Just over a week ago in an article I published here in Big Government: “New California Budget Crisis May Torpedo November Tax Increase Initiative.” The article illuminated how State Controller John Chaing had shocked California’s spendthrift politicians by announcing the State would be out of cash beginning March 8th and would miss up to $5.4 billion in vendor payments through May 1st. The timing of the Chaing announcement was disastrous for state politicians; because it destroyed any hope that Governor Jerry Brown’s $6 billion tax increase initiative on the ballot in November would pass.

Now it appears that Brown successfully lobbied for California to get $6 billion in cash and siphon off a total of $18 billion from the $25 billion mortgage settlement with the five largest U.S. banks, who were accused of fraud in the handling of foreclosures and loan modifications. But as Franklin Center Fellow, Steven Greenhut asks in a deliciously sarcastic article: “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?” Greenhut highlights that the mortgage settlement money is really just another accounting entry, because the real source of cash to fund the “Left Coast” is “implicitly via Federal Reserve/Government coffers.”

Most Americans still snarl about crony capitalism when they think of multinational banks taking $1 trillion slurp of taxpayer’s hard earned cash and then paying themselves record bonuses, while hiking fees and cutting off borrowers. But with the United States President and Congress solemnly telling Americans healthy banks were key to our future, most Americans gritted their teeth and came together to bail-out of banks, insurance companies, and other financial firms.

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In the face of strong national consumer spending and private sector employment gains, State Controller John Chiang released California’s December financial statement showing the General Fund is running a staggering cash deficit of $21 billion on an $88.5 billion budget. This imploding financial condition is a reflection of how California’s high businesses taxes and excessive regulations are accelerating the trend of businesses abandoning the state. According to Chiang:

“While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections. Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.”

The above are “code words” that the state is financially dysfunctional and getting worse. The December report shows that compared to last year, California revenue, at $39.4 billion, is down by 11.2% due mostly to a 26.4% nose-dive in sales tax collection, and state spending of $52.3 billion is currently running 33% higher than the state’s revenue.

The Controller does not seem impressed that Governor Brown and the California State Legislature’s only solution to fix this budget mess is to relying on voters’ willingness to approve an initiative to raise the already hefty sales tax they pay by 13% and add another surtax on the wealthy to generate $6.9 billion in revenue. Even if the public shocks pollsters and actually passes the tax increase, the non-partisan Legislative Analyst’s Office (LAO) calculated the initiative would only generate $4.8 billion per year. (more…)

A study issued by the Public Policy Institute of California (PPIC), a non-partisan think-tank, just confirmed that during the 2009-2010 recessions, every income bracket in California lost income faster than the rest of the United States. But even more disturbing, all but the top 25% of earners now make less than equivalent income classes in other states. Once known as a job magnet for its sunny climate, world-class universities, and burgeoning high-tech opportunities, California has been transformed into a toxic anti-business state that works hard at drive businesses away.

From 2007 when the recession began through its end in 2009, family incomes across all income classes dropped by over 5%. But instead of going back up during the recovery, they continued to plummet by another 6% in 2010. The declines weren’t spread evenly across the income classes. Families with incomes in the top 10% saw their family incomes decline 5%, but the bottom 10% of California’s poorest families saw their incomes plummet by 21%.

In surveys, business executives regularly call California one of the country’s most toxic business environments and one of the least likely places to open or expand a new company. Many firms still headquartered in California consciously refuse to expand their workforce. Brutalized by the bursting of the housing bubble and currently suffering an unemployment rate of 11.7%, 3% above the national average, California family incomes continue to rapidly lose ground.

Already boasting the lowest credit rating of any state in the nation, State Controller John Chiang just released his monthly financial report covering California’s cash balance, receipts and disbursements for November that demonstrates the state’s grim economic circumstances: (more…)

Jerry Brown, California’s quirky Governor, has made a credible first step on the road to reforming the State’s insolvent public pension plans. The state is the global leader for financially irresponsible government by racking-up $350 billion in unfunded pension liabilities. But with the threat of California’s credit rating being cut to the same “junk” level that is destroying Greece; the Governor has offered a 12 step recovery program to begin the long journey back to solvency.

