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.

When the good people of the other 49 states learn the terms of this bail-out, I believe they also come together. But this time they will be showing their fangs and carrying pitch forks! With only 13% of the GDP of the United States, California gets 72% of the settlement proceeds. Undoubtedly, the five national banks will pass 100% of the cost of this settlement on to all their customers nationally. Consequently, 87% of the increased bank fees will be paid by other states increases to bail-out California’s insolvent budget.

Kamala Harris, California’s Attorney General, claimed the settlement may help roughly 250,000 California borrowers by requiring the banks to cut mortgage debt amounts and extend $2,000 payments to homeowners who already suffered foreclosure. But Greenhut points out that powerful interest groups, like the California Public Employees’ Retirement System, which had nothing to do with individual mortgage holders being unfairly foreclosed upon, carved off a piece of the settlement money to bail-out some of their investment losses on real estate speculation that resulted from bad advice.

According to the L.A., a 17-month investigation recently found that some of that bad advice came from Federico Buenrostro Jr., the former chief executive of the $250 billion California public employee pension fund. It seems that he and , and a couple of his pension Board buddies were recently accused of pressuring subordinates to invest billions of dollars of pension money with politically connected firms and strong-armed a for a $4 million in fee to be paid to consultant Alfred J.R. Villalobos, who later hired Buenrostro.

Most Californians refer to Jerry Brown as left wing, but I think he just proved he is more left brained. Left brain thinkers excel in math, language studies and logic problems. Since the banks that settled only control or own only 7.3% of all outstanding single-family mortgages, every time Brown wants to increase spending, he just needs to do another “settlement.” After all, California bank customers only pay 13% of the settlement costs, while the State gets 72% of the proceeds. Either Brown is a very smart or the other 49 governors and their Legislatures are really stupid.

“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.

Prior to the Controller’s grim report of a $5.2 billion budget miss, the LAO had already estimated that state’s revenue would be $3.7 billion below forecast and “trigger” $2 billion of automatic budget cuts to K-14 education. The LAO’s estimate of a $13 billion deficit next year, due mostly to constitutionally required “settle up” payments for short-checking public schools in prior years, now looks like a $20 billion deficit.

California’s budget projections are so consistently whacky, the Governor closed the “California Recovery website” this summer to avoid ridicule regarding its ludicrously optimistic recovery projections. Despite creating one of the most unfriendly business climates in the nation, California socialist politicians were able to do “vida loca” spending on the economic momentum of an epic 20 year real estate boom. With the real estate bust now in its fourth year, California ranks third in the nation in foreclosures and, according to “The Foreclosure Radar Report”, is one of only two states in the nation where foreclosures increased in December.

The credit rating agencies will undoubtedly take a very hard look at downgrading California’s municipal bond debt, which is already the worst rated in the nation at only two notches above junk. But the budget disaster also spells bad news for the credit ratings of California local government. Earlier this year, the Legislature passed a law striping $2 billion per year from state’s 400 redevelopment agencies to augment their own budget shortfall.

Moody’s Investor Services immediately put $11.6 billion of California tax allocation bonds on review for a possible downgrade. Moody’s stated: “If left unchanged, this law would be significantly negative for bondholder credit. This legislation could result in multi-notch downgrades on bonds of the dissolved redevelopment agencies.”

Perhaps California’s budget problems can be best understood from a Fox Television interview of Joseph Vranich, President of the “Business Relocation Coach”, who makes his living moving companies out of California to avoid the “high businesses taxes and excessive regulations imposed on commercial enterprises of all types. Costs are illustrated by the fact that a business leaving the City of Los Angeles for a nearby county can save up to 20% in costs while moving to another state can save up to 40% in costs.”

Vranich pointed out that in the first half of 2011, there were 129 companies with 100 or more employees that moved out of the state. This averages 5.4 larger companies leaving for “greener pastures” per week, versus 3.9 per week in 2010 and only 1 per week in 2009. The top relocation destination is not China but rather neighboring business friendly states of Texas, Arizona, Colorado, Nevada and Utah.

British Prime Minister Margaret Thatcher, in a TV interview in 1976, famously said: “Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them”. Had she lived in California 35 years later, she would have added: “or else the other people will take their money and just leave!”

