Will progressive lawmakers challenge Gov. Jerry Brown over his decision to dash their big dreams for the 2017-18 fiscal year? Or will they acquiesce as they mostly have in recent months of May after Brown released revised budgets without money for new or expanded government programs?

Despite the pleas of Assembly Speaker Anthony Rendon, D-Paramount, and Senate President Kevin de Leon, D-Los Angeles, that he take a break from his usual frugality, the governor’s revised 2017-18 $124 billion general fund budget released last week is far more concerned about helping public schools and beefing up the state’s rainy-day fund than any new liberal cause.

With a month until the June 15 deadline to adopt a state budget, that means Democratic lawmakers – especially those from liberal districts in the Bay Area and Los Angeles County – have a big decision to make: Do they accept a wipeout? Or do they put pressure on Brown by sending him bills popular with Trump-agitated grass-roots Democrats and making him veto them?

This is the dynamic created by the fact that Democratic legislative leaders entered the current session in January with ambitious hopes for bold new programs making college much cheaper, expanding state affordable housing efforts and providing health care for all.

Ambitious legislation not taken seriously

The governor doesn’t even think the ideas are worth discussing.

Brown’s budget rejects the basics of Assembly Bill 1356, by Assemblywoman Susan Talamantes Eggman, D-Stockton, which would have added a 1 percent surtax on California families earning $1 million or more to cover the cost of fees and tuition for in-state students at the University of California, California State University and the California Community College system. The governor also dismissed without comment Assembly Democrats’ push to help cover basic living expenses for 350,000-plus UC and CSU students from families which make less than $150,000 a year.

Brown’s budget makes no mention of SB562, a bill by Sens. Ricardo Lara, D-Bell Gardens, and Toni Atkins, D-San Diego, that would create a government-run single-payer health care system. It’s won some early committee victories, despite not having a fiscal analysis that explains how or who will pay for the program.

And a push supported by dozens of Democratic lawmakers to impose a fee on real-estate transactions to provide a steady stream of hundreds of millions of dollars in annual funding for subsidized affordable housing projects was flatly rejected by Brown as inadequate to addressing California’s housing crisis.

At a Thursday press conference, the governor said, “I don’t think we should throw money at the housing problem if we don’t adopt real changes that make housing production more efficient and less costly. We’ve got to do that first.”

For nearly two years, the governor has pushed for laws reforming the California Environmental Quality Act to give builders fewer obstacles to constructing new housing units. But legislative Democrats have heeded their union, trial lawyer and environmental allies who say CEQA shouldn’t be weakened.

Brown and top Democratic lawmakers pulled off a big win last month on an issue they agreed on: the urgent need to improve California’s decaying infrastructure, both for quality-of-life reasons and to help the economy by reducing the drag on the economy caused by bad, clogged roads. They pushed through gas tax hikes to pay for a 10-year, $52 billion infrastructure improvement and repair initiative.

But Brown’s pragmatism about government spending has been the calling card of his second stint as governor. Given his high approval ratings, the governor seems unlikely to believe he needs to make concessions if Democratic lawmakers send him spending bills he doesn’t like.

They presume Brown is nervous about the capital-gains revenue rollercoaster as well as the revenue lost when Proposition 30’s temporary sales tax hike expires at the end of 2016 and when its temporary income tax hike expires at the end of 2018. Their solution is to seek to extend the tax hikes, which generated $6.2 billion in fiscal 2013-14.

But another jolt is on the horizon: the cost of the CalSTRS bailout enacted last year, which will ramp up contributions annually for the next six years. The full phase-in is far off. But with 90 percent of the eventual $5 billion annual cost borne by state taxpayers — 20 percent directly and 70 percent indirectly, paid by state-funded local school districts — the bailout tab had Moody’s investor service worried last summer, before it even took effect:

Managing rising pension costs will prove challenging over time because CalSTRS rate increases are back-loaded. School districts face future budgetary stress not only from rising pension costs but from salary and benefit expenditures and programmatic priorities. Further, school districts have minimal revenue flexibility. … Rising pension costs will pressure financial operations and may cause a deterioration in credit quality for some school districts.

