Schools Look to Gobble Up Surging State Revenues

shocked-kid-apAs Gov. Jerry Brown prepares to release his revised state budget for the coming fiscal year next week, educators around the state are looking forward to hearing about the additional funds they will receive, a dramatic departure from the bleak years of the recession, when they braced themselves for further cuts.

Even for the state’s most experienced school finance experts, predicting how much California’s schools will get in new revenues is a next to impossible task.

This year the task is especially challenging because of the unanticipated interplay between two voter-approved initiatives – Proposition 98, approved by voters in 1988, and Proposition 2, championed by Brown and approved by voters just last November – on top of many unknowns about how much tax revenue the state will generate from a variety of sources.

One thing is clear: Schools and community colleges will be the big – and possibly only – winners when it comes to dividing up the extra revenues.

The Legislative Analyst’s Office and others estimate that California’s surging economy could generate between $4 and $8 billion more than the state had projected.

“Schools are the big winner,” Mac Taylor, the state’s legislative analyst, said at EdSource’s 2015 symposium, held last week in Sacramento in collaboration with the California State PTA.

The additional funds will arrive at a welcome time for schools, which are still digging out from the impact of deep cuts made during the recession. Schools are also implementing a range of reforms, including the Common Core State Standards and the Local Control Funding Formula, which prescribes eight priority areas in which school districts are expected to show improvement.

Complicating how the new revenues will be allocated is the unanticipated interplay of Prop. 98 and Prop. 2, which could result in all non-education social services and state government departments winding up with little additional money or none at all.

That’s because Prop. 98, setting the minimum levels of school funding, requires that the state’s first priority in revenue-rich years is to bring funding levels for schools and community colleges up to the level they would have enjoyed if there had not been a recession. That amount, called the “maintenance factor,” currently totals $2.6 billion.

Prop. 2, meanwhile, mandates that the state set aside the first 1.5 percent of state revenue, plus additional dollars when the state is flush with tax receipts from capital gains, to pay down state debt and build a rainy-day fund. Money for Prop. 2 would be diverted from funding for non-education programs and services.

“It is a very unusual situation for my bosses – the members of the Legislature and the governor – that they may have to deal with this very strange world,” Taylor said. “They will have to take some actions to balance all the competing demands.”

Under one possible scenario that Taylor and the LAO laid out, the non-Prop. 98 side of the budget could receive $1 billion less next year than they got this year, possibly even requiring spending cuts that would put the Legislature in a bind and pit school advocates against a range of other interest groups. Taylor said programs subject to cuts could range from health and social services to higher education and criminal justice programs.

“There are many scenarios where the bottom line will be worse, where the Legislature will have to act to bring the budget in balance,” Taylor said.

Mike Herald, legislative advocate for the Western Center on Law and Poverty in Sacramento, said he expected legislators would find it “unpalatable” to reduce funding for human services in a year where there is going to be a substantial surplus. “It’s hard to explain to disabled adults surviving at poverty levels on Supplemental Security Income that they can’t get any increases for food when there are billions of dollars more in state revenue,” Herald said.

Brown’s budget for next year, which he proposed in January, assumed $7.8 billion more from Prop. 98 through a combination of increased state and property tax revenues for 2014-15 and 2015-16. About $4 billion of that will go toward ongoing funding for the Local Control Funding Formula, which provides extra money to school districts with high numbers of low-income children, foster youth and English learners.

“That is an enormous amount of new money in a relatively short period of time,” Taylor pointed out.

But school districts also face rising expenses, including increases in pension obligations for teachers and administrators that will be phased in, reaching $3.7 billion more per year by 2020-21.

Taylor noted that despite the massive inflow of funds to the schools in inflation-adjusted dollars, schools will only receive on average about $200 more per student than they did in the  2007-08 school year, when funding peaked.

“But if you think about what we went through, the worst recession in decades, the fact that we have bounced back and are above where we were at the beginning of the Great Recession, that is not bad,” he said.

Louis Freedberg is the executive director at EdSource. Email him or Follow him on Twitter.

John Fensterwald covers education policy.

This piece was originally published by EdSource

Top 5 Taxes You May See on 2016 Ballot

Last June, I wrote a column forecasting from least likely to most likely the tax increase measures that might be on the November 2016 ballot given the conversations going on then.

Time for an update.

As is nearly always the case in the political world, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

By measuring fact, rumor and innuendo I’ll offer my reading of the top five tax possibilities for the November 2016 ballot.

First, a word about those that did not make the list this time. Previously, a soda tax was on the list but that possibility seems to have faded for the moment. Instead, advocates are considering labeling sodas with more information about the sugar content.

There is a constant buzz about restructuring the entire tax system and that has been heightened by the introduction of a bill by Senator Bob Hertzberg that would re-do the tax system, cut some tax rates, and introduce a service tax. Hertzberg hasn’t developed the plan in full as yet. Both the left and the right have attacked the idea. However, he also is working closely with the Think Long Committee, which has the resources to qualify a measure for the ballot. As of now, the idea is not ready for consideration.

To the list, then:

  1. OIL SEVERANCE TAX. Previous Ranking #3.

Whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire Tom Steyer. He said he would rather work through the legislative process but the bill would unlikely pass the legislature. Steyer also is said to be interested in promoting an initiative that would require a two-thirds vote in local communities to approve fracking for oil. While he has the resources to do more than one measure, the odds are he would focus on just one, if any.

  1. SURPLUS! NO NEW TAXES. Previous ranking: Unranked

Okay, this is obviously not a tax increase measure. However, with the recent announcement of one billion unexpected dollars in the state treasury many experts predict that the state budget will have a surplus of two billion dollars or more. Under such conditions, some observers suggest new taxes won’t fly with the voters, so why try? A lot will depend on the fiscal situation heading into next year’s budget, but even if the economy holds steady and the budget is in good shape, it is hard to imagine there won’t be at least one tax increase measure on next year’s ballot. Still, the chances are more likely today than they were a year ago that a surplus could stall the tax increase movement.

