The Los Angeles Times is running a very interesting
online Budget Balancer that allows you to pick and choose a variety of budget cuts and taxes/fees in order to close the now-enormous California State budget deficit of
25.4 billion dollars, according to the state's Legislative Analysts Office, or 28 billion,
according to the Times, which is:
the size of the total general fund budget of 12 states combined: Delaware, Idaho, Maine, Montana, Nebraska, Nevada, New Hampshire, North Dakota, Rhode Island, South Dakota, Vermont and West Virginia.
The California State Legislature is effectively running a small country. Interestingly, most of the budget deficit lands on Californians in the 2011-2012 budget year:
Our forecast of California’s General Fund revenues and expenditures shows that the state must address a budget problem of $25.4 billion between now and the time the Legislature enacts a 2011–12 state budget plan. The budget problem consists of a $6 billion projected deficit for 2010–11 and a $19 billion gap between projected revenues and spending in 2011–12.
2010–11 Deficit. We assume that the state will be unable to secure around $3.5 billion of budgeted federal funding in 2010–11. This assumption is a major contributor to the $6 billion year–end deficit we project for 2010–11. We also project higher–than–budgeted costs in prisons and several other programs. . . .
2011–12 Deficit. The temporary nature of most of the Legislature’s 2010 budget–balancing actions and the painfully slow economic recovery contribute to the $19 billion projected operating deficit in 2011–12. . . .
So what sorts of items are included in the Budget Balancer?
We've provided a wide range of options — spending cuts and tax increases — that cover most of the proposals made by Democratic or Republican lawmakers.
So let's see what options are available. For the purposes of the discussion below, I'll take the article's numbers and categories as accurate.
Step 1 is deciding to maintain the current K-12 school funding levels, or "provide minimum funding". The latter option has no effect on the budget; the former balloons it to $30.2 billion. I'll hold my nose and go for the former, since schools have been brutalized in the last three rounds of CA state budget negotiations. Class sizes are between 40-50 students, which is ridiculously large already. Some proposals had suggested cutting per-student spending by as much as 50%.
OK, so starting with the $30.2 billion figure, I scrolled down towards the bottom of the page to "Taxes and revenues" and got to work.
Taxes and Revenues
Gas tax? Would raise potentially $15 billion (at about a dollar a gallon), which would eliminate about half the budget deficit, but the tax is too regressive, and demand is too inelastic; skip it. Besides, a dollar-a-gallon gas tax would either cause riots, turn people Republican, or both. In any event, the tax would go just to revenue shortfalls, not to road construction, which is the main purpose of gas taxes. They're essentially a use tax for public roads. Worse, gas prices will likely spike this year in any event, since
large-scale commodities speculators will be buying lots of crude oil this year.
Maintain previously-imposed temporary tax hikes? These would:
Continue temporary tax hikes, including on vehicle license fees, a 1 cent sales tax increase, 0.25% income tax surcharge and dependent credit cut.
Seems like a no-brainer; keep them. That gets us to a $20.8 billion deficit.
Alcohol tax? Demand is elastic enough, would raise an estimated $4.3 billion, and proposed is only a 30-cent tax per-drink, so again - this is a no-brainer. That gets us to a $16.5 billion deficit (assuming alcohol consumption remains the same despite demand elasticity).
Vehicle license fee? When Schwarzenegger came into office, he eliminated the 2% vehicle license fee everyone hated. That 2% is 2% of the car's sale price, so a $20,000 car (which is quite common these days) would suddenly, again, be $20,400 (before sales tax, which was already raised above, and which ads another huge chunk of cost). This tax would potentially raise $4.3 billion, but the political backlash would be difficult for Democrats to handle. I'd skip this one.
Rate hike for high earners? Expected to raise $1.8 billion.
California currently taxes its highest earners at 9.3%. Raise it to 10% for those earning more than $300,000 and 11% for those earning more than $600,000.
11% is steep, of course, but property taxes in the state are low relative to other desirable jurisdictions. Keep it. That gets us to a $14.7 billion deficit.
