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CA Budget Stalemate Continues

CA Budget Stalemate Continues
The state budget stalemate continues, with no resolution in sight. Earlier this week, Democratic lawmakers walked away from talks aimed closing the state's $26.3 billion deficit. Now, the governor is proposing a 20 percent wage cut for state employees.

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

Analysis: California Issues IOUs

GLORIA PENNER: I'm Gloria Penner. I'm joined by the editors at the roundtable these days in San Diego. Today, we'll look at the sorry state of the California budget, the proposed high school in the proposed downtown library getting a thumbs-up from the San Diego City Council, and fresh violence south of the border targeting police officers. The editors with me today are Kent Davy, editor of the North County Times. So glad you could visit us again, Kent.


KENT DAVY (Editor, North County Times): Thank you, Gloria.

PENNER: And Scott Lewis, Chief Executive Officer of I love that title, Scott.

SCOTT LEWIS (CEO, It's pretty bold, huh?

PENNER: Yeah, it really is. Glad you could be with us. And Vicente Calderon, editor of And, Vicente, you came across the border to be with us today. We are so happy.

VICENTE CALDERON (Editor, I'm so happy to be here. Thank you…


PENNER: Thank you..

CALDERON: …very much.

PENNER: Our phone number, it's our call-in number, is 1-888-895-5727, 895-KPBS. Well, if California were a person instead of a state, he or she would be on life support right now. This patient is bleeding money and needs a transfusion of more than $26 billion to not go belly up. The caregivers are doing a rotten job, fighting amongst themselves for the upperhand while the patient succumbs. Well, you get it. I won't overdo the parallels, I promise, Kent. So before we talk about a possible cure, I couldn't resist, let's understand the problem. Why doesn't California have a budget for the year that began on July first of this year?

DAVY: Well, there's a bunch of different ways you can analyze it and lay blame, I guess, or praise, in this case. First of all, you've got the structural problems of the California spending system. You are – The state is on path to try and spend a whole lot more money than it takes in, particularly because a half of the general fund revenue is – comes from personal income tax. Of that half, half of that or, therefore, a quarter of the general fund comes from taxation on the top one percent of income earners in California.

PENNER: Is that true?

DAVY: Yeah. Umm-hmm.

PENNER: Half of the personal…

DAVY: Half of the half.

PENNER: Half of the personal – half of – Well, all right, we'll…

DAVY: A quarter.

PENNER: A quarter comes from the top one percent.

DAVY: Yeah, umm-hmm. And that money is generated by capital – principally by capital gains tax. Well, in a rotten stock economy like – or, investment economy like we've had for arguably the last two years, revenues fall off a cliff and the State then finds itself in desperate straits to find money to pay for what has been a substantial overgrowth in State spending over the last ten years or so, a curve that looks more like a parabola going up than any kind of a straight line.

PENNER: I gotta remember my geometry. You know, a lot of people, Vicente, blame this on a legislature that's polarized. You have extreme conservatives and extreme liberals. And, certainly, you recently had an election in Mexico where you have, you know, two parties kind of battling it out. How responsible, generally, do you think a divided legislature or a divided congress is for major problems like being unable to come up with a budget?

CALDERON: In the – On the Mexican side?

PENNER: Yeah, well, we'll…

CALDERON: Or in general?

PENNER: We'll do some parallels.

CALDERON: I guess this is something that you will see all across any country or any system like this because they – For example, we have more than two parties and just a couple of minor parties that are playing the role of the balance vote, the one who had inclined the balance to one side or the other one. But the situation is very different because the powers in both sides are not as strong in the Mexican legislatures than the ones here in the U.S. We are learning to deal with that and they are still in the process of being able to go beyond the politics. That is what's plaguing, I guess, and the bottom line here, all this problem also.

PENNER: What do you think about this, Scott, before I go back to Kent on this. Do these very conservative Republicans and very liberal Democrats, with very few in the middle capable of compromise, are they the ones that are blameworthy?