  1. SPLIT ROLL. Previous ranking: #2

While there is still an on-going grassroots effort to promote a split roll property tax requiring business property to be taxed on a different basis than residential property, big players have yet to commit to funding such an initiative. Certainly, there would be big money spent to oppose such a measure so both sides are considering the issue carefully. The school establishment would have to step up to support a split roll and consider how a property tax on the same ballot with an extension of the Prop 30 taxes will play. Also, a school bond measure may be on the ballot attracting attention from the school folks. A couple of sources tell me a little air has come out of the split roll effort, so while it certainly hasn’t gone away, it drops to #3.

  1. CIGARETTE TAX: Previous ranking: #4

The possibility of a cigarette tax on the ballot has moved up simply because some of the items in front of it moved down in the rankings. There really hasn’t been a change in the emphasis of a cigarette tax by proponents. They will try the legislative route but if unsuccessful will consider going to the ballot where they were very close to passing a measure the last time they tried. No Lance Armstrong on their side this time, which is a good thing, although they’ll miss the money his group donated.

  1. EXTENSION OF PROPOSITION 30. Previous ranking: #1

No change here. Many insiders believe Proposition 30 would be the easiest tax to pass since it is already levied. Especially if the sales tax piece is removed, many voters would not directly feel the tax’s pinch. All the spending interests may not be happy since schools get most of the money, but extending Prop 30 still stands as the most likely tax measure to be on the ballot. The biggest question: What will Governor Brown say about continuing the “temporary tax?”

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Follow Joel Fox on Twitter @1JoelFox1

Originally published by Fox and Hounds Daily

Committee Hearing Exposes UC’s Bloated Budget

Tuition hikes marched to the head of the class at a recent hearing of California Assembly Budget Subcommittee No. 2 on Education Finance. Assembly members balked at a 28 percent tuition hike advanced by UC President Janet Napolitano and approved by the University of California Board of Regents.

According to the Los Angeles Times, “Neither the governor nor the California Legislature has the authority to force the UC regents to rescind the tuition increase.” However, the tuition hike is not included in the January budget proposal of Gov. Jerry Brown, himself also a regent, for fiscal year 2015-16, which begins on July 1.

Chaired by Assemblyman Kevin McCarty, D-Sacramento, the hearing flunked the UC system for wasteful and deceptive spending practices. A video of the hearing is here.

UC’s overall spending has grown by 40 percent to $26.9 billion since 2007, according to a report prepared for the Feb. 18 meeting. UC’s expenditures for instruction grew by 27 percent to $6.9 billion.

Yet during that same period:

  • Undergraduate enrollment by California residents increased just 4 percent.
  • Overall enrollment, including graduate and out-of-state students, increased 15 percent to more than 248,000 students.
  • Inflation increased about 12 percent.
  • The Higher Education Price Index, which measures the costs of goods and services typically purchased by U.S. colleges, increased about 18 percent.

Tuition increase

To help pay for UC’s spending increase, tuition increased 84 percent between 2007 and 2011. In Nov. 2014, the UC Board of Regents increased tuition and fees an additional 5 percent annually over the next five years to $15,564 from the current $12,192, pending legislative approval. The compounded increase is 28 percent.

Much of that tuition is supported by state taxpayers in the form of Cal Grants, which have increased from $295 million in 2007 to $882 million currently.

Some of the biggest cost drivers are employee salaries and benefits, retiree benefits and an increase in the hiring of administrators, according to the report:

  • “The number of highly paid UC employees has grown significantly. Nearly 6,000 UC employees earn gross pay of $200,000 or more. [T]he number of these employees has grown by almost 100 percent during that period, and overall pay to this group amounted to $1.8 billion in 2013.
  • “[A]dministrative staff, both in academics and other areas, grew far faster than faculty and faster than overall staff growth.” Tenure-track faculty increased just 3 percent from 2007-14, while senior management ballooned 32 percent and academic administrators grew by 19 percent.
  • UC believes its faculty members are underpaid in comparison with other universities. On average, UC’s full professors receive $150,455, associate professors make $98,804 and assistant professors get $91,155.
  • Pension benefits for more than 61,700 retirees and survivors total about $1.3 billion in the current year.
  • Employee health care costs grew between 8 percent and 11 percent annually from 2007 to 2012. Cost increases have slowed since then, but are expected to rise 6 percent this year. In addition, UC spent more than $263 million on retiree health benefits in 2014. The current unfunded liability for retiree health care is $14 billion.

The UC spending boost, tuition hikes and requests for more state government funding have created pushback in Sacramento.Gov. Jerry Brown and Assembly Speaker Toni Atkins, D-San Diego, are both UC regents and voted against the tuition hikes in November.

Brown has offered a 4 percent increase ($119.5 million) in General Fund support for UC. But only if there is no tuition hike, out-of-state enrollment doesn’t increase and UC begins to rein in costs. Brown and UC President Janet Napolitano have been meeting to work out their differences, with a report expected at the UC Board of Regents‘ meeting March 17-19.

Focus on students

At the start of the subcommittee hearing, Atkins emphasized the need for UC to get its spending in order.

“I announced in December that we would be looking at every aspect of the University of California’s budget,” Atkins said. “Every dollar appropriated [should be] spent for the intended purpose and in the right way. We will have open public hearings that are student-focused, looking at how much it really costs to educate students at UC and how we maximize UC’s acceptance of California students. No Californian should be priced out of UC.

