered the political equivalent of the Santa Barbara Blowout, rolling the State Lands Commission and the Democrats in the Legislature, while punching a big hole in the 40-year precedent that has protected California’s own nearshore coastal waters from new offshore drilling.”
“The oil lobby, reaping tens of billions in taxpayer dollars from this scam, is laughing all the way to the bank, confident that any removal of rigs or facilities cannot be enforceable without congressional legislation they know is not even pending. If this deal goes forward, the driller’s next stops are Malibu, Santa Monica Bay, and La Jolla.”
Graham Chisholm, executive director of Audubon California:
“The enduring image of nearly every oil spill is a dead or dying bird lying on a blackened beach, its feathers covered with oil. Californians have stated many times that they don’t want to see any more of that destruction, and yet the budget crisis is prompting our leadership to risk exactly that. Our shorelines are too precious to take those kinds of chances.”
Assemblymember Nava concluded his remarks Friday:
“This is a historic moment. How we deal with this issue will affect generations of Californians. Long time residents of Santa Barbara still clearly remember the 1969spill. Washington is looking to California to see how we handle this issue. If we approve this bill, we are sending the Obama Administration a strong message that we want more drilling.”
Conclusion
While there may have been small though not insignificant victories on Friday, the overall plight of California is that students, the poor, state workers, the middle class, people reliant on state services, those in need of Government health care, those with disabilities got hammered in this budget deal. The Democrats yielded and put no new revenues on the table not in oil severance, not in gas taxes, not in cigarette taxes. There was no real and meaningful prison reform. There was no reform of the tax system. There was no structural changes.
California needed to pass a budget, any budget, this was indeed any budget and it was a bad deal for most people in California.
—David M. Greenwald reporting
Question: Oil severance tax – what exactly is it? Would the institution of an oil severance tax end up coming back to haunt Californians at the gas pump?
Question: If we “closed the tax loopholes for corporations” in CA, would that not drive up the price of goods/services produced by that company? Or would that company just pick up and move out of CA, taking with it much needed jobs? If businesses picked up and moved out of CA, where would tax revenue come from to fund state/local services, including education?
Sounds like the off shore drilling proposal was a bad, bad deal, bc there was no guarantee of revenue for CA, and no transparency in the process.
“California needed to pass a budget, any budget, this was indeed any budget and it was a bad deal for most people in California.”
A bipartisan deal was struck, that has things in it both sides wanted and did not want. In this dire economy, let’s accept it, and move on, without all the nonsensical blame game going on. The situation we are in is the fault of: Alan Greenspan, who encouraged ARMs, the Banking Committee in Congress led by Barney Frank and Chris Dodd that encouraged banks to make loans to low income folks who could not reasonably make payments, both Dems and Repubs for not regulating banks, and stock market products closely enough. Had the mortgage meltdown not happened, this nation and the individual states would not be in the mess they are in.
“Oil severance tax – what exactly is it? Would the institution of an oil severance tax end up coming back to haunt Californians at the gas pump?”
No because it’s a tax on oil that exported from California.
“If we “closed the tax loopholes for corporations” in CA, would that not drive up the price of goods/services produced by that company?”
Probably not because most prices are determined by the market and the maximization of profit is based on the nexis before the number sold and the price they are sold for.
“The situation we are in is the fault of: Alan Greenspan, who encouraged ARMs, the Banking Committee in Congress led by Barney Frank and Chris Dodd that encouraged banks to make loans to low income folks who could not reasonably make payments, both Dems and Repubs for not regulating banks, and stock market products closely enough.”
this is pretty much just partisan rhetoric especially since the seeds of this were laid well before Frank and Dodd were in the majority party.
“this is pretty much just partisan rhetoric especially since the seeds of this were laid well before Frank and Dodd were in the majority party.”
How is it “partisan rhetoric” if it lays blame at the feet of both parties? If the “seeds of this” were laid well before Frank and Dodd, how does that let those two off the hook? Sounds like your answer is “partisan rhetoric”!
This is problem the best article on the subject from December of 2008:
NY TIMES ARTICLE ([url]http://www.nytimes.com/2008/12/21/business/21admin.html?_r=1&pagewanted=all[/url])
[quote]From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.
He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.[/quote]
This is key right here:
[quote]As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming.[/quote]
That puts the time line before Democrats were the majority party in congress.
There is plenty of blame to go around, but focusing on Frank and Dodd is looking at the end of the cycle not the beginning.
The problem as the article gets into in great detail is that Bush pushed for these policies which were commendable but did so with a laissez-faire mindset, so there was no regulation.
[quote]“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”
But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.[/quote]
As of now, there is just over 10 1/2 months until the FY 2010-11 California State Budget is due from the Legislature to the Governor. The FY 2009-10 Budget does little to correct the distressed economic conditions within California, and will NOT prevent California from continuing its slow walk down a dead end street. Please remember this post when we all are embroiled in a bigger budget mess next year.
