Disappointing numbers

Voted in as Proposition 39, the act “raised taxes on corporations to fund energy-efficiency construction projects,” as the Hill recalled. Lawmakers directed half of the revenue toward clean energy efforts at California schools. But an Associated Press report revealed that “money is trickling in at a slower-than-anticipated rate, and more than half of the $297 million given to schools so far has gone to consultants and energy auditors.” Meanwhile, the jobs numbers amounted to almost 10 percent of what voters were led to expect.

Asked by the Los Angeles Times why Prop. 39 boasted 1,700 jobs instead of the 11,000 that had been promised when voters passed the measure, state Senate leader Kevin de Leon, D-Los Angeles, asked for patience. “We are taking our time because I think we want to do things right,” de Leon said.

The oversight board also created by the measure, the Times observed, still has not met. According to the Orange County Register, the board includes nine members drawn from the fields of academia, engineering and climate science.

In a statement issued by de Leon and Tom Steyer, the environmentalist billionaire who fueled the Prop. 39 campaign, the two Democrats suggested that schools simply needed more time. “Most school districts are either in the planning phase or are preparing to launch large-scale, intensive retrofit projects that will maximize benefits to students, school sites and the California economy,” they argued, according to the AP.

A backlog of projects

Regulators at the State Energy Commission made an effort to back up de Leon’s and Steyer’s claims, the AP added, estimating some $25 million a year in the pipeline despite a lax reporting requirement that leaves the state in the dark until as many as 15 months after school projects are finished.

According to Pete Miller at the Natural Resources Defense Council, which supports Prop. 39, the Energy Commission has approved 253 plans affecting 788 schools, to the tune of some $170 million.

“The eligible projects include repairs to heating, ventilation and air-conditioning systems; new chillers, boilers and furnaces; new lighting and lighting control systems; installation of energy-efficient windows, shades and programmable thermostats; and onsite clean energy generation.”

The expectations game

But some Democrats have joined California Republicans in calling for new oversight over the program. Assemblyman Henry Perea, D-Fresno, raised the prospect of hearings, while Senate Minority Leader Bob Huff, R-San Dimas, demanded they be scheduled immediately.

Because the act was passed as a proposition, even supportive legislators found themselves having to speak to voters’ expectations, which were inflated by Prop. 39’s biggest boosters over the course of the campaign. Steyer, for instance, “repeatedly said the measure would generate $1 billion annually, half of which, $500 million, would be earmarked for energy efficiency in each of the first five years after its passage,” according to the Sacramento Bee editorial board.

“Climate change” is useful for political activism because, unlike “global warming,” it can’t be tested.

Fortunately, even more liberal news outlets are checking the political contentions of Tom Steyer, the billionaire California hedge-fund investor and anti-climate change activist. NextGen is his political activism group. The San Jose Mercury New reported:

The Washington Post’s Fact Checker blog in January, however, awarded its dreaded “four Pinocchios” rating to a NextGen ad citing Chinese investment in Canada’s tar sands and claiming the controversial Keystone XL pipeline would produce oil only for other countries. The Chinese investment is small, the Post found, and NextGen took an oil executive’s words out of context to imply that no oil carried by the pipeline will remain in the U.S. 

The ad “relies on speculation, not facts, to make insinuations and assertions not justified by the reality,” the Post said. 

Last October, PolitiFact — a renowned fact-checking project run by the Tampa Bay Times — gave its “pants on fire” rating to a NextGen ad claiming Virginia Attorney General Ken Cuccinelli, then running for governor, wanted to “eliminate all forms of birth control.” Cuccinelli has repeatedly said he has no interest in restricting contraception, PolitiFact noted. 

This month, PolitiFact gave “half-true” ratings to a pair of NextGen ads attacking Florida Gov. Rick Scott’s ties to energy companies and polluters. FactCheck.org, a project of the University of Pennsylvania’s Annenberg Public Policy Center, said it didn’t dispute the statement of critics that one of the Florida ads was “total fiction,” though the GOP response had “glaring factual problems” too. 

And PolitiFact this month deemed “false” a NextGen ad accusing Iowa U.S. Senate candidate Joni Ernst of having signed a pledge that “protects tax breaks for companies that ship jobs overseas.” The pledge was a broad vow to oppose all tax hikes.

I would add that, if Steyer is so concerned about shipping jobs overseas, then why did he increase Californians’ taxes $1 billion in 2012 with his Proposition 39?

And why is he trying to raise oil taxes in California, an expense that inevitably would be passed on to drivers through higher taxes at the pump?

And why is he backing the new tax of up to 20 cents a gallon to be imposed on Californians next January from the state’s Cap and Trade program? The higher tax especially would hurt poor commuters. Which is why Assemblyman Henry Perea of Fresno and other Democrats with poor constituents tried to cancel the tax hike. Perea charged the money would be grabbed “out of the pockets of hard working Californians who drive to work or school and make necessary trips to the grocery store or doctor’s office.”

Steyer’s stances are useful because they show what Californians’ positions will be under extreme  environmental rules: higher taxes breaking their budgets and seats in the back of the green bus.

By Katy Grimes

An Assembly Constitutional Amendment attacking Proposition 13 is expected to be heard in the Assembly today, and some are saying it may even be passed by the Assembly.

