California’s fiscal charade

Monday’s agreement between Arnold Schwarzenegger, the governor of California, and state legislators seemed to promise a temporary resolution to an ongoing budget crisis. But before legislators had even had a chance to vote on it, Californians were indulging in that peculiar mix of sanctimony and surrealism which marks almost all political discourse in the state. “What about the children?” ran the headline over the letters section of the San Francisco Chronicle, as if the important divide in the state’s politics were between those who “care” and those who do not.

Caring has nothing to do with it. California’s problems are those of “direct democracy”. The state’s laws are shaped by plebiscites to a degree unmatched outside of Venezuela. In voting on “propositions”, which sometimes touch on detailed budgetary matters, citizens of the Golden State have stood up consistently for two principles: the state should provide vastly more services to its citizens, and citizens should pay vastly less to the state. In 1978, Proposition 13 halved government’s take from property taxes; a decade later, Proposition 98 required the state to spend 40 per cent of its “general fund” on schools. Adding to the problem is the requirement of supermajorities for raising taxes.

The present impasse reflects a problem of long standing, even if its severity is unprecedented. Ronald Reagan won the state’s governorship in 1966 by promising to do something about the budget deficit, which had by then risen to a calamitous $194m. Today, the state not only has a $26.3bn (£16bn, €19bn) budget gap but is constrained by all sorts of powerful institutions and laws from closing it. Until recently the state issued “revenue anticipation notes” but its contractors will no longer accept them. California’s bonds are the lowest-rated of any state. Facing insolvency, Mr Schwarzenegger and legislators have proposed selling off billions of dollars’ worth of state assets, cutting the state’s university budget by 20 per cent and releasing 27,000 inmates from prison. Already the state has given mandatory furloughs of three days a month to state employees. “Furlough” is a euphemism. It means you do not get paid.

At least those are concrete steps. But much of the budget plan hammered out on Monday consists of accounting tricks. Unable to go to the banks to borrow, the state is borrowing billions from local counties and communities by simply not disbursing the money it is supposed to. If cities really want their programmes funded, they can try the credit markets themselves. A payday that was supposed to come next June has been pushed back into July, so that it will fall in the following fiscal year. Another trick is the accelerated withholding of state income tax. Instead of deducting 25 per cent of taxes per quarter, the state will deduct 70 per cent in the first six months of 2010, so that 20 per cent of revenues from the next fiscal year will be brought forward into this one. This is not a solution. This is changing your phone number so you can get some rest from the bill collectors who are dunning you.

Commentators often say that the problem in California is that it is too difficult to raise taxes. This is misguided on two levels. First, for all its difficulties, the state still manages to level the sixth-highest taxes in the nation. Second, when you are talking about economic growth or the role of the state, tax rates matter; but when you are talking about balancing the budget, what matters is that receipts, however they may be collected, match outlays.

It is an enduring mystery why US pundits should see a difference between the philosophy of Democrats (who stand for spending more than you raise) and the Republicans (who stand for raising less than you spend). Typical was a Chronicle editorial blasting Republicans for their insistence that the budget crisis be resolved in a way that did not involve tax hikes. “Many of them,” the paper wrote, “would sooner see their children in second-rate schools and their cars on Third World roads before they would break their anti-tax pledges.” But wait. California already has second-rate schools. In fact, for all its mandates and its massive spending, it has abysmal schools. In the federal government’s National Assessment of Educational Progress, California usually vies with such states as Louisiana and Mississippi for the 50th spot.

A stronger case can be made that tax revenues are too unpredictable. Here Proposition 13 is blamed for moving the burden from property to income taxes, which are more sensitive to economic fluctuations. In a boom economy, there is plenty of money to pay for the unemployment benefits that no one needs. When you have 12 per cent unemployment, as California does now, the state is too strapped to do anything. This accusation is true enough – tax systems themselves can be speculative. But a comparison of California’s fiscal crisis to the one that roiled Ireland this winter is instructive. Ireland’s problem was that it collected too much of its revenue through taxes on property (in that case, on transactions) and not enough through taxes on income.

California’s fiscal difficulties are like a lot of things in life. Everyone warns you that there are certain hard and fast rules – like not confusing wishes with entitlements – that you break at your peril. You begin to break them and what happens? Nothing! Nothing at all, and for the longest time. You are like a ship that has lost its anchor. You can drift very pleasantly, day after day, believing you do not need an anchor at all, before one day you realise, quite suddenly, that you do.

California has three basic problems. First...They want to spend $1.50 for every $1.00 they bring in. Second.....is the illegals they want to support. Third and one of the worst......The education system pulls much of the money the state brings in. They have one of the worst educational systems in the country which doesn’t justify the dollars spent. The teachers unions don’t care about the state or anyone outside of their system.

California’s problems are those of “direct democracy”.

I don't agree with that at all. That totally absolves the idiot legislators who populate this state, and the governors who can't say "no." Direct democracy, in fact, has put a leash on these guys. No tax money, no spending. Unfortunately, the problem with this State is that they gave the legislature too much money, and it took about 20 years before the leash became tight. They should have given them 1/2 the taxes they did. If they had, then this problem would have been confronted and resolved much sooner, and would not now be a $26 billion problem, but only a $13 billion problem.

Fire 1 out of every 3 state employees. Remove eggregious pension benefits. No services to illegals. Done.

What, and make children and wide eyed puppy dogs suffer?? /s

1 out of 3 and the state could probably give a tax cut to the payers, but they wouldn't.