The new urgency to reform California’s public pensions is being driven by the Government Accounting Standards Board (GASB) new public sector accounting rules that will require the State of California and local governments to triple their annual pension contributions. There is no law that can force California to comply with GASB; but failure to do so will result in the State’s auditor issuing a “qualified opinion” regarding the reliability of the state’s financials. Eighteen months ago Greece’s auditors issued this type of opinion. The credit rating agencies downgraded Greece’s debt; causing borrowing costs rise above to 20% and destroy the nation.

California first enacted its public sector defined benefit pension plan in 1932, shortly before the enactment of Social Security. The legislation, just like Social Security, was designed to require work until age 65, when average life expectancy of Americans was only 60 years of age. Consequently, the average public employees, just like Social Security, were both required to contribute for decades for retirement payments they would never receive. But through labor union negotiations, the average age of retirement eligibility was whittled down to 53.75 years of age from 65; while the life expectancy rose from to 78.2 years. When the average California public employee retires today they should expect initially receive $35,000 a year pension payment that is expected to rise by a 3% cost-of-living increases for the next 24.5 years. The income steam necessary to pay for the combination of today’s public sector early retirement eligibility and longer expected lifetime to receive payments has driven the costs of pension payments up from $573,484 to $1,277,445.

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Another in a long line of explosions and other catastrophic safety failures occurred at the end of September when a natural gas pipeline built and owned by Pacific Gas & Electric (PG&E) ruptured in Roseville, California. This is just of a piece of the failure of PG&E to ensure public safety, a failure that the so-called government watchdog agency set up to watch the utility, the California Public Utilities Commission (CPUC), has seemingly done little to mitigate.

Now, not only has PG&E failed to safeguard the public, but the company is insisting that ratepayers foot the bill for repairs and new safety programs to the tune of some $2.2 billion. Government watchdog CPUC seems wholly content to stand aside while they do it.

Michael R. Peevey, President of the CPUC, has been at the helm of the regulatory commission during many of the worst failures of public safety. Yet, even as he’s claimed he intends to make major changes in the agency, Governor Jerry Brown has not sacked Peevey, whose term ends in 2014. Taxpayers are left asking, why not?

Peevey has been a disaster. He has reigned over some of the most disastrous failures which have caused the deaths of nearly a dozen Californians. His soft stance seems to have allowed PG&E to act with impunity and arrogance, all to the detriment of ratepayers’ pocketbooks and their very safety. (more…)

California recently instituted as part of its budget solution an “Amazon Tax” aimed at forcing out-of-state, online retailers with no physical presence in the Golden State to collect and remit sales tax in respect of goods sold to Californians where the retailer in question advertises, or maintains an “affiliate” referral relationship, with websites based within state lines.

Prior to passage of the bill obligating collection and remittance in such circumstances, prominent online retailers including Amazon.com and Overstock.com had threatened to terminate relationships with affiliates, if the legislation became law.  Now that it has, and affiliate relationships are being severed, something critics of the legislation say was entirely foreseeable is occurring: Online businesses and entrepreneurs are leaving the state, thus risking an actual reduction, as opposed to marginal increase, in California’s tax revenue.

Last month, news broke of one California-based online entrepreneur who had decided to ditch California and move to Nevada in the aftermath of Gov. Jerry Brown signing the law.  ”I always figured that in California, home to Silicon Valley and a million tech startups, they’d never pass a law like this,” said Nick Loper, who formerly operated ShoesRUs and has now opened a new venture, ShoeSniper.

Per the piece in which Loper is quoted, more than 70 affiliates had at that stage already left California, according to online businesses.

Then, last Thursday, another online entrepreneur, Erica Douglass, posted a mock “It’s Over” letter to California on her blog. Douglass, who sold an internet company she had built for $1.1 million in 2007 when she was just 26, cited multiple reasons for moving to Austin.  Among them were unnecessary paperwork requirements mandated by the state, and high taxes as well as business fees.  However, the straw that broke the camel’s back, was according to Portfolio, Brown signing the Amazon Tax into law.

