In most ways, what happened at the polls yesterday (or perhaps what did not happen as most people did not vote) is only symbolic in terms of the bigger scheme. The voters were asked in a way to codify an imperfect and in the end insufficient budget deal from February to balance the budget shifting, borrowing, repaying, and eventually capping future spending.
The voters rejected such overtures and probably Assembly Majority Leader Albert Torrico hit the nail on the head when he said last night:
I am certain in the coming days we will analyze the exit polls that will provide us with less information than usual since a possible record low turnout was expected. The official totals are not available just yet, but it was reported the turnout for instance in Sacramento County was around 17 percent.
What I suspect the polling will show though is a number of different reasons for the results. The left largely rejected these measures because they bit into vital programs and did not solve the overall deficit. Prop 1A was a convoluted layering of four separate initiatives that had something for everyone to vote against–and they did. The right voted against what they perceived as tax increases in Prop 1A and I’m not sure the objections to the rest, but it seemed to be portrayed as a tax increase from the start which doomed it from the right’s perspective.
As I said on Friday though, if the numbers were such that the $6 billion in budget savings would have substantially closed the budget, then I would have held my nose and voted for them. Reducing the deficit from $21 billion to $15 billion at best was just not worth it.
The Governor is likely to use this as a misguided and probably wrongheaded mandate to slash the budget.
The governor has threatened to make up for the lost revenues by cutting an additional $2.3 billion from elementary and high schools and community colleges; borrowing $2 billion from cities and counties; transferring some state prison inmates to county jails and some illegal immigrant prisoners to federal custody, and slicing deeper into health, social services and other programs.
More importantly as the Capitol Weekly opines, this may mark the end of another Schwarzenegger era.
“It may mark the end of Gov. Arnold Schwarzenegger as a compromising moderate willing to talk tough, but ultimately postpone the state’s hardest budget decisions… It remains to be seen what type of political phoenix emerges from the ashes of the governor’s latest initiative defeat. Schwarzenegger has been known to reinvent himself after ballot box losses before.”
Schwarzenegger strategist Adam Mendelsohn:
“In some instances, a loss is as much a mandate as a win, It’s clear that he carries a mandate to cut the California budget down to the bone.”
However, Governor Arnold would be wrong to take that from these results. First, the progressive left joined the right to vote against this. Second, the election really wouldn’t have changed much had it passed and it does not really change the reality having failed. $15.4 versus $21.3 billion just isn’t that much of a difference.
The Sky Is Falling
The election was insufficient to prevent the sky from falling anyway, but the sky is falling today over California. We have survived longer than perhaps we should have with some tricks, borrowing, shuffling of monies, etc. That all stops now.
As Dean Florez, Senate Majority Leader told me now a month ago, this is an all-cuts budget. The Governor you know believes that, he said as much last week.
We have already cut $9.3 billion from education. The Governor is immediately threatening two more billion. And to close the rest of the deficit you can safely assume another three to five billion. The sky is falling on education in California. People want to argue that we were not doing a good job of educating our youth in this staff at the place we were at when we were somewhere like 25th in per pupil spending–do you honestly believe we will be better when we cut $15 billion??? If you do, you need a lesson in reality.
We are going to cut money from health coverage for the poor.
We are going to cut money that goes to things like First Five and other early childhood interventions.
We are going to cut money that goes to programs for at-risk youths.
We are going to cut jobs across the state.
Students are going to pay more to go to colleges and as a result some won’t be able to go. In addition we are accepting fewer students.
Teachers will be laid off.
Prisoners will be released early.
The sky is falling. The only question now is how bad it will get. Whether it will plunge the state of California into depression. And whether the state of California will take the rest of the country down with it.
The Governor has already threatened to take $2 billion that is supposed to go to local governments in terms of property tax revenue provided through 2004’s Prop 1A. That means that you are going to see a higher deficit locally and more cuts there.
Yesterday the Yolo County Board of Supervisors voted by a 3-2 vote with Provenza and Chamberlain dissenting to stop county medical coverage for illegal immigrants. The total savings from the medical cuts is somewhere around $1.5 million but that goes beyond the bit that goes to help illegal immigrants. That means increased pressure on the emergency rooms and we will likely see higher costs down the line. In addition this sets us up for a major health outbreak should something more serious than the Swine Flu emerge, whole segments of the population may transmit disease without knowing.
Frankly this is the tip of the iceberg. It is going to get ugly.
I urge people to get involved, now is when the public is needed the most. It starts at the local level. Tonight we are having a townhall meeting. I urge people to attend. It is from 7 to 9 pm at the Veteran’s Memorial Center on 14th Street in Davis. We will discuss Davis’ budget problems. These are budget cuts that will affect people in a very personal way.
Unfortunately the picture regardless of last night’s outcome was bleak and it will likely get worse in the coming weeks and months. Now is the time for people to engage.
—David M. Greenwald reporting
M1 – Cut legislative pay by 20%
M2 – Legalize Marijuana
M3 – Free all the prisoners on minor drug offenses
M4 – Privatize services starting with the prison system
M5 – Eliminate defined benefit pension plans for all new state and local employees
http://globaleconomicanalysis.blogspot.com/2009/05/hooray-for-california-propositions-1a.html
M1 – Cut legislative pay by 20%> pennies
M2 – Legalize Marijuana> problem is that this is a federal issue
M3 – Free all the prisoners on minor drug offenses> agree
M4 – Privatize services starting with the prison system> infeasible and will probably create worse problems down the line
M5 – Eliminate defined benefit pension plans for all new state and local employees> infeasible and probably not legal.
This is from the LAT Michael Finnegan:
“By rejecting five budget measures, Californians also brought into stark relief the fact that they, too, share blame for the political dysfunction that has brought California to the brink of insolvency.
“Nearly a century after the Progressive-era birth of the state’s ballot-measure system, it is clear that voters’ fickle commands, one proposition at a time, are a top contributor to paralysis in Sacramento. And that, in turn, has helped cripple the capacity of the governor and Legislature to provide effective leadership to a state of more than 38 million people.”
“M4 – Privatize services starting with the prison system”
I don’t like what I have heard about the Bush administration privatizing significant parts of the Iraqi operation — paying independent contractors significantly more than military personnel, Blackwater. Seems like it would have been cheaper and less troublesome not to have privatized.
Along the same line, I can only imagine what would have happened had we privatized Social Security along the lines proposed just a few years ago going to 401Ks. Talk about a disaster of epic proportions.
I’m all for cutting back on plum retirement packages, but we have to reasonable about it.
The Governor is likely to use this as a misguided and probably wrongheaded mandate to slash the budget.
David, it really sounds like you expect Schwarzenegger to fit a square peg in a round hole. Where do you want him to find the money to not slash the budget?
You shouldn’t think that I want to see the budget slashed, because I don’t particularly. I just don’t see what choice he has.
Ahhh…. I wake up and read the paper and get a huge smile on my face. Its a great day in California! So perhaps now we can finally get around to having the idiots in Sacramento declare bankruptcy, cancel all of the ridiculous union inspired state labor agreements and start over.
Every single day, the news gets better and better. Eventually, the giveaway artists in Sacramento will have to stop shoveling money to their union buddies and either quit or do whats right.
State worker unions are what bankrupted the state of California.
Greg:
I think you raise a fair point here. I’ve run through the budget a few times and I’m not sure where we are going to find the money TO slash the budget enough to close the deficit. I say that because there are several problems:
First, there are propositions that require monies to be spent–and can only be changed by a vote of the voters like yesterdays– that limits how much we can cut
Second, there are monies that if we cut we lose stimulus and other federal funding so it’s self-defeating
Third, when we do slash programs and spending, we are cutting jobs for the most part which means that we lose money in unemployment benefits, we push the economy down, it will cut into tax revenues, so what appears to be cuts may not end up cuts
Fourth, we cut money to preventative and investment programs not only will we harm the economy, we also probably lose money in the long run.
It costs about $10K per pupil to educate but five to six times that much to incarcerate. So in the long term, cutting the budget is a bad proposition for us.
The bottom line here is that we are in a world of hurt and there is not a clear way out.
Services are going to be cut whether we like it or not. So where do we make the cuts? If we can’t cut education, we can’t cut for insurance to illegal immigrants, where do the cuts go?
I’m pleased with the passage of 1F.
“Fourth, we cut money to preventative and investment programs not only will we harm the economy, we also probably lose money in the long run.”
For the moment, the long run is not the question. The state obviously has a crisis in the short run. You have said that the Governor will read the vote as a “misguided” and “wrongheaded” mandate to slash the budget. But it sounds like you would slash the budget too if you were the governor, simply because you would have no choice.
Likewise the other day you said that UCOP (and by association, Katehi) had the students’ blood on its hands for raising fees. You also said that the state shouldn’t balance the budget on the backs of its workers. But if you had Yudof’s job, what choice would you have other than to do both?
