californication no longer enough to delude the state from its fiscal responsibilities

Californication is no longer enough to delude the State from its fiscal responsibilities

Part 1:
There are many reasons to compare the State of California with the small European nation of Greece besides their warm Mediterranean climates. Like Greece, the Golden State has become a symbol of fiscal irresponsibility, in effect spending what it cannot pay for through taxes. And, although there is no serious need to worry about the state defaulting on its debt; rating agencies consider that risk in California to be greater than all the other 49 states.
Even after a decade of passing measures to cut spending, the state is once again considering a new budget, proportionally smaller to what is was a decade ago after taking into account population growth and inflation. And, even then the state still faces a $17.9 budget hole in the current and coming fiscal years. To produce more cash, without raising taxes, California will be forced to cut whole programs including welfare-to-work, subsidized child care, and the cash assistance to poor families with children. Reducing overgenerous state employee pensions costing the state over $6 billion a year remains a priority, as well as initiating an alternative budgetary system proposed by bi-partisan leadership last year that introduces a new value-added tax, simplifies income taxes, and scraps more from corporate and sales taxes. Part of the state’s problematic tax issues revolves around the ineffective proposition 13 of 1978 which fails to raise enough money from property taxes for local municipalities. On top of that, Proposition 98 of 1988 was meant to find new ways of generating funds, but it’s horrendously complex mathematical systems and funding formulas have never produced positive results.
California faces a more general problem as the political structure ensures spending will always outpace revenues. While simple majorities in Sacramento are required to lower taxes, super majorities must agree to increase them. The recent primary elections for the governor’s seat in California have highlighted new ideas on spending reductions in various sectors of the government, however statistics in 2008 indicated that California had 108 state employees for every 10,000 residents, a ratio which remains one of the lowest in the United States, only Florida and Illinois have fewer. Where the incumbent governor can realistically cut jobs remains unclear. Recently, Governor Schwarzenegger has initiated measures to cut the state’s employee pay to minimum wage. Although this may help ease the state’s economic problems it seems rather controversial that a few must suffer the irresponsibility’s of an entire society. There will come a time when the taxes will have to be increased, and presently it seems we are once again prolonging the inevitable for immediate political safety.

Part 2:

The California budget project, a think tank, indicates that the states university system remains the largest employer at 38%, however no one wants to make any cuts in that sector because of the powerful teachers union (the largest lobby in the state) that is vehemently opposed to any new measures to raise standards, change probation periods, and alter the ‘laughably easy teacher tests’ which dictate hiring. The State has the largest classrooms with 23.4 students, almost twice the national average, and spending per pupil has dropped 11% in the past two years and is likely to drop even further now that the stimulus package has run out. And, considering that the states 8th graders ranked 46th in the nation last year as well as the fact that the state sends fewer high school graduates to college than all but three other states, there are many arguments for reorganizing the entire education system, however the possibility of that becoming reality remains improbable.
Consequently, the school system is not the only pressing issue of economic consequence. The rich and fertile central valley of California is running out of its most valuable resource, water. Geologically the region was once, thousands of years ago, an inland sea, however now the cumulative abuse of resources and successive droughts since 2006 have severely reduced the natural water supply. Importing water has increased the cost of acquiring the resource for local farmers, which is now accounting to above 30% of their expenditures. Even the use of “micro-sprinklers”, aimed at helping reduce water waste, has had little overall effect. While it is unlikely that farming will disappear entirely from the region, whether it will be as productive as it was in years past remains unclear. In the San Joaquin valley agriculture accounts for 20% of the available jobs, the only other comparable source being the state prison system. And, because of the very poor level of education among the workers in the valley, opportunities would be scare if many are left without work in the fields. The demographic trend of increasing Spanish speaking workers, now reaching close to 6.8 million, who migrate to the valley add to the already pressing problem of few opportunities and increasing water costs.
Much like the problematic issues facing Sacramento and the central valley face, the city of Los Angles also has many enormous budget cuts to deal with in order to decrease its deficits of close to $212 million. Next year Wendy Gruel, the cities chief accountant, estimates that the deficit may increase to $484 million and with the power and water utilities refusing to transfer funds to the city’s general fund LA’s accounts will be overdrawn, leaving little available cash to pay its employees. On top of a state-wide housing bust and complicated property taxes, including proposition 13 which capped property taxes in 1978, the city has few viable resources for generating any necessary funds. In addition, proposition 218 was passed in 1996 requiring explicit voter approval for increasing any of the cities fees, further complicating the city’s fiscal issues. The only option the city now has is cutting the size of its services. And, in the case of the police force which was once lauded for its hard-won success against crime, chief of police Charlie Beck has cut overtime pay and will potentially limit hiring next year. As with the state, the future of Los Angles looks bleak and is due a real miracle if it is resolve its deepening fiscal issues.

Cited form the Economist Magazine, Website & Bloomberg.com

Thanks for the post. A good and interesting synthesis as usual.
For california, as would say the governor "Hasta la vista, babe"