LAUSD faces $1.1 billion in new costs in 2020-21

And the California Department of Education’s warnings to local school districts to prepare for a difficult era as the CalSTRS bailout is phased in show that issue is very much on the radar of the Brown administration.

Los Angeles Unified could be near a teachers strike because UTLA rejects the district’s offer of a 5 percent raise as inadequate in a time of healthier revenue. But L.A. Unified leaders emphasize that they face a $1.1 billion bigger pension bill in 2020-21 than the district now pays and have been surprisingly resolute, given the UTLA’s ability to target and defeat board incumbents who are independent.

In the bigger picture, the U-T San Diego reported some districts see the budget problems posed by bailout costs as impossible to address:

Officials in districts throughout California are talking about forming a coalition to explore ways to fix the teacher retirement system without cutting into their own school programs.

As the pension contributions grow, “the things you want and need for educational purposes will take a second seat to funding this retirement system, or paying for utility bills,” said Gary Hamels, assistant superintendent in charge of business services with San Marcos Unified School District.

“It’s going to hit the fan because you’ll have to make a decision — I have to pay this so you can’t buy that,” Hamels said. “We’ll have a situation where there’s demand for some academic improvement but this is where the money is going first.”

CTA and CFT officials have touted renewing the temporary sales and income tax hikes for months. So far, the unions have been quiet about doing anything to address the fiscal turmoil looming in local school districts because of the cost of the pension bailout.

SACRAMENTO — A steadily improving economy will buffer California’s budget from a drop in revenue expected when temporary tax hikes begin to expire in the coming years, the state’s nonpartisan Legislative Analyst’s Office said Wednesday.

The report from Legislative Analyst Mac Taylor examined state revenue trends through 2019, the first year after the Proposition 30 tax hikes expire.

The expiring tax increases “will not necessarily cause a sudden revenue drop off – a `fiscal cliff’ – for the annual state budget process,” Taylor said.

In 2012, voters approved Gov. Jerry Brown’s proposal to raise an additional $6 billion a year through higher taxes. The statewide sales tax was raised to 7.5 percent, an increase that will expire at the end of 2016. An increase in income taxes on the wealthy will expire at the end of 2018.

But I was surprised upon reviewing the report at its failure to focus on the larger picture of how this summer’s CalSTRS bailout will bring extreme new pressure on overall state finances. In fiscal 2020-21, after phased-in hikes, the amount of total contributions to the state teacher pension fund will have gone from $5.9 billion to $10.9 billion. Of that extra $5 billion, 70 percent will come from school districts, 20 percent from the state and 10 percent from teachers.

School districts won’t absorb huge pension bill without fight

The idea that school districts will quietly eat that 70 percent boost is at odds with California politics in the post-Prop. 98 era. Instead, the districts, teachers unions and their elected allies will press for the general fund to absorb the cost on the grounds that every dollar districts spend toward pensions is a dollar that can’t be spent “on the kids” — i.e., on teacher pay.

So in 2020-21, the state general fund faces a $4.5 billion hit. I know the LAO doesn’t necessarily weave in political calculus in its fiscal analysis, but given how Sacramento works, it would have been appropriate. Moody’s Investors Service is already looking at this angle. So what is the Legislature and Jerry Brown’s successor going to face?

I wrote about this for CalWatchdog earlier this year.

The CTA and the CFT didn’t achieve their dominance of Sacramento by playing nice. Covering the cost of the CalSTRS bailout going forward is going to be the Sacramento version of the federal budget sequester for non-education budget categories. Spending on just about everything but  K-12 is going to be curtailed.

Of course, we’ll also see redoubled efforts to raise taxes and make “temporary” hikes permanent. But the day in which the Maviglios of the world could pretend the pension crisis was exaggerated or no big deal will soon be history. Pretty soon the pain is going to be shared not just by taxpayers but by all users of California government services and programs outside of K-12.

Once you understand that the single most powerful imperative in California politics is protecting an education jobs program in which most teachers get automatic annual raises just for showing up, Sacramento is pretty easy to understand.

The Schwarzenegger administration once talked about state budget politics being the war of “all against all.” In 2020, it will be plainer that it’s the CTA and CFT vs. everyone else.

