Out of Control Policy Blog

How to Fix California

As the results of the California special election were coming in and it was clear that voters resoundingly defeated the so-called "budget reform" measures to increase taxes, borrow from future lottery revenues, and raid funds dedicated to children's health and mental health programs, political pundits and elected officials began scratching their heads and asking, "What now?"

The notion that the propositions on the special election ballot would actually solve the state's budget mess were false from the start.  California's nonpartisan Legislative Analyst's Office estimated that even if the state had gotten the $6 billion it was planning on from the lottery, children's health, and mental health measures, it still would have been $8 billion in the hole.  It turns out that those projections were, once again, even rosier than reality, and that combined $14 billion deficit has now grown to an estimated $21.3 billion gap.

So where do we go from here?  There is a roadmap to recovery.  In 2003, amidst another budget crunch that was almost as dire as the one faced today, I and a number of my Reason colleagues performed a comprehensive review of the state budget.  The culmination of this effort was an analysis and set of recommendations that we called the Citizens' Budget.  The study contained a 10-point plan to putting the state government back on the right path.  The recommendations included the following:

  1. Avoid accounting gimmicks
  2. Acknowledge that spending--not revenue--is the problem (California is already one of the highest-taxed states in the nation and revenues have grown significantly until very recently due to the recession)
  3. Adopt a performance-based budgeting process so that funding decisions can better be tied to program results and priorities
  4. Consolidate duplicative governmental functions and eliminate some of the hundreds of unnecessary boards and commissions
  5. Adopt personnel reforms such as reducing the number of state employees, reducing pension obligations for future employees to get workers' benefits back in line with compensation in the private sector, and provide incentive bonuses to state employees for innovative ideas that lead to cost savings
  6. Increase the use of competitive sourcing (The state could achieve significant cost savings and/or service improvements by contracting out numerous services to the private sector.  Moreover, it should implement a "Yellow Pages" test: if the state is performing services that private companies listed in the phone book are already performing, then the state probably shouldn't be in those businesses in the first place.)
  7. Implement education reform by cutting red tape, and adopt funding reforms such as merit pay for teachers and weighted student funding
  8. Reform health and social service programs by eliminating optional Medicaid services and reducing the waste from fraud through the use of recovery auditing
  9. Switch to a biennial budget and impose a real spending and revenue cap
  10. Improve the state's business climate by reducing regulations and taxes that drive people and businesses out of the state.

To this list I would add adopting a debt-service limit so that the state could not issue bonds if doing so would cause its debt service costs to exceed 6% of General Fund revenues (the Legislative Analyst's Office has stated that the investment community gets nervous when a state's debt service ratio exceeds 5% or 6% (see page 13 of the linked document), as we have now seen firsthand) and returning to a part-time legislature.  The state should also finally implement the more than 1,200 recommendations made by the California Performance Review Commission in 2004.

These ideas are not new, but they are at least as relevant today as they were back in 2003.  It is time for the governor and the Legislature to dust off the reports and utilize them to make real changes to the way California's state government operates, rather than merely trying to tinker a bit at the edges and kick the can a little further down the road.

I discussed the Citizens' Budget reforms recently on a special 3-hour election night broadcast of the "IE News Hour" with Lou Desmond on 590 am KTIE in Corona. Podcasts of the program are available on the KTIE Web site here (scroll down to the segments from the May 19 show).

Adam Summers is Senior Policy Analyst

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Comments to "How to Fix California":

KylanV | May 23, 2009, 4:59am | #

Government budget should have to be spent wisely. Deficit usually came out as a result of too much spending. Engaged more in investments to acquire certain taxes from the investors. Diversify the funds, allocate it appropriately. Always have an alternative financial plan. An alternative financial plan comes in handy during hard times. The key to financial planning or planning of any sort is to always have a backup plan in case your first idea doesn't work out. One of the first things to do is to make sure you come in under budget every month. Don't spend more than you earn. (This means you, Congress!) Try to put money away into savings, and don't add any more debt if you can help it – this means no credit cards. Use a payday loan if you have to. An alternative financial plan that acts as debt relief and puts more money in your pocket is ideal.

Chris W | June 7, 2009, 3:57pm | #

Good suggestions. How do you propose for this to occur? The legislature doesn't seem to be taking appropriate action and ballot box initiatives are a major, if not, the primary reason for the mess. The public's authority should be preserved but there should be checks and balances there as well. Get rid of the 2/3 majority vote on tax hikes and budget passage. The system is flawed but cutting costs is a piece of the pie, but not the major piece. In my opinion it is the system itself that is the issue. How did we pass these ineffective laws? Why are we not passing the laws you recommend? Yes, we can spend wiser but I have big issue with recommendation number 6. Reagonmics is not a good idea. In fact, I see it daily. I work for a city where we have, or soon had, private contractors for plan checking and other service costs. Is that more efficient? Totally no! How do they make there money? By doing more plan checks! So, what do they do? They fail to do great plan checks over and over because they make more money. The public hates that. Plus, city employees are more vested in the public interest. Why? I get roasted if I make a mistake where as a contractor is separated from the public. Yes, the city council can change contractors, but this is not isolated. How about the torture in iraq? Over billing in defense amidst others. This is not the answer. I see it daily. Regan was the champion of this idea and deficits under his time soared. What we need is to evaluate how budgets get passed, who passes them, and how is there oversight. Only then, will your ideas happen.

Chris W | June 7, 2009, 4:21pm | #

In addition to my last comments, I have a question and statement. Mr. Summers, have you worked in government? It gives you a different perspective on things to do so. People daily blame government, criticize government, etc. But, until you see both perspectives and see what government employees do (serve public, not serve the dollar - different mentality!), it isn't a comprehensive take on it all. Government is waste full. But, so are a lot of things. It doesn't like free markets these days are proving to be great without some intrusion. The bankers have thanks for that. Instead, I think we should heavily focus on your recommendations for how we oversee, rate, and reward performance. That same discussion is being thrown around right now for wall street yups. Although I am a strong proponent of private enterprise, black and white isn't what work...we live in a gray world Adam

Caroline | June 9, 2009, 1:13am | #

blah blah blah

Ralph | June 9, 2009, 1:15am | #

my cats breath smells like cat food

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