Mish Cheers The Labor Unions; Schwarzenegger Begs Obama For Money, Seeks Permanent State Pay Cuts, Proposes Privatizing Prisons

California is imploding right before our eyes. However, you do not have to be there to see it, all you have to do is listen to the panic in governor Schwarzenegger's voice.

Please consider California's Schwarzenegger wants more federal money.

California Governor Arnold Schwarzenegger on Wednesday vowed to pry more dollars from the federal government, which he said took more than it gave, but left details on how to close a $19.9 billion state budget gap until later this week.

In a state of the state speech, the governor said creating jobs was the top priority for his last year in office and proposed spending $500 million in worker training funded by part of the budget which is in surplus.

"We no longer can ignore what is owed to us, or what we are forced to spend on federal mandates," Schwarzenegger told the combined state Assembly and Senate, which must support any budget plan by a two-thirds majority -- a bar that has forced months of acrimonious debate in previous years.

Democratic State Controller John Chiang said lawmakers have little time to lose if California's government is to avoid the same kind of cash shortages that last year forced it to hand out IOUs to pay its bills.

"They're certainly a year older and I hope a year wiser," Chiang told Reuters.

State Treasurer Bill Lockyer, also a Democrat, described Schwarzenegger's speech as "essentially the same" as other set pieces by the governor -- middle of the road and long on optimism, such as the promise to safeguard education.

"It's a little hard to square with the fiscal realities," he said, adding that others had tried for years to claw back money from the federal government and the governor might rely too much on such help in the budget plan he releases this week.

Meanwhile, the state needs to sell bonds in coming months to avoid shutting down infrastructure projects, Lockyer said.

Schwarzenegger put the budget hole at $19.9 billion over 18 months, about a billion less than a recent report from the state's budget watchdog. He blamed the federal government for possible increases because of new healthcare costs.

A new national healthcare policy would be a 'disaster' for California, he said.

"Taxes are not option this time," Niello added, noting that he agrees with Schwarzenegger that California's tax system must be changed so it has a broader base for revenues from personal income taxes, the state's main source of revenue.

Alberto Torrico, the Assembly's Democrat majority leader, said overhauling California pensions with a two benefit tiers for existing employees and retirees and future ones as Schwarzenegger proposes was not viable.

"A two-tier system where you have haves and have-nots is not going to work," said Torrico, who also was bracing for a fight over the spending plan.

"It's going to be an ugly budget," he said.

Two Tier System Debate

Alberto Torrico, majority leader in the state assembly, is indeed correct. A two tier system is not the best solution. The best solution is a 1 tier system that abolishes defined benefit pension pans totally.

Clowns like Torrico better understand that dynamic before it is resolved in court.

Please look at who Torrico is beholden to.

Since his election in 2004, Majority Leader Torrico has held various leadership positions in the state Assembly. Immediately after being sworn-in, Mr. Torrico was named chair of the Assembly Committee on Public Employees, Retirement and Social Security (PERSS).

That is all you need to know whose pocket Torrico is in. It is in California's best interest to vote such clowns out of office.

Schwarzenegger Proposes Privatizing Prisons

I 75% commend Schwarzenegger for his plan to privatize prisons. I cannot endorse his plan entirely because the devil is in the details and some of the details are disgusting. Nonetheless, the idea is a huge step in the right direction.

Please consider Governor's call for giving colleges priority over prisons faces hard political tests.

Reporting from Los Angeles and Sacramento - At the center of Gov. Arnold Schwarzenegger's State of the State speech Wednesday was a proposal that outside of Sacramento might seem like common sense: Mandate that the state invest more dollars each year in its public universities than in locking people up in prison.

"In concept, it absolutely makes sense to everyone," said Thad Kousser, visiting professor of political science at Stanford University. But "when you look at the trade-offs that the state might face to get there, it gets a lot harder."

The proposal for a constitutional change that would require more spending on higher education than prisons was the key headline as Schwarzenegger delivered his final State of the State speech, in which he also asked legislators to approve a jobs creation program and urged them to join him in pushing for increased funding from Washington.

The governor's plan aims to bring back the days when the state funneled more money into University of California and California State University classrooms than into its prisons. It has been at least five years since that has been the case. It comes at a time when tuitions are soaring and course offerings are being cut.

The state's public universities, long considered an economic engine and a source of pride for California, have proved to be an easier target for budget cuts than other major programs, which are protected by politically powerful unions, deep pocketed corporate interests or federal laws limiting the state's ability to cut.

"What does it say about a state that focuses more on prison uniforms than caps and gowns?" Schwarzenegger said. "The priorities have become out of whack. . . . Thirty years ago, 10% of the general fund went to higher education and 3% went to prisons. Today, almost 11% goes to prisons and only 7.5% goes to higher education."

The governor called for a constitutional amendment that would prohibit corrections spending from outstripping funds for higher education by 2014-2015. The plan would require approval from lawmakers and voters.

Schwarzenegger's Plan Half Baked

While I agree that spending more on prison than education is absurd, it is equally absurd to think it takes a constitutional amendment to establish some sort of ratio.

Privatizing prisons is a wonderful idea. But what the hell does that idea have to do with education? The two ideas simply are not connected and it would be a mistake to connect them.

Schwarzenegger seeks permanent state pay cuts

Inquiring minds are reading California governor seeks permanent state pay cuts.

California Governor Arnold Schwarzenegger will propose replacing furloughs of state workers with permanent pay cuts and increased retirement contributions from workers when he unveils his fiscal 2011 budget later Friday, his spokesman said.

The Sacramento Bee reported the two proposals would mean a 10 percent cut in gross pay for roughly 200,000 public-sector employees, who have seen their pay cut by 14 percent through this year's furloughs, citing administration officials.

Labor unions have maintained the furloughs are illegal and have filed two dozen lawsuits since they began in February.

I Cheer The Labor Unions

As shocking as this may seem, I applaud the labor unions in California and elsewhere. The reason is stupidity is seldom rewarded and the unions are blatantly stupid.

The more unions dig in their heels, the less public support they will get, and in a winner take all scenario the unions will end up in the gutter where they belong.

The sooner we get rid of public unions the better off everyone will be. I commend the unions for their blatant stupidity in digging in their heels thereby speeding up this much needed process.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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