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For the State of California and its counties and cities; tax collections tend to be lumpy during the year due to half of all income, corporate and other taxes being collected in the two months of November and April. Given that the fiscal year starts on July 1st and politicians like to spend money all year long; the State and local municipalities have relied on the sale of short term municipal bonds to tax free money market funds to even out cash flow. The total amount of this borrowing can run as high as $25 billion.

Unfortunately for California, with the sovereign debt crisis in Europe and the default crisis in the U.S.; credit rating agencies are in the process of downgrading 7000 muni bond issuers. California who has the lowest rating on the continent, could receive a junk bond rating. Such a rating would make purchase of California bonds by money funds deemed to be imprudent investments. Consequently, California is being forced to try to borrow money from banks at interest costs that may be 5 to 10 times higher in cost.

Starting around the third week in July, California’s Treasury will begin to run increasingly negative cash balances until larger tax payments arrive in early October. With the State continually cash-strapped; those nice people at JP Morgan Bank and their banker buddies bailed California out with bridge loans of $1.5 billion in 2009 and $6.7 billion in 2010 (See here and here.). At the time, because there was no risk of the State being downgraded to junk levels, the interest cost on the two loans were less than 2%. But loaning money to government today is perceived as a much more risky proposition. Last week, JP Morgan bank loaned $2.25 billion to New Jersey, which has a higher rating than California, at a cost of up to 9% interest. At a low 2% cost of interest, it would take 35 years of compounding before the borrowed money would double. But at 9%, the loan doubles in just 8 years.

To instill confidence in the lenders, California voters elected “Moon Beam” Jerry Brown to replace “Terminator” Arnold Schwarzenegger last year. Brown has always been a complicated figure in California politics. In 1975, Jerry Brown became the youngest Governor in the history of the United States by being elected at age of 37. After taking office; Brown was widely liberal on social issue, but was actually a fiscal conservative that favored a Balanced Budget Amendment. After the passage of Proposition 13 limitations on property tax collections, Brown did such a good job balancing the State’s budget that the initiative’s author, Howard Jarvis, actually made a television commercial supporting Brown for his successful reelection bid in 1978.

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In the aftermath of the California legislature passing and Gov. Jerry Brown signing into law an “Amazon Tax,” it looks like taxpayers unhappy about the Golden State’s pursuit of the almost certainly unconstitutional measure may get an opportunity to kill it off.

According to KQED, this week, a formal request for a referendum to overturn the law was filed in Sacramento.  In order to make it on the ballot, backers will have to get something in the range of 500,000 signatures once the petition is cleared by the state’s Attorney General.  One question that will need to be settled is whether the referendum is allowed in view of the fact that the Amazon Tax was included in the budget, but signs point to this being a possibility.

According to Amazon.com Vice President Paul Misener, “This is a referendum on jobs and investment in California.  As Governor Brown has made clear, it is important to directly involve the citizens of California in key issues and we believe that Californians will want to vote to protect small business and keep jobs in the state.”

If placed on the ballot, the referendum could have a good chance of success.

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California lawmakers thought they were targeting Amazon.com, the out-of-state giant, when they voted last week to force Internet retailers to collect sales tax.

It turns out eBay Inc., California’s own golden child of e-commerce, isn’t so thrilled about it, either.

The San Jose online auction company says the legislation would hurt its business model, which relies on thousands of entrepreneurs who sell goods on its site.

The intent may have been to go after Amazon, but “we’re literally caught in the crossfire,” said David London, senior director for state government relations at eBay.

California’s proposal to institute an “Amazon Tax” took another major step forward last week.

The last of three bills aimed at getting the Seattle giant and other out-of-state online retailers to pay sales tax passed the Assembly on Wednesday afternoon.

“It’s something we’ve been working on for years,” said Assemblywoman Nancy Skinner, D-Berkeley, who authored the bill. “But this is the first time that so many businesses up and down the state are supporting it.”

A companion bill, authored by Assemblyman Charles Calderon, D-Whittier (Los Angeles County), passed the full floor on a 47-16 vote on Tuesday.

