Last week California’s incoming Governor Jerry Brown unveiled his proposed state budget for 2011. Despite the fact that Brown’s budget has deep cuts to nearly all state programs, the success of the budget – even if it should be approved by the state legislature – depends on tax rates staying the same. And California’s voters, regardless of whatever else their contrarian behavior may indicate, do not like taxes. If you read the Governor’s Budget Summary, on page 10 you can view the projected state general fund tax revenues – assuming voters approve an extension of the tax increases:
Also on page 10 of the Governor’s Budget Summary is a table showing the projected state general fund expenditures, already reflecting the proposed cuts to expenditures (note that the tables have been altered here for simplicity’s sake, such that only the column of numerical data showing the proposed amounts is retained). From comparing these tables, one will see the general fund according to these projections will enjoy a $5.0 billion surplus in the fiscal year 2011-12. But is Jerry Brown going far enough with his cuts? Because not only is California a state with some of the highest taxes in the U.S., but it is very likely voters will not approve extending the tax increases.
Areas where Brown did not propose cuts include pensions, and because state employee pension funds are not adequately funded, if benefit formulas are not reduced, more money will need to be allocated for pensions. Put another way, if the pension funds adjust downwards their projected investment returns – and they need to do this – necessary annual pension expenditures will stay the same even if benefit formulas are reduced.
And what if California wanted to embark on new infrastructure projects without issuing bonds, or wanted to pay down bond principle, or wanted to lower taxes? Other than pensions, where else could cuts be made? When one looks at California’s $84 billion budget, there are three areas that stand out – health and human services, corrections and rehabilitation, and education.
Health and Human Services:
Without diving into the details of California’s health and human services budget of $21 billion, there are two areas that immediately come to mind where cuts can be made, welfare benefits and benefits to illegal immigrants. With respect to welfare, it is fairly well documented that California has 12% of the U.S. population yet has over 30% of the U.S. welfare recipients. If California simply modeled their welfare policies along the same lines as the rest of the U.S., which complied with the federal reforms enacted by the Clinton administration, it is likely that California’s welfare caseload would begin to settle down to national norms. This could save billions. While the issue of providing benefits to illegal aliens is an issue that attracts a great deal of controversy, and while denying essential services such as emergency health care to illegal immigrants is certainly a humane policy that should be continued, it is not necessary to continue all of California’s generous entitlements for illegal immigrants. Restructuring California’s policies in these two areas would probably save California’s taxpayers several billion dollars each year, and should be considered.
Prisons and Rehabilitation:
California spends nearly twice as much per prisoner as most other states in the U.S. California’s overcrowded prisons should have their populations reduced to normal capacities, not by allowing thousands of inmates to pour back out onto the streets before they’ve served their sentences, but by exporting prisoners to far less expensive private facilities located outside California. Another way to reduce California’s prison expenditures would be through thoughtful revisions to sentencing guidelines. Currently nonviolent offenders are often forced to reside in expensive prison facilities, when more appropriate rehabilitation facilities would not only cost less, but offer programs to better help inmates overcome substance addictions, and learn marketable job skills. These reforms could probably save California’s taxpayers several billion per year.
K-12 and Higher Education:
In Governor Brown’s proposal, California’s budget for K-12 and higher education consumes more money, $46 billion, than all other state programs combined. How can these costs be cut, while maintaining or even improving the quality of education? First of all, instead of putting a measure to maintain tax increases onto California’s ballot, Governor Brown should propose to place a measure on the ballot that will repeal Prop. 98. This citizens initiative, passed in 1988, entitled the “Classroom Instructional Improvement and Accountability Act,” amended the California Constitution to mandate a minimum level of education spending. But how much money is spent on education obscures whether or not California’s public education system is being managed to optimize educational outcomes. Here are some ways to reduce spending on education while improving the quality of public education at the same time:
(1) Increase class sizes. There is no reason classes can’t have 30 or more students per teacher. One way to make it easier to increase class size without compromising education is to stop “mainstreaming” marginal students. Disruptive students, or developmentally disabled students, should not be in the same classrooms with normal students, because they consume a disproportionate amount of the teacher’s efforts. Disruptive students should go to reform schools where they can be controlled efficiently. Developmentally disabled students should attend classes where they receive instruction among their peers at a level calibrated to provide them as much educational opportunities as possible.
(2) Reduce administrative overhead. Currently nearly 40% of the employees in public education in California do not teach in the classroom. This top-heavy system should be restructured, with at least half of these administrative positions getting eliminated. This can be accomplished through returning control of schools to local school districts, by consolidating school districts where appropriate, and by contracting to the most competitive private sector bidders for many services.
(3) Restore teacher accountability. One way to greatly improve California’s public education system is to streamline the process of firing incompetent teachers. Currently this is a nearly impossible process. But simply by restoring merit as the criteria for keeping and advancing in a teaching career in California, educational outcomes would improve even while overall expenditures decline.
Governor Brown’s budget, as it is, reflects a realistic assessment of California’s budget challenges, and offers a great deal to displease special interests. But it doesn’t go far enough. By tackling the additional categories of spending in pensions and benefits, health and human services, corrections and rehabilitation, and public education, California can not only balance its budget and lower taxes, but implement rational policies that will improve societal outcomes and improve overall economic prosperity.