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Talks Break Down in California on Budget, Taxes

Just an update on the California budget situation, which because of the size of the shortfall ($26.6 billion through next June) has major implications for the national economic recovery. Last week I argued that there was nothing particularly brave about Governor Jerry Brown’s approach, which balances pretty severe spending cuts with the bare minimum extension of regressive sales and vehicle taxes. This was his stance during the campaign, and there was no real hope that he would push any further. But even this solution, mild though it was, proved too steep a price for legislative Republicans, quickly becoming a dinosaur in the state. Because the cooperation of at least a couple of their members is required in order to reach the 2/3 vote needed to put the tax extensions on the ballot, they had the usual leverage over the policy. And they wanted to use it to make changes to the overall public pension structure, as well as institute a hard spending cap. These talks have broken down.

“It’s my impression, after speaking to some of (the Senate Republicans), that the talks are done and over, and they walked away from the table,” Conway said. “It’s their impression that, even though the governor seems willing, labor has said ‘no’ to all of the requests. So I think everybody left very unhappy from the table.”

Joe Justin, spokesman for Sen. Bill Emmerson, R-Hemet, one of the five GOP senators negotiating with Brown, said Conway’s remarks were accurate.

“We remain committed to work,” Justin said. “The public employee labor unions wouldn’t allow movement on a hard, meaningful spending cap and true, long-lasting pension reform.”

That the blame is being put on labor is rather telling, especially given the turmoil over public employee unions of the past few weeks. But if anyone wouldn’t allow movement on a spending cap, it’s the voters of the state of California. Two years ago, state Democrats and Arnold Schwarzenegger tried to impose a spending cap in a ballot measure coupled with tax increases, and it failed by a resounding margin. A spending cap on the ballot simply cannot pass.

Brown’s team has tried to dispute the idea that talks have stopped, but the fact that one of the state Senators in the negotiations agrees pretty much tells the story. Meanwhile, you can see here how the failure to really change the dysfunctional governmental structure in California is driving the state toward another crisis. Republicans use the dwindling power they have to try and engineer policy changes through the budget process. The only people Brown has negotiated with on the budget have been Republicans, because their votes are the only ones that aren’t nailed down. And Brown has certainly been willing to move here, talking openly about pension reform just a couple days ago. California Democrats had the opportunity over the past 30 years to rectify this situation, by showing leadership and painting a picture for what a functional government could look like. They passed up virtually every opportunity, and as a result they get subject to an annual extortion attempt.

The options at this point are pretty grim. Democrats now have a majority vote budget option that they won last year on the ballot, but this only gives them the option of cutting spending by $26 billion all by themselves, rather than by $12 billion, as the current budget accounts for. This only enables Democrats to be the bad parents taking away Santa Claus, without any buy-in from Republicans. When the effects of all those spending cuts hit millions of Californians hard, they will have nobody to blame but Democrats. The other option is to get the tax extensions on the ballot by majority vote. There are a couple ways to do that. Apparently the legislature may have the opportunity to place those taxes on the ballot by majority vote, but Democrats have questioned the analysis. Republican Senate leader Bob Dutton requested the analysis himself, hoping that Democrats could do all the dirty work on putting such a measure on the ballot. Anyway, the legislative counsel opinion doesn’t really cover the tax extensions that Brown and the Democrats seek. Their final option is simply to do a regular ballot measure to extend the taxes, but they would have to start the signature gathering process, meaning a ballot measure wouldn’t go before the voters until next year at the earliest, which doesn’t help this budget.

Pull out those IOUs again…

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David Dayen

David Dayen