Adding to the problem is the requirement of supermajorities for raising taxes.

Remove this pesky little requirement and all our problems go away. The dems and their permanent majority could raise taxes at will.

Do I really need a sarcasm tag here?

I don't agree with that at all.

Sorry, but I do agree with this.
Why even have legislators if people are going to override them with Propositions?
The author nailed it. CA is suffering from the old political axiom: I want more gov't services, but I ain't gonna pay for them. People need to take responsibility for themselves.

“What about the children?” ran the headline over the letters section of the San Francisco Chronicle, as if the important divide in the state’s politics were between those who “care” and those who do not.

They don’t seem to worry about the millions of babys aborted and throw into dumpsters.

simple solutions to complex problems:

1. No taxpayer funds shall be used for any Public Servant or Public Employee for Any Health or Retirement Benefits if said Person is a member of a Labor Union.

2. All services except Emergency Medical Care shall be Paid for By Public Employees and Public Servants, all monies are to be withheld from their paychecks at a rate to determined to cover all expenses for persons not in this country Legally.

3. All payments for Emergency Medical Service to those in the State Illegally shall be paid By Federal Employees Living and Operating within this State.

4. Any Person who receives an injury or loss from a Person without proper Legal Residence shall be entitled to Fair, Full and just Compensation. To be Paid for by All federal Employees within this State.

The Kelo Decision gave the States the absolute right to take personal property for profit or tax revenue, Immediately seize the Assets of All Federal Employees.

"It is an enduring mystery why US pundits should see a difference between the philosophy of Democrats (who stand for spending more than you raise) and the Republicans (who stand for raising less than you spend)."

The definition of madness "Do the same thing & expect a different outcome" also explains a lot. The utter stupidity of throwing money at schools and expecting better education. Until someone has the guts to audit the education budget in California and set it out for voters to see, more money will be spent and education levels will worsen. And education is 40% of the total?

Until 'unthinkable actions' are taken, things will not improve.

Try costing extracurricular programs (unthinkable),

try changing the ration of teachers to administrators (unthinkable),

try payment by results (unthinkable)

try outsourcing janitorial & maintenance(unthinkable)

try charging cost plus for school meals (unthinkable) after all, as was once famously said - paraphrased - school budgets pay for education, meals are welfare and that department is further on down the corridor.

Excellent summary, but there's no mystery. It's been proven time and again that the only way to rein in Democrat spending the slightest amount is to starve them of cash, ie, keep reducing money flowing into government. On second thought, I used to believe that, but it doesn't explain runaway Republican spending.

“Why even have legislators if people are going to override them with Propositions?”

Why have voters if the legislators and governor are going to ignore them? It’s not the voters who passed the hundreds of billions of dollars of spending that have put CA into default. The legislature did that, and the governor signed them.

It was the voters who eventually shut off the tap after the legislature and governor put the latest budget proposition to them. But for the voters, the governor and legislature would be happily on their merry way to another record deficit financed by more borrowed money. It’s a shame that the only way the people can get the politicians’ attention is by cutting off the money, but that’s the way it is.

I guess you could say that the voters are to blame for what the legislature does because they elect them, but that’s not a problem of direct democracy.

Let me just point out that according to the media, every time things go wrong in a conservative state, it’s the fault of the conservative politicians. Everytime things go wrong in a liberal state, it’s the fault of the people.

The notion that this problem was caused by the CA “system” is just liberal media propaganda. They are diverting attention from the real culprits, and it seems to be working.

Our First Five Commission was asked to give a large portion of its funding to pay for health insurance premiums for kids under the Healthy Families program. They declined feeling that monies should be spent on the general population of children 0-5 and not on individuals. They chose to spend it on supporting the ten family/community resource centers that operate in our 6000 square mile mountainous county.

The State should follow this pattern. Why are we providing individual treatment benefits for mental health or any health? Why are we providing funding for individual child care?

From the article: "... and what happens? Nothing! Nothing at all, and for the longest time. "

The author has identified one of the reasons that the problem must get very serious before a solution can appear.

A majority of Kalifornians want more government services. A majority of Kalifornians want lower taxes.

What the author fails to state, however, is that these are two different majorities. There is a squishy middle to this distribution that is unable to recognize that the two concepts are incompatible. When enough of these in-betweeners find themselves without a job, without the pension they were promised, and with no prospects for themselves, their children, or their grandchildren, then, perhaps, they will wise up.

Until then, it will be more of the same. It's not like the federal government hasn't gotten away with the ponzi-scheme we call "Social Security" for nearly a century. And yet we hear calls for more of the same in the form of nationalized health care and bankruptcy by "cap-and-trade".

It's going to get a lot worse before it gets better.

California’s problems are those of “direct democracy”. The state’s laws are shaped by plebiscites to a degree unmatched outside of Venezuela. In voting on “propositions”, which sometimes touch on detailed budgetary matters, citizens of the Golden State have stood up consistently for two principles: the state should provide vastly more services to its citizens, and citizens should pay vastly less to the state. In 1978, Proposition 13 halved government’s take from property taxes; a decade later, Proposition 98 required the state to spend 40 per cent of its “general fund” on schools. Adding to the problem is the requirement of supermajorities for raising taxes.

How are California's state taxes among the highest in the nation if the problem is that the citizens have denied via “propositions” the politicians the ability to tax?

California's problem is spending, period!

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