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PS Since environmental victories were highlighted in this budget article, I would like to know how it is a victory when coal-fired power plants in California (such as the PG&E facility W of Richmond) that haven’t been upgraded to meet environmental air pollution standards established by the California Air Pollution Board (CARB) are allowed to stay on-line? Is it because they are required to to stay on-line to meet ongoing high demand within the State that hasn’t been met by proper planning over the years?. I know that CARB continues to collect hefty fines from the plants for their ongoing pollution, and then funds programs to retire polluting vehicles as an offset for the ongoing power plant pollution. Surely you remember all of the charities asking you to donate for your old vehicle “squatting at the curb” and suggesting that you can benifit from a charitable donation. Remember, each vehicle is worth @$200.00 for the charity at designated recyclers where all donated vehicles are subsequently crushed. As a result, residents in communities near power plants such as Richmond continue to endure the impact of pollution (it is called spreading the impact), while money and benefits are passed up to the middle class. I think this stinks.
Regarding the oil, $100 million to the state coffers would not solve any of its budget troubles. It also will make no real difference in terms of our national dependence on imported oil. The City and County of Santa Barbara, on the other hand, stood to gain a lot of money from drilling — and I have a feeling a lot of people down there, though maybe not quite a majority, support this legislation. I lived in Santa Barbara for five years (1982-1987) and didn’t see the oil rigs off the coast as a problem. There was still oil on the beaches — particularly in Isla Vista — from the ’69 accident. And there was some seepage that was new, though my understanding was that the seepage is a natural phenomena not a byproduct of the offshore rigs.
While I am all for more cleaner technologies, the truth is that about 38,999,999 out of California’s 39 million people use petroleum products, just about every day. Until we stop consuming oil, it is going to be produced. As such, it seems hypocritical to say we won’t produce it along our coast. It’s pretty hard to argue that Santa Barbara County for the last 30 years has been harmed by oil production in the Channel. Santa Barbara is a beautiful place and attracts millions of tourists and has oil rigs off its coast. It’s really not an environmental disaster. But then again, it’s not really that big a deal for our state, if we don’t allow new rigs to go up.
[img]http://www.signonsandiego.com/uniontrib/20071018/images/curr-rigs280.jpg[/img]
New money from new offshore wells has a multiplying effect in the economy. Better still its not money extracted by taxation. If we add a 10 percent tax on oil at the wellhead, the big producers will move on to their out-of-state properties not having this 10 percent profit disadvantage. If the big boys are driven off, like Unocal was in Santa Barbara, we end up with the little guys, or a bunch of capped wells. Contrary to the thinking of some, big oil isnt there to get taxed for things. They are there to make money for their stockholders. Anything wrong with this analysis?
“There is plenty of blame to go around, but focusing on Frank and Dodd is looking at the end of the cycle not the beginning. “
Your timeline is wrong. Dodd and Frank were running committees under Clinton and Bush 1, well before Bush Jr.
They are responsible for much of the legislation that led to the housing crisis, and in particular for the blow up of Fannie Mae and Freddy Mac, a disaster that is costing hundreds of billions of dollars. Comparable to the war in Afghanistan in its cost.
I agree with you that Bush II’s term was an economic catastrophe for the nation. Unfortunately it is becoming apparent, in my opinion, that Obama is no better, and quite likely worse, in managing the nation’s economy.
“Your timeline is wrong. Dodd and Frank were running committees under Clinton and Bush 1, well before Bush Jr.
They are responsible for much of the legislation that led to the housing crisis, and in particular for the blow up of Fannie Mae and Freddy Mac, a disaster that is costing hundreds of billions of dollars. Comparable to the war in Afghanistan in its cost.
I agree with you that Bush II’s term was an economic catastrophe for the nation. Unfortunately it is becoming apparent, in my opinion, that Obama is no better, and quite likely worse, in managing the nation’s economy.”
As I said, there is plenty of blame to go around, and it includes both Dems and Repubs. The real crisis started at the national level with the mortgage meltdown, the causes of which still have not been sufficiently addressed. And the fault lies with both the Bush and Obama administrations, as well as the dopey U.S. Congress.
“Your timeline is wrong. Dodd and Frank were running committees under Clinton and Bush 1, well before Bush Jr.
They are responsible for much of the legislation that led to the housing crisis, and in particular for the blow up of Fannie Mae and Freddy Mac, a disaster that is costing hundreds of billions of dollars.”
That would be 1994 and before, ~15 years ago, the last time the Democrats had a congressional majority. That’s quite a reach.
“That would be 1994 and before, ~15 years ago, the last time the Democrats had a congressional majority. That’s quite a reach.”
No it’s not. You just don’t want the Dems to accept responsibility for their part in this mess.