California Governor Jerry Brown proposes a $91 billion budget with dramatic cuts to medical, child welfare, disabilities benefits, and the court system. He also wants higher sales taxes and income taxes on the wealthy to reduce $8.5 billion from the $16 billion deficit. If this tax measure fails, Brown's plan automatically cuts $5.5 billion from public schools.
Brown recognizes that something must give, and that cutting spending is unavoidable. This is, in some ways, marks an improvement over his fiscally reckless predecessor.
In 2003, Republican Arnold Schwarzenegger won a special election, replacing recalled governor Democrat Gray Davis. Schwarzenegger vowed to take the government's "credit cards and throw them away, so our politicians can never, ever... spend more money than they take in."
Yet he also proposed more spending on after-school programs. In 2004, Schwarzenegger pressured voters into approving two bond measures totaling $25 billion to "get the economy going" and to avoid "Armageddon cuts."
In 2006, he unveiled a $97.9 billion budget --$7 billion more than the year before, despite projected revenues of only $91.5 billion -- which increased spending on education ($36.3 billion to $40.5 billion), transportation, social programs and prisons. He also pushed $25 billion in bonds, promoted a 20-year $222 billion infrastructure plan, then backed another $42.7 billion bond package. In 2008, he championed $9.3 billion water bond.
The California general fund ballooned from about $77 billion for fiscal year 2002-2003 to more than $104 billion for fiscal year 2008-2009. Total annual state expenditures grew 39 percent, from $105 billion to $145 billion.
The governor and legislature addressed the 2009 budget crisis, mostly closing the $26 billion deficit, by trimming education and Medicaid by $15 billion, and papering over billions more with budget tricks. Even so, the state was still spending as much as it did in 2005 -- a "huge win for conservatives," one writer complained.
Facing another huge deficit in 2010, Schwarzenegger proposed "draconian" cuts, but his budget for 2010-2011 was $82.9 billion -- much larger than when he took office. All in all, he left behind over $50 billion in additional borrowing and considerable increases in taxing and spending.
Today, Brown's $91 billion budget is hardly meager, yet many of his supporters decry the proposed cuts while loving his tax measure. Some see tax hikes as a panacea.
But California is already taxing heavily compared to other states and it is not working. Last year the state brought in just $2.44 billion, or 20.2 percent less than what was projected in tax collections. California spending habits have tended to exceed even without rising revenues. According to Adam Summers, general fund per capita state spending rose steadily through the last decade. So did revenues -- from about $70 billion in 1999 to over $100 billion in 2009.
Many think that eliminating Prop 13's cap on property taxes will do the trick. Tweaking the rate might bring in another billion or two, but that's rounding error in contemporary California deficits. Meanwhile, the state has some of the very highest personal and corporate income and sales tax rates in the country. Many employers cite California's taxes and regulations as reasons for leaving. Chief Executive Magazine has again ranked California the very worst state in which to do business for such reasons.
For lasting reform, we should consider the untouchable spending. California state and local employees are the best paid in America, making 60 percent more than the average private sector worker in the state. Then often enjoy lavish pension plans of which most members of the public only dream.
The last governor exacerbated this problem. In four years, salaries climbed 37 percent. Fifteen thousand employees were now making six-figure incomes. Prison guard salaries rose by more than a third.
Thousands of state workers now get over $100,000 a year in benefits. Retirees doing contract work can cost the state a million a year.
Brown's pay cut proposal is a start, but disparities between public and private workers' pay and benefits will still be extreme.
We must also face the exploding pension costs brought on by a terrible law passed in 1999. David Crane wrote in The Huffington Post three years ago:
California has kicked that can into a $200-300 billion obligation that grows every year that it's kicked down the road again. That's three to five times the amount of our general obligation bonds, and just as real of an obligation.To be clear, we are supposed to have that $200-300 billion on hand for investment by our pension funds right now.
Only slashing benefits can address this. No tax increase will work.
What else can be cut? The justice system. Please. Between 1982 and 2000, California's prison system exploded by 500 percent. The growth has continued since.
Each prisoner costs about $50,000 per year and cannot contribute to the market economy. The lobbies behind this spending are difficult to challenge. We need fewer laws, cops, and prisons. A good first step would be drug decriminalization. Washington, D.C., would resist it. So be it. California passed Proposition 215, legalizing medical marijuana. It's time to put Obama on the defensive. The state should stop jailing for peaceful drug offenses, gun ownership, or non-violent parole and probation violations. We should move away from imprisonment and toward restitution for property crimes.
