A Federal Bailout for California: My Proposal

DRAFT

Dear President Obama and Chairman Bernanke,

On behalf of the citizens of the State of California, I’m asking for a bailout for the California state government in the amount of $42 billion. Specifically, I’m asking for a $42 billion zero-interest loan from the Fed window, repayable over 20 years and collateralized by the state’s real estate and other holdings and its pension fund. I’m not asking for stimulus fund monies with their numerous restrictions on public spending. Make no mistake – we want that money, too, on top of the $42 billion bailout.

Yes, I am fully aware that $42 billion is no small sum. However, compared to the $700 billion the federal government is spending on toxic assets, zombie banks, hubris-filled insurance companies and failing auto manufacturers, I think the positive economic impact that will come from assisting a state that houses 12.5% of the nation’s population will provide, in the parlance of financiers, “more bang for the buck.”

Mind you, I am not an expert on public finance. In fact, I’m not certain, but believe I had Chairman Bernanke as my macroeconomics professor at the Woodrow Wilson School over twenty-two years ago. If my memory serves me correctly, I slept through most of the class and, in the finest of Ivy League traditions, I think I received a “C” for my slumber. That said, I feel compelled to make this request. Although our governor, Governor Schwarzenegger, has an amazing grasp of the obvious when he says that the state must live within its means because it can’t print its own money, he fails to take the next analytical and practical step: Borrowing from the government that CAN print its own money.

First, the terms:

1) The $42 billion will not be spent on general fund recurring expenses. One-quarter will go to a reserve fund that will be invested in safe instruments, the interest from which will be used to retire the state’s debt; one-quarter will go directly towards retiring state bonds that pay interest above what the Fed currently pays for Treasury bills; and one-quarter will go towards a dedicated endowment to pay for expenditures guaranteed by California’s Proposition 98 and other similar propositions for as long as they remain in effect (more on that below).

2) The $42 billion will be repayable at zero interest over 20 years. The collateral will include: All state-held real estate, property (autos), leases of state land and mineral rights, lottery proceeds, and the California Public Employees Pension Fund. Not too shabby, if I say so myself.

3) As a condition for receiving the bailout, the California Legislature will submit to you both a plan for restructuring the means by which California incurs expenses and receives revenues, including but not limited to:

a) A constitutional convention to place on the ballot constitutional amendments to:

i. Eliminate the right of the public and the legislature to place initiatives on the ballot to dedicate public funds for specific expenditures and rescind any prior initiatives that do so;
ii. Require a simple majority to pass a state budget;
iii. Require a balanced budget;
iv. Eliminate the rights of public unions to contractually limit the state from using private firms for public work;
v. Allow public school vouchers;
vi. Require a reserve fund of no less than 10% of the annual budget;
vii. Limit borrowing to no more than 5% of the annual budget;
viii. Remove the independent governance of any state government entity that receives state tax dollars, including, but not limited, to the University of California.
ix. Vest budgetary and spending control for all state government entities with the legislature and the executive office, regardless of whether they are led by constitutionally elected offices.
x. Legalize prostitution, gambling and marijuana, and tax these industries;
xi. Eliminate term limits for legislators.

b) Legislature salaries commensurate to those of the Texas legislature ($7,200 per year), with no per diem.

c) Mandatory state employee retirement at twenty years of service or $1.5 million in individual lifetime state government wage earnings, whichever comes first.

d) A restructuring of state agencies with elimination of redundant agencies.

e) Phasing out of public pension and retiree healthcare availability over the next 20 years while increasing 401(k) matching or, in the alternative, providing retiree benefits that match but do not exceed those provided by the federal government.

f) Contracting out prisons.

g) A five-year hiring freeze.

h) Zero-based budgeting and tighter controls on the use of state funds by state agencies.

i) A “Come Home to California” program matching the lowest state corporate tax rate for any corporations that relocate to California and provide 10,000 jobs or more.

j) Public finance for state political campaigns for candidates from minority parties (e.g., Libertarian, Green, Peace and Freedom) that match the funds raised by majority party (Republican, Democratic) candidates to increase diversity of ideas in state government leadership.

Mind you, I’d be open to any ideas you have, as I’m still impressed by the President’s willingness to forego his new helicopter fleet and actively eliminate pork from the federal budget. I am willing to consider as terms for this bailout any of the terms imposed by the administration on the receipt of funds by similarly failing institutions such as GM or Chrysler.

