Puncturing Old Myths About California’s Budget Woes

New America Media, Commentary, Stephen Levy, Posted: Jul 01, 2009

Stephen Levy is director and senior economist of the Center for Continuing Study of the California Economy (CCSCE) in Palo Alto. CCSCE is a private research organization founded in 1969 to provide an independent assessment of economic and demographic trends in California. NAM will regularly publish Levy’s insights and analysis on California’s economic landscape, which originally appear on the CCSCE website: www.ccsce.com.


California stands on the precipice of destroying our safety net and putting our future prosperity in danger by cutting investments in education. This devastation is unwise and can be avoided with a combination of cuts, shared sacrifices and additional federal stimulus money, or, as a last resort, a temporary tax increase.

The key to getting started on a better path begins with understanding that,despite a lot of old myths about our budget problems, our current challenge is not our fault, and state spending currently is not escalating out of control.

Some Budget Facts

The current budget challenge is 100 percent the result of the deepening national recession. Our current budget challenges are shared by many states and local governments throughout the nation. While California failed for many years to resolve our structural budget deficit and has no plan to close the gap for the future, we did our part for 2009-2010 back in February with more than $10 billion in spending cuts and more than $10 billion in temporary tax increases.

Moreover, when the 2009-2010 budget is adopted Californians will be spending the smallest share of our income on General Fund spending in the 30 years of the post-Proposition 13 era. The 2009-2010 spending level does not even keep pace with caseload and inflation growth over the past 10 years. General Fund spending will rise 29 percent between the 2000 and 2010 budgets compared with a 53 percent increase in state population and consumer prices.

Finally, California ranks the second lowest among states in state employees relative to population and fourth lowest when local government employees are included.

Short-Term Budget Solutions

I encourage public sector employees, including those in local government and school districts, to take a temporary salary cut to save the jobs of their fellow public sector employees and to maintain public services as best we can. I do this with great respect for public sector employees and with the hope that President Obama’s goal of higher pay for teachers can be reached. But, if the choice is between greater layoffs and a temporary pay cut, I think the model of shared sacrifice for the greater good adopted by the UAW is the way to go in California.

Budgets for health and social service budgets can be cut to the minimums required by law, but no further. Reforms in parole and sentencing for non-violent drug offenders can help reduce the prison budget. School districts should be allowed to spend categorical funding as they think best. Cutting K-12 funding to the Prop 98 minimum is a bad choice for our future but may be necessary.

But these steps are unlikely to balance the budget by themselves and certainly do not address the state’s budget challenges after 2010.

[b]There is a compelling case for additional short-term federal assistance. But it is a case for all states, not just California. On June 4, the National Governors Association and National Association of State Budget Officers reported, “The 50 states are facing one of the worst fiscal periods in decades…states currently estimate that they will have faced $230 billion in reported budget deficits between fiscal 2009 and fiscal 2011.â€