The Howard Jarvis Taxpayers Association learned only yesterday that Assembly Constitutional Amendment 8 by Assemblyman Bob Blumenfield, D-Los Angeles, was moved out of the Assembly Local Government Committee and taken up without committee hearings or public vetting, and moved directly to the Assembly Floor today along with the other budget bills.

I had a chance today between floor sessions to talk with David Wolfe, Legislative Director for the HJTA, about ACA 8.

HJTA is a non-profit association “dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights, including the right to limited taxation, the right to vote on tax increases and the right of economical, equitable and efficient use of taxpayer dollars,” according to their website.

While a two-thirds vote is required to pass ACA 8 because it amends the Constitution, there are enough Democrats in the Assembly to pass the bill.

“This represents a direct attack on Prop. 13 because it lowers the two-thirds vote to 55% to fund various infrastructure projects,” Wolfe, told me.

“This sets up an unexpected opportunity to tarnish the Governor’s budget,” Wolfe explained. “We can now make the case that instead of demonstrating restraint, Democrats are showing their true colors. All they’ve ever really wanted to do with their supermajority is raise your property taxes.”

According to Wolfe, ACA 8 is a direct attack on Proposition 13 because it undermines the one percent property tax cap. Any bonds or special taxes approved by voters are added onto property tax bills ‘below the line’ and are separate from Prop. 13’s stable one percent threshold.

This is why Californians commonly pay 1.2 or 1.3 percent on your property tax bill. Lowering the two-thirds threshold would mean this amount will go even higher.

“For evidence of what happens when the threshold is lowered, look to Proposition 39 school bonds,” Wolfe said. “Hundreds of millions of dollars of bonds have been approved across California in the last 12 years that would not have occurred with a two-thirds vote.”

Prop. 39 was passed in 2000, specifically to reduce the threshold required to pass local California school district bond issues from a 2/3rds supermajority vote to a 55 percent supermajority vote. “Prior to the passage of Proposition 39, about 60% of local school bond ballot questions succeeded in getting the previously required 2/3rds vote. In the wake of its passage, about 75% of local school districts are passing with the 55% requirement,” according to Ballotpedia.

Even with Prop. 13, California is only 14th in combined state-local per capita property tax payments according to the Tax Foundation. “If ACA 8 clears the Legislature and is approved on the statewide ballot, this will move property taxes closer to the number one rank we already hold in other broad-based tax categories like income taxes, sales taxes, and gas taxes,” Wolfe said. “Only property owners will pay for these bonds over 30 years but everybody gets to vote on them, making the two-thirds vote of crucial importance.”

 Public infrastructure projects’ snowball effect

The language of “public improvements” listed in ACA 8 is incredibly broad. It does not just target public safety infrastructure facilities but targets streets and roads, sidewalks, transit systems, highways, water and sewer systems, parks and the furnishing and equipping of buildings,Wolfe explained. “The ‘life-cycle cost’ on this bond debt would be heinous,” Wolfe said.

“For those who say ‘Ah, let the people decide’ well, they have,” Wolfe added. “According to polls released this month, 62 percent of voters still support Prop. 13.”

“A recently released Field Poll showed well less then 50 percent of voters supported a change to lower the two-thirds vote threshold for special taxes under any circumstance.”

If ACA 8 passes, it will be unprecedented, Wolfe said.

By Chris Reed

It’s not just money from Proposition 30’s sales-tax and income-tax hikes that is being used to provide for teacher pay raises and to allow continuation of “step” pay policies that give teachers raises most years just for time on the job and to maintain “column” pay policies that give teachers raises for meaningless accumulation of graduation school credits.

It turns out that the other tax-hiking measure that won approval in 2012 — Proposition 39 — is also a vehicle to that end. The measure blocked multistate corporations from getting to pick where they paid their taxes on revenue generated in California. It is expected to yield about an extra $1 billion a year to the state treasury. It’s long been anticipated that some of the money would be used to increase energy efficiency in school districts.

But instead of distributing the money to schools with the most needs, Gov. Jerry Brown is instead proposing to base its distribution on “Average Daily Attendance,” the same basic method that is used to determine how much money the state gives school districts — and to do so with relatively little oversight. Districts, which stand to get $2.6 billion over the next five years, would basically self-report on their compliance.

This has already triggered complaints from early sponsors of Proposition 39 and criticism from the Legislative Analyst’s Office. Both say that spending should be targeted.

A clandestine way to divert money to teacher compensation

But this is even more of a scam than is understood. The problem isn’t just that the spending isn’t prioritized to get the money to where energy efficiency is the biggest concern. It’s that the language of Brown’s proposal appears to allow districts to spend their Prop. 39 funding on energy-related items in their operating budgets. This would free up more funds for employee compensation, which consume more than 90 percent of the regular budget in many districts.

School districts have been caught lying about attendance, stealing school lunch money, and misusing billions in bond funds — all so as to free up money to keep the automatic raises going to teachers. Diverting Prop. 39 funds would be a relatively minor sin on this front.

All of which brings me back to Reed’s Law, which I wrote about here last month. That law: Whether in the Legislature or in local school districts, the top priority is always freeing up or increasing revenue to allow tenured teachers to receive the automatic “step” raises that typically are provided for 15 of their first 20 years on the job — just for showing up.

