California’s Great Diversion

General Fund tax revenues in Governor Jerry Brown’s proposed budget for 2018–19 are expected to be 32 percent higher than ten years ago yet the same budget proposes only 9 percent more spending for California State University than ten years ago.

The principal reason is the “Great Diversion” of tax revenue to greater spending on enterprises funded by the state’s single-payer insurer (Medi-Cal) and to increased spending on pension and other retirement obligations. Because of the “waterfall” nature of California’s General Fund, the Great Diversion disproportionately hurts courts, parks, social services, UC and CSU.

The Great Diversion is happening despite a long bull market and income tax increase. Only 29 percent of San Francisco Unified School District’s budget will go to active teacher salaries this year because spending on unfunded retirement obligations jumped more than 100 percent in five years. It’s the same in Pasadena, Oakland and across the state. Meanwhile, profiteering and inefficiency by Medi-Cal providers is crushing funding for UC, CSU and other state services.

In the absence of reform the Great Diversion will get worse. That’s because the state has added >$100 billion in unfunded retirement obligations and delivered seven million more customers to Medi-Cal providers since 2010 and state revenues are correlated with the stock market, which will not always be in a bull mode. Despite the establishment of a rainy day fund, state and school budgets are as susceptible to a fall off in revenues as in 2001 and 2009.

Governor Brown acknowledges these facts in his budget but cannot enact reforms without his equal partner in governing the state — the California Legislature. All it takes is 41 votes in the State Assembly and 21 votes in the State Senate to reform retirement spending and to make Medi-Cal work for customers instead of profiteering providers.

This is not a debate about big government versus small government. It’s about tax dollars actually being used for public services. Surely all legislators can agree on that imperative.

Govern For California supports legislators who govern in the general interest.


Originally appeared on Medium, 4/7/18.