LEWIS: I think they're doing a great job. And here's my point. I don't think the structure is set up in a way that these people could do any better of a job. Their term limits, their district elections, their special interests, there are all these things that are working against them being productive. The two-thirds rule for the budgeting, all these kinds of things means that this is the way that our structure is meant for things to come out right now. I think I need to throw a shout out right now to Walt Ekard, the CAO of the County government here. He had a fantastic analysis the other day where he pointed out, the fact is, is that at the state level right now, there's nobody in charge of the government bureaucracy as a whole. There's no counterpart to his position, where he's in charge of the entire administration of the County and responsive to a board that oversees him. Well, there is nobody of a parallel position in state government. Sure, the governor is there but he's not a manager. He is a politician with political interests. His chief of staff is not a manager either. There's no – You could say the Chief Financial Officer has some sort of level but he's a bean counter and other kinds of things. There's a – there's no – the structure from the constitutional amendment process to the term limits to the – to the two-thirds budget rule, it all produces this. And until you boil it all off, until you let the tornado hit it, you can't rebuild with proper planning procedures. You can't do it better. And this is the way that this is always going to come out until we get this – a better structure.

PENNER: Well, that is a very interesting take on it. And I want to turn to our listeners and ask them. Our number is 1-888-895-5727, 895-KPBS. So before we can look at how to solve the problem, what we're trying to do is figure out what the problem is. Kent is talking about the fact that there's been a limited income coming in from the top one percent and the capital gains aren't flowing in. And Vicente talked about, you know, the political structure of one party versus another. And then that very interesting thought that was brought up by Scott, that the state government doesn't really have a boss or an administrator the way we do at the County. And the County's working pretty well, isn't it?

LEWIS: Well, I mean, as far as an employment organization, it has its own problems but I'm saying that there's – you have to have a system in place in order to foment this accountability and management system. You have to have somebody in charge who's firing people.

PENNER: We'll talk about how that might happen a little later. But let me ask our listeners the question I was going to pose, which is: Where do you think the problem is? You've heard about, certainly for months now, that we have a real budget mess and that the state is going to run out of cash probably by the end of summer, so it's going to be a rough time unless something happens. Where do you think the problem is? Our number is 1-888-895-5727, 895-KPBS. Before I go to our callers, Kent, respond to what Scott had to say about that structural problem.

DAVY: Well, I think it's an interesting analogy but I don't think it's very apt to state government. The – that is more analogous to any kind of a corporate style organization, which is, in effect, how the County's set up. It's governed by a small board of directors with a CEO that actually runs everything for that board, unlike the state, in every state in which you have a balance of powers between three competing institutions, the executive branch headed by the governor, the legislature, and the court system. In the case of California, the system is somewhat distorted because of the intro – as Scott said, the introduction of term limits, the requirement of a two-thirds majority to pass a budget or popular vote to hike taxes, and then a court that is not such a major player on this. And I think, in fact, California's ended up where it is because it has both a permanent majority and a permanent minority pushed to the outside in which the public service sector unions basically run the Democratic party and a small cadre of very conservative people run what's left of the Republican party.

PENNER: Right.

DAVY: And there is no way to make middle ground between these two very diametrically opposed points of view.

PENNER: Not unless we have an open primary and that's going to be on the ballot next year. Let me turn to our listeners and we'll start with Rick on Interstate 5. Hi, Rick. I hope that you have your…

RICK (Caller, I-5): Good morning.

PENNER: …headset in.

RICK: Yep. Thanks for…


RICK: …thanks for taking the call. Actually, the last gentleman was sort of speaking to my point about gerrymandering and how you end up with hardcore legislators who play to their bases rather than trying to get elected by playing into the middle. So you have people who have no idea how to make a deal and no willingness to, because if they make a deal they get fired.


PENNER: Go ahead, Kent. Oh, Scott.

LEWIS: Well, not only – Yeah.

PENNER: Scott.

LEWIS: Not only do they not have any incentive because they've been elected, like Kent aptly described, by these interest groups but then the term limits discourage them from even accomplishing anything. They – their point is to protect and make sure that they don't screw up while – before they move on to their next seat, either in the other house of the legislature or some sort of further position. So the incentives are against productivity. The structure is against cooperation. The management is not accountable. And there's no single accountability measure.

PENNER: Well, let me turn to you on this, Vicente. Actually, we had the Assembly Speaker, basically, the Democratic head of the Assembly, Karen Bass, boycotting negotiations. She walked out and she won't come back in. And, meanwhile, nothing's happening. It's like it's come to a no-action up there in Sacramento. I mean, is that sort of indicative of what the mentality is in Sacramento?

