Californication in the butt

photo credit: phxpma

Most people know that the great state of California is greatly screwed right now, and the only thing outpacing the finger-pointing is the steady march toward bankruptcy.  As a resident, the situation obviously has my attention, but others should be watching, too—and not just because of the impact this will have on the rest of the country.  While there is of course the financial impact of the world’s seventh largest economy grinding to a halt and imploding, there is also the model of failure being played out—a model the federal government may soon follow.  The California government has been repeatedly blessed with huge sources of revenue like the .com boom and the housing boom, but of course completely mismanaged the revenue and spent it as if it would continue to grow.   Growth has been the sustenance of new programs for a while now, and since people became so accustomed to constantly increasing revenue, no one bothered to wonder what happens when revenue goes down.  In California we are answering that question, and soon the Federal Government will have to do the same.

California is once again ahead of the curve, just not in a good way.   USA Today recently did a story about a 34% decrease in federal revenue from the income tax, so the Federal Government is actually starting out with more of a budget crisis.  California started having problems last year when our economy only grew 1 or 2% instead of the 8% that was budgeted.  I’ll restate that twice because it should be extremely clear.  We were having budget problems before all this, because they overestimated how much more we would make than the previous year.  So we made more money than we had previously, but decided to spend even more than that.  You’d think, based on this experience, that we’d be on the ball now.  That the people in charge in Sacramento would realize that it’s going to get worse, with us at the forefront of the housing crisis and a worldwide sinking economy.   We still don’t have a budget.  Not only do we not have a budget, there has been no planning for the inevitable cuts that will have to be made.

Everybody has to cut back when they are spending more than they are making.  You can sustain it short term, but if you’ve been doing that for a long period when times are great, what do you think will happen when times are tough?  You have to deal with, not only a decrease in revenue, but also the debt you’ve incurred.  You can’t borrow as easily any more either, because if you have a large amount of debt, an enormous list of costs you’ve tied yourself to, and a decrease in income, noone is going to lend you money.  That’s where California is right now, and where the US is heading as our lenders start to look warily at our situation.  California cannot borrow its way out of debt, Sacramento has already raided every possible fund available to it, and even if they could increase taxes, there is no guarantee that would provide more revenue.  Increasing taxes is not an automatic cashed check.  If you take more money from people, they spend less.  You take more from their income, they have less to spend and you lose in sales taxes.  You increase sales taxes, things cost more and people buy less, therefore decreasing overall revenue.  Added to that is a global recession, so it’s not like they can bleed people for that much more.

One recipient of the blame for California’s woes has been Prop 13.  This was the kick-start of the late seventies tax revolt.  In addition to capping property taxes, it also requires a two-thirds majority for tax increases.  Those opposed to this are saying that California has budget problems because sales and income taxes are volatile while property taxes are consistent and allow for better revenue predictions.  They also point out that this is limiting California legislators’ ability to deal with the budget, in essence saying that it doesn’t allow them to tax their way out of trouble when they can’t borrow their way out.  I don’t buy these arguments simply because both make assumptions that I can’t agree with.  Both assume that giving the legislators more money will fix the problem, and it won’t.  They have consistently raked in higher and higher revenues without property taxes, and yet the money is gone before it can be counted.  Blame voter referendums and Prop 13 all you want, but the fact is the State has been doing great for a while with what seemed to be an ever increasing stream of money flooding the capitol.  Yet all we have to show for it is debt, corruption, and an ever-growing list of unsustainable government programs.

This should all be driven home by a recent demonstration we had downtown, where home health care workers protested a possible cut in pay.  There were two separate unions there because the home health care workers are not yet fully unionized, and both were salivating at the thought of more government workers added to their ranks.  The governor has talked about dropping their pay to eight dollars an hour, as opposed to ten or twelve, to help balance the budget.  So of course a couple of unions got together, rented some buses, set up a stage with full production gear, lined up a couple of speakers, and rushed to display their outrage.  There was news coverage, people talked about how much they needed the money, they talked about the injustice, and I’m not being sarcastic when I say that it really does suck that they have to take a cut in pay.   A lot of people are hurting right now, and taking a pay cut is not exactly welcome news.  They look after sick and disabled people, so how can you argue that they don’t deserve that extra money?    Well, you don’t have to argue about deserving, because the simple fact is that we cannot afford it.

Up until the late nineties, all the elderly and disabled people in California were tossed out into the street to die and block traffic as they had been for thousands of years.  Wait, I’m not sure that’s entirely accurate.  In any case, the government decided that whatever was going on could no longer continue, and they began paying people to take care of their sick or disabled friends and family.  They did this without tying it to any specific source of revenue.  What started out as a way to assist people who have trouble looking after loved ones has morphed into the fastest growing entitlement program in California, and the necessary funding is up to around 5 billion dollars.  Now that they have some publicity, more people will seek to take advantage of or abuse this system.  Why look after your friends and family when you can just leave it to the state to hire someone?  Or even better—if you don’t want to work, find a relative and say you’re taking of him/her.  Cha-ching. The added publicity will just add to the number of people using the program, which will in turn drive the unions that much more to get all the workers paying into them.