“The state must do our best to make higher education a top budget priority. UC must do its part and become more efficient, enroll more Californians and not place increases on the backs of California students. Today marks the start of an overdue journey – a journey that will continue throughout the budget process for as long as it takes.”

Most of the testimony from witnesses at the meeting, with the exception of the UC representative, contended UC is not spending its money wisely or transparently. Paul Golaszewski, principal fiscal and policy analyst at the Legislative Analyst’s Office, led off by taking issue with UC’s contention that its professors are underpaid.

“We looked at data on faculty recruitment and retention over a number of years and concluded that it appeared that at the salary levels and the compensation levels they were offering, they had a very low turnover rate for faculty, something like 2 percent a year,” Golaszewski said. “It appeared that they were still able to get the types of faculty that they needed.”

He told the committee that it’s hard to know exactly what UC professors are doing to earn their salaries.

“Faculty workload data is much more difficult to come by,” he said. “We do have data on the student-to-faculty ratio. But that’s not telling you how much faculty are teaching. The University doesn’t track that data, the federal government doesn’t track that data. So that’s an area you might want to drill down and get a better understanding moving on.”

Undergraduates

Charles Schwartz, a retired UC Berkeley physics professor, has spent years analyzing and critiquing UC’s budgeting practices. His analysis concludes that UC spends an average of $7,500 per student on undergraduate instruction.

“They are charging undergraduates [tuition that is] almost twice what it actually costs them to provide undergraduate education,” said Schwartz. “That doesn’t sound right. What we face here is not just a UC habit of bad accounting, but a longstanding disease that infects all universities in this country. And this grossly distorts any discussion about student tuition, which is a big thing. People talk about it, but nobody says the truth about what’s going on.

“If you do not acknowledge the cost of that, and go about hiding that cost on the tuition bills of undergrads, this is not right. The challenge I bring to you is what can be done about it. The first thing you have to do must be to resolve the conflict between what I say about UC’s cost structure and what the president’s [Napolitano’s] office says it is. You need to find out which one of us is to be believed.”

AFSCME research director

Claudia Preparata, research director for American Federation of State, County and Municipal Employees, Local 3299, accused UC of having bloated management and hiding its cost. AFSCME represents 22,000 workers at UC campuses and medical centers.

“While we support more state investment, it needs to be tied to improved transparency and accountability for how UC spends its money,” said Preparata. “This is particularly true for UC executive compensation and the growth of middle management, both of which have come at a real cost to our employees, students and taxpayers. The lack of transparency obscures a redirection of money that used to fund instruction and other student services to [now] increasingly funding six- to seven-figure salaries and a growing army of middle managers.

“The numbers speak for themselves. In 2008 just 293 UC employees received gross pay in excess of $400,000 at a total cost of just $160 million. By 2013, after years of budget cuts and tuition hikes, 793 employees received these paychecks at a total cost of $452 million. During the same time period the cost of extra perks that 250 of UC’s highest paid employees receive – including housing, car allowances, moving costs and cash bonuses – swelled from $17 million to $24 million per year.

“We welcome the Legislature’s increased scrutiny of UC spending alongside a reinvestment in higher education. We believe the scrutiny should not be limited to the explosion of executive compensation, middle management, but also extend to policy directives that have paved the way for decentralizing financial decision making, eliminating transparency and enabling campus administrators to squander scarce resources, including outsourcing of UC career jobs to the lowest bidder with no accountability.”

‘Complex budget’

“It’s a very, very complex budget,” said Nathan Brostrom, the UC executive vice chancellor-chief financial officer. He believes UC has been a good steward of its funds. He described how UC has improved its pension system, which had been neglected during the financial crisis.

“First, we started contributions and dramatically increased them,” Brostrom said. “In 2009-10 we contributed zero as a university. This last year we contributed $1.3 billion – 14 percent of our employer contributions. That also couples with 8 percent from each employee. Second, we introduced a new pension tier, which increased the retirement age from 50 to 55 and the maximum age factor from 60 to 65. Finally, we also undertook internal borrowing, $2.7 billion, which has helped leverage and shore up the pension system.

“As a result, we have achieved some good results. We are now 87 percent funded, up from the mid-70s just a couple years ago. But we are bearing this entirely on our own. We don’t get any funding from the state for it, unlike any other state agency or the Cal State system.”

Aggressive efforts have also been taken to rein in health-benefit costs, he said. A new system called UC Care “is centered around our own medical centers to curb the costs and keep it in house,” he said. “We also undertook family member eligibility verification. As a result, we were able to contain the costs to 2.3 percent last year and 5 percent this year. And we are forecasting a 5 percent annual increase going forward.”

UC is also ensuring the continuation of in-state enrollment growth of 1 percent per year, or about 2,200 students, at a cost of about $22 million annually, said Brostrom.

Student-faculty ratio

One area that the UC has fallen behind in, due to a lack of funding, is the student-faculty ratio, he said. The ratio has increased to 21:1 from about 19:1 a decade ago.

“We really have not been hiring to replace the faculty members who are either leaving or retiring,” he said. “So there’s a fairly sizable amount that needs to go into new faculty hires. We also want to reinvest in instructional infrastructure, classroom technology and other instructional equipment.”

Brostrom concluded his presentation on an upbeat note. “Something we are most proud of is we are a world class university with very hard working, high achieving students, but we remain accessible to all Californians,” he said. “That’s something we not only maintained but enhanced during the budget crisis.”

Asked about the progress of Brown and Napolitano’s committee meetings, Brostrom said, “It’s been a very constructive process. We’ve been able to hear from experts both within the university and across higher education on different models and ideas. I think there will be things that will be constructive and helpful for the university to serve more Californians. Things that may help us reduce the time to [complete a] degree or increase streamlining of transfers. They may not all lead to cost reductions, but will provide more access to UC for all Californians.”

During the public comments portion of the meeting, numerous students complained about the high cost of tuition. They said it’s forced some students to become homeless, skip meals or work longer hours at a job, shortchanging their studies.

The subcommittee’s next hearing in early March will go into more detail on the UC budget, said committee Chairman McCarty.

Originally published by CalWatchdog.com

CA Can Allow Prop. 30 to Expire

When Gov. Jerry Brown kicked off the campaign for Proposition 30, his tax hike solution to California’s spending problems, he predicted a doomsday scenario if the tax measure failed.

“What do we do?” Brown wondered in the summer of 2012. “Do we dismantle the schools? Do we end the Highway Patrol? Do we open the prison doors?”

California voters, after $40 million of fear-mongering by Brown and his union allies, finally relented. But it turns out the quarter-cent increase in the state sales tax and four new income tax brackets weren’t needed after all.

So says the venerable Standard & Poor’s Ratings Services, which recently published its detailed analysis of the state’s financial picture.

“Would California still be in the red without the extra revenue from temporary tax increases made under Proposition 30?” Gabe Petek, the lead California analyst for Standard & Poor’s Ratings Services, recently asked. “Perhaps it’s counterintuitive, but the answer is no.”

Standard and Poor’s came to that conclusion by comparing current tax revenue with multi-year projections from the Legislative Analyst’s Office published in 2010, two years prior to Prop. 30. At that time, the state’s independent number-crunchers expected a structural deficit of $20.2 billion this year.

So, what’s changed? Expenditures are 15 percent below that five-year old LAO forecast, while revenues are up only 2 percent.

“Contrary to popular belief, elimination of prior deficits was mostly accomplished through lower spending, not higher revenues,” S&P concludes.

Another misconception cleared up by the rating agency: all of that additional money hasn’t gone to schools or public safety as promised. Eight percent of the Prop. 30 tax revenue collected to date has gone “toward repaying the state’s wall of debt.” This year, we’ll pay $7.87 billion in Prop. 30 taxes, nearly all of which will be spent paying off more debt.

Don’t get me wrong: debt repayment is a good thing. It’s helped take the state’s bond rating from negative in July 2011 to its current A-plus rating. However, when there’s a misunderstanding about where Prop. 30 funds are going, it ultimately paves the way for a tax extension or new tax increases.

The respected Dan Walters, a columnist for the Sacramento Bee, has written essentially the same thing that Standard & Poors has. His observation is that an improving economy has helped raise tax revenues and that Proposition 30 may have not been necessary. He has also written that some Proposition 30 funds have not always been spent as intended, going instead to prisons, public employee pay and welfare.

Last May, State Senator Mark Leno, a liberal Democrat from San Francisco, openly agonized that taxpayers might realize they were duped. “If we have $10 billion in reserve, how do we go to the voters in two or three years and say we have to extend their tax increase?” he said to a rally of his big government supporters.

A month into the new legislative session, we’ve already seen a slew of new tax proposals. Assembly Speaker Toni Atkins (D-San Diego) recently proposed a $2 billion road tax. Sen. Bob Hertzberg (D-Van Nuys) wants a $10 billion sales tax on services. Billionaire climate change activist Tom Steyer plans to push a new oil tax through the state legislature, and if that doesn’t work, he’ll qualify the measure for the 2016 ballot.

New taxes aren’t needed. Standard & Poor’s believes that “the state may be able to oversee the phase-out of its temporary taxes, and thus $6 billion to $8 billion in annual revenue, with almost no perceptible fiscal pressure.” New taxes could also throw us back into deficits. Under Proposition 98, any new taxes automatically mandate new spending commitments, which remain on the books even if the economy weakens or the stock market corrects.

New taxes aren’t California’s problem – spending is.  As long as spending remains under control, the state can allow Prop. 30 to expire and avoid another revenue cliff.

James V. Lacy is the author of “Taxifornia” and a frequent guest on Fox Business News Channel’s Varney & Company.

Originally published in Breitbart California.

California State Spending Well Above National Average

As reported in the Sacramento Bee:

California contains 12.2 percent of the nation’s population but its state government accounted for 13.8 percent of all state spending in the 2012-13 fiscal year, according to a new Census Bureau report.

California’s spending on education and highways was, however, below the national averages for those two categories, while its welfare spending was well above the average.

States collected $1.7 trillion in revenues and spent that much during the fiscal year and California accounted for $233.5 billion of the spending, including federal pass-through funds for welfare, health care, education and other services.

The national total was a 2.1 percent increase from the previous year, the Census Bureau said, while California’s 7.5 percent increase was by far … 

 

The Formidable Jerry Brown

The national Republican Party may be fortunate that California governor Jerry Brown is probably too old to run for president. One needn’t be a fan of Brown’s policies to recognize that, in his fourth and final term, the governor formerly known as “Moonbeam” is displaying a level of political skill that could be hard to beat. True, he had a long record of saying some rather radical stuff on his syndicated “We the People” radio show back in the 1990s. He’s proud of his tax-raising efforts and is committed to dubious and expensive environmental policies. Yet, he is warmly received not only by the state’s Democratic establishment, but also by many Republicans.

As a columnist in Sacramento, I’m always surprised at the nice things said about Brown — even off the record. Republicans see him as the most “conservative” elected official with any power in the state capitol and their last line of defense. Democrats credit him for hauling the state out of its deep fiscal mess. They get frustrated the governor isn’t as eager to create new social programs as they are—but they still get 90 percent of what they want from him.