“We are at this point prepared to bring the full budget to the floors of both houses,” said Assemblywoman Nancy Skinner, D-Berkeley, who has been overseeing budget negotiations in the conference committee, according to the Sacramento Bee.

Republican legislators, whose votes aren’t needed to pass the state’s spending plan for the next fiscal year, were left out of the budget negotiations. Consequently, Brown acted as the lone voice for fiscal restraint as Democratic lawmakers looked to help their core constituencies with billions of dollars in additional spending.

The tentative agreement would provide additional funding to social service programs — as long as certain revenue triggers are met during the next year.

Legislators win overtime for in-home services

Among the budget agreement’s key points: additional money for California’s In-Home Supportive Services program, which provides assistance to elderly and disabled Californians. Considered an alternative to nursing homes and board and care facilities, the program was dealt a blow with new federal regulations set to take effect next year that changed overtime rules for workers.

The governor’s original budget proposal eliminated overtime, which, in turn, avoided as much as $600 million in additional spending by 2015. The proposed deal, according to the Sacramento Bee, relies on unspecified ways to curb abuse of overtime and is expected to cost “$180 million in 2014-15 and $350 million in future years.” Although the governor rolled over to legislators’ demands on overtime rules, he secured a 7 percent reduction in service hours for the 2014-15 budget year.

“I’m glad that the administration is with us on this,” Sen. Mark Leno, D-San Francisco, told the San Jose Mercury News. “The idea that we would cap the amount of hours to get around the federal requirement that we pay overtime was a non-starter. It didn’t work in the real world.”

Deal on funding Brown’s high-speed train

But Brown’s frugality on social service spending was balanced by an equally spendthrift tone in funding the state’s much-aligned high-speed rail program. As part of the tentative budget agreement, Brown secured up to $250 million in funding for the California High-Speed Rail Authority. But as the Sacramento Business Journal points out, that’s still “far less than the agency expects it will need to cover construction costs at that time, which is roughly $4 billion a year.”

As reported by CalWatchdog.com’s Chris Reed, the state’s high-speed rail program has been plagued by a pattern of problems and follies. Most recently, a report released in May found that an independent consultant had been pressured to hide a $1 billion increase in project costs.

Despite serious questions surrounding the legality and viability of the state’s high-speed rail plan, Brown went to great lengths to save his pet project, urging lawmakers to raid funds from the state’s cap-and-trade program. Those funds are legally earmarked to pay for offsets to carbon emissions. Some Democratic lawmakers questioned the governor’s plan to raid cap-and-trade funds.

“I think it’s a bad idea,” Sen. Mark DeSaulnier, D-Concord, said of the governor’s high-speed rail funding proposal. “I don’t support what we’re doing on high-speed rail. I don’t support the authority using the cap-and-trade funds.”

That could provide an opening for GOP gubernatorial candidate Neel Kashkari, who has lambasted Brown for spending money on “a crazy train.”

More $ for Democratic lawmakers projects

But, the biggest winner in the state budget deal may be Senate President Pro Tem Darrell Steinberg. The Democrat, who has represented Sacramento in the legislature since 1998, secured $264 million in funding for preschools and $250 million in funding for the Career Pathways Trust program.

“The Career Pathways Trust now doubles our investment in the workforce that will lift our rising economy,” Steinberg said in a statement. “It provides critical support for school and college partnerships with businesses that provide work-based learning opportunities to young people. It brings tangible meaning to education, investing students in their own futures.”

Other items contained in the tentative budget deal are:

• $40 million in a one-time budget allocation for court construction
• $2.5 million to renovate the governor’s mansion in Sacramento
• $50 million each for the University of California and California State University systems
• $100 million for state-deferred maintenance projects
• $20 million for homeless programs operated at the county-level
• $3 million in funding for health care for unionized farm workers

Republican lawmakers generally praised Brown for holding the line on spending, while criticizing his high-speed rail budget.

