Ernie Cowan, my Government Affairs counterpart from North San Diego County, and I had an opportunity to join Senator Dennis Hollingsworth for breakfast this morning. It was a small gathering - the Senator spoke for about  20 minutes or so, answered as many questions as we had and then hung out as long as we wanted. 

(Camera phones suck)

Dennis Hollingsworth has always been a pretty down-home kind of guy and he has always been a friend to Realtors. Some of you may remember when Dennis was running for his Assembly seat several years ago he attended our casino night scholarship fundraiser and dealt more than few hands of blackjack beside then-Murrieta Mayor Chuck Washington and several other luminaries. Dennis' family background in agriculture and President of the Farm Bureau has given him a keen insight into land use issues and private property rights that has served our region and our state well. 

His remarks today focused on two main issues - the recent budget debacle, which resulted in Dennis becoming the Senate Minority Leader, and water issues which are critical to the survival of our market (which I'll discuss in a subsequent post)

Regarding the budget - the recently concluded budget negotiations. which had gone on since last May and threatened to grind this state to a standstill, were still unsuccessful. What has been presented as a solution for the next 18 month cycle, will actually have to be revisited even before this current cycle ends in June. Why? Well it probably comes as a surprise to no one except the Democrats that revenues are not meeting their expectations. You may recall the recent budget was balanced in a mixture of tax increases (12.5 Billion), spending cuts (15.8 Billion) and borrowing from future revenues and federal government bail-outs (7.9 Billion). 

As we've discussed before, the tax increases are very real. We will pay between $1,100 and $2,000 more in state income taxes and variety of other fees. The spending cuts are largely illusory. They are not actual cuts in spending for the most part, but rather cuts to increases. If a program costs $100 million this year and requests $120 million for next year - if they only get $110 million they are said to have sustained a $10 million cut to their budget. The third leg - borrowing from future lottery revenues, re-allocation of some past tobacco tax taxes etc. and the federal bail-out money are just additional ways of borrowing against tomorrow to pay down today. 

So the surprise for the Democrats is - in spite of the tax increases, state revenues are still coming in below projections. Within 3 - 6 months anticipated revenues will be between $3 billion and $10 billion below current estimates in the just-passed budget. Meaning Sacramento will be coming back to you looking for MORE money. 

Of course the real reason - which is not a surprise to anyone with a grade school equivalency in math, is that this revenue deficit is not IN SPITE of the tax increases but BECAUSE of the tax increases. Put simply, it you take an extra $1,100 to $2,000 a year out of the average taxpayers pocket for the government to spend, that is money that person doesn't have to spend. They will not be buying a new car or a new house, they will forego dinners out and new furniture and home improvements, they will not take a vacation or otherwise spend that money BECAUSE THEY DON'T HAVE IT! Only government can spend money it doesn't have - not people. 

And if they're not spending it on cars and boats and movies and dinners out, well, the providers of those services are making less also. But again unlike the government who keeps hiring people when the money runs out, normal businesses have to lay people off or, if it gets bad enough, they shut down or move their business to another state that's a little smarter and cheaper. But all of those eventualities result in less revenue to the state from individuals and businesses so the legislature will want to raise taxes even more to off-set those reductions. It's a Democratic death spiral friends, and we ain't done yet.

And keep your eyes on the ballot propositions coming in May because some of them are nothing more than future tax increases masquerading as spending caps. More on that later.

Hollingsworth's job as Senate Minority Leader is now to bring this fractured band of Republicans back together. The budget could only be passed with the help of 3 Senate Republicans who reneged on their oath not to raise taxes and helped the Democrats hose California taxpayers. However, as small and ragtag as the party is, they can't afford to eat their own or get involved in some protracted and ugly internal war. Given the importance of the Republican effort in Sacramento, and the sometime futility of it, they still have an important function to fulfill. As Dennis said this morning, if Republicans had not stood firm and fought the valiant fight as long as they did, Democrats would have raised taxes last June, again in October and again this month and there would have been no spending cuts and no effort to rein in costs. Dennis urged patience in dealing with the recalcitrant Republicans and cautioned against  knee-jerk reactions motivated by revenge or even honest distrust. 

Finally, on the budget issues, Dennis has had several conversations with Gov. Arnie during and subsequent to this vote. He said he has been assured by the Governor that the Democrats had 'one bite of the apple' when it came to tax increases. Tax increases WILL NOT BE ON THE TABLE during future budget negotiations. Of course considering the source it's understandable if we're somewhat skeptical of Arnie's promises -  but that remains to be seen. 

The Senator also wished to thank his many supporters and well wishers in District for the many emails, phone calls and letters of encouragement he received during this time. Correspondence in district was running around 100 - 1 AGAINST tax increases and that outpouring of support further bolstered Dennis' resolve to stand fast for his convictions. There are 39 other Districts that should be so well represented.