Posted on 01/15/2009 9:23:23 AM PST by NormsRevenge
There is no question that the state is faced with one of the most dire financial situations in its history. But that seems to be about where the agreement ends.
There are numerous theories, scapegoats and explanations offered for how it is the state finds itself $40 billion in the hole. And there are just as many differing ideas about how the state should work its way out of this mess.
Gov. Arnold Schwarzenegger has proposed a collection of tax increases and spending cuts to bring the state back toward fiscal solvency. But along with the short-term problem, the governor and legislative leaders are locked in discussions about structural reform and ways to change the state’s budgeting system to keep us from ever winding up here again.
So, how did we get here? And what are the factors that led to this budget situation? Capitol Weekly talked to some of the state’s foremost state budget experts to try to get some answers.
We also wanted to get to the heart of some of the common accusations and explanations surrounding the budget: Was it Proposition 13? Formula-driven spending initiatives like Proposition 98? Was it a rapid expansion of the state’s safety net? Or the use of “one-time-money” for ongoing state expenditures? Do we have a revenue problem or just a spending problem?
The answer, of course, is that all of these things play a part in the state’s budget problems. But underlying all of these discussions is a more fundamental argument about the role of state government.
“It’s really a matter of what you want government to do,” says Diane Cummins, who served in Gov. Pete Wilson’s Department of Finance and as budget director to Sens. John Burton, D-San Francisco, and Don Perata, D-Oakland.
Cummins says there has been some expansion of the social safety net over the last two decades, with new programs like the state’s Healthy Families program coming online in the mid-1990s.
“I don’t think that Republicans are wrong to say that there are some fast-growing programs,” she said. “A big one is corrections. In-home social services has grown. Other areas have too, like the services for developmentally disabled.
“People talk about high growth, but if all of the people who get help from regional centers were in developmental centers, it would be at a much higher cost.”
A major shift in the role and funding of state government came with the passage of Proposition 13 in 1978. By locking in property tax rates, voters essentially froze the major source of local government funding.
As a result, services that had been provided by local governments shifted to the state. As a result, state spending on its citizens skyrocketed.
According to records from the Department of Finance, the state spent $626 for every Californian in the 1977-8 fiscal year. The next year, after the passage of Proposition 13, that jumped to $821 per capita.
In today’s dollars, that’s the equivalent of going from $1,969 for every Californian to $2,582 in one year.
“When Prop. 13 passed, the state took over obligations that were previously local obligations,” said Fred Silva, senior fiscal policy adviser at California Forward. “Before that, schools, and many services like Medi-Cal were funded, at least in part, by local property taxes.”
Today, the state government’s per capita spending is $3,500. Increases were gradual throughout the 1980s and 1990s, but spiked sharply after Gov. Gray Davis took office in 1999.
On the revenue side, volatility in the state’s income has been blamed for huge budget spikes and declines. The majority of the state’s revenues come from personal income taxes, which Silva says are more volatile than other forms of revenue.
“We used to have a much broader tax base that was a combination of property and personal income taxes. Throughout the 1980s, we increased our reliance on the personal income tax. Our problem is we don’t have a good way to handle volatility.”
Silva says a dependence on personal income taxes makes the state overly dependent on the incomes of the richest Californians. And when the state’s millionaires have a bad year, our economy takes a beating.
Silva and his comrades at California Forward have proposed a way to end some of the rollercoaster budgeting that has marked the last 15 years. If the state can identify money as “non-recurring,” or one-time windfall, they argue, it should be placed in a budget reserve to help smooth over the next income tax drop.
Cummins agrees, but says identifying one-time money is more easily said than done.
“We never really talked about it in the past,” she said. “But I think now, there is more awareness, and more of an effort to identify what is one-time money, and to try not to spend it on programs that will require funding long-term.”
Even then, the myriad budget formulas passed by voters do not make exceptions for one-time windfalls. A large spike in tax revenues, for example, would lead to an increase in the base for Proposition 98, the 1988 formula that directs at least 40 percent of the state’s budget to public schools. While there are contingencies in Proposition 98 about what to do in an economic downturn, a large windfall followed by a spike still leaves the state on the hook to pay more money to schools.
“I think it’s a flaw with the entire system. It’s based on formulas,” said Cummins. “For 30 years we’ve been moving money from one pot to another and given the economic crisis, and all of these spending formulas like Proposition 1A, and Proposition 98, and Proposition 42, you can’t do that anymore.”
Cummins says another hole in the state budget was caused by the cut in the vehicle license fee. The VLF is a property tax on the value of a vehicle. The money is used by local governments. When the state cut the tax rate from 2 percent to 0.67 percent, the state agreed to backfill the money the locals were losing on the reduced car taxes.