“I think Republicans would focus more on public education, public safety and infrastructure,” Assembly Budget Vice-Chair Jeff Gorell, R-Camarillo, told Capitol Public Radio. “And we wouldn’t have invested as much in some of the social programmatic spending, and we wouldn’t have spent money on the high-speed rail.”

“SACRAMENTO, Calif. — As billions of dollars in unexpected tax revenue pour into California, Democratic lawmakers have proposed all kinds of ways to distribute the windfall after years of recession-era budget cuts.

“Just don’t call it spending. In recent weeks, Democrats have been using a more palatable and fiscally responsible term to characterize their individual priorities.

“Instead of spending the taxpayer surplus, they want to invest it.

“Last week, Assemblywoman Nancy Skinner, D-Berkeley, opened up a joint legislative budget committee hearing by saying she hopes the state will make ‘meaningful and strategic investments in early and higher education, in health care access and closing that opportunity gap.'”

Meet linguistics guru George Lakoff

But there’s a very specific history to this ploy that AP doesn’t seem to know about. I wrote about it in 2008:

“A few years ago, the theories of George Lakoff, a UC Berkeley linguist, were all the rage. He argued that Democrats were then in the doldrums because they were inept at framing issues.

“One of his main suggestions: Dems should describe government spending as an ‘investment’ and spending decisions as choices on where to ‘invest.’

“This is a joke, of course, a severe and misleading twist on the traditional meaning of invest and investment. Salaries and benefits paid to government employees are not ‘investments.’ Transfer payments to poor people are not ‘investments.’

“Given the fact that experts say there’s no correlation between school spending and student performance, it’s also absurd to call education spending an ‘investment.’ But all’s fair in politics, so it made sense for Dems to use this ‘frame’ to make their case.

“But why would journalists — unless they also had an agenda designed to change the way voters thought about government spending?”

Most enthusiastic user of ‘invest’ euphemism was a journo

What’s funny is what my 2008 research turned up:

Which brings us Los Angeles Times’ Sacramento-bureau reporter Evan Halper. Look at the shameless way he employs Lakoff’s “framing” technique in his ostensibly straight news reporting:

“September 21, 2008: Come winter, emergency cuts will probably be needed. Proposals to invest in — or merely maintain — the state’s roads, schools and healthcare facilities will be put on the shelf again.

“August 16, 2008: Some needs of government are unpredictable, and placing strict formulas on how the state spends its money could ultimately squeeze schools, healthcare services, the prison system and other government programs that polls suggest voters want the state to invest in.

“August 16, 2008: Assembly Budget Committee Vice Chairman Roger Niello … defended the GOP formula, saying it allows for enough spending growth to steadily increase investments in education and healthcare.

“January 11, 2008: Gov. Arnold Schwarzenegger’s ambitious policy agenda collided with fiscal reality Thursday as he rolled out a proposed budget that threatens to unravel his investment in schools, healthcare and criminal justice programs.”

Six years later, AP’s Sacramento bureau thinks this is a heavy-handed semantic game. Back in 2008, the LAT’s Sacramento bureau chief thought it was an appropriate use in straight news reporting.

Draw your own conclusions.

The gov knows the bullet train doesn’t make sense, but he can’t bail on it without infuriating key constituencies. So maybe just maybe he tells this to AG Kamala Harris, who wants to be his successor, and then what happens? The state appears to try to lose in the court fight over the project’s legality.

That’s pretty cool if true. Good for Jer. But sometimes his 3D chess is solely about making him look good, not serving the public interest. Here’s part of my U-T San Diego editorial:

“… Brown is right: The state needs a ballot initiative that would create a ‘rainy day’ fund to limit the damage from boom-and-bust budget cycles caused by oscillating revenue. …

“But Brown’s proposal has a huge fundamental flaw. If it becomes law, money in the fund could be tapped at any time after a majority vote of the Legislature and an ’emergency’ declaration by the governor.

“Such loopholes have long doomed similar fiscal protections in California and other states. Many lawmakers don’t want to make tough decisions on budget matters and operate from a self-serving, short-term perspective: What will get me re-elected? …

“The governor knows this. He’s been watching Sacramento in action for more than a half-century. He realizes that courage is not a defining characteristic of Assembly and Senate members.