[quote]The Governor is likely to use this as a misguided and probably wrongheaded mandate to slash the budget.[/quote]What power does the governor have to slash the budget on his own? [quote]The governor has threatened to make up for the lost revenues by cutting an additional $2.3 billion from elementary and high schools and community colleges; borrowing $2 billion from cities and counties; transferring some state prison inmates to county jails and some illegal immigrant prisoners to federal custody, and slicing deeper into health, social services and other programs.[/quote]He can do that without legislative approval?[quote]Schwarzenegger strategist Adam Mendelsohn: “In some instances, a loss is as much a mandate as a win, It’s clear that he carries a mandate to cut the California budget down to the bone.” [/quote]It’s not news that deep cuts will have to be made. That’s the result of the declining state revenues (since last year), not the result of yesterday’s election.[quote]However, Governor Arnold would be wrong to take that from these results. First, the progressive left joined the right to vote against this.[/quote]What ideas is the progressive left pushing? Are you thinking of our progressive left member of the assembly, who is going to bat for the special interests (fire fighters) who financed her campaign? [quote]We have already cut $9.3 billion from education. … The sky is falling on education in California. [/quote] Fair enough. However, go back 10 years. Consider in 1999 dollars how much we were spending on education, then. Then consider how much we will spend in 2009 (in constant dollars). My guess is we will be spending more and more per pupil. So was life so terrible in 1999? No, it wasn’t. The crisis of 2009 — not just in education but in virtually every program the state spends money on — is that its increases over the last decade have been well beyond a sustainable rate of inflation. And then when we get a downturn, the cuts look brutal (and they are painful). If instead, as 1A would have done, we budgeted more sensibly year to year, not inflating our budgets beyond a sustainable amount, we wouldn’t have put ourselves in this position. [quote] People want to argue that we were not doing a good job of educating our youth in this staff at the place we were at when we were somewhere like 25th in per pupil spending–do you honestly believe we will be better when we cut $15 billion??? [/quote] This is the crazy logic of the Davis City Council budgeting process. See what other cities are blowing money on and match or exceed their largesse. It doesn’t matter where California ranks among the 50 states. There are many states which spend much less than we do and get better results. What matters, fiscally, is that we keep our growth of spending on education and other programs within our means. Educationally, it also matters a lot that we get the most bang for our buck with each dollar spent. When we have a convoluted financing system — as we do with categoricals — too much of the money in California education is spent on administering these programs, not putting the money in the classroom. [quote]The Governor has already threatened to take $2 billion that is supposed to go to local governments in terms of property tax revenue provided through 2004’s Prop 1A. That means that you are going to see a higher deficit locally and more cuts there.[/quote]This is one reason we should have approved props 1D and 1E. First 5 and the dedicated mental health programs would have lost from them. But by rejecting those props, the state will essentially steal the same monies from counties (and cities), so that other, perhaps more important programs at the local level will be wiped out entirely, while the dedicated programs have even more money than they know how to spend.
Cut, cut, cut. It’s long overdue.
The sky won’t be falling, it will (at worst) be resetting to where it had been a decade or two ago. I see nothing wrong with that.
Classroom sizes increasing, and teachers being laid off? Despite being the parent of two… frankly, I don’t mind. Education budgets soared after ’96 in California in order to reduce classroom size, but little improvement in achievement was seen. I consider smaller classrooms *a luxury*. Going back to the classroom sizes that you and I had as children simply doesn’t equate to an apocalyptic event.
So, cut, cut, CUT! I agree with the interpretation that these results are a mandate for the governor to cut to the bone.
Also, I don’t think the governor wants to make cuts. Noone wants to do that. But there is little choice. The problems can’t be put off anymore. Also, I’d like to reiterate rich’s point: this isn’t simply about the governor. The legislature has to take responsibility for CA’s financial situation and whether cuts are going to happen. For that matter, the state was dragged into debt by passing all of those bond initiatives, which included many multi-billion dollar education bonds. We passed them, getting a lot of short term spending on education, but that just punished us in the long run because education cuts are going to have to be made to pay off the debt we have accumulated through those bonds. I’m sorry but you can’t borrow and spend your way out of problems. Eventually the whole scheme collapses on itself.
Rich,
I couldn’t agree more. The idea that we’re in some sort of nightmare scenario because we’re “25th in national spending” is bizarre.
This isn’t the kind of competition any responsible parent, school, district, or government should be engaged in. If we all aspire to being better than our peers, then it’s no more than a numeric arms race (with little real-world implication) that ends up right where we are: on the verge of bankruptcy.
Can you imagine doing the same on the scale of an individual family? Look around the block, and make sure you’re spending the most money on after-school tutoring for your children… if not, put more money into it! is that really sane?
Martin: [quote]M1 – Cut legislative pay by 20%
M2 – Legalize Marijuana
M3 – Free all the prisoners on minor drug offenses
M4 – Privatize services starting with the prison system
M5 – Eliminate defined benefit pension plans for all new state and local employees [/quote]M1 — Legislative pay may be too high. It’s by far the highest of any state. However, that won’t solve any problems. It’s a very small portion of the state budget. I would guess, also, that for every dollar in salary and and per diems and benefits we pay Mariko Yamada, for example, her office costs us 10 dollars. (That is, the cost of travel, computers, repairs, rent, supplies & equipment, gas and electric, staff salaries + benefits and satellite offices add up to maybe 10 times what we expend on our assembly member.) So if you want to save money in this area, then cut by 20% the amount budgeted not for member’s salaries and benefits but the amount budgeted for all expenses accrued by all members.
M3 – This has already been done.
M4 – If it would take away power from the prison guards’ union, then this makes sense. However, it’s worth noting that private companies which provide public services tend to build up political capital over time. That is, they pay off legislators with campaign contributions and before long, those so-called private companies end up costing the taxpayers even more than public enterprises do. Think of how defense contractors make money with massive overcharges and building weapons’ systems we don’t need. It’s not as if those “private” companies have anything in common with free enterprise.
M5 — there is a ballot measure ([url]http://www.reason.org/news/show/1006943.html[/url]) in the works to reform the pension system in the state. It’s obviously in great need of reform. However, I would not count on the majority of California voters saying yes to a change. It seems like the only initiatives which pass are those in which a majority thinks it is getting a benefit from the program and someone else will be paying the bill. Hence, we pass multi-billion bond measures (e.g., high speed rail) with no tax increases to pay for them. We pass taxes on cigarettes and the very rich to pay for health and welfare programs, because we don’t smoke and aren’t rich, so we don’t mind those taxes being raised. … We tend to vote down reform measures, because the affected special interests will mount overwhelming campaigns against them, making it seem as if the voters have nothing to gain and everything to lose by reform. (Also, these reforms often throw in too many ancillary ideas, making them hard to understand and not obviously necessary.)
“Classroom sizes increasing, and teachers being laid off? Despite being the parent of two… frankly, I don’t mind. Education budgets soared after ’96 in California in order to reduce classroom size, but little improvement in achievement was seen. I consider smaller classrooms *a luxury*. Going back to the classroom sizes that you and I had as children simply doesn’t equate to an apocalyptic event.”
What would you see as significant improvement in achievement over the past 13 years of small class sizes? Davis students have made improvements on standardized tests during that time. I guess this will be an experiment we will run on our children to see if standardized test scores improve or not.
The legislature has to take responsibility for CA’s financial situation and whether cuts are going to happen.
This comment stands on one of the basic fictions of California politics. Yes, the legislature “has to” take responsibility for the state budget, but it almost can’t, because it needs a 2/3 supermajority to pass one. A supermajority rule may seem like a method to make the legislature accountable, but it actually does the opposite, it weakens responsibility. If you are a state legislator and you don’t take financial responsibility, your vote counts twice as much as if you do.
It’s interesting that no type of state proposition in California is bound to a supermajority. The state legislature is bound to a supermajority, and so are city property taxes after Prop 13; but not state propositions. As written, the state constitution takes responsibility away from politicians and gives it to the voters. Yesterday the voters used their responsibility to blame politicians.
So yes, someone “has to” take responsibility for the state budget, but not necessarily the state legislature. Eventually, that someone will be the bond market, or the federal government. I don’t really blame the voters either, because they have their own jobs, they don’t have time to study the state budget. The populist budget rules are simply California’s bad luck.
“However, go back 10 years. Consider in 1999 dollars how much we were spending on education, then.”
This comment stands on another basic fiction of the state budget, which is that the budget has somehow grown beyond the bounds of the state economy. I do not know about education specifically, but the budget as a whole has stayed at a constant fraction of the economy since before 1999. Given what has happened to the prison system, education might well have been trimmed back slightly, as a fraction of state GDP.
Most of the increase in the state budget is due to inflation, and some fraction is due to population expansion. All of the rest is due to the fact that the state is a little wealthier, per person, than it was in 1999. Do you want California to be an employer who ignores prevailing wages, and only marks salary to inflation? “We don’t care how much you could get paid at some other job; we set our pay scale based on inflation and that’s it.” What you would get is civil employees who hold even on some absolute scale, but whose salaries slowly slide down the skill ladder.
I wouldn’t be surprised if some types of state salaries already fit that description. Accept a pay cut for the privilege of working in the California public sector, and don’t complain because your salary has been adjusted for inflation since 1999.
