California is in the red and when you combine the balance of this fiscal year with next year’s the amount is a staggering $28 billion. If you want to understand the depth of what this really means consider this: California’s budget shortfall is the equivalent to the total general fund budget of Delaware, Maine, Idaho, Montana, Nevada, Nebraska, New Hampshire, North Dakota, South Dakota, Vermont, Rhode Island, and West Virginia combined. That is humongous!
The current budget is broken down to include K-12 Education, Health and Social Services, Colleges and Universities, Public Safety, and Other- which covers the majority of state government functions like the state parks, court systems, department of motor vehicles (DMV), and other services.
The Los Angeles Times created an interactive model that allows you to make necessary cuts and tax increases to reduce the deficit, and quite possibly create a surplus. They included a range of options to choose from which includes proposals made by both Democratic and Republican lawmakers. So let’s look at the current budget breakdown and then consider the proposal I recommended. Finally, you can give it a whirl and see how you fair, and then compare all three proposals to that of Governor Jerry Brown. Trust me it is not as easy as it seems. Every cut and tax increase affects someone- especially YOU, if you are a California resident or business. Lives are impacted by the decisions you make. That is a great deal of pressure to carry.
When you look at the numbers you may think, “wow well at least education, and health and social services are taking the majority of the budget- that’s good news,” but what you may not know is that the educational system both on the K-12 and college/university levels are heavily strained. The voter-approved constitutional guarantee for K-12 schools has an estimated 40% earmark, but this percentage has dropped considerably because tax collections has plummeted. Basically, there’s no balance in this balancing act.
Spending per pupil is now the lowest in the nation, with California spending a mere $8,700 per student during the 2008-2009 school year. To make matters worse the state lost $2.2 billion of federal funding that went to schools- so the question posed is how much of the state’s limited revenues should go to schools considering the impact it has on our children and teachers?
If you maintain the current level for funding then the deficit increases to $30.2 billion. If you provide minimal funding then there is no impact on the deficit and the minimum level guarantee of $28 billion is earmarked for schools as usual. However, you can also consider cutting the spending that would go to each child, and reduce the deficit by $24.3 billion. So what do you do?
I remember when I was in undergrad at California State University, Long Beach (Long Beach State) in the 1990s. I also took classes at various local community colleges and just like the other students I was feeling the pressure of tuition increases- the same tuition increases we were told wouldn’t occur anytime during our tutelage. Since then the state-paid costs earmarked for the UC system has dropped significantly from 78% in 1990 down to 48% currently. Cal State enrollment has dropped considerably, and both UC and Cal State systems have seen their faculty face furloughs. But this has not meant a reduced or steady level of student fees- to the contrary- they have more than tripled.
Now although California still has the lowest per unit fee for their community college students in the nation- at $26- with the closing of many campuses throughout the state, there is a reduction in class offerings. This means that although California students are paying less to attend community colleges they now have less options for classes to take than several years ago. Do you see the catch-22? So where would you make budget cuts? What programs, grants, and services would you eliminate? Would you cut funding to the UC or Cal State systems, or to the community colleges? If so, which and by how much? Would you eliminate existing or new CalGrants, or both? Would you close some or all of the 110 community college campuses that have served as the traditional gateway into the Cal State and UC Systems?
The current budget allocates $26.3 billion. Let’s look closely at how that is broken down. It covers welfare; in-home services to the elderly, blind, and disabled; child care services for 55,000 children of working parents in the welfare-to-work program; Medi-Cal services; Medi-Cal services for legal immigrants; grants to the elderly and poor; and drug and alcohol programs. The proposals for health and social services would require you to make cuts or place limits on spending. Someone is going to go with less or completely without. So who should it be, and if you are making budget cuts, then by how much?
When we think of public safety we become instantly focused on our own safety and well being, we consider our homes and families and think of driving without fear of carjacking. We think of the bad guy being locked up in jail or prison, and a safe environment with hopes of some type of utopia. But let’s face reality…safety costs big money. Want to see the budget breakdown for public safety and the considerations that impact the state deficit? Let’s go…
The fastest growing area in the state budget is allocated towards the state’s prisons which are due in large part to the overcrowding in prison thanks to the 3-Strikes law, Proposition 9, and other statutes that keep inmates incarcerated longer, or for a lifetime. Each year California spends an average of $51,000 per inmate (that’s more than some people’s annual salary). The state holds 170,000 inmates. By releasing 40,000 of them the state would reduce its cost by more than $2 billion. Now they aren’t talking about releasing serial killers, rapists, and other hardened criminals.
Think about Joe who stole a steak at age 18, committed some other silly crime at 21, and then at 23 he did something else trivial- like steal a car radio out of a police cruiser- that falls under the 3-strikes law that locks him up for life…do you think the citizens of California could survive with Joe on the streets? Possibly- he potentially has not grown into a hardened criminal in the several years he has served so far.
Now consider the reduction in costs for successfully sending illegal immigrants who are incarcerated back to their home countries. California failed at doing this before, but if they were able to push this transition it would save California $106 million. These are just two of the four considerations of cuts to ponder. Prison rehabilitation and eliminating up to $100 million of the Citizen’s Option for Public Safety Program (COPS) are the other two options to consider. Do you make cuts or leave the budget as-is because safety is one of your biggest concerns? Are you noticing how difficult this process truly is or do you think this is still easy as punch?
As I mentioned earlier, this category is designated for the Department of Motor Vehicles (DMV), state parks, the court system, and other state government functions. The current proposals suggest either:
- Cutting state payroll by 10% through pay cuts and furloughs to save the state $1 billion. This doesn’t affect employees of the Legislature, judicial branch and state colleges and universities.
- Eliminating up to $130 million in state funding for parks. Eliminating the full amount means that parks have to rely solely on collected fees.
- Cut the Legislature’s budget up to $130 million. If you cut too deep then it would mean possible layoffs, closure of district offices, and a huge impact on all operational aspects.
- Eliminate the California Conservation Corps program (a cost of $33 million) that places young people in positions to respond to natural disasters and help maintain the parks.
So what and how much do you cut, and what do you eliminate if anything?
Some of the proposals suggest it is time to raise taxes in various areas such as alcohol, tobacco, gas, crude oil, and for high-income earners. There are also proposals for imposing a tax on social-security earnings, creating a business tax break, raising the vehicle license fee back to the 2% car value rate that was in place before Schwarzenegger took office; continue temporary tax hikes, and adding speeding cameras on 500 stop lights throughout the state.
Remember, California relies heavily on income taxes, which is a wishy-washy situation, and property taxes can’t be increased because of Proposition 13. Although the state ranks the 15th highest in tax and fees collected, it has dropped by 20% since the peak of the housing bubble…which means more wishy-washy issues. So what do you tax and what do you leave alone? I hate to say this but no taxation means the state becomes crippled and the backlash of that impacts its residents. Taxation by some extent is necessary for all of our survival.
After reading all of this what solutions do you think I came up with? What areas did I cut, eliminate, and tax? How much do you think I increased the deficit or reduced it? Do you think I created a surplus, made matters worse, or just left it as-is? Curious? Tomorrow I will share. I was shocked.
Now give it a whirl for yourself. See how your proposal would impact the state and its residents. Then tomorrow you can compare yours to mine. Sound like a plan?
Natasha L. Foreman, MBA
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Copyright 2011. Natasha L. Foreman. Some Rights Reserved.
All charts, facts, figures, and statistics were provided by the Los Angeles Times and its reporters and researchers, as taken from: http://www.latimes.com/news/local/budget/