Understand this, and California politics becomes demystified and uncomplicated.

Understand this, and it’s no surprise that a ballot measure that’s ostensibly about ending a tax loophole and promoting energy efficiency ends up being one more stealth measure to preserve automatic teacher raises.

The conventional wisdom about the California Teachers Association being a powerful player in Sacramento doesn’t come close to describing the truth. The CTA’s push to protect the pay and tenure of veteran teachers is so powerful, intense and unrelenting that it distorts policies in areas that seem to have little overlap with education.

I look forward to the day that “investigative journalist” Evan Halper points this out.

By Dave Roberts

Gov. Jerry Brown declared at the start of his State of the State address, “We have wrought in just two years a solid and enduring budget.” But in recent legislative hearings, the Legislative Analyst’s Office charged that he raided the Proposition 39 energy fund to make it look like he’s increasing general education spending. And some legislators claimed that Brown’s budget is unfairly expanding the use of the rural fire tax.

“On Proposition 39 we have some significant concerns with the governor’s proposal,” Legislative Analyst Mac Taylor told the Senate Budget Committee. “The governor’s proposal has the strange effect that it actually reduces by about $190 million the ongoing support for schools. We just think that that’s not in keeping both with what the ballot pamphlet said the way these monies would be treated or the way we’ve considered these revenues over the years.”

Prop. 39, which last Nov. 6 voters passed easily, 61 percent to 39 percent, increased taxation on multi-state corporations doing business in California. It’s projected to generate an extra $900 million in corporate taxes in the next budget year. Half of that revenue — $450 million — must be spent on energy efficiency projects in the state. In other words, those are restricted funds. They can’t be considered part of the General Fund, which can be spent for any purpose the Legislature chooses, according to the LAO.

Brown’s budget treats Prop. 39 revenue and spending as part of the General Fund, and thus subject to the Proposition 98 requirement that about 40 percent of such money be spent on K-12 education.

Not so fast, said the LAO.

“By our longstanding reading of Proposition 98, and something that we worked with counsel on, we don’t believe that the monies that are to be transferred to the energy fund should count as Proposition 98 [revenue], only the monies that the Legislature truly has control over,” said Taylor. “So we have a very different take that you would not count those monies as [Prop.] 98. Therefore you would not count the spending either.”

Brown’s budget also proposed to use all of the Prop. 39 energy efficiency spending on the schools: $400 million for K-12 and $50 million for community colleges. He’s taken a restricted energy project fund that was supposed to be used for both school- and non-school-related projects and counted all of it toward the general-education spending requirement, according to the LAO.

Poorer schools could lose out 

Making matters worse, Brown is not proposing to spend those funds where they are needed most: the schools with the oldest, most energy inefficient buildings and utilities. Instead, he wants to divvy the funds based on the number of students in each school district. As a result, a large, wealthy, suburban district with modern, state-of-the-art facilities would receive more funding for energy efficiency improvements than a smaller, poorer, urban district with antiquated equipment and drafty buildings.

That funding formula also ignores another goal of Prop. 39: to create jobs. There may be non-school projects eligible to receive money from the Clean Energy Job Creation Fund that would create more jobs than school-related projects. Perhaps a food bank in Compton or a women’s shelter in Oakland. But they would receive nothing from Brown’s budget.

“When we look at the actual plain language of the measure, Proposition 39 seems to set up a process where you have to make sure that the energy benefits and the job creation benefits are maximized,” said Taylor. “And that you have to go through a process where agencies with experience in energy-related projects allocate the funds. We’re just not sure that his proposal follows the language of [Prop.] 39.”

In a report to the committee, titled “Treatment of Proposition 39 Revenues Highly Questionable,” the LAO concluded that what Brown has done “is a serious departure from our longstanding view of how revenues are to be treated for the purposes of Proposition 98. It also is directly contrary to what the voters were told in the official voter guide as to how the revenues would be treated.”

The report made two recommendations:

* The Legislature should exclude from the Prop. 98 calculation all Prop. 39 revenues required to be used on energy-related projects. This would reduce the minimum guarantee by roughly $260 million.

* The Legislature should count the $450 million in allocations for energy efficiency projects as non-Prop. 98 expenditures (though the state still could choose to spend a portion on schools and community colleges).

The LAO report said, “Relative to the Governor’s proposal, these two recommendations combined would result in roughly $190 million in additional operational Proposition 98 support for schools and community colleges (with total state costs increasing by the same amount).”

Brown’s defense

Michael Cohen, the Department of Finance chief deputy director, defended the Brownian motions:

“It strongly is precedent-based what we are doing. The closest precedent we have is Proposition 42, which did a very similar thing in terms of transportation funding. We are treating the Proposition 39 money in the exact same way as Proposition 42 monies were dealt with for almost a decade. Basically, if money touches the General Fund, those are General Fund revenues under the Constitution. The Constitution doesn’t say, ‘Well, don’t count the General Fund revenues that are only there for a few minutes.’ The Constitution says that Proposition 98 is built upon General Fund proceeds of taxes. And that’s what we’ve done. Proposition 39 is very clear that the proceeds of the corporation tax from the change in the single-sales factor are deposited into the General Fund. If revenues are deposited into the General Fund, they are General Fund tax revenues.”