If anyone doubts Brown’s approach, look no further than the budget he introduced on January 9. The $164.7 billion proposal for Fiscal Year 2015–16 takes state spending to record levels. He’s provided no check on the vast increase in the Medi-Cal program, which would expand from 7.9 million recipients to 12.2 million—roughly a third of the state’s residents—in three years. He talks a good game about fixing the state’sunderfunded pension systems and unfunded health-care liabilities, but the reforms he touts do little except kick the can down the road. He seems more interested in protecting union priorities than taking on his core constituency.

The high-speed rail system Brown embraces would cost $68 billion (based on extremely conservative state estimates) to create a transportation option that would be outdated and unnecessary by the time it comes on line—assuming it ever does, given the lack of funding streams. His plan to build twin tunnels under the Sacramento-San Joaquin Delta is another legacy-building project with a huge price tag but without the promise of delivering more water to the Southland.

Brown spent his first two terms from 1975 to 1983 halting the kind of infrastructure projects the state needed to meet a growing population. Now, he’s channeling the spirit of his father, Governor Pat Brown, who 50 years ago bequeathed California with a modern highway and water system. The state needs better roads and water storage, which the current governor supports—but he is more interested in projects that fight global warming. Indeed, his global-warming approach could stunt the state’s economic growth and will certainly hobble its competitiveness. In his January 5 inaugural speech, Brown called for policies that would slash the state’s reliance on petroleum-based fuels by 50 percent and boost the percentage of the state’s electricity generation from renewable sources from 30 percent to 50 percent.

California’s landmark Global Warming Solutions Act of 2006 (signed byArnold Schwarzenegger, but embraced by Brown) is significantly raising electricity and fuel costs, hiking taxes for manufacturers and leading to aggressive land-use restrictions that drive up housing costs—especially in the state’s already expensive big-city housing markets. He has downplayed legitimate concerns about the state’s oppressive tax and regulatory climate.

When Brown returned to the governor’s office in 2010, California faced budget deficits upward of $26 billion. Brown led the campaign in 2012 for Proposition 30, which imposed large income- and sales-tax increases. Combined with a recovering stock market—California’s tax system depends heavily on capital gains—the result was a balanced general-fund budget (provided you don’t look too closely, or count underfunded liabilities). Still, by Sacramento standards he’s holding the spending line and at least putting liability issues on the table.

To his credit, Brown insists that the Prop. 30 tax increases remain temporary. In his budget, he refuses to create new social programs and reminds legislators that, in California, deep deficits almost always follow balanced budgets. He axed the state’s redevelopment agencies, which doled out corporate welfare, though he signed into law a new, less troublesome type of replacement agency. He uses conservative language when talking about poverty, noting that California’s safety net is generous and arguing that the poor should acquire the skills to get good jobs. Such an approach—even if mostly rhetorical—buys him widespread bipartisan support.

“Brown has delivered a very consistent message to the state’s business community over the last four years: ‘I might not be your best friend, but around here I’m the best friend you’ve got,’” said Dan Schnur, a former Republican consultant and professor at the University of Southern California. “He has held the line against more ambitious spending from the Democrats in the legislature, which allows him to balance a rightward lean on budget matters with a more liberal approach to environmental and public safety issues. He got both sides to sign on to his water bond and rainy day fund, which might not leave him precisely on the 50 yard line, but certainly to the right of most legislative Democrats and the left of most Republicans.”

That explains why pension reformers, the business community, and taxpayer groups are relatively comfortable with the governor. Everyone seems to like him, which might have more to do with his personality and intellectual curiosity than anything else. He gets a pass on some of his wilder views because people understand he likes to toss around ideas. At press conferences, Brown directly answers questions (rather than sticking to talking points) and goes off on entertaining tangents about philosophers and historical figures. At a press event in Sacramento, the governor came up to me, mentioned something I’d written, then fumbled around his cell phone to give me the name of an author he thought I should read. Other reporters and politicians tell similar stories. From an authenticity standpoint, what’s not to like?

“He’s not an embarrassment like his predecessor,” said Grant Gillham, a political consultant and former Republican staffer. “Unlike Schwarzenegger, he’s not hamming it up for the cameras, or making stupid ‘girly-man’ jokes. . . . He’s got a Jesuit’s education, but a Franciscan’s behavior. After the last several clown acts, we’re all better for it.”

What California Homeowners Should Know About the State Budget

Let’s be honest.  When politicians and pundits discuss the state budget, very little is about the impact on homeowners.  Notwithstanding the fact that a person’s home is their most important asset, this lack of perspective is understandable.  When people think about political issues impacting their status as homeowners, they are far more likely to focus on local taxation – fees for utilities, parcel taxes, local bond debt, etc.

But state finances in California can – and do – have a profound impact on one’s status as a homeowner and, unfortunately, it is rarely in a good way.  First, homeowners should be aware that there is no bright line between local governments and the state.  State laws on school finance, redevelopment, law enforcement, natural resources and transportation have a huge impact the budgets of cities, counties and special districts.

Take schools, for example.  Because of California Supreme Court rulings in the 1970’s, local school districts have lost a great deal of local control over their budgets.  (Contrary to urban legend, loss of local control had very little to do with Prop 13).  Much of K-12 funding now comes from the state.  And the amount of that funding has a lot to do with whether a local school district is “rich” or “poor.”

The complexity of the relationship between state and local governments leads some to tune out issues about the budget believing that it is not relevant to their lives.  That would be a big mistake.  Homeowners should be aware that this year’s proposed budget reflects a significant five percent increase over last year.  Not only has state spending increased every year except one during the recession, that spending has gone up 30% in five years.  California now has a $113 billion general fund budget and that doesn’t even include special funds and money from the federal government.