“So what is Brown up to? From his short-term perspective, touting this proposal gives him one more chance to burnish his media image as a tightwad in a capital full of spenders — and when he’s seeking re-election, too.

“Proposing such an easily gamed reform to such a big ongoing problem suggests members of the Legislature aren’t the only ones with a courage deficit.”

After his 99.4% likely re-election, Brown in theory could be crazy-ambitious with what he tries to accomplish in his last term. I wonder if he’ll shoot for the moon or settle for just being scary shrewd.

As John Myers reported, one of Taylor’s staffers provided key testimony at the hearing, going over findings from a new LAO report:

“[It] concludes that CalSTRS needs $900 million in additional contributions from all sources in the 2015-16 fiscal year, rising sharply to $5.7 billion a year by the summer of 2021. And that’s just to cover current liabilities.

“What happens if lawmakers continue to delay taking action? The LAO report (PDF) pegs just delay beyond 2015 at an additional $150 million a year for the following 30 years … and $300 million a year if waiting just two years beyond 2015.

“The message: the hole gets deeper every year. And it’s a bigger problem than other long-term state debts.

“‘This liability tends to grow much faster,'” said analyst Ryan Miller in Wednesday’s hearing.

‘The state’s structural deficit … is no more’

But then, of course, there is the contrary view that looks at the state’s fiscal future and predicts surpluses for years to come … also courtesy of the LAO:

“’The state’s budgetary condition is stronger than at any point in the past decade. … The state’s structural deficit – in which ongoing spending commitments were greater than projected revenues – is no more.’”

That’s what Mac Taylor said in November in testimony to the Legislature. Evidently, pension debt isn’t an “ongoing spending commitment.”

This isn’t a minor problem — a knucklehead lawmaker mouthing off about a topic about which he knows nothing. This is the head of the state’s (previously) most respected watchdog agency offering a grossly deceptive description of the state’s financial health and providing cover to those who want to ramp up spending.

Taylor should be embarrassed. I’m sure Ryan Miller looks at his boss’ November testimony and feels like throwing up.

In the aftermath of Sacramento Superior Court Judge Michael Kenny’s November ruling that the project did not have a legal business plan or adequate environmental reviews, California High Speed Rail Authority officials were bizarrely dismissive. But the governor said little.

That was in sharp contrast to what happened after Kenny’s preliminary ruling in August, when Brown loudly joined in the rail authority’s campaign of belittlement. That didn’t happen after Kenny’s final ruling.

But Jerry was back in spin mode Thursday. He told me the project’s finances were “on solid ground” — and that no “major hurdles” loomed.

Groan.

The bullet train is $25 billion short of a legal business plan. Jerry’s antidote: contributing $250 million a year of AB 32 pollution-credit auction funds.

$250,000,000 / $25,000,000,000 = 1.0 percent.

He is seriously arguing that giving the rail authority 1 percent of its funding shortfall next budget year addresses the project’s funding nightmare.

As John McEnroe would say, you cannot be serious. As Dick Enberg would say, oh, my. As Redd Foxx would say, bleep bleep BLEEPING bleep.

Bloomberg NEF, a media enterprise focusing on the energy sector, isn’t the only credible entity to make this complaint about a key part of California’s push to force a shift from fossil fuels to cleaner-but-costlier sources of energy.

To address this growing problem, the state’s Special Funds were the subject of a hearing last week in the Legislature, which I attended. The 500-plus special funds have been routinely raided over the last several years to “balance” the state budget. The now-preferred budget gimmick is to shift “special funds” into the general fund in order to call the budget “balanced.”

The Senate Budget Committee conducted the oversight hearing to review this practice, but only covered what amounted to less than 0.5 percent  of the $4.6 billion in special funds that have been raided over the last several years.

Recent history

From 2007 to 2012, California had a $10.4 billion decline in its general fund, but a corresponding increase of $13.15 billion in its “special funds,” CalWatchdog.com’s Wayne Lusvardi reported in May 2012.

Last year, State Controller John Chiang reported California was patching its budget together by borrowing $4.3 billion from special funds accounts.

A few days later, the secret $54 million special parks fund was revealed.