Cohen disputed the LAO’s contention that Brown’s budget shortchanges schools by $190 million. He said:

“We think our proposal is the best for education. I disagree with the characterization that schools would be better off under the LAO’s interpretation. Instead, by putting all of the money into the General Fund, as the initiative calls for, the Proposition 98 base does go up. So that is sort of a permanent benefit to schools. In addition, by providing the $450 million to schools, that is a clear benefit to them. Both by letting them fund energy efficiency projects, and also by freeing up additional budget resources to have discretionary funds by lowering their energy costs. The analyst has suggested that some of the money shouldn’t go to schools. Really, if you were to take their interpretation and divert money away from schools to other types of energy efficiency projects, then schools are going to be the loser.”

Cohen also defended doling out the energy funds on a per-pupil basis rather than directing them to schools with the greatest need for energy efficiency improvements:

“Certainly you could devise much more complicated formulas that are trying to account for various districts’ and students’ energy needs. We took a look at it. Basically, there was an argument for all sorts of different factors. Some districts are in hotter climates, some are in colder climates. Some have newer facilities, some have older facilities. Instead of accounting for all of those factors, it was much easier to quickly get the money out, create a system where local districts are responsible for finding a project that is the most cost-effective and meets the requirements of Proposition 39.”

Senators concerned

But several senators were not mollified by Cohen’s rationalizations.

“Your reference to Proposition 42 doesn’t wash,” said Roderick Wright, D-Los Angeles. “Because that money is dedicated [for transportation projects] and never went into the General Fund. We need a much more specific analysis relative to Proposition 98 in that same vein.”

Wright is also concerned that the extra revenue projected from Prop. 39 may not materialize. He said, “You’re potentially co-mingling it with the General Fund, and you’re making an allocation for money that may never occur. You could end up injuring the General Fund by spending money that never occurred as a result of the proposition. So I think there are a number of concerns that I have with the way that you characterize the fund. … I think we need some leg[islative] counsel action here. In South Central, we would say, ‘There’s something in the milk ain’t white.’”

Loni Hancock, D-Berkeley, is concerned about potentially wasting the energy funding by not focusing it where it can do the most good. “Energy efficiency is very important to consider first,” she said. “Otherwise you might be putting solar panels on a sieve.”

Concerns were also raised at the committee hearing about Brown’s proposal to place adult education programs under the purview of community colleges rather than continuing to share them with K-12 school districts. One senator pointed out that community colleges are fewer and further between than high schools, and therefore not as convenient for an adult to attend a night class.

Fire tax expansion

And Tom Berryhill, R-Stanislaus, is angry that Brown’s budget expands programs funded by the $150 rural fire tax.

“I’ve been opposed to these fees from day one,” said Berryhill. “I don’t think they were constitutionally right. As the Board of Equalization first began to send out these bills I’ve been troubled with reports I’ve received about the way the fee is being assessed and administered. In my district I’ve got a lot of timber, a lot of hills and a lot of folks this directly affects.”

Cohen responded that there are numerous items in the budget that displease legislators.

“When we say there’s a balanced budget, it’s a continuation of all of those things that I imagine many of you disagreed with many of the decisions that were made,” he said. “But collectively we’ve got balance. It’s the administration’s view that the fee is an appropriate fee. That it’s responsible for offsetting General Fund costs. Also it’s appropriate for those homeowners to pay a share of the costs of firefighting in their region.”

Berryhill responded, “You can make the argument one way or another whether or not we need to be paying a fee for our own protection. But when this thing starts to expand another $13 million, I don’t get it.”

Legislative Analyst Farra Bracht agreed, saying, “We have similar concerns about the expanded use of the fee. And we are speaking with leg[islative] counsel to get their thoughts on the legality of those uses proposed in the budget.”

The Senate Budget Committee is scheduled to review other aspects of Brown’s budget proposal on Feb. 14.

By Katy Grimes

SACRAMENTO — “Everything’s Coming Up Roses,” from the Broadway musical Gypsy, should be Gov. Jerry Brown’s new theme song. His 2013-14 budget proposal, released last Thursday, was full of happy news, good times a projected balanced budget and an upcoming surplus.

Clear the decks! Clear the tracks!
You’ve got nothing to do but relax.
Blow a kiss. Take a bow.
Honey, everything’s coming up roses!

Even more amazing than the governor’s rosy budget is that Legislative Analyst Mac Taylor appears to agree. Mostly.

Overview

I attended the LAO’s meeting yesterday at their Sacramento office where they presented their overview of the governor’s budget proposal. But a roomful of journalists didn’t completely buy the “everything’s coming up roses” message.

“The governor’s proposed budget reflects the significant improvement in the state’s finances that our office identified in November,” the LAO announced. “The budget roughly is in balance,” Taylor said today at the meeting.

Taylor explained that, in the LAO’s November budget projections, they recommended that “fiscal restraint” was necessary. “I think the governor’s proposal reflects that kind of discipline. He should be commended,” Taylor said.

Taylor admitted that, even with fiscal discipline, the governor did not address the state’s retirement obligation — a $500 billion unfunded pension liability. Taylor mentioned concern with the growing state teacher retirement fund.