One of the driving forces behind higher state spending is an effort by Governor Brown and others to corral the massive obligations to the state’s pension funds and government retiree healthcare.  Brown should be applauded for his efforts to reduce debt but some of us can’t help but feel he is trying to remove sand from a beach with a pair of tweezers.  California’s accumulated debt in all forms is staggering.  In a recent piece in the Wall Street Journal, Steven Malanga of the Manhattan Institute noted how unfunded pension costs, not just in California but nationwide, are gobbling up all of the new revenue coming in to state and local governments from the economic recovery and higher taxes.

And some of those tax hikes in other parts of country are huge.  But here in California, we already have the highest income tax rate, the highest state sales tax rate and the highest gas tax in America.  In short, the tax and spend lobby is running out of options.  So who is the last remaining target?  You guessed it:  Homeowners.

And the only thing standing in their way is Proposition 13.  While other states have some limited protections for homeowners, none are as effective as California’s landmark Proposition 13.

Homeowners need to be on guard.  All those proposals to lower the 2/3 vote on local parcel taxes and bonds repaid only by property owners are just the beginning.  As the demands to make good on California’s hundreds of billions worth of debt become clear, those who are blessed with home ownership need to pay attention, not only to local politics, but to the state budget as well.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

This article was originally published at HJTA.org.

CA Analyst Warns Against Budget Spending Spree

With California’s state budget in the best shape in years, Democratic legislators are eager to open the spending spigots. But they were cautioned at an Assembly Budget Committee hearing Jan. 15 that the good economic times could end as quickly as they began, plunging the budget back into the red.

Legislative Analyst Mac Taylor warned the committee that California’s budgetary revenue is among the most volatile in the country for fiscal year 2015-16, which begins on July 1.

As a result, he considers the $3.4 billion rainy day reserve fund in Gov. Jerry Brown’s $113 billion budget proposal to be minimal. He’d prefer a 10 percent reserve.

“You need to think in terms of having a large reserve,” Taylor said. “I appreciate the pressures that you have on you from various groups. I would hope that that [$3.4 billion reserve fund] would be sort of a floor and hope that maybe you could build on that.

“Because a downturn is coming in the near future. We don’t think it’s next year. California is growing well, but things can happen. And the more that you have the reserve, the less disruptive it is to you in making these sort of terrible short-term budget adjustments.”

That downturn is overdue, warned Keely Bosler, chief deputy director of the California Department of Finance. She noted that the country is “nine months past the average length of an expansionary period in the post-World War II era. Our economic forecast does not predict a recession, but economists rarely do. So there is a threat. The economy does continue to grow at this time, though.”

Obligations

Committee Vice Chair Melissa Melendez, R-Lake Elsinore, argued the rainy day fund should be much larger.

“The bipartisan new rainy day fund will accumulate a portion of volatile capital gains revenue so that we can use these funds during the next recession when Californians need services most,” she said. “However, it may not be enough. The governor proposes savings that amount to 2 percent reserve of all expenditures. In 2008-9 alone general revenue dropped 20 percent.”

Melendez also believes the state should prioritize taking care of its existing obligations.

“The governor has been a vocal advocate of paying down debt,” she said. “And for that we are very pleased. This budget proposes debt payments to our schools, cities and counties. Yet even under this proposal, we are concerned that we may not be eliminating enough debts and liabilities. Hundreds of billions in pensions and retirement liabilities loom, and repaying these needs to be a priority.”

There are additional constraints looming on the budget. Bosler noted state budget revenue will be taking a hit when the temporary Proposition 30 quarter-cent sales tax and “millionaire” income tax hikes begins phasing out at the end of 2016. “The budget is precariously balanced, especially over the forecast period, which is through 2018-19,” she said.

“But also over that same forecast period we are also going to be facing increased expenditures in the state’s general fund. One of the larger ones is the fact that we will be taking on a share of costs of the optional Medi-Cal expansion that was a part of the [Obamacare] health care reform. And those costs will be a billion dollars by the end of the forecast period.”

More than 12 million Californians, nearly a third of the state’s population, are projected to be receiving Medi-Cal benefits in the coming year, Bosler said. “Also, we’re seeing increased costs in that program, mainly related to administrative actions taken by the federal government.”

The state plans to spend an additional half-billion dollars in the coming year to fight wildfires caused by the ongoing drought, she said. And hundreds of millions more will be spent on entitlement programs for illegal immigrants granted federal amnesty – a cost that has not been built into the budget.

“Even though the budget is balanced and we do have the rainy day fund, there do continue to be other risks to the budget that we remain concerned about,” said Bosler.

Prop. 98

Taylor told the committee that much of the extra revenue in this year’s budget has already been slated for K-12 schools in order to comply with the Proposition 98 spending mandate. “They have brought up their revenue estimates by roughly $2.5 billion – almost all of it goes to schools,” he said.

“For some [legislative] members and a lot of people out there in the public, they have a hard time understanding how that can be. ‘How come there’s no money available for other priorities in the budget?’ You’re going to have to explain to your advocacy groups and constituents why is it that you can have funding going up by $4 billion and none of it’s available for non-98 purposes.”

Taylor warned this year’s budgetary boom could actually lead to a bust in future years.

“If we have this kind of revenue surge, you’re going to permanently increase your [Prop.] 98 obligations,” he said. “If it’s a temporary surge and your capital gains and other revenues fall down to lower levels in subsequent years, you could actually be worse off in your 98 budget. Because you would be committed to higher 98 spending and won’t have monies left over, and may actually have to take a hit to your non-98 portion of your budget.”

More spending

Despite the cautionary advice, most of the committee Democrats argued for spending more money on expanding social-service programs. They were led by Committee Chair Shirley Weber, D-San Diego.

“This state still suffers from a high level of poverty,” she said. “California has the highest rate of poverty of any of the states in the nation. We have thousands of underemployed and unemployed Californians who should be contributing to our economy today. And we have thousands of children who are home who should probably be in early child development programs for learning. This is an unfunded poverty liability.

