So California’s budget woes have been going on for months now but the time for action is quickly growing near.  Unfortunately, while everyone agrees that action is necessary, nobody can agree on what those actions should be.  We’ve got a 26.3 Billion dollar gap still to close and accomplishing that in a bi-partisan way is looking to be nearly impossible.  Of course listening to statements from either side makes it seem so easy, “Just cut out our wasteful spending already!” or “Just raise taxes on the rich to where they belong!”.  But when you find out that if we were to, for example, cut all state funding for the UCs and CSUs it would still only save us 1.5 Billion or that raising corporate income taxes would only net us 430 million, it starts to look a little more complex.  Obviously a mixed approach will be necessary, at least until the economy begins to recover and the state’s income returns to normal levels.

The LA times has a very interesting little program on its website that allows you to try your hand at solving CA’s budget crisis.  It can be found here:

You Balance the Budget – LA Times

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Well with finals over and done with you can expect to get a lot more posts from me in the coming weeks!  And we start out today with some very exciting  news.  President Obama held a press conference today for what he called, “a watershed event in the long and elusive quest for health care reform.”  The American Hospital Association, the American Medical Association; PhRMA; AdvaMed; America’s Health Insurance Plans, the SEIU, and the Greater New York Hospital Association and the California Hospital Association announced a new cooperative effort to drastically reduce the rate of growth of healthcare costs beginning immediately.  They pledged to cut the rate of growth by 1.5%.  This may not seem like a lot but this means a cut from about 7% to 5.5%, bringing us much closer to the annual rate of income growth which tends to hover around 4-5% but which has at times grown to near 6%.  And that’s what really matters, that’s really our baseline here.  If healthcare costs can be reduced such that their growth is equal to the rate of income growth in the US then the future of healthcare suddenly gets a lot rosier.  And this commitment brings us much closer to that goal.

And this is also great news for America’s future financial security.  Many people don’t realize the huge impact that rising healthcare costs have on our country’s national budget.  The reasons why that is are a subject for another article but even a savings of 1.5% will mean much smaller deficits and less national debt.  One Obama aid put it this way:

“I don’t think there could be a more significant step to help struggling families and to help the federal budget than reducing the growth rate of healthcare spending by 1.5 percentage points per year. With regard to the federal budget… the only way that we are going to restore the nation to a sound fiscal path over the long term is to reduce the growth rate in health care costs… Reducing the growth rate of health care costs overall by 1.5% per year would virtually eliminate the nation’s long term fiscal gap. … This, by an order of magnitude, is far more important [than Social Security or related reforms] to the fiscal trajectory that we’re on, especially over the long term, than anything else that could be done.”

Perhaps a bit hyperbolic but nobel-prize winning economist Paul Krugman was almost as excited:

“And serious cost control would change everything, not just for health care, but for America’s fiscal future. As [Budget Director Peter] Orszag has emphasized, rising health care costs are the main reason long-run budget projections look so grim. Slow the rate at which those costs rise, and the future will look far brighter. I still won’t count my health care chickens until they’re hatched. But this is some of the best policy news I’ve heard in a long time.”   And later says, “…shaving 1.5 percentage points off the growth rate of health care spending. That may not sound like much, but it’s actually huge: achieving that goal would save $2 trillion over the next decade.”

So certainly nothing to sneeze at.  The details of how these savings will be accomplished were not released today but will be revealed over coming weeks.  As for why they’ve chosen to independently take this step?  The only answer from the industry was that they’re being “good Americans”.  This commitment will have no enforcement mechanism beyond the press and there will be no formal regulations.  Apparently the industry just came to this conclusion themselves.  Fantastic, if its that simple, but some fear this may be a preemptive attempt to block the healthcare reform that’s currently taking shape in congress.  Insurance companies can ask for patience first to see if their efforts are sufficient or they can claim that they tried to do their part but congress simply wouldn’t compromise.

I’m actually more optimistic.  In the industry’s statement on the issue they implicitly endorsed the healthcare economics currently being used by the administration to justify healthcare reform.  Which means that somewhere there has been a fundamental shift.  Previously, the insurance industry was holding up their own fringe economists to testify on their behalf against the wave of economic opinion opposing them.  Sort of like the tobacco industry doctors or the oil company ecologists.  But it seems they’ve accepted the fact that they’re part of the problem.  Of course the fact that they can suddenly reduce cost growth by 1.5% just for the heck of it seems to validate that idea as well. There’s been easily reducible waste in the private healthcare system for some time now, and this commitment just highlights that fact.