He acknowledged that many of the reporters present had written stories questioning the gaping difference in the LAO’s projection of a $1.9 billion deficit, and Brown’s projected balanced budget  and surplus. Taylor explained that, while Brown’s administration and the LAO were still far apart in budget projections, the Department of Finance did a better job this time around bringing their lofty projections back down to earth.

Last year, Brown’s budget numbers were so far off of the LAO’s that, by the May Revise of the Budget, Brown and the Department of Finance had to drastically reduce their happy projections, and at least address the fiscal mess the state was in.

This year, Brown has erased the deficit from his budget proposal, and is projecting that, by 2015, California will enjoy a $1 billion surplus. Everything’s coming up roses.

Math is hard

According to Teen Talk Barbie, “math class is tough.”  

And the governor’s numbers don’t add up — particularly with the more than $500 billion unfunded pension debt, as tallied by a Stanford University study; and the $10 billion owed to the federal government for California’s Unemployment Insurance borrowing.

Brown’s budget proposal lists only $181.2 billing in unfunded retirement liabilities. However, State Budget Solutions‘ third annual State Debt Report demonstrated an unfunded California pension liability of $617 billion — larger even than the number in the Stanford study.

Wall of debt

According to the governor’s budget proposal, California’s “wall of debt” totaled only $34.7 billion last May, and is now down to $27.8 billion. It includes:

* Deferred payments to schools and community colleges;

* Economic Recovery Bonds;

* Loans from Special Funds;

* Unpaid costs to local governments, schools and community colleges for state mandates;

* Underfunding of Proposition 98;

* Borrowing from local government (Proposition 1A);

* Deferred Medi-Cal Costs;

* Deferral of state payroll costs from June to July;

* Deferred payments to CalPERS;

* Borrowing from transportation funds (Proposition 42).

Taylor said that the choice is paying down the debt, versus adding new revenues, but not both.

Taylor noted that the wall of debt was not included  because “we know what the numbers are.”

But any way you slice it, California owes a great deal of money and its budget cannot be balanced, or honestly look at a surplus, anytime soon.

Health and education funding

California is facing a dramatic change in health care funding in the very near future because of  Obamacare. The state will be shifting the entire Healthy Families program into Medi-Cal.

Healthy Families is low-cost insurance for children and teens. Medi-Cal is California’s health care aid for anyone receiving welfare assistance. This is not apples-to-apples by any stretch of the imagination.

Taylor acknowledged that he didn’t want to discuss this, and shifted right into education spending.

Prop. 39 and education funding

An area in which Taylor appeared to be in disagreement with Brown was over Proposition 39, the ballot initiative which passed in November, taxing out-of-state businesses with a physical presence in California.

Projected Prop. 39 revenue will go right into the General Fund as well as into spending for renewable energy. It also factors into the mandatory education spending calculation of Proposition 98. Prop. 39 is estimated to bring in $1 billion in tax revenues, but many warn that this is also a volatile revenue prediction.

Taylor said that the Prop. 39 ballot pamphlet specifically said that revenue from Prop. 39 would be spent on energy-related projects for the first five years, and then into education.

Taylor argued that the Prop. 39 revenues should not be counted toward education funding for the first five years. “But, it has short-term consequences — only five years,” he said.

Differing ‘assumptions’

Taylor said that Brown’s budget proposal “assumes a different set of assumptions.” But isn’t accounting usually done one way in this country? A different set of assumptions may work in marketing, but not in the real world where real people have to face real budget crises.

While Brown’s budget proposal is even more rosy than the LAO’s projections, the economic assumptions in the budget summary claim that there is an economic recovery, many sectors of the economy are improving, real estate conditions are better, the housing market is improving and unemployment is dropping. On Thursday, Brown never mentioned how the millions of unemployed Californians will find work, or how the economy will improve with this increase in government spending and taxing.

I don’t believe for a minute that Taylor buys into Brown’s budgets. What Taylor says publicly and what his reports say also have differing assumptions.

By Chris Reed

In June, California voters rejected a hike on cigarette taxes to fund cancer research. The defeat of Proposition 29 strongly suggested that the general anti-tax beliefs of most of the Golden State electorate remained intact, no matter the lunatics they elected to the Legislature and statewide office.

But in November, voters backed Proposition 30, increasing the sales tax on everyone and income taxes on the wealthy, to the surprise of many pundits. And they also approved Proposition 39, which wiped out a corporate tax loophole in favor of a bizarre and dubious scheme to subsidize green energy projects, which have gone haywire over and over in similar federal subsidy schemes.

We know why Prop. 30 passed: Gov. Jerry Brown and a well-funded TV ad campaign framed it as a referendum on public education by linking its rejection directly to massive school budget cuts. But how did Prop. 39 succeed?  By threats to personally demonize the CEOs of the companies most likely to fund opposition. Timm Herdt of the Ventura County Star has the back story:

 “It was a story jointly written by a brassy political consultant whose style was forged while fighting off scandals in the Clinton White House, a billionaire Silicon Valley investor with a passion for public policy, and a dogged state senator who waged a three-year crusade to change a tax policy he believed was shortchanging California businesses and taxpayers. …

“The solution, [Democratic consultant Chris] Lehane believed, was ‘to change the value proposition’ for companies considering whether to finance a campaign to defeat Proposition 39.

