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California Budget Impact on Mendocino County
January 18, 2009
California's budget problems have been widely aired. No one even knows the real size of the coming California budget deficit; we don't know how bad the economy will be. Any spending cuts will impact California state spending within Mendocino County. Public schools will almost certainly receive less money. Many government services may see cutbacks.
As usual, some people want to cut services to balance the budget, and other people want to raise taxes instead. No politician or political party wants to take responsibility for getting us into this mess. The mess is systemic, that is, it is the result of a number of laws, mostly in the Constitution of the State of California, that were put in place before most of the current politicians entered office.
The State of California is supposed to balance its budget each year. Generally in California's history each year the economy has expanded, leading to higher tax revenue without changing the tax laws. Money can be borrowed in the form of bonds only for capital improvement projects (roads and buildings, for instance). When tax revenues drop, as they do on occasion, it is difficult to raise taxes quickly because it requires a 2/3 vote of the state legislature. In a mild drop some of the state's spending can be delayed to balance the budget. But when there is a big drop in the economy, with a big drop in revenue from income tax, it becomes politically difficult to balance the budget. Schools, prisons, and welfare are the only sections of the budget big enough to provide cuts of such a magnitude. The only way to cut the prison budget substantially is to release large numbers of prisoners early. School spending is a sacred cow, and should be. Cutting welfare during a recession is a barbaric act of economic cruelty.
So there are really only two choices: change the system, or put large amounts of the budget into savings during the good years. The only systemic changes that would provide fixes are either allowing budget deficits (financed by bonds) like the Federal government, or making it easy to raise taxes.
Budget deficits and a permanent California debt are a bad idea. In fact, we already are too willing to use bonds to finance capital spending. Interest on debt is money that goes to waste.
Increasing taxes is not a good idea either. Taxes in California are already among the highest in the nation. Although real estate taxes are limited to 1% of assessed value per year, and assessed value increases are limited under Proposition 13, in fact the high price of real estate means most people are paying high real estate taxes. The standard sales tax is 7.25%, but it is higher in many jurisdictions. California personal income tax is on a progressive scale, with little owed by minimum wage workers, but for families making over $54,000 per year it is 6% and hits 9.3% on incomes over $94,000 per year. This combination of real estate, income, and sales taxes diminishes California's economic potential.
The only realistic option is to create a substantial state reserve fund that is only used during recessions. This would require budget cutbacks now and even in the first few good years following this recession. Those who depend on the state for salaries and services won't like this idea.
Politicians buy votes, and campaign contributions, by allocating state spending of taxpayer contributions. That creates intense pressure to spend every dollar collected, and then some. A counter pressure needs to be put into the system so that no increase in the budget is allowed until a reserve has been established. That pressure has to come from taxpayers and voters. It won't come from the established political machines.
What is true of California, is true for local Mendocino County government too.
William P. Meyers