Healthcare reform plans will be presented in the next few months and I suppose the industry’s intentions will become clear then.  I’ll keep you updated as events unfold and as more details about these cost-reducing measures come to light.

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Screenshot from real life political computer game: "Take Back Illinois"

Well the Monday night deadline for CA politicians to agree on a budget came and went so Schwarzenegger was forced to send out 10,000 layoff notices to state employees.  The reason for the stall?  They were one vote short in the state senate.  California has a very unusual arrangement that requires a two-thirds majority in both houses of congress for a budget to be passed.  And after months and months of negotiations and concessions to republicans (the bill now consists of millions more in spending cuts than tax hikes) they were only able to entice 2 of the necessary 3 GOP senators to support the bill.

So when everyone woke up the next day and 10,000 more Californians were facing unemployment, did any of the senators who had voted against the bill, have second thoughts?  Did they acknowledge in anyway that thousands of CA families would now be suffering (and not to mention on the unemployment and/or welfare roles of the state) because of their posturing?  Nope.  In fact they gave a big raspberry to bi-partisanship and ousted the senate minority leader who helped negotiate the compromise bill.  The reason for these legislators’ ire?  The bill still contains tax hikes.  Literally, many of them will not vote for the legislation if it contains any tax hikes at all.

Unfortunately, CA is facing a 42 billion dollar deficit that absolutely cannot be fixed by spending cuts alone.  Governor Schwarzenegger recognizes this:

“If you think that you can do this budget without any increase in revenues then you have a big math problem because you can’t erase a $42 billion deficit without revenue increases,” Schwarzenegger said. “I hate taxes, but you when you are faced with that kind of reality, that’s what you have to do. We can only solve this problem with additional revenues and with spending cuts.”

We slashed 11 billion from the budget last year and the current budget has 15.2 billion in further spending reductions in the works.  I don’t think we can cut our way to solvency without unconscionably…canceling basic state services.  I respect the small government perspective, I really do, but now is not the time for extremism on this issue!  If the current budget is passed we will experience the largest reduction in the size of CA government in history as far as I’m aware.  Isn’t that enough?

Of course this isn’t only about tax hikes or spending cuts.  Being the holdout gives you great power and awesome negotiating rights.  You can ask for whatever you want while holding the collapse of the state as your ace in the hole.  And the negotiations began today.  Senators are coming forward and saying they’ll vote for the bill if certain conditions are met.  Sen. Abel Maldonado is one of them.  Does he want some substantive change to the bill?  Does he want lower taxes?  Does he have a new idea for streamlining state government? No, he wants two particular amendments added to the state constitution for him. One of which ironically punishes legislators for not meeting budget deadlines.  Now these amendments may or may not be a good idea but that’s not the point.  What’s upsetting is that Sen. Maldonado and others are using this bill as a lever.  They’re holding out on the budget as a legislative technique, a way to exercise disproportionate power.  He’s putting us at risk so he can try to force the legislature’s hand on an unrelated constitutional issue.  These are the political games I’m talking about.

Of course our state legislators are just mimicking their national counterparts.  After massive concessions were built into our federal stimulus bill (30-something% tax relief when anything over 20% is irresponsible in my book) stimulus opponents complained loudly of lack of input until that number was bumped up to 42% in the senate compromise.  This number was very close to the 46% that Rush Limbaugh proposed for America but it still wasn’t enough!  Republicans knew they could hold out indefinitely and concession after concession would have to be made to appease them, while they could accuse the other side of a lack of bi-partisanship.  When it was apparent that the bill would pass they complained even louder.  They could use even more inflammatory rhetoric now because their opposition had no real world consequences.  It just made them more popular with their conservative base.

Many governors are now in a similar position.  The national governors’ association came out strongly in favor of the stimulus bill but as soon as provisions were added to the bill allowing state legislatures to accept the stimulus funding even if the governor opposed it, governors all across the country started speaking against it.  Because they can now appeal to their conservative base, and come off like small government heros, all the while knowing that their state will receive the federal funds it needs regardless of what they say.

Obviously the Right doesn’t have a monopoly on these methods by any means.  I think to some degree its the natural tendency of the minority party to pull these kinds of stunts.  But I guess I had hoped that in these dire times we would pull together at least to some degree (as we did during september of 2001) and refrain from this kind of posturing.  Instead it feels like while Americans are losing their jobs,  legislators are busy playing a political game that uses our livelihood as the pieces and the media as the board.  And as long as tactics like this are alive and well in American politics, bi-partisanship will continue to be a pipe dream.

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