“Because Sen. Kevin De León, D-Los Angeles, had fought for three years in the Legislature to change the tax formula, he knew what to expect.

“‘The multistate corporations were so effective in their lobbying. They killed every effort,’ De León told me. ‘I knew who the players were.’

“He knew that the most likely opposition to Proposition 39 would come from the out-of-state companies that had most aggressively lobbied against the idea in the Legislature: Chrysler, General Motors, International Paper and Kimberly-Clark.

“Full-page newspaper ads, featuring photographs of the companies’ CEOs, were purchased, asking them not to oppose the measure. De León sent a letter to the CEOs challenging them to a public debate ‘so voters can plainly see how devastating your efforts are to our state.’

“By Sept. 26, only GM and Kimberly-Clark were still holding out. The Proposition 39 campaign threatened to start running TV ads and to ‘unleash a relentless barrage’ of commercials calling out those two companies.

“Because venture capitalist Tom Steyer had deposited $21 million into the Yes on Proposition 39 campaign, potential opponents knew this was not an empty threat. And they knew it would be impossible to wage an opposition campaign on the cheap.

“‘Tom was not going away,’ De León says.

“By Sept. 28, all four companies had promised not to oppose the initiative. And in the end, the opposition campaign was almost nonexistent.”

Politics is not for the weak of heart. These tactics aren’t illegal. But the cause they helped is such a disaster that stories like this are disheartening. If only defenders of taxpayers could figure out ways to play such effective hardball.

By Steven Greenhut

SACRAMENTO — After the election results came in, I started searching for two things: a stiff drink and a good out-of-state real estate agent.

The national election sends troubling signs about the direction of the country, but nothing much will change from the past four years, so we know what to expect, even if it isn’t particularly good.

But California voters have sent their state into some new and potentially dark territory, the results of which will soon be felt.

Before the election, I quoted the late journalist and social critic H.L. Mencken, and now is a good time to repeat his tart observation that democracy is the theory that the common people know what they want and deserve to get it … “good and hard.”

Californians are definitely going to feel the pain, not just in the passage of Proposition 30 and its direct hike in taxes.

The big news: It looks like voters have handed two-thirds legislative majorities to the Democrats. The state Senate is a sure thing, and final counting will likely yield supermajority control of the Assembly to the Democrats, thanks, in part, to North Orange County voters’ ousting of Assemblyman Chris Norby.

Currently, the only thing standing between California residents and an endless series of bumps in sales taxes, income taxes, gasoline taxes and business taxes has been the constitutional requirement that raising taxes requires a two-thirds vote.

Republicans in California don’t stand for much, but they have mostly stood together in opposition to tax increases. Likewise, Democrats — including the handful of “moderates” — have been unified in their promotion of higher taxes as the answer to California’s problems. Now the Democrats will have their way, early and often.

“It’s time to start anew and to live within our means but at the same time invest in the cornerstone of our future and of our economy, and that’s education,” Senate President Pro Tem Darrell Steinberg, D-Sacramento, told CBS News. “I certainly don’t mean to suggest to my colleagues that the first thing we do is go out and raise more taxes,” he said.

Maybe not the first thing, but certainly the second and third things, if Steinberg runs the Senate the way he has up until now. Gov. Jerry Brown and other high-ranking Democrats assured the public that there will be no tax frenzy. As a headline put it, they “vow restraint,” but don’t believe them. Look at the bills the Legislature passed even when tax increases were not assured.

Public-sector unions pulled out the stops in the election to pass taxes and get Democrats unlimited power. That support comes with demands, and those unions figure to soon be receiving even higher pay and benefit levels.

Dems in charge

The only good news is that the Democrats will now completely own the state’s budget and fiscal situation. They will no longer be able to blame Republicans for holding up solutions to the state’s budgetary problems.

In recent years, good-government reformers have complained about gridlock in the state Capitol. Sympathetic voters approved a proposition in 2010 to eliminate the supermajority vote requirement for passing budgets.

Since then Republicans have been irrelevant to the budgeting process, since Democrats for years have held solid majorities in both chambers.

Whatever their flaws and inconsistencies, Republicans at least provided some counterbalance to Democratic priorities. Now, they figure to be completely irrelevant to most everything, especially when it comes to the most important power, taxing authority.

At his victory party, Gov. Jerry Brown, who threatened schools with $6 billion in cuts if voters didn’t give him what he wanted, was described as “jubilant” by the Sacramento Bee: “Brown declared victory after his tax initiative seized a narrow lead Tuesday night, calling Proposition 30 a ‘unifying force’ that countered the ‘Kool-Aid of the market ideologues.'”

That provides meaningful insight into his thinking — he sees a world in which raising taxes and building government is a great and unifying goal, and where allowing individuals to pursue their dreams and grow businesses is ideological Kool-Aid.

The governor, by the way, is more moderate than most of his fellow party members in the government.

Prop. 39

Voters also approved Prop. 39. “Democrats received a second tax boost Tuesday when Prop. 39 passed, raising $1 billion annually for clean energy programs and the state budget by increasing taxes on multistate companies based elsewhere,” reported the Bee.