“This bill levels the playing field for businesses in California,” said Assemblyman Bill Berryhill, R-Ceres (Stanislaus County). “Not a day goes by when I don’t hear from businesses about their ability to compete.”

Which is what supporters of the so-called e-fairness legislation have been shouting from the rooftops for years, despite vetoes from former Gov. Arnold Schwarzenegger and dire threats from Amazon.com (2010 profit: $34 billion) and Utah’s Overstock.com to pull their affiliate business out of the state.

Assemblyman Berryhill was the lone Republican to back the bills; now both AB 153 and 155 will head to the Senate for approval, while Senate bill 234, another “Amazon Tax” bill, is anticipated to be taken up by the Assembly.  Democratic Gov. Jerry Brown still hasn’t voiced an opinion either way on any of the bills.

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This recent decision has been in the making since 1990 when the class action Coleman v. Brown was filed in District Court that found that California “prisoners with serious mental illness do not receive minimal, adequate care.” Then in 2001 Plata v. Brown said “the State (California) conceded that deficiencies in prison medical care violated prisoners’ Eighth Amendment rights and stipulated to a remedial injunction.”

In 2005 when California did not comply with the “remedial injunction” a three-judge court was empowered “to order reductions in the prison population.” All of this is further explained in the recent ninety-one-page U. S. Supreme Court decision that can be found under “Recent Decisions” here and selecting Brown v. Plata.

Reading the text of the decision the court “concluded that it would be possible to reduce the prison population ‘in a manner that preserves public safety and the operation of the criminal justice system.’”

The decision says the state has created “a certain and unacceptable risk of continuing violations of the rights of sick and mentally ill prisoners, with the result that many more will die or needlessly suffer.” Further that, “The constitution does not permit this wrong.”

The court used a statement from the former heads of correctional systems in Washington, Maine, and Pennsylvania, to justify that California prisons are “criminogenic” and a statement from a chief probation officer who testified that “it seems like (the prisons) produce additional criminal behavior”. In that same passage California’s Little Hoover Commission stated, “California communities are burdened with absorbing 123,000 offenders returning from prison, often more dangerous than when they left.”

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From Steve Lopez, Los Angeles Times:

Last week, I found myself cruising the website of the California prison guards union. I was curious about whether the $7 million the California Correctional Peace Officers Assn. spent on last year’s elections — including $2 million on Jerry Brown’s governor’s race alone — might have had something to do with the contract the union just scored.

And right there at ccpoa.org, I saw a video called “Winners.”

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Friday afternoon, I drove by a few schools on the way to my own children’s elementary school for the day’s dismissal.  Or rather, I should the day’s early dismissal.  The LAUSD School Board decided to let teachers chisel on their children’s education by cutting the school day short by 35 minutes.  Other school districts throughout the state actually permitted teachers to take off an entire day to protest for higher taxes in Sacramento.

Apparently, these “devoted” teachers who are just “acting on behalf of the kids” have no compunction about abandoning them for anywhere from 35 minutes to an entire day to protest possible state education cuts.   Now I have no problem with any employee, unionized or not, to protest against salary or benefit cuts.  However, that protest should happen on their OWN DAMN TIME. I was pleased to see, and not surprised, that the outstanding teachers at my public elementary school were not out marching in red shirts with signs calling for higher taxes.   Instead, there were just 5 chairs set outside the school with the names of the teachers who might be laid off.  Simple, tasteful, poignant.  Nobody chiseled on the kids, nor should they.  The most truly devoted teacher I ever had, Edwin Barlow, never once missed a single day of school in thirty-five years.  It didn’t matter how sick he was, how hungover he might have been, or if he had a cast on a leg he’d broken the night before.  He showed up.

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The former Governor of Massachusetts and semi-declared candidate for President, Mr. Romney, has the Massachusetts health care “solution” called now “RomneyCare” (a plan upon which the widely unpopular “Obama Care” plan is based) to discuss with the American people. For some on the Left this provides Mr. Romney with a strong gravitas, but how will RomneyCare play on the Right?