Greg: Very good comments, glad to see you posting here. I just came from the Speaker and Pro Tem’s press conference, they seem to get it. The voters they said want the legislators to fix it. And as Steinberg said, paraphrasing, I’m a liberal, but I think raising taxes at this point would be a mistake.
The debate now is over what to cut. I bring in Bobby Lee and Davis Parent to address a couple of key points here.
First, Bobby, education along with health care are obvious targets since they are two of the bigger pots of money, but I think it is a mistake not to look at corrections. I think there are areas of sentencing, parole, and other issues that have been screaming for reform for quite sometime and if we do the cuts in the right way we can reform and save money.
To Davis Parent, “The idea that we’re in some sort of nightmare scenario because we’re “25th in national spending” is bizarre.”
I think you’re missing a point here, we were 25th in per pupil spending BEFORE we cut $15 billion from the budget. I would have to do the math that I don’t have time to do right now, but I’m going to guess that pushes us into the 35th to 40th range. Those figures don’t take into account cost of living, so if we adjusted it, well you can figure out where I’m going with this.
You consider smaller classrooms a luxury? Are you aware that in numerous studies, performance is pretty strongly linked to class size? As a parent in Davis, I suspect you’re probably right that your kids will be relatively okay, but for the at risk kids in the failing schools in the cities, this is their life and more importantly this is our future. You’re basically condemning some of these kids to a really bad life. And if you want to say many will end up there anyway, you’d be right, but this is going to make much worse.
I’ll stop there for now.
A few months ago, the Sac Bee published a comparison on how California spends money in comparison to other states. We were #1 in what we pay to keep prisoners in cages, #1 in what we pay welfare recepients, and #47 on what we spend on our kids for schooling. So what are we going to cut? You guessed it–schools. I’m old,and my kids are out of school, but I am sorry for the futue of the state.
“I think you’re missing a point here, we were 25th in per pupil spending BEFORE we cut $15 billion from the budget. I would have to do the math that I don’t have time to do right now, but I’m going to guess that pushes us into the 35th to 40th range. Those figures don’t take into account cost of living, so if we adjusted it, well you can figure out where I’m going with this.”
In a link I posted on another thread, California was 30th in 2006. 2007 numbers might be available, but probably not 2008 at this point.
Context is also important. Ten+ years ago Calfornia was much lower in state funding. It has been slowly climbing up and peaking only recently. You can’t see the full benefits of higher level funding unless you can sustain it for several years, a decade or longer. In other words, we may never know how good things could have been at a higher funding level, because now we are sliding down.
DJUSD looks like an exceptional district among California school districts. In many other states, however, it is only average.
[quote]It’s interesting that no type of state proposition in California is bound to a supermajority. The state legislature is bound to a supermajority, and so are city property taxes after Prop 13; but not state propositions.[/quote]A simple majority of state voters could A) end the 2/3rds budget rule; or B) modify Prop 13’s rules. [quote]I do not know about education specifically, but the budget as a whole has stayed at a constant fraction of the economy since before 1999.[/quote] A constant fraction? Really? Do you have a source for this statement? Given that our state economy has been so inconsistant for the last 10 years, a constant fraction seems very odd.
This is what I know ([url]http://www.dof.ca.gov/budgeting/budget_faqs/information/documents/CHART-B.pdf[/url]): in the 1998-99 fiscal year, the state government spent $72.56 billion (not counting bond funds). In the 2007-08 fiscal year, the state government spent $129.66 billion (not counting bond funds).
Our population ([url]http://www.google.com/publicdata?ds=uspopulation&met=population&idim=state:06000&q=california+population+data[/url]) was 33.5 million in July of 1999; it grew to 36.7 million in July of 2008.
Adjusting for population growth, our per capita spending at the state level inflated year over year by 5.59 percent. Over that same period, the state’s cost-of-living ([url]http://www.dof.ca.gov/HTML/FS_DATA/LatestEconData/documents/BBCYCPI.xls[/url]) inflated by 3.1 percent over the same period. Therefore, the expenditures of the state government grew 80% more per year (5.59/3.1) than did the general inflation rate.
And THAT is why we are in trouble, now.
What could we have done differently? We could have restricted our state government’s expenditure growth to say the CPI + 1 percent per year (to allow for population and technological growth). That would have meant a growth in expenditures of 4.1 percent per year instead of 6.66 percent.
If we had inflated at 4.1%/year, the state would have spent $104.17 billion in 07-08, $25.49 billion less than it actually spent. Over that decade, the state would have saved $109.73 billion; and we would not be in the mess we are in, today.
Interesting to follow the results for Yolo Co. See
[url]http://www.yoloelections.org/returns/[/url]
As usual, Davis tended to buck the trend for the rest of the county, showing surprisingly solid support for 1A and 1B.
I disagree with the other Davis parent on the question of per pupil spending. California has a higher cost of living than average (by far) and also greater student needs (by far) in terms of English language learners than most other states. Maybe not in Davis, but students in many many parts of California have high needs that require more spending (ELL and reading teachers, for example) – and the teachers need to be able to afford to live here.
The impact of lowered class size is most strongly felt by students with higher needs – English learners and low income children. Davis may not have as many of these children but other parts of CA sure do.
Regardless, one of the main reasons school spending has increased is Prop 98, which was passed by the voters in 1988 and mandates continual increases in school spending. These kinds of initiative measures make it hard for the legislature to have much flexibility in spending.
[quote]Do you want California to be an employer who ignores prevailing wages, and only marks salary to inflation?[/quote] I want California to pay salaries and benefits it can afford and sustain, so that state employees don’t have to face massive layoffs every time the economy turns south. In the last 10 years, compensation to state employees has skyrocketted. You would have to have your head buried deep in the sand to not know that. We have gone from a very luxurious pension program for all state employees to an absurd one which, we are now discovering, is completely unsustainable. This change took place under Gov. Davis 10 years ago, because the state employee unions financed his campaigns for office and he paid them off. That is old, old news.
As long as we are getting long lines for government jobs — fire dept. jobs in Davis, for example, get more than 100 qualified applicant for each opening — we know we are paying too much. Most public sector jobs don’t have unreasonably high salaries. (Teachers, for example, even though California has the highest teacher salaries, are underpaid in salary.) The excess is in everything else: public pensions, in general, are much too high by 100-fold; non-cash benefits (holidays, vacation, sick time, etc.) are in most cases 2-3 times more generous than workers in the private sector get; job security for veteran workers far exceeds that of the private sector; health benefits and long-term care benefits blow away what most ordinary taxpayers who are funding these benefits get; and so on.
Because we have allowed the cost of govt labor to grow so far beyond a sustainable rate, all but the most senior govt employees are at the risk of losing their jobs or losing time to furloughs. That is no way to do business.
The problem that I see is a very different problem. We can look at the costs of labor, but I suspect when we crunch the math, the problem is largely fluctuations on the revenue side.
What I see as the problem is that we budget basically year to year. Which means we are budgeting on the jagged line of revenues. In good years, we increase spending, but in bad years it is difficult to cut spending. So we borrow and the problem compounds itself.
Instead of budgeting year to year, I suggest we use past revenues to produce a revenue trend line and we budget to the trend line, doing a course correction on the trend line each year. So in good years, the trend line moves up, in bad years it moves down. In good years we save the difference between the trend line and the revenues to create a fund that helps us augment the trend line in bad years.
Things look worse now because this economy is about the worst we’ve seen, but I think we need to change our approach and that will help to fix the other things that I agree are concern, especially when we are talking about fairly wealthy people getting 200K and larger pensions, that’s just absurd.
Appreciate Rich for digging up the numbers, and I’d really like to see Greg rebut them in some detail.
My BS meter also went into the red as soon as I saw Greg’s claim that spending had remained constant as % of the economy over the past decade. I had done some back-of-envelope calculations last week, and that simply didn’t sound realistic to me. Furthermore, if Greg’s claim is that spending has remained constant as a percentage of wealth (beyond inflation/population growth), then isn’t it the most obvious statement in the world that with the dramatic reduction in per capita net worth that we’ve seen over the past 12 months, government spending MUST match?
If our collective net worth has been dropped to near 1999 levels*, then shouldn’t government spending be dropped to the same level (+ inflation and population growth)?
*Just using 1999 as a base for sake of argument. I’m not suggesting 1999 was in any way a “good” year in terms of the scale of government spending… just a BETTER year than 2009.
This just in:
“The independent California Citizens Compensation Commission, created by Proposition 112 that was passed by voters in June 1990, voted 5 to 1, today (May 20) to reduce the salaries of all state elected officials, including the Legislature, by 18%. However the reductions will not apply to current office holders due to state law – but will take effect for all legislators elected in the 2010 state elections (or for legislators elected in special elections after December 6, 2009).”
[quote]Instead of budgeting year to year, I suggest we use past revenues to produce a revenue trend line and we budget to the trend line, doing a course correction on the trend line each year.[/quote]That is what Prop 1A proposed. The trend line was to be 10 years.
A different Davis Parent,
I think it’s time we learned to define the word “need”.