We don’t have to wonder where this program will be in several years.  We can just look at other state programs and unions.  If it’s anything like the school system, the workers will soon make the most of any comparable workers nationwide by at least 35% more.  The on the ground workers will be supported by double their number in bureaucrats “administering” the program.  It will be impossible to fire any employee without extensive administrative red tape, which will result in workers being paid for extended lengths of time to sit at home while their case is filtered through endless bureaucratic nonsense.  All employees will be able to retire after twenty years and receive 90% of the final pay each year for the rest of their lives.  After retiring with 90% pay they can then get an “administrative” job to collect more government pay.  Any threatening of their budget will result in them parading sick and injured people through the streets, spending huge amounts to lobby legislature, buying commercial and advertising time to swing public opinion.  If all that fails, they will fire the workers who actually do the work, thereby ensuring maximum suffering.

Despite all this, people will still say with a straight face that the state government’s inability to raise taxes is what is causing all our problems.   They see nothing wrong with getting rid of Prop 13, which is ironic considering one of the main reasons prop 13 passed.  There was a huge deal made because the elderly were retiring and had to live off fixed incomes, which was fine until people considered raising property taxes.  Even though their mortgages were paid off, they couldn’t afford property taxes and were getting kicked out of their homes.   Prop 13 was passed to prevent this.  Now they want to get rid of it so they can raise property taxes and afford to pay home health care workers to look after the elderly.  You really can’t make this stuff up.   I would say that the home health care workers could always visit the cardboard boxes of the elderly after their houses are seized, but with the unions now involved, I’m pretty sure new rules and regulations will require certain standards and safety practices that a cardboard box does not meet.

Spending like this can’t be sustained.  It’s that simple.  California is finding that out, and the federal government will be getting there soon enough.  The only question is how much damage will be done while they continue trying to beg, borrow, and steal their way out of this.  California has to cut, but it will most likely be the workers and not the administrators who get the axe.  I have a feeling services will suffer drastically before they even consider looking at the overly generous pensions collected.  Plus, they are still looking for loopholes to increase taxes even more.  On a federal level, there has even been talk of a national sales tax.  Because, obviously, piling a national sales tax on top of the already insanely complicated and often abused tax code is the best idea ever.  Especially considering that they essentially want to raise the price on every single thing people purchase during a down economy.  This isn’t a luxury or sin tax.  It’s not a pack of cigarettes.  It’s food, clothes, eyeglasses, medicine, etc.  The basic cost of living will be raised by whatever percentage keeps the spending machine turning for a couple more years.   At least California has Prop 13 for now.

If they spent half the time they devote to coming up with new taxes to actually fixing the budget, we would be better off.  If they fired bureaucrats doing redundant jobs and transitioned their responsibilities to on site personnel and community organizations we could get through this with little to no degradation of service.  In other words, instead of laying off teachers they should lay off administrators and bureaucrats then transfer their responsibilities to the local school personnel and PTA organizations.   Renegotiate all state contracts.  Everything is negotiable and the sooner people realize the party is over and we all have to live within our means, the better.  The precedent has been set with the City of Vallejo, where the California Supreme Court ruled they were allowed to declare bankruptcy and therefore renegotiate contracts.  Faced with that, most government workers will allow for pay and responsibility adjustments that are realistic and sustainable.  If not, bankruptcy is better than allowing the bleeding to continue.

People need to stop thinking of this as a revenue problem, and start realizing that we have had a spending problem for a very long time that needs to be addressed before anything can move forward.  Trying to tax our way out of this on a state or federal level is akin to giving more crack to a crackhead because it keeps the crackhead quiet and out of trouble.  Increasing taxes during an economic downturn will only make things worse.  When a company is spending more then it’s making, if they are smart, they decrease costs, shift responsibilities, and lay off unnecessary personnel.  They do not raise the prices on their entire product line and hope people will just buy more.  They do not lay off all the workers and keep all the upper and middle management, if they hope to survive.

There is opportunity right now in California to fix a host of long standing issues with government.  The pessimist in me says there will be no change, and it will get continuously worse until a breaking point is reached.  I still hold a little bit of optimism that enough people will realize what is going on, and look past the grandstanding, rhetoric, and party lines to see the solutions that are right in front of them.  If California can actually make the changes that need to be made, maybe when the federal government is running out of lenders to hit up, or funds, like social security, to raid, they can have a working model to follow.   Or at the very least, maybe California will serve as a warning of what not to do.

Tagged as: budget crisis, California, federal government, income tax, prop 13, tax raises, unions