Squaring the California Budget Circle

The LA Times reports that the lack of a California state budget is forcing the Governor to consider actions beyond making payments in IOUs and furloughing state employees for two days a month. Specifically, he claims to be out of options and is threatening to start handing out pink slips - in effect, six-month(!) notices - to 10,000 state employees starting as early as this Friday, Feb 13.

State senate Democrats are working on a counter-proposal that would avoid layoffs by increasing revenue via a package of emergency measures that would be in force for two years:

- increasing the state sales tax by 1%
- raising vehicle license fees from 0.65% to 1.15% of the value of the car or truck
- raising state gasoline tax by 12 cents per gallon
- collecting a surcharge of 0.25% of state income taxes owed

Of these, the proposals to raise the cost of operating a car or truck make the most sense to me. However, rather than increase the gas tax - which is tied specifically to highway infrastructure - I would advocate a "carbon fee" for gas and diesel that would actually start at $0.10 and then increase by $0.02 each and every month for ten years. At the end of the period, the fee would reach a whopping $2.50 per gallon - over and above existing taxes! Analogous carbon fees would apply to other fossil fuels, e.g. natural gas used in electricity generation. All of these would contribute into the general fund.

To compensate for this regressive measure, I would cut general sales and payroll taxes as soon as budget constraints permit, possibly followed by additional tax cuts later on. I realize that increasing the cost of fuel and other forms of energy is anathema to most Americans and, Californians are no exception. However, it is also the only proven way to make high fuel economy cars pencil out while also encouraging transit-oriented development, transit ridership, bicycle use, telecommuting and renewable electricity generation. Note that having a high fixed component in the cost of a unit of energy shields consumers from volatility in the underlying commodities. Fuel and utility bills would be higher to begin with, dissuading consumers from taking on excessive mortgage debt they can no longer service if the price of oil should rise sharply. Cheap energy boosts economic growth only until the inevitable asset bubble bursts. In the long run, it is a curse rather than a blessing.

Predictably enough, none of the Republicans in the state legislature has agreed to any tax hikes whatsoever, least of all those on gasoline. As card-carrying neo-Hoovers, they instead insist on spending cuts irrespective of the macroeconomic context. For their part, Democrats are loath to accept job losses in the highly unionized public sector. Unfortunately, the state has no leeway, as it is constitutionally required to balance its budget. Only the federal government is allowed to run deficits.

The bitter irony is that federal aid to states is exactly what "moderate" Republicans and Democrats in the US Senate have been cutting from the stimulus bill, arguing that states have failed to keep their spending in check in recent years. In effect, Congress - that paragon of fiscal rectitude - is forcing governors all across the nation to do the exact opposite of what their stimulus bill is supposed to achieve.

Meanwhile, MSNBC's Rachel Maddow points out that prisoners are the only people with a constitutional right to adequate health care. Three federal judges are about to rule that California's prison population of approx. 160,000 is currently underserved. That would force the state to either embark on a massive prison construction spree or, to release almost 60,000 inmates over the course of the next two to three years. The latter course of action is strongly opposed by, among others, the influential prison wardens' union.

The 2008-2009 state budget includes $10.3 billion for the Department of Corrections, which works out to approx. $64,000 per inmate per year. The RAND corporation estimates that the 1994 three-strikes-and-you're-out law alone is responsible for about half of that.

As we have discussed previously on this blog, the perennial and rapidly deepening budget crisis is very much relevant to the success of the HSR project. Prop 1A may have passed in November, but actual appropriation of the bonds is subject to the rules laid down in AB3034, which means they are part and parcel of the state budget fracas.

Fortunately, there might be a way for California to solve multiple problems at once: give selected inmates sentenced under the three strikes law the option of "exceptional parole". The idea would be to let them earn regular parole and their eventual (early) release while avoiding the need to construct new prisons. The program would involve several years of manual labor on various infrastructure projects, possibly including HSR construction. It would be a hard way to eek out a living, but an honest one.

Housing would be in temporary guarded trailer parks set up close to work sites and enclosed by gates and fences. Thanks to heckuvajob Brownie, FEMA still has nearly 100,000 brand new trailers left over from hurricane Katrina, purchased at a cost of $3 billion. Their formaldehyde outgassing problem could be adequately addressed for the purposes of exceptional parole by simple modifications that ensure adequate ventilation at all times, even in winter. The number of participants in the program per trailer would depend on its size, but there would be no overcrowding. Outside of working hours, exceptional parolees would be confined to the fenced-in area, effectively a form of house arrest. This would be enforced with ankle collars with wireless electronics to track their whereabouts.

Exceptional parolees would remain entitled to health care, but the cost of providing it, housing, food, utility hookups etc. would all be garnished from wages. By law, the work must be both voluntary and compensated, otherwise it amounts to a form of slavery. In practical terms, however, participants in the program would receive very little cash.

Violations of house arrest, absenteeism, feigned illness, deliberate destruction of trailers or other property and, justified complaints from foremen - employed by commercial construction companies - would all be reasons to impose sanctions, up to and including a return to prison. On the other hand, those who persevere would gradually win parole privileges and eventually, their freedom. Meanwhile, they would acquire marketable skills in the construction industry.

Admittedly, the above is just a sketchy outline of how an "exceptional parole" program might work. Feel free to poke holes in the concept or, to make suggestions of your own, in the comments.