The city of Davis managed to survive first through the collection of a half-cent sales tax that produced around three million per year in revenue and also because property tax revenue was increasing at a very robust rate during the last decade. However once the real estate market flatlined in Davis and busted in the rest of the state, revenues could no longer keep pace with increases in employee salaries.
Indeed, as the myth goes, “They are to blame for some things: bullying liberal allies they deem insufficiently subservient (Senate leader Darrell Steinberg [D-Sacramento] is the latest target); blocking reforms they feel threaten members (teacher unions are notorious); and driving up retirement benefits to unsustainable levels (CHP officers, prison guards and civil servants are all guilty).”
The belief then is that as California once again grapples with a $19 billion deficit, the government can “cut its way out of the hole.” Instead, “Sometimes when government cuts spending, it actually costs money.”
Writes Mr. Skelton, the true culprit is more complicated. “California’s budget nightmare stems from a devil’s brew of sins: lack of discipline on both spending and tax-cutting in the past; an outdated and unreliable tax system too susceptible to economic booms and busts; the unhealthy dependence of local governments on Sacramento; and a dysfunctional state budgeting process that requires a gridlock-generating two-thirds majority vote.”
Many people believe that Sacramento could make its ends meet by cutting the salaries of state employees by 10%. In point of fact, last year, most state employees have seen their salaries decline by a lot more than that, on average about 14% through furloughs, however, as Mr. Skelton points out the state still has a $19 billion project deficit.
The Governor’s current proposal would see a 5% salary cut, require workers to contribute 5% more to their retirement, and cut the workforce by 5%. According to Mr. Skelton, that would save $1.8 billion. Not chump change, but not going to balance the budget.
“Fire every prison guard, every CHP officer, everyone who works at the DMV, everyone who works for the state parks system … and you’re still not there,” notes H.D. Palmer, spokesman for the state Finance Department.
One of the big problems is that 70% of the state general fund flows to local governments, whether they be schools or cities. This is the unintended consequence of Proposition 13 which crippled the ability of local government to raise property taxes locally.
Pension also do not make much of a dent. Writes George Skelton, “The governor has budgeted $3.8 billion in state contributions for the next fiscal year. But only $2.1 billion of that would burden the bleeding $83-billion general fund. The rest would come from self-sustaining special funds.”
As he puts it, even if the state paid zero month on employee pensions, which would not be possible, the savings would only get the state about 11% of the general fund budget hole.
George Skelton then talks about the union concessions that we reported last week, where four public employee unions agreed on retirement rollbacks for future hires. These four unions represent about 10% of the governor’s workforce, including firefighters, Highway Patrol officers, health and welfare personnel and psychiatric technicians.
As Mr. Skelton points out, “The pacts return pensions for future employees to roughly the levels that existed before then-Gov. Gray Davis and the Democratic Legislature boosted benefits substantially in 1999. And that rollback is long overdue.” However, the total savings from that is only $72 MILLION a year, that’s million with an “m” and only $43 million of that comes from the general fund.
This is not a futile gesture for the state, it will help in future budgets, just not this one. “The state gain from the union agreements derives from increases in employee contributions, a workforce cut and one unpaid day off a month. The actual pension rollbacks will help future generations balance the state books, but they’ll be of no use to current budget-writers.”
The state would like the same deal with the remaining employees, that would fill about 6% of the budget hole.
What about cutting welfare? Welfare cuts would only shift the burden to already cash-strapped counties. “If Schwarzenegger, for example, succeeds in his effort to close down the state’s main welfare program — a $1.2-billion savings — that “clearly would have a significant impact on the counties,” Palmer concedes.”
Why? “That’s because counties legally must provide the safety net of last resort for the poor with their general assistance programs. Dan Carson, deputy legislative analyst, estimates there’d be a cost shift to the counties of “at least $1 billion” if the Legislature accepted Schwarzenegger’s proposal. Which it won’t.”
Another target is IHSS (In-Home Supportive Services). As Mr. Skelton points out, that merely shifts money from IHSS to Medi-Cal. “Schwarzenegger also is trying to cut spending on In-Home Supportive Services by $750 million. But that could force many frail, elderly people into much more expensive nursing homes. This would significantly jack up Medi-Cal costs.”
We could go on and on. There are no real saving solutions here. In the end, we know that the state once again has to close an enormous budget gap. And the state has to do it without raising taxes, because even the modest tax proposals last year resulted in the few Republicans who agreed being targeted and electorally damaged. We also know as we reported a few weeks ago that the state is spending money at its lowest levels in years. The problem is not spending at this point, it is revenue and until that turns around, we are looking at more cuts and more expenses down the road due to those cuts.
—David M. Greenwald reporting