Little Support for Uncomfortable Remedies for California Budget Woes

Unless there is an unexpected one-time windfall that befalls California, chances are we will soon hear about the latest deficit projections. It will most likely surpass the previous estimates.

If recent history is any barometer, Governor Arnold Schwarzenegger will make a statement about his commitment to work with the bipartisan leadership in the Legislature, the constitutional deadline will come and go without securing a budget deal, IOU's will be sent, and the state's bond rating will suffer.

This is what California has become. With its constitutionally mandated spending that comprises 60 percent of the state's General Fund, lawmakers fight over the remaining 40 percent using a diminishing set of gimmicks to tout a budget deal.

Meanwhile, the state has institutionalized its budget deficits. We are almost guaranteed to repeat some version of last year, but when will California tackle the difficult choices that have placed it in a long-term financial bind?

Last year, the city of Vallejo filed for bankruptcy, making it the largest city in California to take such drastic measures. Moreover, practically every school district in the state would be in a similar situation as Vallejo if it depended solely on the revenues collected from local municipalities.

Will it require more cities the size of Vallejo or larger to take similar measures before serious action is taken? Are we content to believe Vallejo represents the aberration rather than a possible trend?

I recently spoke with Lew Feldman about the landscape of the California budget problems going forward. Feldman heads of the Southern California offices of Goodwin Procter, one of the nation's largest law firms, he formerly served as Bond Counsel to the California State Treasurer.

California is $63 billion in debt, the annual debt service is $3.6 billion, which given the trajectory may soon become 10 percent of the budget.

The magnitude of a potential 10 percent debt service increases given 60 percent of the General Fund is already dedicated. It would mean lawmakers would have only 30 percent of the General Fund to fight over, higher probability of issuing IOUs, less confidence by Wall Street, making future borrowing more expensive, increasing the state's debt service.

California is very close to being unable to deliver basic services to its low-income residents, along with other services such as parks and recreation that would impact overall quality of life.

This is the circular financial funk California finds itself. What Feldman offers as possible solutions to this long-term problem are essentially nonstarters because the state lacks the public and political will.

Feldman is of the opinion, and it is one I share, California must find a way to deal with its pension obligations. This is not exclusively a California problem; other states must confront this issue as well.

But California is on the verge of having similar problems to General Motors, by a factor of 30. How much longer can the state afford to pay a 30-year employee 90 percent of their salary plus health benefits for life once they retire?

Only an incredibly strong workforce growth and presumably a large number of current employees paying into the system can sustain this model.

The other reform measure is Proposition 13. I've written about reforming Prop.13 numerous times only to be besieged by cries that I am advocating for seniors to lose their homes. Doesn't that sound like the "death panel" argument?

It is hardly a secret in Sacramento that the state's pension obligations and Prop.13, the way it's currently structured, contributes greatly to California's fiscal woes. But any rational arguments are met by legions of emotional-based irrational opinions that leave the Legislature and the governor's office helplessly tinkering around the edges.

Those worried about pensions or Prop.13 reform fear not. I don't see anyone running for governor, the Legislature, or the other constitutional offices in 2010 proposing such reforms.

California's problems are so entrenched, and draconian term limits make it difficult to develop the requisite institutional memory to make needed change, one can only conclude that ego satisfaction would drive someone to run for a seat in the Legislature or statewide office.

While California has backed itself into a difficult financial corner, everyone wants the nonexistent pain-free, risk free change. We already know no one will propose uncomfortable change. And it is even less likely that we would elect such a person anyhow.

Byron Williams is an Oakland pastor and syndicated columnist and blog-talk radio host. He is the author of Strip Mall Patriotism: Moral Reflections of the Iraq War. E-mail him at [e-mail] or visit his Web site: byronspeaks.com

 

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Comments

[Egghead]

I don't think now is the time to talk blithely about "pension reform." Not when most state workers are on a three day a month furlough and haven't have raises in years. The furloughs are already a slap on both cheeks and a knee in the groin. Taking away state workers' pensions is like digging their graves, pushing them in it, and then spitting on them. Frankly, I DO expect that to happen. I work for the state as a Professor and I know that non-State workers hate me and my work like poison: I'm a lazy, worthless drone who corrupts youth. I'm pretty well resigned to the idea that there will be no pension for me when I retire. I think before anyone can even TALK about this, they'd have to restore the furloughs, put it in blood that they will never be used again as a cheap way to balance the budget, pay the workers a living wage, honor the pensions of the people who already work for the state, and THEN talk about changing it in the future.

Prop 13 should be reformed, at least. I don't see why it can't be lifted on commercial property for a start. But none of this can happen while we have the 2/3rds requirement in the Legislature for taxes and the budget. That is a big part of the problem, right there.

[Tim303]

Proposition 13 is terrible, terrible stuff. I only hope that the political forces that created this horrifying ratchet disappear, ie cease to remain alive, in the fairly short term.