Billions more could be saved in a fire sale of assets unnecessary for basic governmental operations. "California is sitting on a gold mine of surplus property that could be sold for ready cash," wrote economist William Shughart in 2008. "According to the real estate division of the Department of General Services, the state government's landlord, on Jan. 2, taxpayers owned 22,727 buildings and more than 6.7 million acres of land at 2,313 sites." Thousands of acres have been "declared surplus" by the state.
California is broke, with unsustainable deficits and pension programs, and tax increases won't help. Both parties are to blame and can be traced back many administrations.
Reagan took office as governor in 1967 and left in 1975. During that time, this "fiscal conservative" oversaw 122 percent growth in the budget, a 22 percent expansion of the government workforce, the creation of the California Energy Commission and 22 other new councils and commissions, and the largest tax increase in California history. State income taxes nearly tripled under Reagan, then were later cut back by his Democratic successor -- Jerry Brown.
Brown once before defied conventional wisdom, undoing some of the mess left behind by a film actor-turned-Republican governor who spoke about the dangers of big government while expanding it all the same. Brown can do it again. His budget cuts show he's somewhat serious, but he must radically challenge establishment habits if the state of California is to remain golden for long.
William Bradley: The 'Slow Boring of Hard Boards' in an Era of Limits
Birgeneau ($450,000 salary) likes to blame the politicians, since they stopped giving him every dollar expected. The Chancellor’s ‘charge Californians more’ tuition skyrocketed fees by an average 14% per year from 2006 to 2011-12 academic years. If Birgeneau had allowed fees to rise at the same rate of inflation over the past 10 years they would still be in reach of most middle income students. Increased funding is not Cal’s solution.
Public UC Berkeley is to maximize access to the widest number of California students at a reasonable cost with a mission of diversity and equality of opportunity. Birgeneau’s and Provost George Breslauer’s ($306,000 salary) ‘charge Californians more’ tuition denies middle income Californians the transformative value of Cal’s higher education.
A sad unacceptable legacy for politicians, parents, and children.
Opinion to: UC Board of Regents marsha.kelman@ucop.edu and Calif. State Senators and Assembly members.
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As a first step, CA can own its own bank based on the North Dakota model.
Gross state product $2 trillion for Ca from http://en.wikipedia.org/wiki/Economy_of_California
Nominal interest rate = 6%
Banks earn = $ 2000billion* 6/100 = $ 120 Billion/year
For this money the banks pay less than 1/2 % to the federal reserve. Banks make a huge amount of money. Money is a public resource and is not a "free market" commodity.
This money will put an end to austerity.
To be large enough to make any money you would have to take 50% or 60% of the California market which would be a concentration risk way too large as you would have a couple hundred billion in loans only to a small geographic area and a limited number of industries.
Flat out, bad idea.
The state could come up with the capital, that would not require new taxes or debt by simply drawing on the treasurer’s existing pooled money investment account, which currently contains ~$65 billion in accumulated revenues.. This money is already invested; a portion could just be shifted to the CIT.
Since it would be an investment in equity rather than an expenditure, it would not cost the state money. Rather, it would make money for the state.
There are many inviting possibilities for applying the CIT’s $133 billion in credit power, but here is one easy alternative that illustrates the cost-effectiveness of the approach. Assume the bank invested $133 billion in municipal bonds at 5% interest. This would give the state close to $7 billion annually in interest income – nearly enough to pay the interest tab on the state’s debt.
America has been trapped in an subversive neo-liberal economic model in which the only alternatives are to slash services, raise taxes, and sell off public assets, all in a futile attempt to “balance the budget” in a shrinking economy. We need to think outside the box.
We can choose prosperity..and public banks are a key tool for achieving that end. www.webofdebt.com
And there you have the problem. We have a hole that will only get bigger every year and is sucking money out of services that we could provide if we did not have to pay an unsustainable annual return to retirees.
California expenditures are not "shrinking", they are being funneled to a subset of Californians who bribed the state (public employee union donations to politicians) in the past to get more of the pie today.
http://www.cacs.org/
Only certain sections of California are liberal--the coast from LA to San Francisco. The rest of it looks and votes like Texas. Which is why so many businesses and a significant portion of the middle class is decamping for that state.
