Jerry Brown calls for federal unemployment funding extension

With Congress apparently close to a budget agreement that does not include an extension of federal unemployment insurance benefits, Gov. Jerry Brown urged House and Senate leaders to reconsider.

"When these benefits were first authorized, the national unemployment rate was only 5.6 percent," Brown said in a letter Thursday. "The national rate is still 7 percent and 36 states, including California, have even higher unemployment rates than when the extension benefits were originally authorized."

Brown's letter comes as the Senate prepares to act this week on a bill that would avert a government shutdown next year. The bill does not include an extension of unemployment benefits scheduled to expire at the end of the month, frustrating many Democrats.

Brown said more than 214,000 Californians are currently collecting federal unemployment extension benefits and that they "will suffer irreparable harm if these federal benefits are allowed to expire."

Brown also complained more broadly about what he called "the severe federal underfunding" of California's unemployment insurance program, where mistakes in a computer upgrade delayed benefits for thousands of unemployed Californians this fall.

"In 2013, California's federal UI administrative grant was $128 million less than what was needed to pay benefits timely and accurately," Brown wrote. "The continuous funding shortfalls result in benefit delays and prevent the state from providing timely and accurate UI services to unemployed workers suffering a financial hardship."

PHOTO: Gov. Jerry Brown speaks at an event in Oakland on Nov. 1, 2013. Associated Press/Marcio Jose Sanchez

California braces for impending cuts from federal sequestration

California's defense industry is bracing for a $3.2-billion hit with the federal budget cuts that are expected to take effect Friday.

But myriad other federally funded programs also are threatened, and the combined effect is expected to slow the momentum that California's economy has been building over the last year.

As the state braces for pain from so-called sequestration, there are warnings of long delays at airport security checkpoints, potential slowdowns in cargo movement at harbors and cutbacks to programs, including meals for seniors and projects to combat neighborhood blight.

Despite the grim scenarios from local and state officials, economists say the cuts' overall blow to the economy would be modest, felt more acutely in regions such as defense-heavy San Diego and by Californians dependent on federal programs, such as college students who rely on work-study jobs to pay for school.

Critics say the cuts come at an inopportune time because the economic recovery in the U.S. and California is still weak.

"We need stimulus, not premature austerity," Gov. Jerry Brown said during a break at the National Governors Assn. meeting in Washington.

Rep. John Campbell (R-Irvine) contends that critics of the cuts are exaggerating the effects.

"If we can't do this, what can we do" to reduce Washington's red ink, he asked. "We ought to be panicked about the day when people won't buy our debt anymore because we borrowed too much."

If automatic spending cuts occur as planned, the growth in the country's gross domestic product is likely to slow by 0.4 percentage points this year, from about 2% to 1.6%, economists said.

California's GDP would see a similar slowdown. The state stands to lose as much as $10 billion in federal funding this year, according to Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.

Levy said the more than $1 trillion in cuts planned over the next decade include "items in the federal budget that invest for the future," such as support for research and clean energy, that particularly affect California because of its "innovation economy."

The ripple effects the cuts might have on business and consumer confidence — which would further dampen economic activity — remain to be seen, said Jason Sisney, a deputy at the state's nonpartisan Legislative Analyst's Office.

"We're at a point where gains in housing and construction markets have begun to take hold," Sisney said. "A slowdown from sequestration would come at just the moment that the economy was beginning to right itself."

Jerry Nickelsburg, a UCLA economist who writes a quarterly economic forecast on the Golden State, said the state's recent economic gains would provide a buffer against sequestration.

"California can absorb it," Nickelsburg said. "Will it slow economic growth? The answer is yes. Will it result in negative economic growth? I think the answer is no."

Los Angeles officials project that the city would lose more than $100 million at a time when they're struggling to close a hole in the city's budget.

Douglas Guthrie, chief executive of the Los Angeles city housing authority, said Monday that rent subsidies to as many as 15,000 low-income families would be cut an average $200 a month, forcing many families to search for less expensive housing. His agency also might face as many as 80 layoffs in an already reduced workforce.

But Guthrie said in a letter to the Los Angeles City Council that the housing authority must plan for the "painful consequences" of the federal budget cuts and is preparing to send warning notices to participants in the housing assistance program "as soon as we see that the cuts are made and there are no immediate prospects to resolve the budget crisis."

At Yosemite National Park, snow plowing of a key route over the Sierra would be delayed, ranger-led programs are likely to be reduced and the park would face "less frequent trash pickup, loss of campground staff, and reduced focus on food storage violations, all of which contribute to visitor safety concerns and increased bear mortality rates," according to the National Park Service.

Some programs, such as Social Security, would be spared from the $85 billion in cuts nationwide due to kick in Friday. But defense programs are expected to be cut by about 13% for the remainder of the fiscal year and domestic spending by about 9%, according to the White House budget office.

The Obama administration sought Monday to highlight the effects close to home in an effort to step up the pressure on Congress to replace across-the-board cuts with more targeted reductions and new tax revenue collected from taxpayers earning more than $1 million a year.

The Los Angeles Unified School District is bracing for a loss of $37 million a year in federal funding. Supt. John Deasy said Monday that he is sending a letter to the California congressional delegation warning about the "potential very grave impact" of the cuts on Los Angeles schools.

Rachelle Pastor Arizmendi, director of early childhood education at the Pacific Asian Consortium for Employment in Los Angeles, said she anticipated that the cuts would cost her agency $980,000 in federal Head Start funding. That would force PACE to eliminate preschool for about 120 children ages 3 to 5.

"It's not just a number," she said. "This is closing down classrooms. This is putting our children behind when they're going to kindergarten."

The nonprofit serves about 2,000 children, providing most of them two meals a day in addition to preschool education. The cuts would mean PACE would have to lay off four of its 20 teachers, forcing the closure of eight Head Start classrooms, Arizmendi said.

via LA Times

Federal cuts could cost California billions

Gov. Jerry Brown arrives in Washington today to meet with the nation's governors as federal leaders deal with a pending deadline for budget cuts that could damage California's fragile recovery.

The across-the-board budget cuts known as sequestration could lead to cutbacks in defense, healthcare and other areas, putting California's fiscal health in danger.

Jason Sisney, a spokesman for the state's legislative analyst, said the cuts could mean "a few billion dollars" less for state coffers because of the resulting slowdown in economic growth.

When asked about the possibility of those cuts taking effect, Brown refused to say whether he wanted Congress and President Obama to renegotiate. He said the wrangling in Washington only underscores the need for state budget-makers to be fiscally prudent.

"I can’t discern what they’re going to do in Washington because I'm not even sure they know themselves," Brown said. "But the takeaway for California is that we have to maintain a prudent surplus because we could lose hundreds of millions of dollars by decisions that Congress makes."

via LA Times

Jerry Brown Creates California Surplus Miracle, But Can It Last?

Something close to a civic miracle seems to have occurred—at least on the surface.

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.

via the Daily Beast