California Insider

The talks continue. With Secretary of State Kevin Shelley saying the deadline for getting on the ballot could be extended until Wednesday, Gov. Schwarzenegger met today with three of the four legislative leaders and did separate conference calls with the bipartisan women’s caucus and a group of moderate lawmakers. The issues haven’t changed since Friday, and there’s no sign that any of the parties have given ground. But Schwarzenegger aides said he was willing to keep talking as long as there was any hope of getting a package of budget fixes on the March 2 ballot. Rob Stutzman, the governor’s communications director, also suggested that Schwarzenegger might be willing to go around the legislative leadership if those talks failed to show progress and other groups of lawmakers demonstrated the ability to put together sufficient votes to pass their legislation.

Rhonda Miller, one of the women who accused Schwarzenegger of lewd conduct in the days before the election, is suing him today for libel as a result of his campaign's attempt to discredit her. The lawsuit stems from an e-mail in which campaign spokesman Sean Walsh urged the media to check the Los Angeles County courts web site, where they would find detail on a Rhonda Miller with a long list of felony convictions. Problem was, the Miller with the rap sheet wasn't the same woman who was accusing Schwarzenegger of misconduct. The lawsuit is here, at smokinggun.com. LA Weekly columnist Nikki Finke has been all over this angle for weeks. Her most detailed account of it is here.

Moderate lawmakers hoping to rekindle talks with Gov. Schwarzenegger are circulating a letter to be sent to Secretary of State Kevin Shelley asking him to officially extend his deadline for placing measures on the March 2 ballot. The same group, led by Assembly members Keith Richman and Joe Canciamilla, will try to set up a meeting, or at least a conference call, with Schwarzenegger to discuss restarting negotiations – and doing so in a way that seeks to avoid the partisan standoffs that often come with leadership-based talks. So far, about 15 members have signed the letter.

A few helpful readers have pointed out that the calculations underlying the “foolproof” spending limit I proposed yesterday have a hidden flaw: they’re based on revenue numbers published after-the-fact by the Department of Finance. Those numbers include not just tax revenues but transfers. And the transfers include the $6 billion that went out of and then back into the general fund when the state first bought electricity for the utilities then recouped its costs by the sale of bonds to be repaid by consumers. The department’s published revenue numbers also include all the borrowing the state has already done to keep revenues artificially high. Those accounting shifts, then, make the revenue numbers during the boom and bust appear more stable than they really were. Here is what the actual revenues looked like, in billions, before transfers:

Year Revenues
98-99 58.3
99-00 70.8
00-01 77.6
01-02 64.3
02-03 68.6

While my idea of using the prior year’s revenue number to guide the next year’s expenditures still works, even with the stripped-down numbers, it doesn’t work as well. The accumulated surpluses would still have helped avoid deficits, but actual spending would be quite volatile, perhaps unacceptably so. Here’s how it looks using only tax revenues, and no transfers:

surplus/
Year revenue spending deficit
98-99 58.3
99-00 70.8 58.3 12.5
00-01 77.6 70.8 6.8
01-02 64.3 77.6 -13.3
02-03 68.6 64.3 4.3

But my plan did include one more safeguard. I suggested that to guard against a quick revenue reversal, the state would be allowed to spend either the amount collected in the prior year or the amount forecast for the budget year, whichever was less. And the forecasts for 2001-02 were quite a bit lower than the revenues collected for the prior year. The controller’s estimate, for instance, was just $69.4 billion for 01-02, compared to $77.6 billion collected in 00-01. Plugging the lower projection into the trend reduces the allowed spending in 01-02 and returns a great deal of the desired smoothing:

surplus/
Year revenue spending deficit
98-99 58.3
99-00 70.8 58.3 12.5
00-01 77.6 70.8 6.8
01-02 64.3 69.4 -5.1
02-03 68.6 64.3 4.3

So, all in all, “foolproof” is probably overstating it. A three-year or five-year revenue averaging would still be the better way to go. But if you want a simple, easy-to-understand improvement over today’s project-and-pray method of budgeting, prior-year revenues are still a pretty good place to start.