No one, left or right, likes taxes,and California has both the initiative and referendum. The people can make policy. Prop 13, which capped property taxes, was the first of the taxpayer revolts. The problem is it capped them permanently, no matter what happened to the economy going forward.
It takes 2/3 of the California legislature to raise taxes, but only a majority to grant benefits. Remember the initiative and referendum? You don't think the populace is ever going to do anything but grant themselves largess, do you? Unions buy votes for salaries and pensions. The people themselves vote for education and public safety. Legislators are just an afterthought in California.
California doesn't need to go bankrupt. It needs to call a state constitutional convention for the purpose of acquiring a workable government.
California, like NY, has dysfunctional (at best) legislatures and governors which never clean up messes... they just pile more on.
When then harassment gets to a certain tipping point, businesses and the wealthy leave... revenues shrink and spending escalates.
At the heart of the problem is lack of leadership... Cuomo in NY and Moonbeam in CA. Leadership makes a difference! Ask NJ, WI, IN residents.
The 2006 defeat of Proposition 87, which would have steered the tax proceeds to alternative fuel programs, preserved California's status as the only one of the 22 major oil states to give the industry a free ride. And we're the third-biggest producer in the country.
How embarrassing is it for California to be hanging out there alone? That outstanding anti-tax crusader, Alaska Gov. S.a r a h.Pa.l.in, in 2007 raised her state's tax to 25% of the value of extracted oil and gas. Proposition 87 would have capped California's levy at 6%. So even if it had passed, we'd still be suckers.
According to the state Energy Commission, about 240 million barrels of crude were extracted last year from California lands and waters, including federal waters offshore.
At the current world benchmark price of about $70, the 6% tax contemplated by Proposition 87 would have generated more than $1 billion a year from that haul.
Consider some "what if" scenarios: At last year's peak benchmark price of $130 for California crude, the take would be nearly $2 billion. P.a.l.i.n.'s tax rate of 25% would generate $4 billion at a $70 price and nearly $8 billion at the top.
Californians have been taxed enough. It's time corporations that get so much out of our state pony up.
It is SPENDING that is and has been out of control!
Do some research on the drop out rates in high school. If 25% or more are bailing out as freshmen or sophomores, why do we continue to add teachers to teach fewer and fewer students?
NY is a good example of similar stupidity. We have one of the most comprehensive welfare systems in the country.
People flock here to take advantage... why doesn't the government do something... like lessen the benefits? Voters... democrat voters.
One of the highest tax rates in the country.
Now we have to see our taxpayer dollars go to california to keep them afloat as they try to live the liberal socialist dream on our dime. I just love it when liberal socialist tell me how cruel or how wrong my conservative way of doing things is when they are asking for my money to keep their lie alive.
That's the problem with liberal socialism the money ALWAYS runs out no matter where it's tried or who tries it the money always runs out.
Problem is that the democrat party has kept liberal/democrat minorities dependent on the government handouts so they can't bite the hand which feeds them and a dedicated voting base was created by this injustice.
Show me a liberal/democrat run city with liberal/democrat inhabitants and I'll show you high crime, high murder rates, high welfare rates, high unemployment rates, and a general attitude that someone owes them something thanks to liberals/democrats now lets just hope they figure it out before it's too late.
We could create a state bank.
We could make dispensaries account for (and tax) all the MJ they sell.
We could clean the prisons out of the people who really shouldn't be there.
We could put a BUY CALIFORNIA provision in every bill, make it a part of every local govt, every school budget, etc.
UCLA wants a million Tee shirts? Great buy them from downtown LA.
You cannot have a functioning capitalist economy when the labor pool has to compete against slave labor. We can kick this can down the road only so far BUT there point is nearing where we either have to live with a Chinese style system, with very few rich and everyone else a disposable worker, OR we have to recreate value for labor.
That would fix CA's problems.
for another point of view.
"Fear and greed also increasingly rule the USA, because the American economy is increasingly organized that way (by the Wall Street operators inside the White House, and halls of Congress).
Fear and greed are plain not enough to manage the house of man. Just as a democracy is stronger because many rule, and think, an economy is stronger when many emotions rule, and think. And care is one of them."