California Government – In the tank?

1978 (Prop 13) is marked by the big spenders in California government as an ill-conceived withholding of money from those who know best. There is no doubt that Prop 13 has restricted growth in property tax revenue, especially to local governments. Is that really the problem in California?

California is a leader in median priced housing. Without Prop 13 this would likely not have happened. Senior citizens and others on fixed income would have been taxed out of their homes (back door eminent domain?).

The Silicon Valley spurred growth throughout America.

The list could go on and on.

I would suggest that the real problem in California is budgeting by initiative and exploding spending patterns. The State Controller’s web site reports the following:

• Revenues for fiscal year 2003-04 were $135.3 BILLION (an increase of 8.4% over the previous year).
• Revenues in 1999 were $99.9 BILLION.
• Between the 1999-00 fiscal year and the 2003-04 fiscal year, they increased by 17.2%
• In 1999, the State Controller reported “California’s ongoing economic recovery resulted in 34.6% increased State revenues between 1995 and 1999.”
• California’s per capita personal income increased by 12.0% between 1999 and 2003, while U.S. per capita personal income increased by 10.3%.
• Expenditures were $144.7 BILLION in fiscal year 2003-04.
• From 1998 to 2002, California’s per capita spending increased by 38.4%, from $3,266 to $4,521. The State spent 17.1% more per capita than the national average.
• State spending increased 28.7% between 1995 and 1999. However, after adjusting for inflation, spending increased 16.6%.
• California spent an average of $3,196 on each citizen in 1997.
• Budgeted spending increased from $54.9 billion in 1994-95 to $72.5 billion in 1998-99, an increase of $17.6 billion in just four years.

From fiscal year 1998-99 to 2003-04 revenues grew $35.4 BILLION.

From fiscal year 1994-95 to 2003-04, 9 years, expenditures have grown $89.8 BILLION (164%).

Per capita spending from 1997 to 2004 increased $1,325 (41.4%).

Those who are stuck on stupid, sorry stuck on spending claim that revenues have not kept up with spending and that tax increases are necessary. Unfortunately for the citizens of California we may not find the revenues necessary to pay for uncontrolled legislative spending.

Pensions and post-employment benefits will be the next big problem for state and local governments. The San Francisco Chronicle reported (6/21/05) that “the state's pension share has soared from $160 million in 2000 to an estimated $2.6 billion this year.” This does not include the unfunded liability for retiree health care. The Chronicle also reported that Contra Costa County’s pension costs “has grown from $70 million in 2001 to an estimated $177 million next year.”

The San Diego Union-Tribune reports that the City of San Diego has a “pension shortfall of at least $1.3 billion – plus another $1 billion in unfunded retiree health benefits.”

The Chronicle also reports “The California State Teachers' Retirement System is facing a $24 billion deficit. Los Angeles County's pension shortfall is over $5 billion. Contra Costa and Orange counties and the city of San Diego are all facing unfunded liabilities of more than $1 billion each. Across the country and the state, the list of governments in the midst of pension woes is seemingly endless.”

Let’s not blame the unions for doing their job. Unions are supposed to negotiate the best pay and benefit package for their members. Government, Boards of Supervisors, City Councils, and the Legislature is supposed to make sound business decisions based upon the reasonable availability of funds without negatively impacting the purpose of government.

California is about to establish budgeting by initiative again. Prop 76 the “California Live Within Our Means Act” has been presented to the voters for the unnecessary November 8, 2005 election.

Sacramento Bee Columnist Dan Walters takes a look at this initiative (10/16/05) “State's budget problem real, but would Prop. 76 really fix it?”

Walters hits the nail on the head when he states “The exact dimensions of its impact, however, are difficult to gauge because Proposition 76 exemplifies the most vexatious aspect of California politics, what one might term the law of unintended consequences.”

Walters gives us this example: “When, to cite another instance, legislators voted unanimously in 1996 to overhaul regulation of utilities, they said it would lower Californians' high power bills through competition. Instead, it led to the energy crisis of 2000-01 that has cost us tens of billions of dollars and pushed our power bills higher than ever.” California now has Prop 80, supposedly to fix this problem.

Prop 76 has the following Findings and Declarations:

“(a) For the last four years, California has enacted budgets that have spent billions of dollars more than the state received in revenues.
(b) The Legislature is chronically late in passing budgets and seems institutionally incapable of passing balanced budgets.
(c) Spending will continue to rise faster than revenues because of laws guaranteeing annual increases in spending for a host of public services and granting entitlements to growing caseloads of qualified recipients. When combined with the refusal of the Legislature to change these laws, this auto-pilot spending is a recipe for California’s bankruptcy.
(d) In March 2004, the people overwhelmingly enacted Proposition 58, the California Balanced Budget Act. The California Live Within Our Means Act is needed to strengthen that law to deal with budget emergencies when the Legislature fails to act.
(e) The Governor’s current authority to veto or “blue pencil” excessive appropriations from budget bills cannot deal with spending mandates built into current law or with mid-year revenue losses or unexpected spending demands.
(f) The Governor needs the authority, when the Legislature fails to act in budget emergencies, to make spending reductions to keep the state from spending more than it is taking in and either running farther into debt or forcing massive tax increases.
(g) To meet the financial mandates of auto-pilot spending formulas enacted by the Legislature, the state has borrowed billions of dollars from schools, transportation funds, and local governments. The Constitution should prohibit such budgetary gimmickry and require the borrowed money be repaid without making current deficits worse.”

Californians know about unintended consequences. We simply need to look at how many times the courts have invalidated the will of the people. Now the Governor wants the authority to unilaterally overrule the people’s representatives in the Legislature to cut costs as he sees fit. This is a reversal in position by the Governor and could easily lead to future Governors making cuts that are contrary to the will of the people. We do not elect kings and queens to be Governor.

California may be better off defeating this Proposition and approving Prop 77 (redistricting). If we can assure that “safe districts” will become competitive the Legislature may be more responsive to all of Californians and not just the vocal special interest groups.

The problem is not the availability of money but how it is spent in California. If our elected representatives do not step up to the plate California's economic bubble will likely burst.