California budget mess: Where did our money go?
By Paul Rogers
and Leigh Poitinger
Mercury News
Posted: 02/08/2009 12:00:00 AM PST
California is broke.
But lost in the day-to-day drama over IOUs, furloughs and huge deficits is a basic question many Californians might be asking: Where has all our money gone?
A Mercury News analysis of state spending since Republican Gov. Arnold Schwarzenegger took office in late 2003 found that he and the Democratic-controlled Legislature have spent money well beyond the rate of inflation and California's population growth — $10.2 billion more.
Yet the programs that received most of that money are priorities that Californians broadly support or have demanded at the ballot box: tougher prison sentences for criminals, health care for uninsured children and an aging population, and a cut in the "car tax" that they pay every year to register their vehicles.
The problem, according to a report last week from the state auditor, is that Republican and Democratic politicians in Sacramento have shirked their responsibility for the past decade, papering over shortfalls that started after the dot-com bubble popped in 2001.
Like homeowners paying off one credit card with another, they used accounting gimmicks and more debt, rather than raising taxes or cutting spending, to balance the books. As the economy worsened and tax receipts plummeted — from $102.5 billion last year to an estimated $87.5 billion this year — the house of cards collapsed.
Recession's effect
"We got what we wanted and we've never figured out how to pay for it. And then we had this recession, and that made everything worse," said Stephen Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy.
"Everybody's got somebody to blame, but in the end these are services people wanted," Levy added. "Look at the screaming when you close a swimming pool, let alone try to cut education."
The Mercury News analyzed state spending, line by line, from 2003
to 2008. The major conclusions:
# California's general fund under Schwarzenegger's tenure has grown 34.9 percent — from $76.3 billion in the 2003-04 fiscal year to $102.9 billion in 2007-08.
# But over that same period, population growth and inflation together grew by only 21.5 percent.
# If state spending had grown only at that rate, it would have reached $92.7 billion last year. Instead, Schwarzenegger and the Legislature spent $10.2 billion more.
"I wish it hadn't grown that much," said Mike Genest, Schwarzenegger's state finance director, "but in some sense, it was inevitable. Had we stuck with a very austere budget, we would have been in better shape.''
"But that would have meant real, permanent reductions in service levels, like schools and health care and prison guard pay, and that would have required herculean effort from the Legislature. And there was no chance of that."
Top Democrats cite voter initiatives as big drivers in the state's spending — like the 1994 "three strikes" measure that increased the prison population, or Proposition 98, the 1988 measure guaranteeing at least 40 percent of the general fund for education. Add to that, they say, some major lawsuits the state lost, including a federal case requiring more spending to upgrade prison health care at about $1 billion a year so far.
"If you factor out voter initiatives and court suits, the remaining part of state government grew at or less than inflation and population growth," said John Laird, a Santa Cruz Democrat who served as Assembly Budget Committee chairman from 2004 to 2008.
So looking at the past five years, where did that "extra" $10.2 billion of state spending above the rate of inflation and population growth go? The Mercury News found:
# The state prison system received the biggest share, about $4.1 billion of it. Corrections spending has increased fivefold since 1994. At $13 billion last year, it now exceeds spending on higher education. Tough laws and voter-approved ballot measures have increased the prison population 82 percent over the past 20 years. Meanwhile, former Gov. Gray Davis gave the powerful prison guards union a 30 percent raise from 2003 to 2008, increasing payroll costs.
# Public health spending — mostly Medi-Cal, the state program for the poor — received $2.9 billion above the rate of inflation and population growth. Part of that spike is due to an aging population; part is rising national health care costs. But state lawmakers also expanded Medi-Cal eligibility among children and low-income women a decade ago, increasing caseloads.
# Schwarzenegger's first act as governor, signing an executive order to cut the vehicle license fee by two-thirds, blew a large hole in the state budget. It saved the average motorist about $200 a year but would have devastated the cities and counties that had been receiving the money. So Schwarzenegger agreed to repay them every year with state funds. That promise now costs the state $6 billion a year, or $2 billion more than the rate of inflation and population growth since early 2003.
# Spending on a few other areas, such as higher education, general government, transportation and environment, also grew faster — by about $1 billion each — than inflation and population over the past five years. That was mostly to cover debt payments on bonds that voters approved for parks and highways, along with moves to limit university tuition increases.
# Finally, general fund spending on K-12 schools and social services, like welfare, actually grew less than the rate of inflation and population growth.
'What voters wanted'
Some budget observers say spending more than inflation and population growth is OK, particularly if the economy grows faster.
"The spending is not out of line. It's what voters wanted, and some programs grow faster than the rate of inflation," said Jean Ross, executive director of the nonprofit California Budget Project.
Conservatives call the spending an outrage.
"Like Reagan said, giving money to politicians is like giving whiskey and car keys to teenage boys," said Jon Coupal, president of the Howard Jarvis Taxpayers Association.
Coupal noted that even though California's revenue has fallen dramatically this year, the state general fund still brings in about $90 billion in annual taxes. That's nearly 20 percent more than it received five years ago — and only about 12 percent less than the peak last year before the economy tanked.
"Most business and families could take 10 to 12 percent out of their budget. They do, because they don't have a choice," he said.
One of the state's most famous tax-cut crusaders, U.S. Rep. Tom McClintock, R-Granite Bay, said the problem is that California's bureaucracy has grown too large and powerful. Salaries are too high, it's too difficult to fire state workers, and the entire system needs an overhaul, he said, including outsourcing to private firms everything from nonviolent inmates to highway engineering.
"We've got to put our wardens back in charge of prisons, and principals back in charge of teachers, and introduce competitive pressures back into those systems," McClintock said.
But Laird, the Democratic former budget chairman, said it isn't that easy to reduce the size of government.
"You can call teachers 'bureaucracy,' but in fact they are teachers," said Laird. "If you cut teachers, class sizes go up." His solution: More taxes are needed.
Fixing California's broken budget system will require a wide range of reforms, many experts say, from making it tougher to qualify ballot measures to spending caps to reexamining the two-thirds vote requirement to raise taxes.
In the meantime, legislative leaders say a budget deal could come as soon as this week. The "Big 5'' — the governor and four legislative leaders — are expected to resume talks this afternoon. Any deal is nearly certain to include big spending cuts and higher taxes.
"Our society is moving in the direction of, 'I want more from government but I don't want to pay for it,' " Genest said. "Right now we have leaders making hard choices out of necessity, and we need to continue that."
yumm...that kool aid tastes good.....
:drink:
