It’s been two and a half years since Gov. Jerry Brown jolted the debate on California’s housing crisis by saying much more private-sector construction was the only realistic way to address the crisis, not the old Democratic recipe of building a relative handful of subsidized housing units that help a small percentage of those in need. “We’ve got to bring down the cost structure of housing and not just find ways to subsidize it,” he said in January 2017 in criticizing previous state policies.

Brown sought to make it much easier for home-builders to clear regulatory hurdles. In September 2017, Senate Bill 35 by Sen. Scott Weiner, D-San Francisco – which reflected the governor’s priorities – was enacted. It holds that cities could not put up new obstacles to projects with proper zoning so long as they contained at least 20 percent of units at lower price levels.

And in the last two months, Brown has signed a series of new housing measures with similar goals – most notably Assembly Bill 2923, which will make it much easier for the Bay Area Rapid Transit authority to follow through with its plan to build 20,000 new housing units by 2040 on 250 acres BART owns nears its transit stations.

Legislature renews emphasis on subsidized housing

But when it comes to Tuesday’s election and major housing initiatives, it’s back to the old Democratic playbook. Both the key measures meant to increase housing – placed directly on the ballot by votes of the Legislature – involve government-subsidized construction.

Proposition 1 authorizes the issuance of $4 billion in general obligation bonds. The biggest chunk – $1.8 billion – would go toward building apartment-type residences. $1 billion would go to loans to veterans. Both infrastructure and homeownership programs would receive $450 million each. And $300 million would go to build housing for farm workers.

The official state voting guide’s analysis estimates that this will create access to housing for 55,500 families.

Proposition 2 would allow the state to divert funds from 2004’s Measure 63 – which generates about $2 billion a year for mental health programs from an income tax surcharge on the very wealthy – to pay back over 30 years up to $2 billion in bonds to build housing for the homeless and those at risk of being homeless.

The official state voting guide’s analysis doesn’t estimate how many people would gain housing as a result. But based on Proposition 1’s estimate that $1.8 billion could create about 30,000 apartment units, $2 billion should be able to provide around 33,000 units.

Bonds would fund 88,500 units; 2 million needed

The combined net effects of the two measures: providing housing to about 88,500 families over the life of the two bond measures in a state that a 2016 McKinsey consulting group report said has a shortage of 2 million housing units.

The small increases in housing that Proposition 1 and 2 would create are consistent with the criticisms that have been made of California’s state housing policies since at least 2003. That’s when the Public Policy Institute of California released a report that said affordable housing programs focused much more on establishing a process for such housing than on actual results. It said it was “unrealistic” to think such an approach could have a significant effect in increasing affordable housing.

No recent polling has been done on Propositions 1 and 2, but they’re widely expected to pass easily. That’s in keeping with the record of bonds placed directly on the ballot by the Legislature.

But the governor’s proposed $170.7 billion budget ($122.6 billion general fund) for the 2016-17 fiscal year would lead to repeating that mistake when the next recession hits.

Revenues will plunge $55 billion over three years if an average recession hits next year according to the budget summary. That would result in a $29 billion budget deficit in 2020 based on Brown’s current spending proposal, which includes $4 billion in one-time expenditures. If the Legislature instead spends that $4 billion on new or ongoing programs, the deficit would balloon to $43 billion – larger than occurred during the Great Recession.

Recession Expected

California is in the seventh year of economic expansion. That makes it two years overdue for a recession, which has occurred every five years on average, according to Keely Bosler, chief deputy director of the California Department of Finance.

“While there is significant uncertainty in forecasts, there is one thing that is quite certain: and that is history,” Bosler told the Senate Budget and Fiscal Review Committee Jan. 19. “It’s this boom-and-bust cycle that this budget really aims to avoid going forward.” But she acknowledged that “the budget in the state of California does remain precariously balanced over the long term.”

Her cautionary words were echoed by committee Vice Chairman Sen. Jim Nielsen, R-Tehama.

“We must keep in mind that though times are a little bit better, some parts of our economy have not improved,” he said. “And therefore we must exercise constraint and not get overly ambitious. And that will be what governs our progress in the budget. Let’s not get overly ambitious, and let’s not let government get out of control.”

Examine the Department of Finance 2016 Budget Slides here

But Democratic legislators are eager to spend some of the budget surplus on ongoing social programs, particularly for the developmentally disabled, instead of socking it away in the state’s rainy day fund – despite the likelihood that doing so could once again bust the budget.

“It shouldn’t surprise any of us that a recession is at hand. The question is when, not if,” said committee Chairman Sen. Mark Leno, D-San Francisco. “At the same time, an additional $2 billion set aside in the rainy day fund above and beyond what voters told us they’d like to see in it – that I think will be at least part of the playing field of our debate.

“What is appropriate for continuing payment of debt and for reserves, at the same time recognizing that so many Californians who have been hurt at the time of the recession have not seen much recovery or reinvestment in the programs for which they rely for their quality of life?” Sen. Leno asked.

Rainy Day Fund

Proposition 2, passed in 2014, requires that $2.6 billion in this year’s budget be placed in the rainy day fund. Brown has proposed adding an extra $2 billion to the fund. That would bring the total to $8 billion (with previous funding), equating to two-thirds of the constitutional target of 10 percent of general fund revenues, according to Bosler.

But legislative analyst Mac Taylor warned the committee that, while it’s good to beef up state reserves, the Legislature would be unnecessarily tying its hands by going along with Brown’s extra $2 billion in the rainy day fund, which is known formally as the Budget Stabilization Account.

“We would caution you not to put extra money into the BSA,” Taylor said. “Once you put it in the BSA, it’s governed by the rules in the BSA. You can only take out half the monies, if you have a downturn, in the BSA. You might imagine a situation when you might want to take out more in the first year.”

Also up for grabs by the Legislature for whatever purpose it chooses is $1.1 billion from a tax on managed care organizations, an expenditure that Brown left unspecified, according to Taylor. In addition, he told the lawmakers that they could decide to siphon off some or all of the $2.5 billion Brown has proposed to spend on infrastructure, including $1.5 billion for state facilities.

Infrastructure Spending

“When it comes to one-time spending, the governor has focused on infrastructure,” said Taylor. “We think that’s a very positive thing. But keep in mind you have other one-time things that you can spend on. We have very high-cost pension and health retiree liabilities that are accruing costs at 7½ percent a year. So you may want to make additional payments to help fund those and pay those liabilities off. There’s no right choice.”

If the lawmakers do decide to spend the money on infrastructure, they should exercise more control on how it’s spent, instead of leaving it to the administration, Taylor said.

“You don’t want to lose control,” he said. “I think you’ve already lost way too much authority for capital outlay projects. You have given it to both university systems and the administration. Stop doing that. I think you should be exerting a lot more control over capital outlay projects.”

But Leno was more concerned about providing enough “human infrastructure” to help the state’s neediest residents.

Social Services Budgeting

“What I’m hearing is regarding developmentally disabled services that housing units are being lost, facilities are being closed,” Leno said. “Employees at the community-based organizations that supply services are leaving because the employees can find much better jobs than the $13-$14 per hour that some are being paid after 20, 25 years of service. What happens to that infrastructure?”

Taylor responded that there’s been a large growth in spending on the developmentally disabled due to the large increases in caseload. “But you can have just about every program and area of the budget come and tell you that they need a lot more,” he said.

Spending on regional centers for the developmentally disabled has grown by 24 percent in recent years, according to Bosler. “This is well beyond caseload and inflation,” she said. Contributing to the higher costs is California’s aging population, which requires more services and support, along with the rise in autism.

But Leno wasn’t satisfied, saying that the cuts made to social services during the Great Recession have yet to be fully restored.