Do you expect me to point to any individual and say, that person should be condemned to inferior health care service, inferior education, and inferior standard of living? When we’re spending “other people’s money”, the answer is… of course not. I would love undocumented workers to have quality primary care (good for them and good for the community), and under-performing schools be flooded with financial resources.
I’m in favor of a liberal government spending to provide opportunities to the under-served… frankly, I think there’s great injustice in the DHS stadium campaign not because I believe those dollars should go towards Davis teachers, but because it is poorer school districts *really* need those dollars. But I still believe this spending must be seen as a luxury, and this spending must be commiserate with what our economy will bear.
If the argument is that Davis teachers required higher compensation in order to accommodate the soaring cost of living over the last 10 years… now that at least the housing component has dropped 40%+ from the peak, wouldn’t the same logic suggest it’s time to talk about dropping their compensation appropriately? The problem is that these “adjustments” tend to only go in one direction: UP.
“That is what Prop 1A proposed. The trend line was to be 10 years. “
The problem with Prop 1A is that while it capped spending and created a rainy day fund, it did not actually authorize government to use that fund. What I am proposing is actually taking the fund to augment the trend line in low revenue years and saving in high revenue years.
The other problem with Prop 1A is that they conflated too many issues and created a losing coalition as a result. Some people voted against the hard cap, some against the tax increases, some against the unilateral power of the governor, and some against the inflexibility of the rainy day fund.
I think Davis Parent in his/ her last post deserves a great amount of credit for articulating the position well. I’ve been outspoken that teachers need to take a temporary paycut to avoid layoffs. I don’t go to the next step which is to suggest that teachers are getting too much, because I don’t think they are. Any increase in the last decade has not caught them up to where their education and importance to society suggest they should be. That said, we do need to look at spending and figure out where to hold the line and on what. Where I have a problem is that we’ve taken a chunk out of education and services to those vulnerable, poor, or at risk FIRST and FOREMOST. I’d really like to see about fixing the prison and justice system which need to be fixed.
[quote]The problem with Prop 1A is that while it capped spending and created a rainy day fund, it did not actually authorize government to use that fund.[/quote]This, from the LAO ([url]http://www.lao.ca.gov/ballot/2009/1A_05_2009.pdf[/url]), contradicts your conclusion: [quote]The measure generally defines unanticipated revenues to mean those that exceed the amount expected based on the revenues received by the state over the past ten years. The ten-year trend would be adjusted to exclude the impact of shorter term tax changes. (In other cases, unanticipated revenues could be defined as any revenues above the amount needed to pay for spending equal to the prior year’s level of spending grown for changes in population and inflation.) Beginning in 2010-11, any
extra revenues would be directed to the following purposes (in priority order):
• Meet funding obligations under the Constitution for K-14 education not
already paid. (An existing formula established by Proposition 98 determines how much of higher revenues go to education.)
• Transfer to the BSF to fill the reserve up to its target.
• Pay off any budgetary borrowing and debt, such as certain loans and ERBs.
Once all of these types of payments were made, any other [u]extra revenues could be spent on a variety of purposes[/u], including further building up of the BSF, paying for infrastructure (such as constructing roads, schools, or state buildings), providing onetime tax relief, or paying off unfunded health care liabilities for state employees.[/quote]
Hello out there. Runaway spending by gov’t must be stopped. Example: UC gave 100% increase in salary to President; 20% increase in salary to UCD Chancelor; built a new stadium; is going to build a new convention center; is congratulating itself on plans to build a new high tech winery. This is binge spending during an economic crisis that must cease if we as a nation want to remain solvent.
“If the argument is that Davis teachers required higher compensation in order to accommodate the soaring cost of living over the last 10 years… now that at least the housing component has dropped 40%+ from the peak, wouldn’t the same logic suggest it’s time to talk about dropping their compensation appropriately? The problem is that these “adjustments” tend to only go in one direction: UP.”
One problem is that if you’re a newer teacher, your salary gets cut enough and you bought your house at 06-07 prices, you may find yourself unable, or greatly squeezed to make payments. Housing prices in Davis have dropped by almost 10% over a year ago.
But your point is well-taken.
@wdf,
I considered your point as well… clearly, teachers who’re already stuck in expensive homes have a problem.
But of course, the teacher’s unions/associations didn’t have a problem taking the *opposite* side of that argument during the upswing. Teachers who had bought their homes in previous years weren’t actually paying a dime more for cost of living in 2006, either. (Arguably, they had become wealthy because of the “high cost of living” that the teacher’s union points to.)
Bottom line, costs tend to go in only one direction… UP.
California has the sixth highest tax burden of the 50 states.
The story that we are undertaxed due to Prop 13 is a myth.
See
http://www.post-gazette.com/pg/08230/904931-109.stm
Note that the states with high tax burdens are the ones that are also
in budget trouble.
Also notice which political party dominates these states, if you wish.
But in that regard, both parties have plenty to be ashamed of.
FWIW, the investment price of land (which is largely what underlies the price of housing) is [i]not[/i] a relevant part of the cost of living. The cost of living is the rental price of housing, even for a home owner.
If, for example, someone has a home (as a real estate investment) which is holding its value (i.e., going up about 3-4%/yr.), and it costs that person (in upkeep, property taxes, insurance and mortgage interest payments) say $3,500 per month (inflating annually at 3-4%/year) to live in his home, his [i]effective[/i] rent is $3,500/mo. or $42,000/yr.
If that same person could rent a similar home from someone else for $2,000/mo., the cost of living (for housing) adjustment would be made based on $2,000/mo., not $3,500. The extra $1,500/month the homeowner is paying is, I guess, a kind of personal insurance: protecting him in the case of rental inflation; giving him power to change his house in ways he likes; and rewarding him in case land prices go up dramatically.
In theory, it’s possible that the rental inflation of housing exceeds that of investment inflation. (It’s normal that rental inflation is steadier, while asset inflation is more erratic.) That is certainly what has happened since the bubble burst.
For the purposes of the CPI, housing prices in Davis over the last year have not declined by 10%; and they have (likely) not declined in our region, despite the collapse in home prices. Rents in Davis have (I would guess, given the low vacancy rates) gone up.
Generally, a good way to see if home investment prices are in a bubble is to look at the historic ratio of home prices/rents — this is just what I did in late 2004 when I determined that Davis home prices could not be sustained. From 2000-2005, rents barely went up at all in Davis. But home prices went up more than 100%. In my neighborhood, a 3/2 house sold for $230,000 in 2000. The one next door (with a larger yard) sold in 2005 for $670,000. Yet the monthly price of rentals — we have a number of homes nearby which are student rentals — barely increased at all over that period. That had bubble written all over it.
“A constant fraction? Really? Do you have a source for this statement? Given that our state economy has been so inconsistent for the last 10 years, a constant fraction seems very odd.”
Okay, I don’t mean that the state budget as a fraction of state GDP has been EXACTLY constant, as in to three decimal places; rather I mean that it has been roughly constant. I am happy to use your reference figures and to compare them to the state GDP figures at the Bureau of Economic Analysis:
http://www.bea.gov/regional/gsp/default.cfm?series=SIC
I’ll compare the state GDP in 1998 to spending in 1998-9 and so on. The state budget was then 6.68% of state GDP; now it’s 7.15% of state GDP. So in units of days of state GDP, the state budget is only 7% larger now than in 1998. And it hasn’t just gone up, up, up. In 2001-2, the state budget was 7.39% of state GDP. In conclusion, the state budget has generally ranged around 7% for many years.
It’s just not reasonable to argue that 6.68% of state GDP is okay, but 7.15% of state GDP is a runaway train of spending. No, the real problem is that the state budget process is a populist fiasco, because of the 2/3 budget rule and the state proposition system.
“In the last 10 years, compensation to state employees has skyrocketed. You would have to have your head buried deep in the sand to not know that.”
I happen to be one of those state employees. You’re right about one thing, which is that I’m much happier when I bury my head deep in the sand. I’m not going to tell you that I’m living in poverty or that I’m worried about my retirement or anything like that. We make ends meet. What is true is that my colleagues in other states aren’t particularly impressed by the UC salary scale. For my colleagues who left academia for Silicon Valley, the UC salary scale is so low that it has dropped off the charts of their thinking.
Statement by Assemblywoman Yamada:
“California voters sent a clear message to state leaders about how they want our budgetary crisis resolved – by doing our jobs as elected officials and solving our problems through legislative means. The people are willing to provide revenue for specific purposes and do not want hard-earned tax dollars redirected or wasted. I am rolling up my sleeves again here in Sacramento and am ready to work on crafting bipartisan solutions to our broken system.”
“I am rolling up my sleeves again here in Sacramento and am ready to work on crafting bipartisan solutions to our broken system.”
You should have been ready the day you took office.
I agree with Davis parent about employee salaries. Every year the district has to budget an extra million dollars over the previous year to cover salary increases on the pay scale. That just isn’t sustainable in these times. And yesterday the teachers were at it again in a letter to the Enterprise, blaming everything else in sight, except the most obvious source of the structural deficit. I look forward to see what the administrators give up tomorrow night, and can’t wait to see what excuse the DTA will come up with in response.
