Governor, legislators spend more and ignore obstacles to reform

By Steven Greenhut
June 20, 2017

Sacramento

Legislators announced a budget deal last week that spends a record $125 billion in the general fund. But most interesting isn’t what’s in the deal, but what isn’t.

There’s plenty of new spending, of course, but not so much that it outpaces the rate of inflation. There are controversial “trailer” bills that attempt to change the rules in an ongoing recall election and take away power from elected members of the Board of Equalization, the state’s tax board. Missing are any attempts at serious reform of existing government programs or ways to stretch the already hefty tax dollars Californians send to Sacramento.

The budget’s authors talk quite a lot about funding important priorities, especially the public-education programs that consume an awe-inspiring 43 percent of the general fund. Yet Gov. Jerry Brown and the Democrat-dominated Legislature refuse to confront the main reason such programs typically are so costly and ineffective: public-sector unions.

These unions are so powerful that they stifle cost-saving reforms in every conceivable area of government – from the prison system to policing to transportation programs to the public school and college systems. Union work rules don’t allow for experimentation and creativity, or even the firing of poorly performing employees. The state is thus left with just one approach: throwing more money at the problem.

This is why every year’s budget kerfuffle centers on figuring out ways to come up with more money to spend in the exact same ways. The only difference this year is, because of Democratic supermajorities in both houses of the Legislature, the state now plans to spend more than ever. What else would you expect, given that the minority party has no power to thwart such efforts?

The investigative news site CALmatters provides perhaps the best example of the disconnect between higher spending and better outcomes, noting in a June 18 report that there’s no evidence the tens of billions of dollars the state has pumped into failing schools under its new public education system have done much of anything to help the most disadvantaged students. The investigation found “the biggest districts with the greatest clusters of needy children found limited success with the policy’s goal: to close the achievement gap between these students and their more privileged peers. Instead, test scores in most of those districts show the gap is growing.”

The same is true for myriad programs, but as the single largest chunk of the budget, any failures in the K-14 education system certainly have the deepest financial ramifications. As I reported recently for the California Policy Center, while voters in the Los Angeles Unified School District and elsewhere are supporting candidates who back expanded access to charter schools for poor children, state legislators are backing legislation pushed by the California Teachers’ Association that would make it much harder for locals to start such schools.

Charters operate with less funding than comparable school districts, yet often (but not always, of course) show remarkable progress in closing the achievement gaps that aren’t being closed by truckloads of new state spending. Think of it this way: If a system is failing, there’s little chance that giving the same agencies more money to do things in the same way will yield significantly different results. It’s obvious, but not to legislators or Gov. Brown.

The budget deal also includes a provision that lets the state borrow $6 billion from a short-term investment fund to pay down some of California’s growing pension debt. It’s another example of the state’s money-dumping approach to a massive financial problem. Instead of taking aim at overly generous pension formulas, or myriad pension-spiking and disability abuses, the state is borrowing money at low interest rates from one account and putting the money into another account (that is supposed to earn higher rates) to chisel away at some pension debt.

Some would compare this to a homeowner borrowing money from a low-interest home-equity account to pay off a higher-interest credit card. But there’s a disturbing downside to the governor’s approach here – namely that it shifts more of the costs and risks from public employees to the state’s taxpayers. The plan lets the California Public Employees’ Retirement System (CalPERS) keep its investment predictions artificially high, as the higher the predicted rate of return, the lower the predicted liability. The result—as observed recently by David Crane, a Stanford University lecturer who had served as Gov. Arnold Schwarzenegger’s pension adviser—is that “using special fund cash to finance pension contributions would reward CalPERS’s board for keeping normal-cost contributions – the only pension costs shared by employees — unreasonably low.”

The budget plan also increases spending on Medi-Cal, expands benefits that poor people receive under the state Earned Income Tax Credit, expands funding for the two university systems (although it punishes the University of California Office of the President, following the recent scathing audit about its spending practices from the state auditor), appropriates new funding for water projects and includes a long list of expanded spending for myriad programs.

Gov. Brown said the budget is “balanced and progressive,” but columnist Dan Walters gets to the heart of the problem: “The budget does little or nothing to whittle down that burden on future generations of taxpayers.”

Again, it’s not what the budget does, but what it doesn’t do. It doesn’t deal with debt, or even try to reform the education system. It doesn’t try to reform any existing programs. How could it? That would mean tackling the elephant in the room, the public-employee unions who view government not as a service provider but as a jobs program. Until California officials decide to tackle that problem, expect more spending, higher taxes and no improvement in the state’s long-term fiscal health or the way it provides the public with services.

Steven Greenhut is a contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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