“Do we want to suggest that even in these boom times that this is our new normal?” he asked. “Or do we have a goal of getting back to where we were at least in adjusted dollars to the 2008 level at some point? If not now, then the question is when. It certainly won’t happen during the next downturn, and quite likely we will have to make additional cuts. We continue to create a new normal level funding which is ever, ever lower.”

Power Over the Budget

Nielsen called the budgeting process itself into question, asserting that it gives too much power over spending to the governor.

“We’ve abdicated our authority over the budget,” he said. “I believe that we are almost making the Legislature irrelevant. Maybe we go through the exercise and pound our chest and try to think we’re important. And this has been a steady erosion over a long period of time.”

Taylor responded that budgetary authority is hard to get back after being given away. He cited the state’s ballot measures as contributing to the problem.

“Almost every initiative that has increased a tax in the last 20 years has dedicated the funds for particular purposes,” he said. “From a budgeting perspective, that’s just a terrible development. No matter how well meaning or how well purposed they may have been in the first year that that measure was passed, that’s not what budgeting is about. It’s about changing priorities, as you know, and being able to make decisions.”

Legislative budget committees plan to hold numerous hearings in the coming months to gain more insight into and provide input on the budget before the governor’s planned budget revision with updated revenue and expenditure figures in May.

The CTA and CFT would only accept this measure promoting fiscal responsibility and prudence if it included a provision making it more difficult for school districts to act in a fiscally responsible and prudent way! Here’s the LAO’s description:

If this proposition passes, a new state law would go into effect that sets a maximum amount of reserves that school districts could keep at the local level. … For most school districts, the maximum amount of local reserves under this new law would be between 3 percent and 10 percent of their annual budget, depending on their size. … Unlike the constitutional changes that would go into effect if Proposition 2 passes, this new law on local school district reserves could be changed in the future by the Legislature (without a vote of the people).

How hilarious. The CTA and CFT go along with state fiscal reform on the condition that local school districts be handcuffed on their own finances, freeing up more budget money for — you guessed it. Teacher compensation.

Last November, I outlined here how the Local Control Funding Formula “reform” ostensibly directing extra funds to struggling students got adopted so quickly. It was the cleanest possible way to pump up funding to the large urban districts with lots of English-learner students. UTLA didn’t embrace the LCFF because of social justice, blah blah blah. It was because of economic rewards. It’s now seeking to claim the bulk of the extra LCFF funds for a 17.6 percent raise for UTLA members.

The lesson of this scam:

Like Neo figuring out how life was coded to work in “The Matrix,” everything about California politics is much easier to understand once you realize that by far the top priority of by far the state’s most powerful group is protecting the interests of veteran teachers.  … The most-ballyhooed education reform in California since Gov. Pete Wilson’s classroom-size reduction program ended up just being an elaborate way for the governor and the Legislature to reward their masters and patrons in the CTA and the CFT.

The worse ‘fact check’ in the history of journalism

Meanwhile, over at the Sac Bee, I hope someone, anyone, is deeply embarrassed by the “fact check” that ran after the Kashkari-Brown debate on whether the governor is too close to teachers unions.

It mentions that Brown’s sponsoring charter schools while mayor of Oakland annoyed unions.

It doesn’t mention that the Brown-orchestrated adoption of Prop 30 and the LCFF steers many billions of dollars to teacher pay. Nor does it mention that the teachers’ system pension funding fix adopted this year is going to be paid for with 90 percent taxpayer funds and 10 percent teacher contributions — contrary to Brown’s 2011 view that public employees should split the cost of pensions equally with taxpayers, and far worse for taxpayers then pension funding fixes seen at the local level in California and in other state governments.

This is what’s known as “context” in the news business. It is insane to have an ostensibly serious “fact check” on the relationship between the governor and the teachers unions that doesn’t mention Brown’s three gigantic favors.