“I’ve run through the budget a few times and I’m not sure where we are going to find the money”
Why are government budget cuts an impossible tragedy when private companies do it all the time? Organizations that require cash to operate have two choices: raise revenue or cut expenses. There is no more additional revenue unless the Obama Administration prints more money for a California bailout.
It is possible to do more with less. Lawmakers could go through every agency and program and cut the ones we do not need (need must be redefined in objective terms). Then cut 25% of the deadwood employees from the employment ranks (we all know they exist) of the remaining workforce. Then use 15% of the savings as merit bonuses and tell the remaining 75% workforce they need to meet or beat their original performance expectations or lose their jobs to others that would be happy to have their job. This approach works and everyone recovers from the cry-fest from people losing their jobs.
The state of California does not paint a happy picture for the long-term fiscal outcome from Democrat governance. It makes a person worry that we are a sign of larger problems to come.
Greg,
I strongly suspect the high expense as % of GDP in 2001-2002 was due to the huge fall in GDP after the collapse of the dot-com bubble.
So, putting that aside… 7% growth on top of inflation and population growth, to me, seems incredibly significant. If you take into account the fact that GDP numbers over the last few years have probably been inflated by the asset bubble, and that we’re looking at what’s probably a 5%-10% fall from projected GDP over the next year or two… it seems to me a 15%-20% cut in state-wide spending seems completely, completely deserved. And that’s assuming, again, that the 1999 level was some how the “optimum” level.
2007-2008 expenditures was $104 billion… if we use the numbers you provided, then cutting to $85 billion for the upcoming year sounds about right.
“2007-2008 expenditures was $104 billion… if we use the numbers you provided, then cutting to $85 billion for the upcoming year sounds about right.”
What is the state budget expenditures number for 2008-2009? I think current year expenditures are somewhere just above $90 billion and already we are looking at cutting back at least $20 billion off of that. We may already be below $85 billion if we make a revision.
[quote]Why are government budget cuts an impossible tragedy when private companies do it all the time? [/quote] Jeff, for the person who loses his job, there is no difference. However, in theory at least, our government is the last best hope for a lot of vulnerable people, and deep cuts in some government spending can turn a tolerable existance into an intolerable one.
Consider, for example, an invalid who depends on a home healthcare worker. Assume the invalid needs the home worker to help bring in groceries, help with food preparation, help taking medications, help getting out of bed, help getting into a wheelchair, and so on. What happens to the invalid when the budget for that home healthcare worker is exed out?
I know that libertarians, and perhaps some conservatives, think churches or other private groups will fill the void. Ideally, the person would have a family. But not every one has a family. And while charities and churches do a lot of good, they don’t have the resources to meet all of these kinds of needs. They never have. So people fall through the cracks and, as I say above, slide from a tolerable life into total misery.
A lot of liberals (falsely) accuse me of being anti-labor. I have long bemoaned the role of public labor unions. I think many of them are not just greedy, but they corrupt our system. Look at the funding of campains. The firefighters (even at the state level), the nurses, the teachers, the prison guards, the highway patrol officers association, and so on all buy influence with the politicians who run our state. They do this in order to get higher salaries without higher productivity, more vacation days, more health benefits, more sick leave, easier working conditions, make it harder to fire incompetents, and the biggest of all, a budget-busting pension program. But no, I am not anti-labor. I am in favor of paying good workers as much as we can afford over the long term and not a penny less.
My bias has nothing to do with labor. I am pro-poor people. I want government, instead of giving $20,000 more a year to a police lieutenant, to make sure that there is always enough money to house and care for and feed those who cannot take care of themselves. The liberals disagree with me. They want first to make sure that we continually are “pro-labor,” always increasing the benefits, pay and retirement of “labor.”
The result is that “labor” has won big time. Our taxes have never been higher; and we are cutting at all levels of government the welfare, food and housing programs designed to help the poor.
Wherever liberals get involved in even these programs, they design them first to help out the rich “private” developers who build public housing. Liberals don’t trust the poor. Instead of just giving a poor person a voucher for rent, they prefer to give the money to their donors, the “private” developers, who then go about making millions building projects for the poor which benefit only a small percentage of the poor. We see this in Davis with every single low-income project. Poor people as a class have never benefitted from any of these projects. However, the wealthy developers who take money from liberal politicians (after financing their campaigns) love the system. They get rich building projects like New Harmony, Eleanor Roosevelt and so on. It’s a horrible system. It is not designed to benefit the interests of those it claims it is designed to help.
Yet we have some programs, such as Y-CHIP and foodstamps and home healthcare and a few others which really do help our most needy and vulnerable children and adults and elderly. And those programs will be the first to go.
Our Yolo County supervisors will not, for example, cut the salaries of deputy sheriffs or deputy district attorneys by 25%. They won’t push for less generous health benefits or pension plans for them. They will instead wipe out the lifelines of the poorest among us. The same story is being repeated at the state, where the CHP officers and DAs and mid-level bureaucrats (save those who lose their jobs entirely due to lack of seniority, not lack of competence) won’t have to change their retirement plans, the plans which are bankrupting every level of government.
That is why government cuts are a greater tragedy than say, people at Gottschalks losing their jobs. The difference, in my mind, is the lack of ability of invalids and sick poor children to roll with the punches and find something better.
[quote]What is the state budget expenditures number for 2008-2009?[/quote]WDF, if you look at the link I listed in my 11:08 am post (click “know”), you will see that the all funds state budget for 08-09 is $202,744,500.
Jeff:
“Why are government budget cuts an impossible tragedy when private companies do it all the time?”
The other angle of it and what I was pointing out is that budgets are complex. We have mandates from the federal gov’t. There is money now tied to the stimulus package. And there are mandates from propositions. So it is not always as simple as simply cutting the budget when a good deal of money is not discretionary spending.
The other problem is not just where money is tied up, but the amount of money that we have to cut which means that money is going to come from things that many people rely on to get by, it’s going to come from public safety, it’s going to come from our universities and our schools, it’s going to come from our prisons, our roadways, our bridges, our infrastructure, etc.
Are you really telling me that any of those cuts are or should be easy to do? Really? We have to cut them, but that doesn’t mean they are going to be easy.
“I strongly suspect the high expense as % of GDP in 2001-2002 was due to the huge fall in GDP after the collapse of the dot-com bubble.”
Since the data is there on the Internet, there is no point in reasoning on the basis of suspicions. I gave slightly the wrong URL before, but to set the record straight, state GDP data is at
[url]http://www.bea.gov/regional/gsp/default.cfm?series=NAICS[/url]
and I am comparing that to the budget table that Rich Rifkin provided here:
[url]http://www.dof.ca.gov/budgeting/budget_faqs/information/documents/CHART-B.pdf[/url]
Anyway here are the numbers, in billions of dollars:
YearGDPbudgetpercent
19971,01967.076.58
19981,08572.566.68
19991,18082.286.97
20001,28792.027.14
20011,30196.197.39
20021,34095.767.14
20031,40697.236.91
20041,519101.996.71
20051,632114.37.00
20061,742123.967.11
20071,812129.657.15
Yes, state GDP grew very slowly in 2001, but it didn’t collapse the way that you suggest. In a couple of your comments, you lump together wealth with economic activity. They aren’t the same thing. GDP means gross domestic product and it measures economic activity. If wealth goes up or down by whatever amount, it has no direct effect on GDP. Anyway, the numbers listed here are a fair measure of the state’s economic activity; they aren’t “inflated” by any “asset bubble”, nor in fact by any assets of any kind.
The average size of the state budget (not counting bonds or federal funds) from 1997 to 2007 was 7% of state GDP. The state budget this year is unlikely to be far from that average.
“2007-2008 expenditures was $104 billion… if we use the numbers you provided, then cutting to $85 billion for the upcoming year sounds about right.”
Look, if in the long term you want the general fund to be 20% smaller, then who knows, maybe that can work. It’s also true that the legislature may simply be forced to do it this year. But doing this in one year, at a time of high unemployment, is nothing to celebrate.
Besides, the 2/3 supermajority rule undermines any form of compromise, not just liberal priorities. It’s not going to be as simple as fiscal conservatives getting what they want.
Darn, the table didn’t come out at all. Here is another try:
Year GDP budget percent
1997 1,019 67.07 6.58
1998 1,085 72.56 6.68
1999 1,180 82.28 6.97
2000 1,287 92.02 7.14
2001 1,301 96.19 7.39
2002 1,340 95.76 7.14
2003 1,406 97.23 6.91
2004 1,519 101.99 6.71
2005 1,632 114.3 7.00
2006 1,742 123.96 7.11
2007 1,812 129.65 7.15
Greg,
Wealth is relevant in this context primarily because of the wealth effect on consumption, and subsequently, economic activity. You’re right, I’m guilty of hyperbole in suggesting that economic activity in the state of California “collapsed” in 2001. Even this year, GDP is only projected to fall by ~1-2%. But I spoke of deviation from *projected* path, which is how these budgets were laid out… and that’s much more likely to be in the 5%-10% range over the course of the next 2-3 years.
I would still argue that your numbers show steady growth in spending. Saying that the numbers are “around” 7 doesn’t at all accurately capture the trend. If you plot that out least-squares, you won’t see a flat line.