“RomneyCare’s” association with “ObamaCare” and the rampant unrealistic, excessive nanny-statism (and legislative strong-arm process that passed the national plan) combines to create a difficult marketing/public relations challenge for Mr. Romney in the upcoming election should he decide to run.

Michael Graham in the Boston Herald of April 12, 2011 writes,

As a health care plan, Romney care is an unmitigated fiasco. It has caused costs to skyrocket, insurance premiums to soar and nonprofit providers like Blue Cross to suffer hundreds of millions of dollars in losses.

Illustrative of the deep rift across the country about RomneyCare/ObamaCare and too many other contentious issues to discuss, Graham cites a new Suffolk University poll showing dissatisfaction with the Massachusetts Romney Plan.

But after five years of actually experiencing this new universe, even the Kennedy Democrats have had enough. A new Suffolk University poll showed that nearly half of Massachusetts voters say the law isn’t helping, while just 38 percent say it is. As Michael Cannon at the Cato Institute pointed out, Romney care is almost as unpopular here as Obama- care is across America.

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Politicians, being what they are, tend to have an inflated view of what they can do. Some claim to create jobs while others claim to raise taxes. In truth, they are limited to passing political laws. Once enacted, those laws run into the laws of economics – which have never been repealed and have been largely the same since the beginning of time. The results are often different than those intended – and so it is for Jerry Brown, whose policies fly in the face of economics and Californians are paying the price.

Few can doubt the magnitude of the economic problems facing our once Golden State. Unemployment is above 12% and underemployment is above 20%. Over 1.3 million less people are employed today than a decade ago. California homeowners have lost over $1.7 trillion in equity in the last 4 years – an amount nearly equal to the entire state economy. That combination has resulted in California suffering the worst of the nation’s foreclosure crisis including startling figures such as in Fresno, where 46.7% of the mortgages are under water, i.e. the mortgage is larger than the home value.

California businesses face taxes among the highest in the nation, even higher regulatory burdens and, just around the corner, potentially large workers’ compensation rate increases. It’s no wonder CEO Magazine ranks California 51st in the nation (behind Puerto Rico) as a place to do business.

All combined, these economic problems have resulted in revenue problems for California governments because people without jobs don’t pay taxes; homeowners without equity spend and borrow less; and businesses with mounting costs have lower profits. That’s economics – not politics.

For Jerry Brown, however, economics remains a mystery to say the least.

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The flyers and handouts and signs and banners are up at my local elementary school.  Seven teachers are scheduled to be fired on June 30th because — big surprise — there’s just not enough money to keep them.  So stand up for these beloved teachers — and they are beloved — by writing to the local School Board rep and demanding that cuts take place somewhere else.

Oh, and parents, while you’re at it, put pressure on your state legislator to vote in favor of Jerry Brown’s tax increase extension.   That would be the 5-year extension Brown failed to ram through the legislature — an even longer extension than voters smacked down in a proposition vote in 2009.   That way we can keep these teachers at further expense to our pocketbooks and the California economy.  Not that this is a scare tactic, but it is a scare tactic.  You don’t want your kid to be in a 39-student classroom, do you?  Do you?  Because the sky IS falling.

Because God forbid that the Teacher’s Union should make concessions.

In talking with unnamed Administrators they said the cuts could easily come from within Los Angeles Unified School District (LAUSD) at many different levels.  What needs to happen is that the Board needs to communicate directly with the teachers and administrators in the trenches to learn what could be cut.   That, of course, would be far too easy.

Instead, the union trumpets the fact that everyone — from lunch personnel and bus drivers to rank-and-file teachers — voted to increase the number of unpaid furlough days from seven to eleven.  So while this is technically a cut, it’s a selfish one.  Why?  Because all it does is give teachers four extra vacation days, while chiseling on the kids.  The ballsy, and morally upstanding move, would have been to cut salary by the same percentage while actually providing instruction.  You know, being devoted to the kids.

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There are a few very  interesting points below headlines today claiming California residents strongly support extending the state’s once temporary tax increases via special election.

Survey finds Californians back tax extensions

Californians would overwhelmingly back extending temporary tax increases to help balance the state’s budget if asked to in a special election, according to survey results released on Wednesday.

