“The worst, the most corrupting lies are problems poorly stated.”
Daniel Patrick Moynihan, citing French theologian Georges Bernanos
The state of California’s revenues have surged in the five years since the 2010-11 budget. Through its general and special funds, the state will spend $161 billion in the 2015-16 budget year, nearly $44 billion more than 2010-11, a 37 percent gain. You would think California would be overflowing with abundant public services. But you would be wrong.
Despite the revenue surge, aggregate state spending on the judicial branch, the University of California, California State University, Social Services, Parks and Recreation, and the Department of Transportation will be 3.5 percent lower in 2015 than in 2010. Together, those services will receive $21 billion, which represents just 13 percent of the 2015-16 budget, down from a 19 percent share in 2010-11. Put another way, those services’ share of the budget will fall 30 percent.
On the other hand, aggregate state spending on pensions and other retirement costs, the Department of Health Services, and the Department of Corrections and Rehabilitation will climb 53 percent. Together, those categories will garner nearly $50 billion. Their share of the budget will rise almost 12 percent, continuing a destructive pattern.
As the Legislature and governor gather in special sessions during which they are expected to discuss fiscal issues, including calls for additional revenue, first they should honor the late Sen. Daniel Patrick Moynihan’s admonition to always properly define the problem. Simply put, California’s problem is excessive state spending on retirement, health care and corrections costs. The consequences of a continuing failure to address that spending are enormous.
While the country regularly reads about the latest California tech billionaire, they read next to nothing about the nearly 10 million Californians living below the poverty level or the even greater number of Californians who have seen little growth in wages for nearly two decades.
To have any chance of moving ahead, those Californians require high quality education, reliable, safe and inexpensive public transportation, affordable and functional courts and colleges, a functional safety net, and a tax system that encourages employment and wage growth.
But those citizens and their hopes are the first casualties of a political system that cuts services and raises taxes, fees and fines to finance ever-greater retirement, health care and corrections costs. When that happens, they receive fewer and shoddier services despite higher tuition, taxes, fees and fines, utilize deteriorating infrastructure, and seek work and wages in a less robust employment environment.
To add insult to injury, last year the state shifted $170 billion of pension costs to the school districts. As California struggles against growing financial inequality caused in large part by educational inequality, what sense does it make to shift dollars from classrooms to pensions?
Tax increases don’t solve the problem. In 2012 California voters passed a temporary tax increase known as Proposition 30 designed to generate an additional $50 billion in revenue over seven years. But as the math makes clear, all that revenue, and more, is being consumed by increases in retirement, health care and corrections spending.
As a result, even K-12 Education and Community Colleges only treaded water in 2015, getting no greater share of the state budget than in 2010. Worse, the structure of the 2012 tax increase made the state more dependent on capital gains, which have been extraordinarily robust since 2010 as a result of a torrid stock market. But hot markets cool and when they do, capital gains decline and California reports deficits. Worse, those deficits will be exacerbated by the addition since 2010 of more than $40 billion in unfunded retirement obligations and 3 million new Medicaid participants, portending even steeper growth of retirement and health care spending.
We’ve already seen how spending on services declined even when revenues surged. Just imagine the consequences when revenues stop surging.
In testimony to the Legislature some years ago I told my fellow Democrats that one cannot both be a progressive and be opposed to fiscal reform.
Until California’s leaders address the three elephants — retirement, health care and corrections costs — that are crowding out public services and causing unproductive tax and fee increases, citizens will continue to suffer and inequality will continue to grow.
The solutions are neither clear nor easy.
In the case of corrections, legislators might revisit the determinant sentencing law signed into existence nearly four decades ago, after which California’s incarceration rate started its steep climb. In the case of retirement and health care costs, they might look to Rhode Island, where Gov. Gina Raimondo has been tackling similar issues. No doubt there are many options. But first they must look to Moynihan and truthfully state the problem.