Gov. Jerry Brown’s revised budget for 2018-19 predicts general fund revenues will be 30 percent greater than 10 years ago yet key services will receive less money than they did back then.
Brown’s budget proposes 14 percent less money for the judicial branch and Department of Social Services than a decade ago, 1 percent less for parks and recreation, and only 8 percent and 20 percent more for the University of California and California State University.
The reason: State tax revenues are increasingly being diverted to pension costs, health insurance subsidies for retired employees, and Medi-Cal, the state’s single-payer health insurer for low-income citizens. Call them the “Big Three.”
Local governments and schools are experiencing similar pressures from rising spending on pensions and retiree health care. State spending on schools is up 37 percent from a decade ago, yet schools are laying off teachers and, according to the state Department of Education, 46 school districts, including Oakland and Los Angeles, are at risk of not being able to meet financial obligations.
It’s not as if the Big Three cannot be reformed. They can.
To reduce $2 billion per year of insurance subsidies for retired state employees, the state should adopt the reform enacted in 2015 by Glendale. That city eliminated health insurance subsidies and encouraged retirees to make use of Covered California, the state’s excellent Obamacare healthcare exchange, and subsidies available under the Affordable Care Act.
To reduce $9 billion per year of spending on pensions, the state should suspend annual benefit increases for retirees until pension funds are adequately funded and reduce accrual rates for years not yet worked by existing employees.
To improve health, boost customer convenience and free up Medi-Cal dollars, the state should expand the procedures nurse-midwives and nurse practitioners are permitted to provide; require that fire stations and other public locations are available for providing medical services to Medi-Cal enrollees; adopt incentives and penalties to encourage customer treatment at lower-cost locations; and utilize less expensive Department of Social Services programs to intervene with Medi-Cal enrollees before they need more expensive medical care.
Those steps would improve health; free up billions of dollars for courts, parks, social services, UC and CSU; keep more money in classrooms; and ensure that tax increases go to new and improved services.
Absent reform, the “Big Three” will consume ever-larger shares of the budget and lead to ever-more-frequent calls for tax increases that won’t produce new or improved services. That’s because inefficient Medi-Cal spending will continue to grow. And the state has added more than $100 billion in unfunded liabilities over the past decade for pension and retiree health care costs — $15 billion alone just since January.
Tax increases are always marketed as beneficial to public services but, absent reform, in California the money will just be diverted to cover up unproductive spending on the Big Three.
And the pressure for more taxes could quickly worsen. That’s because California’s tax revenues are correlated with investment markets. The next bear market, Gov. Brown predicts, will reduce annual revenues by more than $20 billion per year.
Brown has done a Herculean job preventing these problems from getting worse but governors alone cannot reform the Big Three. That requires consent of at least a majority of state legislators, 41 in the Assembly and 21 in the Senate.
Most voters don’t even know the names of their state legislators, but they should. No official other than the governor has a bigger impact on their lives, especially those with kids in public schools or hoping to attend state colleges or universities.
If you want tax dollars redirected to services, you must elect state legislators and governors who will address the Big Three.