The survey found that, by a 58 percent to 39 percent margin, voters said they would vote in favor of a ballot measure asking them to extend temporary tax increases.

If that’s truly the case, then why did voters flatly reject the same thing as recently as 2009.

His strategy is risky. Voters already overwhelmingly rejected extending the temporary vehicle, sales, and income taxes in May 2009, months after lawmakers and Gov. Arnold Schwarzenegger enacted them.

Enter the Labor Unions. Got that?

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Capitol Confidential has previously reported on legislation introduced by California Democratic Assemblywoman Nancy Skinner that seeks to impose a new, and unconstitutional, tax on out-of-state, online retailers including (ironically) a number of eBay users.  Capitol Confidential has since learned that a prominent corporate sponsor of such efforts is retail giant Target, and that a number of other big retailers back the legislation, too.  According to one source, that group includes Bloomingdale’s.

So what if neither Target nor Bloomingdale’s collected and remitted sales/use taxes in states where they sell online to customers but in which they maintain no physical presence (the practice Skinner’s bill aims to ban by redefining the concept of “nexus”)?  Based on what appears on both companies’ websites when one inputs an order using the data of a resident of such states, it appears both corporations are willingly taking advantage of the same constitutional case law as the online retailers targeted by Skinner’s legislation to avoid tax liability.

Here is a screenshot of the “review” page related to a Target transaction input using a Vermont customer’s information. Target’s website indicates that there are no Target stores in Vermont, and this is the final page at which customers can make adjustments, or discard the transaction:

No sales or use tax appears as a line item in the transaction, and the asterisk next to the $0.00 figure merely points to a line saying “why has sales tax been applied?” (which in this case, it has not).

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All across the land, it would seem that there is but one story to be written regardless of the locale – and budget cuts are that story.  For years, rational legislators and commentators have warned American voters, and those legislators that have thrown economics to the wind, that spending beyond our means will lead to government meltdowns – and so it is today.

Here in California, during the recent State of the State by California Governor Jerry Brown – remarkable only for its brevity – Brown demanded more tax increases to “solve” the State’s now perennial budget crisis.  In doing so, he decried politics as usual but demanded policies as usual.  California has become the tax and spend capitol of the world (outside of Washington DC) and its budget next year will feature a $7.65 billion in debt repayment alone – more than it spends on public universities and more than the overall budget of 21 states.  By comparison, Wisconsin’s $137 million deficit seems quaint compared to California’s $20 billion+ deficit.

Brown also falsely claimed in his State of the State that no one was giving ideas on where else to cut and that if Republicans (and voters) didn’t go along with his tax hikes, he would cut deeper into education.  Brown didn’t offer to cut the state bureaucracy – he threatened to cut education funding – as Democrats are wont to do in order to scare voters.

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Last week, California Democratic Assemblywoman Nancy Skinner announced the introduction of fresh legislation to force out-of-state, online retailers to collect California sales tax– legislation that critics charge amounts to an effort to introduce a new tax in what is arguably already the most heavily-taxed state in the nation.

The move replicates others pursued in years past by Democratic colleagues of Skinner– but notably avoided by Gov. Jerry Brown in his recently announced budget– and by all accounts seems to ignore the overwhelming likelihood that such a scheme would prove unconstitutional if challenged in court (by virtue of the the Quill v. North Dakota decision).

However, Skinner’s legislation is also being challenged on the basis that it would not, contrary to backers’ assertions, help put a substantial dent in the state budget deficit or eliminate or minimize the need for deep budget cuts in order to close it.  In fact, using Skinner’s own numbers, it appears that the institution of a so-called “Amazon tax” would strip away a mere 1.1 percent of California’s budget deficit:

(image via Americans for Tax Reform)

Critics say even the minuscule prospective “help” that might be afforded by the institution of Skinner’s new tax with regard to closing the Golden State’s budget gap may represent a “best-case” scenario: Were the new tax instituted, online retailers could well end their affiliate programs, thereby denying affiliates a revenue stream that enabled them to contribute over $100 million to California’s coffers in 2009.

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