22 Jul The California Budget Crisis’s Elephant in the Room
The “golden” state of California (or is it soon to be, “aluminum” state) faces a budget fiasco that has made the newswires around the country. The basic facts of the mess are mostly well-known. California has a $26 billion budget deficit, and the ballot initiatives that Governor Arnold Schwarzenegger and the state’s left-wing legislator sent to the voters were soundly defeated in May. These initiatives would have raised taxes by $16 billion over four years in the state that already boasts a top income tax rate of 10.3% (the highest in the nation). California’s general budget was $76 billion in 2004, and grew to $103 billion in 2008 (a 35% increase even as tax revenues have now dropped below $88 billion due to the weakening economy). Some in the golden state are crying “déjà vu all over again”, as this drop in tax revenue shocked the state legislature, just as the technology bust of 2000-2002 shocked lawmakers in Sacramento several years back. Unlike the federal government which has printing presses at its disposal to cover budget deficits, California lawmakers have no choice but to figure out their $26 billion debacle, or face catastrophic consequences (like paying bills with IOU notes, as they have been doing throughout the month of July). While selling bonds to the public has traditionally been a popular way of paying for things politicians can not afford, California is already in debt to its bondholders for $53 billion, with interest expenses alone costing nearly $5 billion per year (that number is expected to exceed $9 billion per year in 2018). Investors do not have an appetite for a functionally insolvent state’s debt when the interest payments alone exceed the entire budget of nearly a dozen states!
The band-aid that lawmakers are putting on this current crisis is being worked out as this magazine goes to press. But how did things get to this point to begin with? A look at the basic numbers indicate that the answer is easy to find. With the muscle of the most powerful public employee union lobby in the country behind it, California voted Proposition 98 into law in 1988, requiring that a minimum of 40% of the state’s annual budget be spent on the public school system, and that minimum annual increases be enacted as well (these increases far surpass the rate of inflation growth or even population growth). California’s teacher’s unions have fought for, and obtained, annual budget figures that stagger the imagination. Over $41 billion of the state’s general fund alone went to K-12 state schools in 2008. This is on top of nearly $1 billion in state lottery money, another $6 billion of “other state funds”, another $6 billion of federal funds, and another $14 billion of local property taxes. For those possibly afflicted with a California state education, that means that the actual funds spent on K-12 education in 2008 were nearly $70 billion!
And what have taxpayers gotten for this behemoth educational bureaucracy? Test scores in reading, science, mathematics, and writing massively lag the national averages. Morgan Quitno Press ranks California 47th place in the country based on their proficiency results. California has the 37th worst graduation rate (68%). $68 billion seems like a lot of money to spend for 47th place.
Since California is spending over $8,000 per pupil to achieve these atrocious results, is it time for the legislator to break free from the powerful hold the teacher’s union has on it? Does the political will exist to look at alternative solutions, such as school choice tax credits and school vouchers? Many of us have long thought that the safety conditions on school campuses, the moral relativism in the classroom, and woeful academic results would some day come together to break down the California state school system. But perhaps the budget fiasco of 2009 is telling us differently. Could it be good old-fashioned dollars and sense that deal the fatal blow to this educational atrocity? A $26 billion deficit and a $103 billion general fund run amok tell me that it is not out of the realm of possibility.