CALDERON: I think they will show a lot of that. And, also, we saw this in, where it was, in New York recently, when they have a very strong, hard struggle. And we need to see the outcome and what will be in the bottom line in the mind of the legislators, as Scott was saying, because this has allowed, in my perspective, part of the problem and you were saying that there's polarized perspective in this. And they don't see any way to compromise because they say you are – you are accused to be too much to the left, you fund problems for the poor people over a working class and the other way around, you are giving some incentives to the higher part of the production lines, the embezzle – the people with the most income. You don't see also but all the way to the extreme to the right. So there's no – I don't see how can they compromise so far.

PENNER: That's a sad thought, isn't it, Kent Davy.

DAVY: Well, let me jump in. A couple of things. One of the things that happens in California is you have all these artificial triggers. Thou shalt have a budget by the first of – or the – the first of July. There's a trigger there.

PENNER: That's a joke, though.

DAVY: It is a joke. And the latest was, well, if we don't have a buget deal by a certain set date, we're going to end up issuing IOUs. Now the latest is the IOUs need to be taken care of by October, I don't know…


DAVY: …third or something like that. And the State, if it has to have a budget deal by August, oh, maybe mid-August, late, later in August. So it keeps rolling back. In the meantime, you have enormous grandstanding and political ploys going on on each side. You have Karen Bass, who doesn't show up for the Big 5 meeting between the governor and the heads of the legislature. You have the governor, who come backs (sic) and says, I'm going to take another furlough day and add what amounts to another five percent cut on pay, and he wants more on top of that. You have him saying, no, it's – there's fraud in HHIS…


DAVY: The Health and…

PENNER: Human Services.

DAVY: …Human Services accounts. All of these pieces jockeying for some advantage, all hoping that the train wreck escapes by the time they hit August or whenever the next time the IOUs run out.

PENNER: Yeah, but to have a train wreck escape, you need to have a good engineer or a good leader. What kind of leadership do you think that the governor is showing? Scott.

LEWIS: Oh, none. I mean…

DAVY: Yeah.

LEWIS: …there's no vision. There's no – there's no route out of this. And it's because the problem is so complex and so difficult. I don't expect a miracle worker right now. This is going to take months and months to solve. Now, one quick thought, I would love to have those little IOUs. Who – I don't know any source that's paying 3.75% interest right now and hopefully…

DAVY: I think you can buy them at discount on Craigslist.

LEWIS: Yeah, maybe I will. I mean, that's a – that seems like a great deal.

PENNER: Well, yeah.

LEWIS: Don't give me any ideas.


PENNER: But there seems to be a lot of interest in them and certainly the SEC is taking a hard look at regulating them. Before we continue the discussion, and taking all of the many calls that are coming in on this, we're going to have to take a short break. We'll be back in just a moment. Hang in with us and then we'll take your calls.

# # #

PENNER: I'm Gloria Penner. This is the Editors Roundtable. And at the roundtable with me today is Kent Davy from the North County Times, from we have Scott Lewis, and from the we have Vicente Calderon. We're talking about the dismal, dismal situation with California's budget or non-budget, and our number is 1-888-895-5727. Our listeners are very eager to become part of the roundtable today, so let's start right out with Derek in Ocean Beach. Hi, Derek, you're on with the editors.

DEREK (Caller, Ocean Beach): Hi, Gloria. Thanks for taking my call.

PENNER: You're welcome.

DEREK: I don't think it's very dismal. I think you have legislators who have different viewpoints, strongly held different viewpoints. The Republicans have the viewpoint that you should not raise taxes under any circumstances and you should cut services. The Democrats have the viewpoint that services are necessary and taxes should be raised on the very wealthy and the big corporations. They both hold those viewpoints strongly, they're dedicated to them, they're not grandstanding, they are sincere in their viewpoints, and when you have different viewpoints like that being strongly held and people standing on firmly on their viewpoints, you have the stalemate that we have. But I don't think they're grandstanding, I don't think they are being insincere. I think you just – You know, if you know Republican and Democratic friends, you know how people are behind their viewpoints.

PENNER: Let me ask you this, Derek, Bill Lockyer, who's the Treasurer for the State of California, has suggested bringing in a mediator because if you have strongly held opposite viewpoints, somewhere along the line to get anything done, you have to compromise and sometimes you need somebody to facilitate or mediate those compromises. Think it's a good idea?

DEREK: I think that would be a really good idea.

PENNER: So you do agree that there needs to be some kind of compromise even with the strongly held ideas.

DEREK: Yes, I just think right now these people are standing strong on their viewpoints.

PENNER: Okay. Scott Lewis.

