Tuesday, September 11, 2007

While We Were Sleeping

Or maybe while we were — collectively — asleep at the wheel... California passed its state budget at the end of August, almost two months past the fiscal "deadline." Somehow I remember state business grinding to a halt when budgets were overdue, but that must have been several years ago, and this budget dragged on so long that most of us forgot it was even an issue, or anything resembling a "crisis."

It's like that saying, "How can I be out of money when I still have checks left in my checkbook?" It's not really a budget crisis if the ladies at the DMV are still unlocking the office doors and sitting there telling you to fill out the forms in triplicate.

In any case, I think every Californian should be disgusted at what was axed:

The impasse lifted Tuesday after Senate Republicans ended their blockade. They won few concessions, except a promise from the governor to veto $700 million from the general fund in an effort to address the state's operating deficit.
Among the cuts: $1.3 million to track hospital efforts to eliminate infections, which kill more than 7,000 Californians a year; $30 million for state parks; and $6 million to compel drug manufacturers to discount medicines for lower-income people.

Schwarzenegger ordered state health officials to find more than $6 million in other parts of the budget to keep the drug program alive, but the cuts will delay the website the state was going to set up to tell consumers which discounts were available.

He also struck a $17.4-million plan to protect seniors.

The overhaul of the state's conservatorship system was approved last year after an investigation in The Times that detailed how a system intended to protect seniors was plagued with fraud and abuse.
None of the cuts elicited a more virulent outcry than the elimination of the [$55 million] program for the homeless mentally ill.

The program had been on the chopping block all summer. Advocates, including the architects of California's effort to overhaul its troubled mental health system, had staged a furious lobbying effort to stave off the cut.

But in justifying it, Department of Finance spokesman H.D. Palmer said local governments should step in instead. "We believe if these programs are a priority to counties, they have resources available to them to provide funding," he said.
~ Los Angeles Times; August 25, 2007

Almost all of these cuts are completely and utterly nonsensical (not to mention more than a tad inhumane), but might in ordinary years just be considered the typical budgetary King Solomon's choice. However, in addition to these "nonessential" programs, there was something axed on the revenue side of the budget ledger, namely, the so-called "yacht tax"(also assessed on RVs and planes):

... if you are buying a big, luxury boat -- a yacht -- you do have a choice. It's not as if you need to drive your new toy to work the next day.

You can park that boat in another state, or even another country, until it no longer qualifies as a California purchase. Then, when you bring it home, the purchase is tax-free. Depending on the size of the boat, that deft maneuver can save the buyer -- and cost the treasury -- tens of thousands of dollars.

That is exactly what thousands of people were doing until three years ago, when the state made it tougher to evade the sales and use tax law. It used to be that boat-buyers could bring their vessels home after only 90 days and pay no tax. But in 2004, the Legislature and Gov. Arnold Schwarzenegger extended that waiting period to a year.

The change worked as intended. The number of boat sales exempted from the tax because they were being moved out of state plummeted. The same was true for recreational vehicles, to which the new law also applied. And the sales and use tax collected on in-state purchases soared. Tax evasion, in other words, was declining. The treasury collected an estimated $45 million a year in new revenue.
~ Daniel Weintraub; Sacramento Bee; September 2, 2007
Of course, the argument for allowing the one-year waiting period to expire is that such a tax will result in a resurrection of Ross Perot's proverbial "giant sucking sound" as the mega-rich yachting classes take their yacht business (and all the attendant yacht-related commerce) out-of-state. Nevermind that if your primary residence is in Newport Beach or Bodega or Coronado, you'll probably want your yacht nearby, instead of having to jet down to Cabo San Lucas every time you want to tool around on the open seas. This economic hardship argument is championed by Republican State Senator Dick Ackerman, from Fullerton, who apparently has no problem with yacht owners getting a financial break while county mental health patients (and their stressed-out service providers) across the state are left with mere crumbs and whatever demons they may be fighting (in a shelter or care facility if they're lucky; on the streets if they're not):

Ackerman said he believes the stricter tax enforcement was costing boat outfitters in his district and elsewhere big business on the accessories yacht-buyers need.

"If you buy a million-dollar boat, you're usually doing a couple hundred thousand in improvements," Ackerman said. "Upholstery, electronics -- you can put a whole bunch of money into these boats real quick. Those improvements used to take place in California. When they changed the rule, that work all went bye-bye." [Sac Bee; ibid.]
Weintraub debunks this with the following:

A study by the Legislature's nonpartisan analyst failed to turn up any evidence of negative economic effects. Yet the effect on state and local tax revenues was clear. Out-of-state exemptions to the sales tax on boat purchases fell dramatically, from 34 percent of all sales in 2004 to 15 percent in 2005. For brokered transactions, which typically involve the bigger, more expensive yachts, exemptions dropped from 1,150 in the five quarters before the law was changed to just 209 in the five quarters after the new rule took effect, a drop of more than 80 percent.

Overall boat sales continued to climb. Boat industry employment grew, and marina occupancy rates in Southern California remained high, with most places keeping waiting lists. Occupancy rates in Mexico, meanwhile, fell, suggesting that more Californians were buying, and keeping, their boats at home. The analysis conceded that there might have been a negligible impact on boat outfitters, but if there was one, it couldn't be measured. [Sac Bee; ibid.]
As always, the professional journalists have done a great job at exposing this budgetary sham for what it is. I especially liked a Los Angeles Times editorial of August 28, which included the following:

We take it as a given that Gov. Arnold Schwarzenegger had to use his veto pen to slash more than $700 million to eliminate the budget's operational deficit and to pick up the two necessary Republican votes in the state Senate. Lean is good. But some cuts seem cruel and gratuitous jabs at California's most vulnerable.

Schwarzenegger also chose to cut a highly regarded program to lift mentally ill people from skid row. The $54.9 million allowed more than 30 counties, including Los Angeles, to help the homeless stabilize instead of returning them to the street or to jail. The governor acknowledged the program's value but told counties they should just backfill with money from Proposition 63 -- a ballot measure that by its terms bars counties from using its revenue for backfill.

Are the state's finances so tight that it was necessary to leave seniors and the homeless unprotected? No. While crafting this year's budget, the Legislature restored a loophole that allows owners of yachts, airplanes and recreational vehicles to avoid what amounts to $45 million a year in sales taxes. In the twisted logic of Sacramento, serving rich yachters is vital. Protecting California's most vulnerable is an unaffordable luxury.
In addition, a column by Steve Lopez (arguably the Times's best columnist) on the subject is also worth scanning before it's locked in the electronic archives.

I'm often not surprised that people get so disgusted with politics that they remove themselves from the game and ignore what can so often cause only heartache and rage.

In the end, if any of my three readers are in California, I would just leave you with a suggestion to drop a line to your state State Senator, Assembly Member, or our Esteemed Governator letting them know your feelings. Damn, I guess that means that I myself need to send an email to the vile Sen. Tom McClintock. Yuck.


Huntington said...

Thanks for wrapping this up so effectively. I read a similar list to yours in the Chronicle when the budget passed, but you gave me some new aspects to be outraged about.

The Angry Young Man said...

I'm just happy high speed rail got the $20 million it needs to keep the office doors open. The dream still lives.

Vigilante said...

On California sales tax exemption for non-state delivery of yachts: I was asleep also.

This packs the deck and the wallet of large megayacht yachtsmen against the small-boat owners, for whom taking deliver in Ensenada is not practical. This also packs space in the state's marinas with the megayachts monopolizing scarce space, locking out us small boat owners. Wealth wins again.