Fixing California’s Broken State Government

My new column offers some ways to fix California’s budget deficit and outlines a long-term strategy to fix the structural problems in state government:

A good place to start would be the California Performance Review. In 2004, Gov. Arnold Schwarzenegger solicited government reform ideas from state and local government leaders, the business and labor communities, public policy experts, and members of the public. As a result, the California Performance Review Commission detailed over 1,400 recommendations with potential cost savings of approximately $31 billion over five years, including $10 billion in savings from the General Fund. These recommendations included such common-sense ideas as eliminating some of the hundreds of state boards and commissions, consolidating programs and government functions that are duplicative or overlapping, and selling off surplus property, such as state-owned golf courses, the Los Angeles Memorial Coliseum, and the MTV beach house in Malibu.

Unfortunately, hardly any of the suggestions have been implemented and the California Performance Review has largely been filed away as another blue ribbon commission report to be ignored. But if the administration already has so many ready-made, nonpartisan solutions, why not put them to use, especially now?

Pension Reform

Another worthy reform that was abandoned was the state’s pension system. Once upon a time, perhaps a generation or two ago, it could be argued that government employees needed greater benefits and job stability than private-sector workers because the government could not match salaries in the private sector. That clearly is no longer the case. Now government employees typically earn higher salaries and much greater benefits than their private-sector counterparts. Unfortunately, an effort to switch new state employees from the state’s generous traditional pension plans to 401(k)-style defined-contribution plans more in line with the private sector was scuttled when some sloppy wording in the proposal led to fears that the widows of slain public safety officers would be denied disability pensions. Nevertheless, there is a reason that the private sector has been switching to defined-contribution plans for the past 30 years: traditional pensions are simply too volatile and unaffordable.

Spending Limit

Since legislators have proven time and again that they are unable to restrain spending, California needs a strict spending and revenue cap, although they should not be forced into a Faustian bargain where they would have to agree to impose an additional $16 billion in taxes on themselves, as Proposition 1A on the May 19 ballot would do. California passed the Gann Spending Limit in 1979 with over 70 percent of the vote. The Gann Limit basically prevented state spending from growing by more than the growth in population and inflation, and any tax revenues collected above the limit were to be returned to taxpayers via tax rebates. Unfortunately, the Gann limit was gutted by Proposition 111 in 1990 and hasn’t been effective since.

Budgeting Reforms

The very way the budget is crafted cries out for serious reform as well. Instead of the current line-item budgeting, which makes incremental adjustments to last year’s budget for various spending categories, oftentimes with little or no justification, California should adopt performance-based budgeting. Under performance-based budgeting, legislators could use outcome measures adopted by agencies to link funding decisions with program performance. This would shift the focus from line items and object codes to programs and results.

Some states have taken this concept even further. Washington and South Carolina utilize a Priorities of Government (POG) budget process, under which government services are identified by activity, rather than by agency, and categorized according to a set of pre-established goals. The activities are then ranked in order of priority and effectiveness and funded from the top of the list down until all available revenues run out. One of the greatest benefits of the Priorities of Government system is that it makes priority and trade-off decisions clear to everyone.

Privatization and Outsourcing

Finally, the state should make much greater use of privatization and contracting with private-sector vendors to provide services. There are certain government services that can be provided more cheaply and effectively by the private sector, or that the government just shouldn’t be performing in the first place. Hence, a comprehensive “Yellow Pages” test should be applied to state government. Simply put, if there are businesses listed in the Yellow Pages that are performing the same services as the government, the government should either put those services up for competitive bids for performance-based contracts or eliminate the service altogether.

Full Column Here

Reason’s California-Related Research Here