Feel free to forward this Op Ed and or follow our Blog at www.chrissstreetandcompany.com.

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:

After accounting for November revenues, total year-to-date general fund revenues are now behind the budget’s estimates by $1 billion, but expenditures for the year are over projections by $1.95 billion… The combined current year cash deficit stands at $21.5 billion.

The resolve to turn California against business started with Governor Jerry Brown in 1974. Brown saw government’s job as restraining growth, limiting development, and expanding environmental regulations. In 1977, Time Magazine declared “the California of the ’60s, a mystical land of abundance and affluence, vanished sometime in the 70s.” Fifteen years later Gray Davis, Brown’s chief of staff during the 1970s, became Governor in 1999. Davis signed 33 bills that the state’s Chamber of Commerce called “job killers.” Perhaps the most devastating was a restructure of worker’s compensation, which drove an increase in payments per worker from $2.30 per $100 of payroll to $6.44; tripling the annual employment costs to business from $9 billion to $25 billion. Three years later, voters recalled Davis and elected Arnold Schwarzenegger. Unfortunately, in 2006 the “Governator” signed the Global Warming Solutions Act that critics mourn will raise electricity rates in California by another 20%.

In a 2011 poll of various California business groups, 82 percent of executives and owners said that if they weren’t already in the state, they wouldn’t consider starting up there, and 64 percent said that the main reason they stayed in California was that it was tough to relocate their particular kind of business. For several years in a row, California has ranked dead last in the Chief Executive’s poll about the business environment of states in the U.S.

Limousine liberals, rich environmentalists, union bosses, and their pet politicians that comprise much of the top 25% of income earners in California have not suffered devastating income declines in the recent recession. Responding to the Chief Executive poll, Steve Smith of the Labor Federation of California charged that it represented “little more than corporate honchos throwing around their weight to try to further strip working people of important protections that improve lives.” But for the 75% of Californians not at the top income levels; California’s anti-business environment continues to inflict real pain on the lives of workers and their families.

Feel free to forward this Op Ed and follow our blog.

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.

To fully comply with the new GASB guidelines, the State must increase pension contributions from $4 billion to $12 billion to fund the $703,961 spike in lifetime pension payments in excess of the original state retirement plan. To fund this $8 billion annual increase in pension funding costs; California would need to cut spending by 10% in their $89 billion annual budget. But California salary cost for its 393,989 public employee payroll is just $26.8 billion. To pay the increased pension funding costs from labor, would require a 30% slashing of existing payrolls. The pension benefit increases for the California public employees is a badge of shame for rentable politicians from both parties and a monument to the power of public sector unions. The Greeks are rioting and burning down Athens everyday over the requirements that 30,000 government employees be forced to retire. Think what life would be like for Governor Brown if he was forced next year to fire 117,609 union workers.

Brown makes twelve pension reform proposals; including increased employee contributions, raising the retirement age, no retroactive benefit increases, and no pension spiking. None of these proposals would affect current employee benefits. This is the equivalent of raising the fares for future passengers on the Titanic in order to provide more iceberg spotters and life boats.

The true-benefit of the Governor’s proposals is that each of these twelve steps could be negotiated with the state’s unions to become effective immediate when the rating agencies formally notice the State of California they intend to issue downgrades and a crisis breaks out. Little Greece continues to be bailed-out by its rich and AAA rated big brother, Germany. California is the largest state in a nation that is the largest debtor on earth and already lost its AAA rating. When the debt crisis finally hits California; adopting Governor Brown’s twelve step program will be an important step in returning California to solvency.

Feel free to forward this Op Ed and follow our Blog at www.chrissstreetandcompany.com

On November 1st Chriss Street’s latest book: “The Third Way” will be on Amazon. If you would like to order a signed copy contact The Forum Press at: www.theforumpress.com

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.

Mark Toney, executive director of TURN, a nonprofit consumer advocacy organization, is one of those demanding that Gov. Brown fire Peevey before the end of his 2014 term as head of the CPUC.