I also found this interesting note while researching the 1999 budget:
http://www.lao.ca.gov/1999/99_budget_features.html
[quote]The 9.4 percent growth in budget-year General Fund expenditures translates into 6.8 percent after adjustment for inflation, and 4.3 percent in real per capita terms. The level of budget-year real per capita spending is roughly 14 percent above its level at the start of the decade. Thus, for the decade as a whole, General Fund spending growth has been somewhat more than inflation and population growth–roughly 1.5 percent annually.[/quote]
So, really, we’re just continuing the same problematic trend that existed through the ’90s. This train wreck was a long way coming.
I’m not exactly celebrating the long-deserved fat-cutting that Sacramento will soon be engaged in. But I suspect that if we’re *ever* going to see a 20% cut in the general fund, it will ONLY happen in the current environment. If the voters are distracted by some other issue, I suspect the tumor will simply continue to grow.
“Why are government budget cuts an impossible tragedy when private companies do it all the time?”
There are two key differences, which are related to each other. When a private company cuts spending, typically another company picks up the slack to provide an equivalent service. For instance when Ralph’s went out of business on 8th Street, that happened because other supermarkets in town were already peeling away its customers. The government, however, provides services that do not compete with anything and would not be replaced by anything. If Davis High School closed, then it would not be like what happened to Ralph’s; Davis would have no public high school.
Partly for that reason, many of the state government’s expenses are mandated by law, or by federal matching funds. Some of the spending by private companies is likewise mandated by contracts. They don’t cut that kind of spending, unless the entire company goes bankrupt. But governments generally have more spending obligations than private companies do. Those types of companies that are slave to major spending obligations — like auto companies — do risk bankruptcy from time to time. Many of them are just as mired in politics and recrimination as governments.
“costs tend to go in only one direction… UP.”
You are right, and I was very disappointed that the DTA did not accept any pay cuts – they would rather see their newer fellow teachers get fired rather than take a 2% cut. That is very frustrating and sad. The new teachers who are forced to leave will have a very hard time getting a job anywhere in this climate, where districts up and down the state are laying off teachers.
However, since that’s the decision that was made, and since the measures did not pass, our kids are going to end up feeling the brunt of this mess and it is disappointing to me. When I was in a public elementary school in another state every district elementary school had a full time music teacher, a full time art teacher, a full time PE teacher, a full time GATE teacher, a cafeteria, school buses, etc. etc. No Davis elementary has anything like that. I am sad that my kids won’t receive the kind of enrichments that I did and that many of my friends’ children in other states currently receive. I have quite a few friends with kids in different districts across the country and often discuss schools with them. The education our kids are getting even here in Davis is far less “frilled” than in many other places (DC, Maryland, Seattle, NC, and others). The idea that we get some first-class, fancy-pants education here that should be easy to slash without repercussions is really untrue.
As to the stadium, upon looking at the pictures from the stadium that were posted on this site, I can certainly see why they wanted to replace it and I have no problem with that. The conditions were pathetic.
We’ll be donating again this year to the DSF but the amount they receive is unlikely to be enough to solve the problem.
“If you plot that out least-squares, you won’t see a flat line.”
That is really splitting hairs. The least squares trend is that the state budget, as a fraction of state GDP, grew at a rate of two hours of GDP per year in the past decade. If that trend continued for the next century, then the state budget would make it to 10% in the year 2100. This is not why we have a fiscal crisis in the year 2009.
“So, really, we’re just continuing the same problematic trend that existed through the ’90s.”
In quoting this budget document from 1999, you’re still only playing two cards out of three. You are adjusting the state budget for inflation and population expansion. But you’re not adjusting it for the expansion of the state economy. It’s fanatical to expect state employees to live in the same condition forever while the private sector gets wealthier and wealthier. Certainly the state’s corporate contracts aren’t going to work that way.
It’s also unrealistic to expect to whittle down the fraction of employees who work for the state because of gains in productivity. For instance you can’t tell the PTA that it’s fine to increase classroom size because of new technology. No, people inevitably want new technology to translate to better services.
That’s why the right denominator in this discussion is state GDP, not just population plus inflation.
“This train wreck was a long way coming.”
Whether or not you think of the trends as problematic, California has had the same state spending trends as many other states. But somehow, our train wreck is the worst in the nation. If the state budget had been 5% of state GDP instead of 7%, we would have had the same train wreck, because state revenue would have been that much lower.
“full time music teacher, a full time art teacher, a full time PE teacher, a full time GATE teacher, a cafeteria, school buses, etc. etc. No Davis elementary has anything like that.”
We lost all of that in Davis in the Prop. 13 cuts in the early 80’s. But I guess some Davis campuses have now have full time GATE teachers. And there was already some deterioration going on in the education system in the 1970’s.
If you grew up in California in the 1960’s, or possibly any other state after that, the difference between what you got in many public schools and what your kids get in schools today (even Davis schools) is enough to make one angry.
“That is why government cuts are a greater tragedy than say, people at Gottschalks losing their jobs. The difference, in my mind, is the lack of ability of invalids and sick poor children to roll with the punches and find something better.”
Rich:
Although my earlier post might had sounded a bit callous, I am mostly in agreement with you. The problem with our state budget is the cost of labor relative to its value. I have worked in the private industry, government supported enterprises and as a consultant for several state agencies. Currently I work for a non-profit administering a Federal loan program. Over the years I developed a clear picture of the differences between the public and private sector as it relates to labor, performance and budgeting. I recognize the vast difference in fiscal management and governance over public verses private organizations (there was a great op-ed in yesterday’s WSJ that addressed this point). However, I think we are at a crisis point where nickel and dime solutions are not going to work. There are a lot of unneeded labor costs within State government. In many agencies you could easily cut 10-25% – if done the right way – and not impact their service value to the population.
This state has too many causes, too many activists who somehow have enough free time and resources to wage political war for their causes (many are public-sector employees), too many unions and too many victims that can justify their “need”, and too many in the main-stream media that jump on the story of tragedy of those people impacted by the cuts. We also have too many politicians lacking backbone to combat these forces for the greater long-term good of the state. Instead, to prevent the impacts of these special interest forces (the political or associative repercussions) we keep putting false band aides on the gaping wounds of our fiscal house.
We have truly needy citizens, and yes, I think more of them could be better served by local churches and charities (as long as the Feds don’t continue to reduce the tax deduction for corporate and individual donations). Also, I think you might need to include the comparisons of the tragedy of the unemployed private-sector eomployee that provide private care to their needy family members. All cuts are difficult and hurt the heart, but they are necessary. Businesses that fail to make them will fail and all will lose their jobs. However, I agree with you that our state should provide services to help care for our truly needy residents that lack other options. There are other services that are necessary or high-priority; this is why I suggested a prioritization. It is not impossible to do so if we ignore the chatter from all the special interest forces that will gather to selfishly demand their piece of the pie.
The prioritization process should start with the legal mandates that cannot be successfully challenged. Then our politicians need to identify a baseline for essential infrastructure services. Then we need a baseline for social services. The real political debate should focus on this prioritization and not the funding. Then we implement the cuts based on the prioritization.
We have proven that the state cannot afford all the programs and services. We also cannot afford to micro-manage where all the money goes. Large private companies take a similar approach to ensure survival. Some of these organizations are as complicated or more complicated as our state government.
I am mad as hell at our state politicians (mostly on the legislative side), and I have zero tolerance for selfish special interests and media sensationalism that causes emotive energy against what must be done. If more of us took that same attitude we might actually encourage our government to do what it has been elected to do.
“It’s fanatical to expect state employees to live in the same condition forever while the private sector gets wealthier and wealthier.”
I completely concur. It’s equally fanatical to expect state employees to live in the same condition while the private sector has gotten significantly poorer.
To open up a different can of worms… but my personal philosophy on educational spending seems different from some here. I’m actually a product of the Davis education system: post- prop 13, and pre- late ’90s new spending. I’m inclined to believe the marginal utility of more academic spending drops rapidly. I have no qualms at all if my own children were to matriculate through the Davis school district at a level of service comparable to that from the early ’90s. (Well… replacing the Apple IIe.)
[i]but my personal philosophy on educational spending seems different from some here. I’m actually a product of the Davis education system: post- prop 13, and pre- late ’90s new spending. I’m inclined to believe the marginal utility of more academic spending drops rapidly. I have no qualms at all if my own children were to matriculate through the Davis school district at a level of service comparable to that from the early ’90s.[/i]
No, that is not exactly the situation. You would not be able to keep the same level of service without increasing costs just by changing nothing. In order to keep the same teachers, you would have to keep paying them prevailing wages — including increases in the standard living as well as inflation. No, to keep costs constant, you would have to use new technology to get by with fewer teachers and staff. For instance, if the teachers all posted homework and handouts on the web, and if most of the students already have Internet access, then maybe the class size ceiling could go from 30 to 35.
I would think that most Davis parents see the Internet as a way to improve education, and not as an excuse to increase class size and thus hold even.