Consider that result a harbinger of things to come. Many businesses based in California backed Prop. 39, figuring that it’s better to stick it to out-of-state companies than have the state government come after them.

But, as in all advanced welfare states, it’s only a matter of time before the taxers and regulators start coming for them.

While I don’t agree with a friend of mine who argued that state GOP officials ought to be placed head first in a vat of acid for their continued incompetence, I do agree that it’s time for rethinking party strategies. Republicans need to better articulate an alternative vision that is more consistent and libertarian, and that can reach beyond conservative bastions.

Then again, it may be too late. Carl DeMaio, a true GOP reformer who knows how to package free-market issues for a broad audience, lost the San Diego mayor’s race to an old-school union hack.

Prop. 32, which would have limited unions’ ability to extract dues from members to pay for the kind of bare-knuckle politics that paid off Tuesday, was beaten badly. That means that unions will continue to control the field.

After former Republican Assemblyman Chuck DeVore moved from Irvine to Austin, Texas, I chewed him out for abandoning California in its time of need. Turnabout is fair play, so he called me following this election to tease me about the new reality in California. He loves California but recommends Texas.

A lot more taxpaying Californians are going to start exploring housing options in Dallas and Houston, now that California voters have figuratively handed over to the Democrats the PIN numbers to their bank accounts.

I’m still not suggesting moving away, but it’s wise to keep a real estate agent’s number on speed dial as you watch the coming legislative session in Sacramento.

Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity. Write to him at: steven.greenhut@franklincenterhq.org.

By Wayne Lusvardi

A little known new accounting rule buried in the fiscal 2012-13 California state budget now will make it virtually impossible for the public to track where and when the tax revenues from Propositions 30 and 39 will be spent. Prop. 30 is Gov. Jerry Brown’s $6 billion tax increase. And Prop. 39 is hedge fund manager Thomas Steyer’s $1 billion tax increase. Both propositions were passed by voters on Nov. 6.

The new budget rule is Section 35.50 of the Budget Act of 2011-12, also known as Assembly Bill 1495.  The new rule authorizes a shift from cash (actual) accounting to an accrual (projected) accounting method. What this murky rule means is that budget revenues from two years can be applied to one year’s worth of expenses.  The result will be an inflated and non-transparent budget.

The key part of the new rule vaguely says: “The net final payment accrual methodology shall be implemented with regard to any change in state law which is enacted during 2012.”  The changes to state tax law in 2012 are Props. 30 and 39.

LAO Says Budget Forecasts Will Now Be Error Prone

The newly-released report prepared by the state Legislative Analyst’s Office, “The 2013-14 Budget: California’s Fiscal Outlook,” contains the following description of the new rule:

“Section 35.50 of the 2012–13 Budget Act institutes a new accrual method for the tax revenues generated by Propositions 30 and 39. A portion of final income tax payments paid in, say, April of one year will be accrued all the way back to the prior fiscal year (which ended ten months in the past). One effect of the change is that we will no longer have a good idea of a fiscal year’s revenues until one or two years after that fiscal year’s conclusion. Because the volatile capital gains-related revenues from Proposition 30 are the subject of the accrual changes, the late adjustments to revenues could total billions of dollars—much more than in the past. As a result, the chances of large forecast errors by us and the administration will increase.”

The Legislative Analyst’s Office also elaborated on the problems involved with this new rule:

“We are now convinced that the problems that this new accrual method will introduce to the budgetary process outweigh its benefits. We recommend that the Legislature direct the administration to develop a simpler, logical budgetary revenue accrual system by 2015. Alternatively, to help ensure the accuracy of our forecasts and improve transparency, we recommend that the Legislature require the administration to document accruals regularly online.”

In other words, the LAO is saying that even its impartial budget numbers will be unreliable because it will be impossible to track budget accruals and compare them with the actual cash status of the budget.

Cash Versus Accrual Accounting

The new rule involves what is called the accrual basis of accounting. According to the glossary contained in the 2012-13 State Budget, the accrual basis of accounting is defined:

“The basis of accounting in which revenue is recorded when earned and expenditures are recorded when obligated, regardless of when the cash is received or paid.” 

In cash-based accounting, the record of expenses is recorded when the cash is actually laid out.  In contrast, under accrual based accounting, revenue or expenses are recorded when the transaction is completed, not when it receives the cash or when it pays for supplies.

For example, even though the customer may not have paid the final bill yet, a carpenter records receiving payment when the job is completed. Or a carpenter buys materials on his account at Home Depot, not when he actually pays cash for the lumber maybe a month afterward.

“Trust Us” Budget Accounting

In other words, from now until 2019, when Prop. 30 expires, it will be impossible to know whether the budget figures released by the state are the actual numbers.  California’s budget accountability to the public will turn into a secretive game of “trust us.”

This new budget rule signals that it is unlikely the taxes generated from Prop. 30 will be spent on public schools, as advertised by Brown. And the revenues from Prop. 39 likely will be siphoned into CalPERS’s pension fund.