Cigarette tax? Such a tax could raise as much as $2.6 billion, but only if a tax of as much as $4 per pack is added. That's more than most people would pay. A more reasonable amount like 50 cents per pack would only raise $325 million, which isn't that much, given the current circumstances. I'd skip this one.
Crude oil severance tax? This would impose a 9.9% tax on all crude oil pumped out of the ground in California, and would generate around $1.5 billion. The tax would not necessarily be accompanied by a rise in gas prices in California, as gas is made elsewhere and imported into the state. So we should do this - that gets us to a $13.2 billion deficit.
Business tax break? This would repeal a tax break allowing companies to determine their business tax formula annually. Proposition 24 attempted to repeal this break in 2010, but it was defeated, 58% to 41%, so legislatively eliminating the break would likely be politically unpopular. That gets us to a $12 billion deficit.
Other proposals, such as taxing Social Security income (which would net only $500 million) and installing speeding cameras at all 500 existing state red-light cameras (which would net only $412 million) net very little for how much they would totally piss the voting public off. Besides, taxing Social Security after essentially no benefit increase in 2010 would be a real blow to a lot of seniors who rely heavily on that income.
$12 billion is still a hell of a deficit, so, according to the choices presented in the article, further closing the gap can only come from rather drastic spending cuts.
Expenditures
Every expenditure appears necessary, but something has to go.
Some expenditures have poison pills. For example, welfare payments currently cost the State $2.1 billion to service about 1.3 million people. However, eliminating these welfare payments from the state budget would cost the state an additional $3.7 billion in matching Federal funds, not to mention devastating a population the size of the any of the states of Idaho, Maine, Hawaii or New Hampshire.
Similarly, cutting in-home care for the blind, elderly and disabled would technically save the state $1.2 billion. However, since many if not most of these individuals would be moved to nursing homes, Medi-Cal costs would either not be reduced as much, or would be increased. I would avoid such cuts as a matter of principle.
Other health-related services (e.g., Medi-Cal services, elderly/disabled grants, Medi-Cal for legal immigrants, drug and alcohol programs, etc.) total less than $1.1 billion, and affect too many vulnerable people to cut.
Releasing prisoners: Releasing 40,000 non-violent offenders of the State's 170,000 prisoners would save the state $2.04 billion, as the State currently spends about $51,000 per prisoner per year. That gets us to a $9.96 billion deficit.
Education:
Funding for the University of California and California State university systems, currently totaling $5.2 billion could be reduced by $1.5 billion. A steep cut, to be sure, but one that could be made up by increasing tuition/fees. (The financially-sharp amongst my readers will realize that this is, in effect, a $1.5 billion new tax that falls largely upon families and students that traditionally have a difficult time paying for a college education.) Similarly, closing some of the State's 110 community colleges, which currently cost the state $4.1 billion, could save $1 billion, even though community colleges are traditionally a way up to the UC and Cal systems for lower-income individuals (not to mention a remedial system for underperforming secondary educational systems). So higher education could take a $2.5 billion hit. That gets us to a $7.46 billion deficit.
Reducing the number of state employees according to some proposals nets $1 billion, but it's not clear what services and State functionality would be lost in the process. People do things, and State offices get closed temporarily or permanently when there are no employees to handle things.
That gets us to a $6.46 billion deficit. Still a real problem, but one that looks far more manageable.
After looking through the remaining items on the list, and their aren't many, I went back to what I had set up as a sacred cow in the first instance - K-12 education. If I went back and, instead of maintaining current funding levels, allowed funding to drop to minimum levels mandated by the California State Constitution, that reduces the deficit by $2.2 billion.
Finally, reducing per-pupil spending in K-12 by 20% pushes us across the line to an approximately $2 billion surplus.
Conclusion:
The preceding exercise is fairly artificial, because it assumes the deficit can be eliminated in a single year, that all of the choices are politically possible (that is, assuming California Republicans will be sane, never a good idea), and assumes that other choices (like repealing Prop 13) don't exist. However, taking the numbers and categories in the Budget Balancer at face value, then, even if taxes are substantially raised in California, education as a whole, from kindergarten up through at least college-level baccalaureate degree programs, will take a massive hit in California in the years ahead.
Welcome to California, folks. Small wonder gun ownership is on the rise.