LEWIS: Well, you know, good for them. But the problem is, and we were just talking off the air, Kent said that the – it sounds like it's going to cost the State upwards of $45 million or more. Now, I don't know if that figure's right, or we can look that up, but just these IOUs, to pay interest to people to not get their money is costing millions and millions of dollars. So, great, stand on your principles but all the while bio-social services are going to suffer, you can't go to the DMV today. You know, I shudder to think what the DMV's going to be like if they close it even more days. And when you have to show up in the morning, I mean, there's a line around the building in the mornings now anyway.

PENNER: And look at the situation with the universities.

LEWIS: Yeah.

PENNER: I mean, they can't take in students. San Diego State and Cal State University has had to stop registration for the fall and the spring semesters.

LEWIS: In-home domestic workers, roads and infrastructure, I mean, the quality of life, we're – we're in danger of, you know, California used to always think that it was such a progressive and powerful state. We're going to resort to the type of state that we used to, you know, not hold in the highest esteem and this is not something to just say, well, great, principles, you know, they're being sincere and they're fighting with each other. Good, fight, go. There's obviously a sick disease up there that we need to somehow cure.

PENNER: So dismal is not too strong? You don't think it's too strong?

LEWIS: No, no, not at all.

PENNER: Vicente, so there you are in Mexico. California used to be like the richest state in the richest country in the world, sitting right there next to Mexico, which is certainly not the richest country in the world, and Baja, California not the richest state. So there was a time when the contrast between the two was just extreme. What is the attitude now in Mexico as they look at California?

CALDERON: They are amazed. They are surprised and they are very worried because the fact that the Baja, California and the northern part of Mexico has been able to make more progess than the center and the south is the proximity and the possibility of making business with California and, you know, probably in some areas – Texas have been a more important partner for Mexico in general than California but still, in the region, the relationship between companies in California and in Baja, California, it's created a big opportunity that it's losing, is lost right now. There used to be that the northern border was the first area, the first region of the country, Mexico, to come out of these recessional problems or these economic problems. But right now, since we are so tied up with the economy of California, specifically, we are one of the first who went down and the ones, we're having more trouble to come out of these problems.


PENNER: Okay, let's hear from a listener again, and this one is Jim who is calling in from La Costa. Hi, Jim, you're on with the editors.

JIM (Caller, La Costa): Hi. How are you? You know, I'm an outsider looking in although I've been in San Diego for 15 years. I came from the east coast, from New Jersey where we had probably the number one and number two school systems in the United States and had a reasonable tax rate—it's gotten higher since I've left—but the reality is, is that I left a – I remember, I left a townhouse in New Jersey that cost me, at the time, about $120,000.00, and bought a townhouse in San Diego for about $180,000.00 at the time. This was in '95. And the most striking fact was, is that I was paying about one-third the taxes on the property that I was paying back east. And I realized this was partially due to the ratings of taxation but also due to this Prop 13 thing that you guys have embraced. And I started doing some research and I found out that, you know, you – this state was proposition nuts. They had put so many things on ballots to obfuscate all the risk from all of the legislators to make decisions and had people – and, candidly, in many cases, myself, that were not in a position to really understand the nuances and subtleties of voting for these things and so it became an emotional vote. And this was no exception to the last round of propositions we voted on in May. So…

PENNER: Very, very interesting call, Jim. I'm going to have Kent respond to you. Is it time for a constitutional convention and redo our constitution and all those amendments?

DAVY: Well, I think that's one of the suggestions that's being made as a way in the future to figure out and sort things out but it doesn't help with a current budget deficit and a current problem with a government that pays out IOUs. One other thing about the caller's comment I think's worth noting, that California right now, the tax foundation says that California, its state and local government, carries about a ten and a half percent personal income or income is – comes back to the state in revenue. That puts them number six in the nation. New Jersey's number one. So although the property tax piece may be different, there are other pieces of taxations that tend to equal or put things in an entirely different perspective.

PENNER: Well, Proposition 13 is coming under some fire now. For the first time in a long time, I'm hearing whisperings that maybe we should revisit it because, after all, it's because of Proposition 13 that it takes two-thirds vote of the legislature to increase taxes. It was 13 that brought that one in.

DAVY: That's true.

PENNER: Yep. Okay. So with that, we are going to wrap up this section and move on. And, Jim, thanks for you call. It was most interesting and I hope you kept that townhouse in New Jersey as well as the one in San Diego. Let's go on.