How do we know this?  We don’t know for sure because where the funds are eventually to be spent is intentionally left open-ended and vague.  But it can now be surmised that Brown will use Prop. 30’s tax revenues to patch shortfalls in other items in the general fund budget, such as Medi-Cal.  And an educated guess is that the tax revenues from Prop. 39 will go to CalPERS’ pension fund.

The effect of the new budget accounting method will be to count two years’ worth of revenue and only one year’s worth of expenses to create an appearance of a balanced budget and rising revenues.  Based on an inflated assumption of rising revenues, it follows that legislators can then plan on higher spending as well.

Surplus Forecast Counts Two Birds in a Bush

The Legislative Analyst’s new budget outlook for 2013-2018 forecasts budget surpluses of $1 billion or more starting in 2014, up to nearly $10 billion in 2018. Some newspapers are already reporting these surpluses without disclosing the risky and rigged assumptions on which they are based.

But Californians need to understand that budget estimates are no more reliable than their assumptions. And a key assumption the Legislative Analyst is forced to use is presuming the availability of two years’ worth revenues to apply to one year’s worth of expenses.

In other words the budget is based on counting the proverbial two birds in the bush rather than the one bird in hand. This results in an inflated forecast of budget surpluses.

This new budget rule is the result of one-party rule in California. Redistricting and supermajority rule by Democrats in the Legislature may result in more moderate candidates who are more favorable to increasing taxes.  But an unintended consequence of one party rule is that the status of the state general fund budget is more likely to be inflated and partly hidden.

By John Seiler

California should change its name to Unionifornia. The public-employee unions won everything yesterday. They beat Proposition 32, which would have curbed their ability to siphon money directly from employees’ paychecks. They won Proposition 30, the $6 billion tax increase pushed by their kept governor, Jerry Brown.

They even defeated Proposition 38, the rival tax-increase initiative by lawyer Molly Munger, which would have plunked the added tax money directly into schools. By contrast, Prop. 30 has no real constraints, so the money can be siphoned off to union pensions.

The unions also re-elected Dianne Feinstein to the U.S. Senate. And their candidate for president, Barack Obama, won not only California, but the national election.

The problem for the ultra-powerful unions now is that the state and national economies are headed for breakdowns. Socialism never has worked.

For California, the millionaires hit with the new tax will start leaving. Brown, in the last days of the campaign, cited a study by two Stanford “poverty” professors (who themselves make huge salaries). We debunked the study here on CalWatchDog.com. But few California voters read CalWatchDog.com, only the smart ones.

By leaving, millionaires immediately avoid paying the state’s tops-in-the-nation state income tax of 13.3 percent. If they move to Nevada, Texas, Washington or other states with no income tax, they pay no state income tax at all.

But there’s more. Even if the millionaires stay, Prop. 30 grabs another $5 billion from them. That’s money they won’t have to invest in business and jobs creation. So the tax will hit all of us. Maybe a millionaire won’t buy the Rolls Royce he’s been ogling. But that means the minimum-wage mechanic at the Rolls dealership will be laid off and start collecting welfare.

The income tax increase also is retroactive for 2012. That means it will cost millionaires $5 billion now, and $5 billion in 2013. The giant sucking sound you hear is the California economy imploding.

Prop. 30 also increases sales taxes $1 billion. Meaning you and I will pay it. And it will kill more businesses and jobs — $1 billion worth.

More taxes

And Prop. 30 wasn’t the only tax increase to pass. Proposition 39 also passed, raising taxes $1 billion on out-of-state businesses that had created jobs here, but now might leave. It’s hedge fund manager Thomas Steyer’s initiative to funnel tax money into his favored investments. Expect other rich people to sponsor initiatives in 2014 that will do something similar: grab tax money to pad their own portfolios.

Brown and the unions don’t realize it, but they won’t get the money they want. The state’s anti-business climate is so penalizing, and made so much worse by the passage of Prop. 30 and Prop. 39, that tax revenue will decline faster than those initiatives can bring it in.

With Obama’s re-election, the national economy will start nosediving (not that Romney would have done any better). Another $166 billion in tax increases will hit the middle class on Jan. 1 when the payroll tax cut expires. Neither Republicans nor Democrats wants to keep the tax cut. That will hit middle-class American families with $1,000 in higher taxes in 2013.

We’re overdue for a recession anyway. They hit every four to six years. The last one hit in 2007. Add six to that and you get 2013.

The recession will bring more municipal bankruptcies throughout Unionifornia. The pension systems will keep teetering into insolvency. Unemployment will rise, and welfare rolls along with that, increasing the strains on the state budget.

The unions now own Unionifornia. And along with Brown and Obama, they’re going to have to take the blame for the crash.

When the crash happens, the time for reform will have arrived. In 2014, the reform movement should put on the ballot something like Proposition 75, the 2005 initiative that simply banned unions from directly extracting dues for politics from members’ paychecks. It got 47 percent of the vote even during the time of the booming economy (due to the phony real-estate boom that soon turned into a bust).

In 2012, Prop. 32 was much more complicated, including corporations in the paycheck protection, and got just 44 percent. Reformers need to make the 2014 decision simple: The ripped-off citizens vs. the ultra-powerful government-worker unions. People love a story about David (us) vs. Goliath (unions).

In two years, Unionifornia’s economy will be faltering badly, and voters will be in the mood for real reform. The time to plan is now.