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Sacramento’s Mismanagement of Taxpayer Dollars

Sheridan Swanson

Research Manager

Sheridan Swanson
May 11, 2023

Sacramento’s Mismanagement of Taxpayer Dollars

Leaders in Sacramento are grappling with the state budget this month as California faces a budget deficit of nearly $32 billion. Senate leaders claim they can address the deficit without cutting spending on state programs, but the reality is that a fiscal reckoning is long overdue.

According to a survey released by the Public Policy Institute of California in February, 70 percent of Californians say they pay more in state and local taxes than they should. The same survey found that nearly 60 percent of Californians feel the state’s tax system is “not too fair” or “not at all fair.”

California ranks fourth in the nation for highest per-capita income taxes collected, behind only New York, Connecticut, and Maryland, the Tax Foundation reports. California is one of 30 states with graduated (also known as“progressive”) income tax rates, and has a top marginal income tax rate of 13.3 percent — the highest rate in the nation.

So just where is taxpayer money going, and how much money are we talking about?

Last year, California brought in over $141.5 billion in revenue from personal income taxes, the state’s largest revenue source. California’s current budget for Fiscal Year 2022-23 is $308 billion. The General Fund can be thought of as the main account from which the state pays for most of its budget items; over two-thirds of the General Fund’s revenue comes from personal income taxes. 

In just the last ten years, the General Fund budget has grown by 84 percent after adjusting for inflation and for population growth, says California Policy Center’s Edward Ring.

Why is California’s spending increasing at a staggering velocity?

Ring highlights several factors that account for such massive growth in spending. For example, state prison system costs rose 29 percent over 10 years, even though California’s prison population declined by 43 percent. California has also seen huge increases in spending by the Department of Social Services, and escalating costs for SNAP (Supplemental Nutrition Assistance Program) and OPEB (Other Post-Employment Benefits) — health benefits state employees receive during retirement. 

Furthermore, per student spending “in just the last 10 years increased (again, after adjusting for inflation) by 97 percent at the community colleges, 73 percent in the Cal State system, 38 percent for the UC system, and 53 percent in the K-12 public schools,” Ring reveals.

Unfortunately, K-12 assessments show almost no improvement in student achievement, despite an education budget of over $128 billion per year. Such waste is typical for California, a state with a pattern of excessive spending that doesn’t accomplish much — except ballooning public debt (that is, taxpayer debt). 

Consider California’s spending on homelessness. As CalMatters reports, the state has spent over $20 billion on homelessness solutions in just four years since 2018-19, but “during that time, the number of unhoused people in the state has increased by nearly a third.” Part of the reason may be the bureaucratic jungle through which all that money is filtered. Cities and counties throughout California — which generally follow the state’s housing-first approach —  receive and manage state funds for homeless programs.

But the income tax you pay to the state isn’t the only price you pay for ineffective homelessness policies. Many Californians also pay for city and county programs through local taxes and bonds. For example, Los Angeles taxpayers are on the hook for $1.2 billion in Proposition HHH bonds, which are failing to live up to the bond proponents’ promise of building 10,000 new housing units in the region.

And, of course, the ultimate example of government waste is the state’s disastrous high-speed rail project, which continues to swallow billions in both state and federal revenue. Each new cost estimate paints a worse picture than the last. 

The most recent report, released in March, reflects the complex and wildly expensive nature of the endeavor. Updated cost ranges for segments of the system include up to $33 billion for the Merced-to-Bakersfield segment, and up to $127.9 billion for the San Francisco-to-Anaheim segment. In the 25 years since the formation of California’s High-Speed Rail Authority, California is nowhere close to an operable, functional segment of a high-speed rail system. But costs continue to skyrocket to more than four times the promised amount as ridership projections decrease.

California’s knack for wasting money extends even to its mismanagement of federal funds — meaning residents in the 49 other states are footing the bill for Golden State missteps.

California’s Employment Development Department paid out at least $30 billion in federal funds to fraudsters, including international crime organizations and state prison inmates. The money came from the federal Pandemic Unemployment Assistance Program. This massive failure — overseen by Julie Su, now Joe Biden’s nominee to run the U.S. Department of Labor — came about despite multiple warnings from federal and state auditors about fraud risks.

California officials can’t even manage to produce basic financial reports. Public entities are required to release audited financial statements every year. California has spent $1 billion of your taxpayer dollars (and ten years of work) on a new financial system called Fi$Cal to facilitate the production and release of these statements. But a new state auditor’s report says even Newsom’s fix needs fixing. Policy analyst Marc Joffe points out that as of April 2023, “California has now failed to complete its audited financial statements within the federally established nine-month deadline for the last five years in a row… No other state government has been so consistently late.”

In January, Newsom proposed a $297 billion state budget for 2023-24. His administration’s budget revision, which updates his proposals based on economic outlook and revenue forecasts, is expected Friday.

Taxpayers should expect this budget cycle to be more of the same: excessive spending on grandiose proposals that do nothing to improve the standard of living in California. Another thing that won’t change: the state’s spending trajectory. Expect it to keep going up.


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