“Last year’s budget demonstrated the fact that we do have the capacity to do some of those things to address some of the poverty issues in this country and begin rebuilding California in a stronger and more thoughtful way.”

She was seconded by Assemblyman Kevin McCarty, D-Sacramento, who said, “I know there’s a lot of angst that not enough was done in this budget to reinvest in critical programs in California.” He argued for more funding for early childhood education, noting that only 4,000 slots are opening up this year in the program, despite interest from 25,000 families.

Assemblywoman Nora Campos, D-San Jose, also argued for more funding to address poverty, especially for preschool children. “Child care, child investment development – this is a priority for quite a few members in the Assembly,” she said. “When we talk about investing in K-12, there’s also a huge movement on what we are doing to invest in [ages] one-to-four to one-to-five. So that by the time they get to K[indergarten] they are ready to move forward.”

Assemblyman David Chiu, D-San Francisco, wants to provide state funding for affordable housing: “The governor mentioned that housing growth has slowed at the same time housing prices have increased significantly around the state. California is the second least affordable state in the country. Many parts of the state are in the midst of significant affordable housing crises.”

Bolser, noting that an affordable housing project in San Francisco cost $500,000 per unit, said that it would be quite expensive tackling that problem throughout the state. “This is obviously something you could put a lot of money into and would not make a very large dent in the problem,” he said.

The Assembly and Senate budget subcommittees will spend the next four months studying and revising the budget. The California Constitution requires the budget to be passed by June 15.

According to Proposition 25, which state voters passed in 2010, only a majority vote of each house of the Legislature now is needed to pass a budget, except for tax increases.

This article was originally published on CalWatchdog.com

Brown’s Budget Sends Message to UC

Fresh from his historic inauguration to a fourth term as governor, Jerry Brown unveiled his proposed 2015 budget with a Friday press conference that swiftly attracted reactions from Sacramento and beyond. All told, Brown envisions a general fund totaling $113.3 billion. It’s an eye-popping figure to some, but a relatively modest one for California observers who have watched Brown curb the excesses of his party’s more profligate wing.

Amid rampant speculation that he would make up for this winter’s embarrassing loss on the University of California tuition-hike issue, Brown made education one of the centerpieces of his approach — giving UC more money, but not as much as they sought. It was a characteristic maneuver, showing how Brown’s main challenge in his final term will involve placating big-budget Democrats without drawing the ire of Republicans focused in a pre-election year on economic growth.

But it also can be seen as just an opening salvo in his battle with UC President Janet Napolitano, who wants to raise tuition 28 percent over the next five years.

Feast or famine?

The college controversy surrounding the UC budget took center stage during Brown’s presentation. Not only was his reputation on the line. Last year the Board of Regents secured itself a raise while hiking student tuition.

But Brown’s basic governing strategy went to work. He offered UC $120 million more for the year. From his standpoint, the allocation was generous, with some other parts of the government in Sacramento receiving no increases at all.

But for UC, it was a miserly, even retaliatory, gesture. As the Fresno Bee reported, Napolitano is on record claiming that Brown’s sum isn’t adequate to keep up UC’s current level of quality.

In fact, Brown’s dig at UC went deeper, as shown in K-12 and community college spending. “Brown’s proposal includes a $2.5-billion funding increase for schools and community colleges, the result of higher-than-expected tax revenue,” reported the Los Angeles Times.

The lopsided approach to funding schools appeared to do what Brown had hoped — tamping down criticism despite leaving the door open for a renewed battle with the University of California.

In a quick roundup of reactions from Democrats, the Sacramento Bee found a common theme: praise for the K-14 figure, paired with somewhat muted criticism on the subject of increased social services spending. Tom Torlakson, the union-backed Superintendent of Public Instruction, gave Brown “an ‘A’ for K-14 education,” although he paradoxically suggested “we still have a long way to go.”

State Sen. Tony Mendoza, D-Artesia, called himself “extremely pleased” with Brown’s $8 billion allocation. While Assemblyman Jim Cooper, D-Elk Grove, called the budget “great news for California’s kids” and suggested legislators only “prudently examine restoring cuts” to what he called “vital social services.”

Courting Republicans

Although GOP power in Sacramento is still a shadow of its former self, Brown indicated through his budget that he hopes to avoid a full-blown conflict with Republicans on fiscal-responsibility issues. Calling California’s financial situation “precariously balanced,” he indicated his desire to “avoid” the “boom and bust” of budgets in years past.

Warning against “exuberant overkill,” he gave Republicans a rare opportunity to offer measured praise without showing weakness. As the Los Angeles Times observed, Brown pointedly excluded funds that would provide Medi-Cal to unlawful and undocumented immigrants — a measure currently under consideration in the Legislature. Further, he vowed he’d work together with both parties to address California’s basic infrastructure problems, including Republican grievances like state roads.

Assembly Republicans reached by the Bee struck a common theme resonant across the GOP: Brown’s budget could be taken seriously, even if it was a disappointment. Melissa Melendez, R-Lake Elsinore, and Republican Leader Kristin Olsen, R-Modesto, both emphasized the state’s need for a plan for economic growth.

With voters approving the recent Republican-backed rainy day fund, Proposition 2, and Brown willing to sustain the reserve, Republicans have reason to believe putting careful pressure on Brown over the course of this year could pay dividends.

This article was originally published by CalWatchdog.com

Brown’s 4th Inaugural Looks to CA Past, Future

Gov. Jerry Brown’s unprecedent fourth, and final, inaugural address had an aura of “Back to the Future” about it. Given at 10 a.m. this morning before the assembled Legislature, he looked back to his first inaugural address 40 years ago; and to the gubernatorial inaugural in 1959 of his father, Pat Brown.