[quote]It’s fanatical to expect state employees to live in the same condition forever while the private sector gets wealthier and wealthier.[/quote]While there is some objective truth in this, keep in mind that real dollar remuneration increases in the private sector are tied to productivity gains (over the long haul). That is generally not the case with regard to public sector employment. You (above) compared public sector workers with those in the high tech sector. That is a good contrast, where the latter (from the late 1980s until about 2000) experienced tremendous gains in productivity (and profits) and reaped the rewards for it. However, workers in most other areas of the private economy did not experience such dramatic gains in productivity and thus their real dollar incomes did not rise (much).
Yet (because of union power and the corruption of campaign finance) many public sector occupations with no internal increases in productivity or external pressures for income appreciation saw their total income (salary + benefits + pension + job conditions) go up far beyond the incomes of most in the private sector.
In some cases, because of external job market conditions, that is unavoidable. If a PhD in genetics can make 5 times as much working for Genentech as she can working for UC Davis, the university is going to have to respond with better salaries. But in most other cases, the increases in remuneration were driven by union strength in the face of ever increasing tax receipts. That is, as more tax dollars flowed into the state, the state did not lower marginal income tax rates, cut the sales tax rate (to help the poor), increase (in real dollars) direct welfare benefits, etc. Rather, the state nearly doubled the value of its retirement packages to CHP officers and all others in public safety; increased the retirement deals to all non-safety employees by 70-75%; doubled the (real dollar) pay of the prison guards; and increased its total number of employees by 20% (with much smaller population growth). In competition not with the private sector but with each other, cities and counties followed this same pattern, regardless of how unsustainable it was over the long term.
You bemoan above public sector workers having to keep up with the private sector. But the reality is, real dollar increases in total compensation for those in the public sector in California, paid for by the taxes of employees and firms in the private sector, made life more expensive for most workers in the private sector.
[quote]Whether or not you think of the trends as problematic, California has had the same state spending trends as many other states. But somehow, our train wreck is the worst in the nation.[/quote] There are four things principally which make California different from other states:
1. The real estate bubble. Largely based on speculation and overly lax lending standards, we had the greatest run up in r/e prices (and consequently the greatest increase in property tax revenues) of any state. Thus, the bubble bursting hit us hardest in that respect.
2. We have the highest income tax rates (by far) of any state. When a recession hits California, marginal income (of rich people) collapses, and so do income tax receipts. We also have the highest (by far) sales tax rates. So when spending drops off, our great dependence as a state on the sales tax is exposed.
3. State employees. We not only have the highest paid public employees of any state (when you include retirement plans), but our state work force has expanded substantially over the last 10 years, and thus, in the wake of a deep recession and r/e bubble bursting, that puts a greater strain on California than it has on other states. (If we had been more cautious in hiring and had been less generous in raising compensation and had saved that money, we would have a far greater cushion, today.)
4. Immigration. We have an unusually high proportion of low-skilled immigrants, legal and illegal, who (increasing in numbers in the last decade) put a tremendous strain on our ability to provide basic public services (education, hospitalization, policing, prisons, mental health, immunization, housing, food, etc.), because many of them demand great quantities of these services without the means to pay for them.
“2. We have the highest income tax rates (by far) of any state. When a recession hits California, marginal income (of rich people) collapses, and so do income tax receipts. We also have the highest (by far) sales tax rates. So when spending drops off, our great dependence as a state on the sales tax is exposed.”
But on the other hand doesn’t California have an off-setting lower property tax rate? It seems like property tax is normally a more stable revenue/tax source than income or sales taxes — maybe not when there are lots of foreclosures, though. I think the recently upwardly-revised state deficit numbers take into account a loss of property tax revenue.
“We have an unusually high proportion of low-skilled immigrants, legal and illegal, who (increasing in numbers in the last decade) put a tremendous strain on our ability to provide basic public services (education, hospitalization, policing, prisons, mental health, immunization, housing, food, etc.), because many of them demand great quantities of these services without the means to pay for them.”
Do you have quantitative info on this? Anecdotally, I suspect that the greater social strain may come not with the original immigrating working parents, but with the subsequent generation.
[quote]But on the other hand doesn’t California have an off-setting lower property tax rate?[/quote]No, our property tax rates are the same as almost all states. The difference is only with the valuation of properties which have not changed hands in recent years. That is the protection of Prop 13.
With regard to the bubble, property tax receipts by the state of California grew faster than they did in almost all other states, because the great rise in prices here was driven by the sales of new and existing homes, each of which pays property tax at full valuation.
[quote]Do you have quantitative info on this?[/quote]I’d have to look it up. I’ve seen studies which show the high percentages of immigrants in our jails, prisons, public hospitals, schools, etc. However, I don’t have the objective data at hand. I don’t think my assumptions, though, are at all controversial. When you take a large family with very low job skills, regardless of where they come from, you are looking at a group which strains services. Because poor, uneducated immigrants tend to have large families and low job skills, and because we have attracted a large number of poor, uneducated immigrants to California, it should come as no surprise that their presence affects our ability to fund basic services, from schools to medical care to county hospitals.
This study ([url]http://usgovinfo.about.com/od/immigrationnaturalizatio/a/caillegals.htm[/url]) addresses the costs of illegal immigrants to California, and (on the surface) appears to be by a biased group, so maybe it is unfair. Written in 2004, it also may be dated. Yet I don’t doubt the raw numbers, in absolute costs.
“our property tax rates are the same as almost all states.”
There is a table at:
http://articles.moneycentral.msn.com/Taxes/Advice/
PropertyTaxesWhereDoesYourStateRank.aspx
There is quite a bit of variation, actually. CA is not the lowest but appears to be on the low side for “Tax as % of home value.”
[quote]CA is not the lowest but appears to be on the low side[/quote]The article ([url]http://articles.moneycentral.msn.com/Taxes/Advice/PropertyTaxesWhereDoesYourStateRank.aspx[/url]) you reference says that our property tax burden is 10th among all states and that we are 17th as a percentage of income. The state property tax as % of home value puts us much lower (45th), because (at the time these measures were made) our property prices were artificially high, and thus the % paid by anyone who bought a house pre-2000 looked very low.
“It’s fanatical to expect state employees to live in the same condition forever while the private sector gets wealthier and wealthier.”
The private sector gets wealthier and wealthier?
Public employees overall average slightly higher pay than their private sector counterparts in the same field. A nationwide survey of 11 professional categories in 2006 found that the public pay was about 9% higher, ranging from a difference of 25% lower for state tax examiners vs. private, to a high of 29% higher for public accountants. Public employees had more paid time off, more and better health coverage options, and better retirement options.
“Public employees overall average slightly higher pay than their private sector counterparts in the same field. A nationwide survey of 11 professional categories in 2006 found that the public pay was about 9% higher, ranging from a difference of 25% lower for state tax examiners vs. private, to a high of 29% higher for public accountants. Public employees had more paid time off, more and better health coverage options, and better retirement options.”
I find this interesting. In my dad’s day, the public sector pay was lower than the private pay sector, but job security was better, and some of the benefits. That was the trade off – get more pay but less job security in the private sector, or get less pay but more job security/better benefits in the public sector. Now everything is really out of whack. The public sector is bloated with unnecessary employees and has gone hog wild in its compensation and benefits to employees, bankrupting our cities along the way. We need to go back to the old paradigm.
The private sector gets wealthier and wealthier?
Yes, in the long term America gets wealthier. Even after adjusting for inflation and population growth, America is wealthier now than it was 30 years ago.
It may be true that public employees get slightly higher pay than their private sector counterparts. That may be a good thing or a bad thing, depending on which counterpart you think is paid fairly. It may depend on what kind of counterpart you really consider equivalent. But it has been said here that compensation to public employees has “skyrocketed”, and that just isn’t true.
There is another side of this where I admit that you have a point, which is that the really wealthy people in the private sector, the top 1%, have hardly have public counterparts at all. Not only are they the wealthiest, they are the people whose income and standard of living has gone up the most in the past 30 years. Many of them get most of their income from capital gains rather than salary. No one in the public sector is paid with stock options and it is presumably not part of this comparison of professional categories. (At least no one in the public sector who is honest. 🙂 ) While the average private income has rushed forth because of the top 1%, it may be true that the median private income has fallen behind the median public income. And on the tax collection side, a growing share of public services are funded with taxes on people who are so rich that they have no use for public services.
Anyway my real point is about realities rather than expectations. (1) State GDP, not inflation or population, is the right denominator if you want to argue that the state budget is big or small. (2) That ratio doesn’t change much over time and it is also roughly the same for most of the 50 states, California included. (3) Public salaries are going to roughly track private salaries, not inflation, even if a particular comparison puts them slightly ahead or behind.
And (4) no feature of the state budget has “collapsed” or “skyrocketed” lately, with two exceptions. Revenue is down by 15% or 20% temporarily, and the state government’s reputation has collapsed permanently.
[quote]I find this interesting. In my dad’s day…[/quote]I think the rise in public sector pay vs. private sector pay is a reflection of labor union strategy.
From 1959-1975, the percentage of the U.S. workforce in labor unions was very steady at about 30%. However, by 1985 that percentage declined to 18% and it is today around 12%.