California is in dire straights. Despite being one of the largest economic engines of not only the United States but the world, through a confluence of economic and politic events, we find ourselves on the precipice of default. The state that gave the world Apple Computers (Mr. President, remember the IPod you gave Queen Elizabeth?), Yahoo!, Google, Genentech, Levi's and Disneyland still has the potential to reinvent itself. With your assistance, it can.

Thank you for your consideration. I look forward to hearing from you both.

Yours very truly,

Black Woman Blogging

Voting My Interests or My Conscience

I’ve hesitated to turn in my absentee ballot for California’s May 19 special election. At first I wasn’t planning to vote at all – a surprising act for me since I’ve actually stopped in the middle of lectures to excoriate my law students for not voting. Like many Californians, I’m fed up and disgusted with my state government. What makes it worse is that I work for my state government.

At issue is whether I: 1) hold my nose and vote for the ballot measures “intended” to balance the state budget; or 2) take away the state’s credit card, wait for the Legislature and the Governor to get their collective acts together, and risk my own layoff? In other words, do I do what I think is in my own best interests or what is in the best interests of the state?

If the budget measures pass, I might avoid being laid off. If they fail, my chances of being laid off increase. However, given the ineptness of our state leaders, I’m not convinced that, even if the budget measures pass, I won’t be laid off because I think they'll just continue business as usual with no systemic, meaningful change to state budgeting and spending. So if I vote in favor of the budget measures and they fail, not only are the chances of my being laid off increased, but I will have compromised my own beliefs for nothing.

I don’t believe in my state government. Here’s why:

1) Once the budget passed, the Governor and legislative leaders were back to their old tricks of hooking up their buddies by appointing them to paying positions on state boards and commission that already had enough members to conduct the business of those boards and commissions. Some of the appointments were just laughable and just emphasized that, in state government, there are the connected and the unconnected. The connected always live to be appointed another day by the leaders in their party, regardless of the cost to the public fisc.

2) Every year, state agencies run – not walk, but run – to spend all the money allotted them regardless of whether they actually need to spend the money. Why? Because they might not be budgeted for the same amount next year if they spend less than they were budgeted for this year. It’s just plain crazy. Zero based budgeting, anyone?

3) The University of California system has run amok. The regents just voted to increase student fees while at the same time increasing the base pay for newly hired chancellors using the same tired argument that they need the base pay increases to “attract talent.” If these new chancellors had any integrity, they’d give the salary increases back, even if these salary increases are new to them.

4) Assembly Speaker Bass approved raises for Assembly staff, only to rescind them when the press brought the raises to light.

5) The State Personnel Board is still listing open positions. If we’re in such a budget crisis, should the state be hiring anyone at all?

6) Is it me, or is it beyond crazy that one legislator – Abel Maldonado – could engage in nothing short of extortion in order for the Legislature to be able to pass the budget? I was surprised that he didn’t ask for a pony named Macaroni as a condition for getting his support. Another example of more politicking, less governing.

7) If we're in such a budget mess that required executive-imposed two-day-per-month furloughs, why did the Department of Personnel Administration negotiate a one-day-per-month furlough with the SEIU, the union representing almost half of the state's civil service workers? Even more, why is the state legislature sitting on this contract? Because the SEIU's state body is opposing the budget measures. Again, another example of more politicking, less governing.

8) We keep passing initiatives to increase funding to K-12 education, yet our public schools continue to languish near the bottom. I'm convinced that the performance of our public schools isn't a money issue, but a leadership and innovation issue.

As you can imagine, my conscience tells me that the more I prop up this failed state government, the more it will continue to fail. Like AIG.

On the other hand, I have one year and one and one-half months until I vest. If through some miracle I can hang on until then, I will have something to show for my time with the state. Not that I believe that I will actually get a pension, but I will at least have a legal claim to one. If I can ride out one more year of budget cuts and bad state governance, I will have at least vested and still be somewhat young enough to move on and try to vest elsewhere, or at least fatten my 401K.

So, do I vote my interests or do I vote my conscience?

We desperately need someone like President Obama on the state level – a politician who is willing to look out for the long term best interests of the state even at the expense of his or her short term political ambitions. But that kind of animal doesn’t exist in the zoo that is our state government.