12.16.07
California Reliving Its Past?
Looming Budget Crisis
One thing that has been pretty constant over the past several years is that the state has a little financial boomlet, spends 100% of the incremental tax revenues, and then has a bust. The two parties point fingers at one another, as one side fights to raise taxes and keep “essential” services running at the same level they were before and the other side fights to cut services and avoid raising taxes at all.
I fall more on the cut side than on the tax side, but it isn’t realistic to expect the state to suddenly wean itself off of its love of spending other people’s money. Instead, we need to rely upon cuts for 70% to 85% of the needed funds, and then use taxation to come up with the rest.
Our state must learn to live frugally, putting some money away for a rainy day. One thing that anyone can guarantee is that the time will come when those reserves will come in handy.
Schools And The State Budget
After Proposition 13, when property tax growth was capped, the state government became the primary source of funds for school districts. This allowed other local agencies to consume a larger proportion of property taxes. The problem with that has been that there is effectively no local funding for schools. There are no brakes on spending growth, as there would be if spending increases had to be justified to local taxpayers. As long as Sacramento sends the money, the local districts will continue spend it with abandon.
Another proposition, I think it is 42 or 44, requires the state to give schools at least the same percentage of state funding as they had the prior year. In a year when it may be necessary to cut spending 10% or more, schools will scream unless they are left alone.
We already know that a partial solution to this is to once again place most of the funding and most of the control of schools in the local community. For one things, it makes local residents responsible for raising the funding and containing the costs, so that their local schools continue to serve their children’s and grandchildren’s needs. In addition, we need to break up the mega-districts. A mega-district like the one for Los Angeles is so big that it takes a huge and expensive bureaucracy to run it.
As an example, in almost thirty years of voting, (and with elections nearly every Spring and Autumn,) I can count on one hand the number of times there has not been statewide or local bond issue to borrow more money for the schools—and there are often a number of other bond issues being voted on as well—not that they all pass, but there are frequent attempts to borrow money. The payments on those bonds are now contributing to the crisis, since delaying or reducing those payments could force the state into bankruptcy court.
Current Situation
State lawmakers are talking about raising taxes to pay for the projected budget deficit. Because California did not cap its spending during and after the last budget crisis, there was no money laid aside for the inevitable economic decline.
The slumping housing market, fueled by the subprime mortgage meltdown, remains the main cause of the state’s deepening fiscal woes, having an impact on a wide range of revenue including that from property and sales taxes.
In other words, the decline in taxes is caused by something that everyone knew would come sooner or later. This means that California’s spending plan was based upon resources that we knew might not exist from year to year. It looks like the state is about to get smacked down, exactly the way that a spendthrift household does. Eventually, there is no one left who will lend you any resources, and you have to suffer the consequences of your profligacy.