What happened, in large measure, was that unions destroyed all of the private industries they had captured after WW2. They demanded too much in wages, too much in pensions, too much in benefits, too much in work rules, and gave back too little in productivity. That resulted in a massive loss of jobs in all of those industries.
Beginning in the late-1970s to mid-1980s, the unions saw government as the only area of monopolistic employment, the only area where they could force up wages, benefits and pensions and not destroy their long-term prospects with low worker productivity. Currently, 37% of all public sector employees are in unions, and that number is rising. I cannot find a figure for 1979 (30 years ago), but I would bet it was under 15%.
So when you say, “In my dad’s day, the public sector pay was lower than the private pay sector, but job security was better, and some of the benefits,” that is a reflection of one area of our economy becoming de-unionized and the other becoming unionized.
Unions tend to be very good for their members, and very bad for the industries they organize in. If it’s a private, competitive industry, and it gets unionized, it will die (or depart). If it’s an uncompetitive industry, it will get more and more expensive, as government has over the last 30 years.
One more note on unions … it’s not the same in all countries. In Japan, for example, all of their industrial workers (or I should say almost all) are in unions. Japan has the highest worker productivity and highest compensation of any country (last I checked). The key, I think, is that the Japanese unions are weak and they historically (save a few Marxist unions) have looked at the companies and industries where they represent workers as allies, not enemies. The unions in Japan don’t prevent bad workers from being fired. They don’t demand (and strike over) wage increases in excess of productivity gains. They don’t demand work rules that reduce worker productivity and pay people to not work (as our unions do). The Japanese shop unions have never seen vertical job categories as beneficial to workers. Japanese employment (in unionized companies) tends to be horizontal and flexible. That is in stark contrast to our unions, which insist on steps and ladders and pay increases based on tenure, not on performance. The bottom line is that, because the Japanese system is flexible, the workers have been able to adjust to new and changing market conditions, while our unions have tried to fight change every step of the way.
Ironically, in agriculture, our two countries are completely the opposite. Japan is unproductive, stagnant, inflexible and uncompetitive; while we are the most productive, dynamic, with (thanks to un-unionized immigrants) a highly flexible workforce and globally competitive.
[i]Currently, 37% of all public sector employees are in unions, and that number is rising. I cannot find a figure for 1979 (30 years ago), but I would bet it was under 15%.[/i]
The data is here ([url]http://unionstats.com/[/url]). Nationwide, in 1979, 37.0% of public sector workers were unionized, and 44.2% of workers were covered by union contracts. (That is, the unionized 37% plus 7% more.) Whereas in 2008, 36.8% of public sector workers were unionized, and 40.7% were covered.
The same web site says that California’s public workers are more unionized than the national average and the covered fraction has risen moderately, from 57.2% in 1983 to 60.8% in 2008. But that 3.6% increase is not a story of unions “destroying” anything.
I’m not a particularly pro-union person. But this story of “skyrocketing” state compensation and unions “destroying” things is just not the truth about California’s public workers. It is not the reason that the state is bankrupt. The real reason that the state is bankrupt is that California’s state constitution is the worst one in the country.
What is really remarkable about the data in that table is that union membership in the public sector was only 23% in 1973, but had risen to 37% by 1979, and has stayed nearly constant since then. Whereas union membership in the private sector was 24% in 1973, had dropped to 21% by 1979, and has dropped since then to 7.6% in 2008. Public employment is the last bastion of the unions.
Don: The tables say in the fine print, “The definition of union membership was expanded in 1977 to include ’employee associations similar to a union’.” This change in definition is why public sector union membership increases in 1977; it isn’t a real shift. Apparently the private sector does not or did not have many of these quasi-union employee associations.
Your “last bastion” comment is correct in the sense that private sector union membership has dwindled to almost nothing, while public sector union membership has been stable. That is a fundamental change in the economy that is mentioned in the newspapers from time to time.
But again, none of this is unique to California. If you divide by state GDP, then no feature of California’s situation sets a record other than inability to pay. It doesn’t have the highest union membership rate, and it doesn’t have the largest budget as a fraction of GDP. You might think that California has the most public debt as a fraction of state GDP since the state government is broke, but that’s not true either. A number of states have proportionately more debt, but the bond market trusts those states to pay their debts. (A lot of financial numbers on this are here ([url]http://usgovernmentspending.com/classic.html[/url]).)
For the fourth year in a row, more people have moved out of California than have moved to California. Many businesses and wealthy individuals have relocated or chosen not to locate in California because of high taxes and costs. The state of Colorado has actually started a marketing campaign to pull more of the same from the sunshine state. Nevada, Arizona and Florida already have the same programs in place. This reminds me of an Ayn Rand novel where the producers (tax revenue suppliers) check out and leave society to the looters (tax and spend elites) and the moochers (tax revenue consumers).
The media, political and popular-driven response to economic downturns in California tends to acerbate this problem (i.e., more focus on the needy and poor working-class). We continue to beat the sick cow to make it deliver more milk, instead of keeping the cow healthy and increasing the herd to ensure long-term production.
California is increasingly a state filled with moochers and milk drinkers, and governed by looters and cow killers (metaphorically-speaking of course). Ideology is at play here because the left has successfully demonized the engine of free market capitalism and exploited the good times (landing richer union contracts) and bad times (using emotive tools to increase shares of revenue allocation for public employees and social causes). For too long have allowed to be governed from the short-view (what makes us feel good today) and have not made the voluntary sacrifices and investments necessary to protect our long-term interests. Today we have fully-leveraged our good weather.
The aggravating thing for me is the tenacity of the people in charge of our state’s government (politicians and special interest groups) for resisting the will of the citizenry demanding them to do the right things. Ignore the voice of the people, fund advertising campaigns to brainwash the stupid masses and launch a slew of initiatives. These actions are the trademarks of political elites which are the hallmark of the current powerful political left. If not this, then what are the primary forces that make California ungovernable, and that have led us to this fiscal mess? My ire is directed at the liberal Democrats. They have been in control for the last decade and a half, and have had significant political influence for much longer. Their finger prints are all over this mess.
The state legislature, Schwarzenegger and all major California municipal governments (except maybe San Diego) are culpable and must be replaced if we are to fix the problems they created. We need a voter revolution to inject much more business-minded talent into state and local government. Maybe then the producers and cows will come home and California can get its financial house in order.
From San Diego Tribune “44 states lost jobs in April, led by California” Nevada is also hurting.
[url]http://www3.signonsandiego.com/stories/2009/may/22/us-state-unemployment-052209/[/url]
Here’s the actual Bureau of Labor Statistics report:
[url]http://www.bls.gov/news.release/laus.nr0.htm[/url]
All may not be hopeless, Jerry Brown filed a complaint at the Federal Energy Regulatory Commission today asking for reimbursement of overcharges from the western energy crisis of 2000-1. The total could pay off the State deficit. Barbara Boxer wrote a letter to FERC asking the agency to process the complaint quickly.
I think that now that Obama is President, the federal agencies are able to function again.
Rich Rifin said “I’d have to look it up. I’ve seen studies which show the high percentages of immigrants in our jails, prisons, public hospitals, schools, etc. However, I don’t have the objective data at hand. I don’t think my assumptions, though, are at all controversial. When you take a large family with very low job skills, regardless of where they come from, you are looking at a group which strains services. Because poor, uneducated immigrants tend to have large families and low job skills, and because we have attracted a large number of poor, uneducated immigrants to California, it should come as no surprise that their presence affects our ability to fund basic services, from schools to medical care to county hospitals.
“This study addresses the costs of illegal immigrants to California, and (on the surface) appears to be by a biased group, so maybe it is unfair. Written in 2004, it also may be dated. Yet I don’t doubt the raw numbers, in absolute costs.”
Whether or not the data that you don’t present is biased your statement reveals your own biased temperament, which of course you will deny, because you don’t see yourself as the bigot that others see when they read your posts. So is your solution still to sterilize these poor, uneducated people with inferior skills and large families so that they won’t reproduce in some sort of eugenic budgeting reduction process to save the taxpayers money in the long run? Of please post it again Rich, I love that column so much because it reveals the kind of person you really are where everyone can see it except you. But my favorite part is that despite everything desgraciados like you and the Minutemen and Lou Dobbs rage against, the latino population grows and grows throwing states like Florida, Colorado, California, New Mexico and Nevada into the Obama column and leaving people like yourself so frustrated that you need to go out and make tea to feel better until the property tax bill comes due on mama’s house.
All those kids those immigrants have, in their big poor service sucking families, once they are here are citizens of the United States. So over time these immigrant groups gain ever more political power while old white guys like you are surrounded and taxed to the max.
Dic Gregory and andanotherthing,
Your racist accusations indicate to me that you have no solution to the problems discussed on this issue. If you need to call people names, please include yourself. If you are not white, please call yourself whatever epithet is appropriate.
What do you propose to do about the budget? Who should get the money? How should the budget cuts be implemented? You appear to be a racist, so please explain how you propose to use peoples’ race to determine whether they should receive money from the government.
Read it again Martin and note the punctuation. I quoted Rifkin to point out his racist remarks.