He also recalled, among other things, “the discovery of gold … the Transcontinental Railroad, the founding of great universities … oil production … the State Water Project.” The latter was a singular accomplishment of his father.

These were echoes of the items on his own agenda, including, “We are leaders in renewable energy and efficiency … we are building the nation’s only high-speed rail system … we are confronting the drought and longer-term water issues.”

He added that he helped push through Proposition 1, the $7 billion water bond. “And I’m proud to report that as a result, by the end of the year, we will be investing in long overdue water projects,” he said.

For any governor, the primary issue is the state budget. On Friday, Brown will issue his budget proposal for fiscal year 2015-16, which begins on July 1. He looked back at the parlous state of the budget when he took over the governor’s office four years ago, “Then, the state was deep in debt – $26 billion – and our unemployment rate was 12.1 percent. Now, the state budget, after a decade of fiscal turbulence, is finally balanced – more precariously than I would like – but balanced.”

Budget limitations

This included soon making “the last payment on the $15 billion of borrowing made to cover budget deficits dating back to 2002.” He was referring Proposition 57 from the March 2004 ballot, part of the program of Arnold Schwarzenegger, elected governor five months earlier in the famous recall election of Oct. 2003, initiated to patch up a $40 billion budget deficit.

At the time, state Sen. Tom McClintock (now a U.S. representative) and others warned Prop. 57 delayed needed cuts to the budget and saddled future budgets with its repayment. That proved the case when the Great Recession hit in 2008-09 and radical budget-cutting was needed, including to pay for Prop. 57.

Also in 2004, Schwarzenegger pushed Proposition 58, the California Balance Budget Act, a rainy-day fund to cushion future budget deficits. It was sold by Schwarzenegger as a guarantee Prop. 57’s bonds would not just be used for future spending. But Prop. 58 proved unenforceable.

In today’s address, Brown touted his own Proposition 2, which voters passed last fall. He said his new budget will include “saving $2.8 billion in the state’s new constitutionally protected Rainy Day Fund.”

Whether Prop. 2 proves durable, or falls to future budget pressures the way Prop. 58 did, remains to be seen. But after Prop. 2 was passed, “S&P raised the state’s credit rating from A to A-plus, citing the stability offered by Proposition 2,” reported the Sacramento Bee.

Pension reform

The biggest threat to balanced budgets remains the state’s pensions. Brown said:

“We have to face honestly the enormous and ever growing burden of the many commitments we have already made. Among these are the costs of pensions and retiree health care, the new obligations under the Affordable Care Act, the growing government costs of dealing with our aging population, bonded indebtedness and the deferred maintenance on our roads and other infrastructure. These specific liabilities reach into the hundreds of billions of dollars.

“My plan has been to take them on one at a time. We have now taken steps to deal with the unfunded teachers’ pensions and those of the public employees. For the next effort, I intend to ask our state employees to help start pre-funding our retiree health obligations which are rising rapidly.”

No details were provided, but they presumably will be forthcoming in Friday’s budget proposal. But as the U-T San Diego reported recently, the $4.5 billion yearly deficit of the California State Teachers’ Retirement System already is digging in to state and local school budgets:

Administrators say they’re at a loss for how they’ll come up with the cash, which for some districts could be tens of millions per year. …

“Some school districts in San Diego County highlighted the sticker shock in so-called “interim midyear” budget reports released this month that show escalating contributions from teachers, school districts and even the state as a way to dig the teachers’ retirement fund out of debt over the next several years.”

Projects

Brown touted two of his favorite projects, high-speed rail and reducing greenhouse gases. Construction on the rail begins on Friday. But Brown gave no indication where money for the $68 billion project will come from above the $9 billion from the Proposition 1A bond voters approved in 2008; and $3.5 billion from President Obama’s 2009 stimulus package.

The new Republican majority in the U.S. Senate is as hostile to any more funding as is the House of Representatives that again will be controlled by the GOP. There is no private funding.

Brown promoted the state’s continuing efforts to reduce greenhouse gases:

“The United Nations’ Intergovernmental Panel on Climate Change, backed up by the vast majority of the world’s scientists, has set an ambitious goal of limiting warming to 2 degrees Celsius by the year 2050 through drastic reductions of greenhouse gases. If we have any chance at all of achieving that, California, as it does in many areas, must show the way. We must demonstrate that reducing carbon is compatible with an abundant economy and human well-being. So far, we have been able to do that.

“In fact, we are well on our way to meeting our AB32 goal of reducing carbon pollution and limiting the emissions of heat-trapping gases to 431 million tons by 2020. But now, it is time to establish our next set of objectives for 2030 and beyond.”

But California comprises only 2 percent of the global economy. No other state has anything like AB32, the Global Warming Solutions Act of 2006. And neither does any other country, besides some movement in Europe. Certainly, rising powers China and India are not being inspired by California to retard their ambitious rise out of poverty.

Upbeat

There also were, possibly, only minor hints in his Fourth Inaugural of whether he might run for president for the fourth time. But he might have been testing themes of progressive, prudent governance. He touted raising the minimum wage and “real protections for our hardworking immigrants, including the issuance of long-awaited driver’s licenses.”

And he ended on a cautious, even frugal, yet upbeat note:

“With big and important new programs now launched and the budget carefully balanced, the challenge is to build for the future, not steal from it, to live within our means and to keep California ever golden and creative, as our forebears have shown and our descendants would expect.”

It could be a compelling narrative in Democratic primaries should he choose to run against Hillary Clinton and Elizabeth Warren. After President Nixon and President Reagan, will Brown seek to become California’s third Oval Office occupant?

This article was originally published on CalWatchdog.com