Then-state Finance Director Ana Matosantos reported that the borrowing from special funds had ballooned to more than five times the borrowing amount since June 2008.

“Where are these dollars?” asked Senate Budget Committee Chairman Mark Leno, D-San Francisco. Leno said it was a “big problem” that the special funds “clearly have not been getting enough attention.”

Where are we today?

Gov. Jerry Brown’s last budget proposed to make only a partial repayment to the special funds accounts. The $566.4 million repayment would have been merely a drop in the bucket of the $4.6 billion owed to more than 80 California special funds. But even that amount was deferred when the actual budget was passed in June.

In April, Senate Budget and Fiscal Review Committee Vice Chairman Sen. Bill Emmerson, R-Redlands, sent Leno a letter requesting the full committee investigate the astonishing  growth of special funds, as well as the significant growth of borrowing these funds. Joining Emmerson in the letter were state Sens. Joel Anderson, R-San Diego; Jim Nielsen, R-Gerber; Tom Berryhill, R-Twaine Harte; and Mark Wyland, R-Escondido. They requested the investigation of special funds specifically from 2007 to 2012.

“The Governor’s Budget proposes to repay $566.4 million in 2013-14, with full repayment by the end of 2016-17,” the lawmakers said. “However, his proposed delay of over $1 billion of previously scheduled payments calls into question his commitment to that timetable, and the fact that over $4 billion of excess Special Fund revenues were available to backfill General Fund budget deficits, strongly suggests that fee payers have either been grossly overcharged, or have not been receiving the services for which they have paid, or both.”

But it was months before the hearing was scheduled, and only a minute portion of the debt was covered.

Budget background

Special Revenue Funds are an “account established by a government for a specific project,” such as gas taxes for transportation and highway maintenance, park user fees, and the like.

State agencies separately report information concerning special funds to the Department of Finance, but use differing accounting methods.

According to the Legislative Analyst’s Office, “Multiyear loans of special fund balances to the General Fund—in order 
to help balance the state’s annual General Fund budget—have grown from $749 million at the end of 2007-08 to $4.3 billion now (including additional loans in the 2012-13 state budget package). In addition, in 2012-13, up to $16 billion of special fund and other funds’ cash resources are likely to be used to ensure that the state can make General Fund payments on time.”

When the economy tanked in 2007-08, thousands of businesses closed, unemployment went sky-high — and fee payers got hosed paying for the increases in special fund accounts.

“In California’s budgetary accounting system, over 500 special funds receive specified fee and tax revenues to support particular public programs,” the state Legislative Analyst’s Office explained in a 2012 report. “The administration forecasts that special funds will generate about $38 billion of revenue in 2012-13, averaging around $70 million for each special fund.”

But the governor, the Department of Finance, and legislative leaders have helped themselves to the special fund monies for use in the general fund, in order to claim they have a balanced budget. They claim the funds are being paid back, but as the senators noted in their letter, these repayments are regularly delayed.

“Republicans formally requested an oversight hearing several months ago and we were assured by the Chair that the committee would review ‘a majority of fee-based funds,'” Emmerson said in a statement after the hearing. “Unfortunately, we only looked at $18 million in repayments, which is a fraction of the $4.6 billion owed to fee payers. There are 27 funds scheduled to receive repayments this year yet we are discussing only seven. What about the other 20?”

“My colleagues and I are also concerned that these special funds were able to grow to more than $4 billion calling into question whether fee payers have been grossly overcharged or have not been receiving the services for which they have paid, or both,” said Emmerson. “Moreover, these fees should be for services directly benefiting the payers and should not be spent on unrelated General Fund programs.”

Republicans have called for more oversight hearings to address many of the other special fund loans, including:

$611.8 million from the Unemployment Compensation Disability Fund

$480 million from the Motor Vehicle Account

$350 million from the State Court Facilities Construction Fund

$328 million from the Highway Users Tax Account

$285 million from the State Highway Account

$171.7 million from the California Beverage Container Recycling Fund

$133 million from the Off-Highway Vehicle Trust Fund

$95 million from the Hospital Building Fund

$11.5 million Dealer Record of Sale