California has three methods to address its budget crisis in the
short-term: increase revenue, eliminate expenses and reduce the
cost of necessary services. California is underusing the last
method.
“There’s a recession on, and I expect everyone to participate.” – Unknown
California has three methods to address its budget crisis in the short-term: increase revenue, eliminate expenses and reduce the cost of necessary services. California is underusing the last method.
(Note that although I refer to the state of California in this column, these comments apply to every public agency facing budget shortfalls.)
When families find themselves hip-deep in financial woes, they use all three methods simultaneously. First, they seek new sources of income. Someone takes a second job, or a stay-at-home parent or teen enters the workforce. Unfortunately, in this economy, finding employment is difficult at best and impossible for many.
This method applies to the state of California also. It’s generating new income where it can – raising vehicle license fees, for example. The state ought to be closing Proposition 13 loopholes that corporations exploit, costing California billions each year in lost revenue. However, some methods of increasing revenue won’t work in this recession: Boosting sales taxes when spending is down or hiking property tax rates when real estate values are plummeting won’t fill the yawning budget hole.
This makes using both of the other two methods of addressing the fiscal shortfall even more important.
Sometimes families have obvious choices to eliminate expenses: They cancel planned vacations, stop attending costly movies, concerts and plays. Often they must make much more difficult concessions: A child does not attend college, an adult does not retire.
California officials are all over this method, touting possible park closures and fewer school days. Some discuss these cuts with such a baleful tone that it’s clear that addressing this crisis by eliminating expenses is mostly about retribution. “You voters didn’t pass our budget plan,” some officials seem to be thinking, “so let’s see how you like these cuts!”
I understand that services must be cut, programs must be eliminated, layoffs must be made. But let’s remember that California officials have ignored the state’s structural budget problems for so long that cuts were inevitable whether or not voters approved propositions 1A through 1E. As one person put it when asked by a non-Californian what the special election was all about, “We get to choose between a $15 billion deficit and a $20 billion deficit.”
Families experiencing financial hardship use one more method that the state seems to be reluctant to implement: reducing the cost of needed services. Family members must eat, be housed and clothed, must get to jobs and school. So, during financial crises, families switch from restaurant to home-cooked meals, from name-brand to generic groceries. If possible, they move to cheaper housing. They move from department to discount stores, from discount to thrift stores. They move from private to public schools and transportation. In short, they reduce the cost of obtaining necessary services.
According to the state legislative analyst, in the 2008-09 fiscal year, California spent $30 billion on fully loaded compensation for its 350,000 state employees (more than $85,000 per employee per year including benefits, on average). The total state budget was approximately $103 billion. Labor represents more than 29 percent of the state’s expenditures.
Note that furloughs eliminate expenses, they don’t reduce them. We must do both. With furloughs, the per-hour cost for an employee remains the same. Yes, paychecks are smaller, but so is the number of hours worked.
The 5-percent pay cut Gov. Arnold Schwarzenegger has proposed for most state workers is just a start. Public employees need to reduce their benefits by taking fewer paid days off or paying for more of their health care costs, or both. Most important, they need to slash their exceedingly generous, unmatched-in-the-vast-majority-of-the-private-sector pensions.
If they don’t, they’ll be replaced, where possible, by cheaper, non-governmental programs: privately run prisons and nonprofits providing mental health, drug treatment and probation services, for example.
One way or the other, probably both, California must reduce the cost of providing necessary services.
This will require politicians to negotiate hard with the same unions that pay for many of their campaigns and to remember that their duty is to all Californians, not just public employee unions.
There’s a recession on. Taxpayers must participate with higher taxes and fees and vastly reduced services. Public employees must also participate with reduced compensation and benefits so that the state is using all of the tools at its disposal.