Toney charges that the CPUC “has been guided by a misguided philosophy” under Peevey:

The commission has rubberstamped millions in unjustified rate hikes, pushed PG&E into spending billion on an unpopular smart meter program that so far has delivered no benefit and allowed energy efficiency to become a utility slush fund, while insulating PG&E from its mistakes with guaranteed high profits. Granted, Peevey has presided over some new and needed environmental initiatives, but that doesn’t justify his continuing as president.

Toney ends his piece saying, “It is time for Gov. Brown to step in and replace Peevey with a president who prioritizes protecting the safety and pocketbooks of Californians over creating inflated profits and pay for utilities and their executives.”

It’s hard to deny Mr. Toney’s logic. After the disaster in San Bruno where a PG&E gas pipeline blew up, killing 8 people and destroying multiple homes, it has since been discovered that the power company has for decades failed to inspect the bulk of its pipelines for safety violations and structural integrity. It was also discovered that the company had no emergency plan in place, and that caused the company to waste valuable time in handling the San Bruno disaster.

After repeated findings of additional failures to keep detailed and proper records on safety issues and several other accidents where others have been killed — right up to the recent explosion in Roseville — Peevey has still done little to hold PG&E accountable.

Worse, he seems to be helping PG&E soften reporting requirements. For instance, in February, Peevey proposed new rules that would allow utility companies to wait as long as three months before reporting illegal pressure spikes on natural gas lines. Keep in mind, he suggested this after so many catastrophic failures.

After all this failure and after PG&E has put the safety of the public at risk, what did Mr. Peevey do upon returning from a nice vacation in August? Unbelievably, Peevey served as the master of ceremonies for an industry-sponsored retirement party for Southern California Edison’s chief lobbyist.

Peevey seems pretty content to entangle his CPUC, which is supposed to be a watchdog agency, with the very industry he’s charged with watching. Back in March, for instance, Peevey thought it would be a great idea to have PG&E help him pay for the expenses of his own regulatory efforts. It was such an outrageous idea to have the industry help fund the watchdog’s expenses that Peevey was forced to unceremoniously drop the idea.

It all leads one to believe Peevey is content to be a watchdog that is just a bit too cozy with those he’s supposed to be watching.

So, while Peevey is hobnobbing with industry lobbyists and other bigwigs, PG&E is trying to force ratepayers to pay for the company’s failure to implement safety programs. Suddenly PG&E sees the need for such programs — after multimillion dollar fines have been levied against it — but instead of footing the bill for things it should have been doing all along, the company wants to stick customers with that responsibility.

All this after Peevey has helmed some of the biggest increases in ratepayer’s burden, ensuring an 11.35% profit margin for PG&E. Again, where is Peevey in all this? Enjoying the food at dinners for lobbyists, apparently.

Just what the heck is going on here? Governor Brown should start paying attention, and there need to be consequences for this corrupt relationship between the state government and monopoly businesses.

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.

Backers of the legislation seemed to believe that affiliates would be happy to work with other retailers who also operate affiliate programs, or that online retailers targeted by the law would not end affiliate relationships and the threat was idle.

In neither case do those assumptions now seem correct.

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.

Two weeks ago, Governor Jerry Brown got a chance to begin to getting back in touch with fiscal conservatism when he was forced to close the purported $9.6 billion State deficit with $5 billion in spending cuts and promises that the sun will soon begin rising in the west. Brown is to be applauded for implementing the first real cuts in the State budget in the last 20 years; but his job was made easier by strong stock market capital gains and very optimistic projections of strong tax growth for the next three years.

California State and local government avoided much of the pain of the 2008 Great Recession that seems like it will never end; but that pain has arrived this year in a big way. It is extremely painful to see large cuts in classroom teachers and active police officers; nonetheless California government employee levels have been cut by 62,000 in the last two years. Unfortunately, according to the UCLA Anderson Business School Forecast, California State and local governments needed to have already eliminated 130,000 positions to balance their budgets.

Over the next three months California Treasurer, Bill Lockyer will need to borrow $15 billion and other local governments will need to borrow $10 billion; just to keep the lights on. A combination of irresponsible spending growth and a very unfriendly business climate has left California looking to the credit rating agencies allot like a dead beat. I am somewhat optimistic that California will find a way to borrow huge amounts of money this year, but the costs of that borrowing will be brutal.

Feel free to forward this Op Ed and follow our Blog at: www.chrissstreetandcompany.com