“When we passed the VLF, the backfill was about $4 billion,” Cummins says. “Now, the backfill is about $6 billion. That’s an additional $2 billion hole in the state general fund, money that we owe local governments.”
While Cummins and Silva both say no one thing is to blame for the state’s budget woes, it is the unintended consequences in policies like the VLF reduction that take their collective toll. And the state, in expanding the scope of the services it provides, may have to focus its spending priorities.
“I think you have to have that discussion about what government provides, and what services it should provide,” says Cummins. “When times are good, people don’t pay as much attention. It’s not at the top of their agenda. It’s times like this where they say we spend too much, or try to do too much.
“We need to prioritize and ask ourselves -- are these things still a priority, and are there ways to control the costs? Because I suspect you would find an awful lot of our programs are still under-funded.”
I first flew to California on a Western Airlines jet headed to bootcamp summer of ‘72.
The budget was about 7 billion a year.
35 years later..
CALIFORNIA STATE BUDGET HISTORY {PDF}
http://www.sen.ca.gov/budget/budgethistory.pdf
California Budget Information
http://www.dof.ca.gov/budgeting/budget_faqs/information/
It’s only as complicated as one wants to make it. Cut programs, spend less and don’t spend money you don’t have. All the rest is just noise to cloud the basics
That entire state (and many others) lives in a delusional state of existence in which they expect government to do (A), (B), (C), etc. -- but also expect those things to cost them nothing.
Arnold should create an action movie ticket tax - it’s for the children doncha know...
These brilliant demoncrats don’t get it. People are folding up their tents and leaving for greener pastures.. More taxes mean more people will fold and leave. We are on the back side of the tax curve, the more you tax the less you get.
Goes to show that locking down property taxes won’t stop the moochers and looters.
On brother...this guy must not pay property taxes in California.
Here's a sample from one of our property tax bills...
First you have the GENERAL TAX LEVY which is the big number on the bill. Below that is all of the crap that was added on by voters post prop 13...
VOTER INDEBTNESS
Metro Water Dist
Munic Lighting
Community College
Unified Schools (this was $1,341.00)
General Fund
Below this is the DISTRICT ASSESMENTS that includes Flood Control, Health Lic Fees, Mosquito, Trauma & Emergeny Srv. Sanitation District, etc.
Other voter/district taxes that may be included are library taxes (for a new library), park disticts, community colleges, other bonds, etc.
In short...it's a bunch of crap and an easy scapegoat to blame everything on Prop. 13. Politicians found a way to bypass Prop 13 a long time ago with their collection of fees, assesments, and bonds.
The state government spent too much (and, I might add, not even on capital improvements like infrastructure, but on welfare programs and burgeoning bureaucracy).
In this case:
A major shift in the role and funding of state government came with the passage of Proposition 13 in 1978. By locking in property tax rates, voters essentially froze the major source of local government funding.
The false hood, of course, is: By locking in property tax rates, voters essentially froze the major source of local government funding.
The lie implies that property tax income didn't rise susbstantially after the passage of Prop 13 and that those tax revenues weren't sufficient to sustain the government at a level in place at the time 13 was passed.
The opposite is true. Post 13 property tax revenues rose dramatically and were more that adequate to finance the form of government in place at the time of the passage of Prop 13.
The facts is, in the face of rising and predictable revenue streams, state government consistently mandated more program costs than its income could afford. To make up for the shortfall, state government diverted more and more local revenue streams to the General Fund, leaving local government saddled with an every increasing retinue of unfunded mandates.
The attack on Prop 13 begins. The article would have you believe that all of the problem is a “lack of revenue” problem. Bunk! The problem is simple. The socialist democrat legislature is wasting far more money than ever on far more garbage and crap than ever.
People scream “we need money for education.” So what part of free meals for every kid who wants one is “eduction”. When I was a kid, I ate breakfast at home.
The money California wastes on being “green” is horrific all by itself.
Today’s California state spending is crap. Pure crap. The legislature needs to cut spending. They won’t.
How many hundreds of times have I typed on this forum, in CA related threats “we are doomed.” That is a fact. Insolvency is coming to California. It is just a question of when. With any luck at that point, even the brain dead morons that keep re-electing the left-wing socialist scum will throw them all out in favor of those who are fiscally conservative. I doubt it. I think they’ll just roll a huge joint and stay stoned during the collapse.
Message to all those who believe that 'money grows on trees'. . .It doesn't.
And the old saying of how 'California goes' so goes the Country, should be enough warning.
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