California Throws More Money at COVID-19 Contact Tracing, But Is It Too Late?

One expert says that because omicron spreads so quickly, the millions spent on contact tracing could be better spent on more effective masks and more testing

Intensive contact tracing has helped contain COVID-19 outbreaks in some Asian countries. People test positive, they quarantine, and the folks they’ve had contact with are tracked down and asked to — or, in some nations, forced to — quarantine as well.

The U.S. has spent billions on contact tracing, and California alone will have spent $300 million on it through the next fiscal year. But researchers have found that 2 of 3 people with confirmed COVID-19 in the U.S. were either not reached or wouldn’t name contacts when interviewed, and public health authorities haven’t been able to monitor enough cases to stem the tide.

Now, as the pandemic enters its third year, the highly contagious omicron variant spreads like fire through dry grass. The incubation period can be as short as two days. The Centers for Disease Control recommends isolation for as little as five days. More people are testing at home — cases authorities don’t even count in their tallies — and some officials are throwing their hands up and suspending contact tracing.

“(T)he sheer speed of omicron’s transmission means people are exposed, infected and then contagious before the local health department can even identify an outbreak, much less get word to those who are exposed,” said officials in Oregon’s Multnomah County. “Because of that dynamic, contact tracing has become much less effective at lowering COVID-19’s risk, especially when cases are surging so high and when spending time in any indoor public space is essentially considered an exposure for anyone who isn’t up-to-date on their vaccines.”

Financial commitment waning

The financial commitment to contact tracing in California appears to be waning, but remains. The governor’s proposed budget shows that $258.3 million was spent on contact tracing over the first two years of the pandemic, with another $38.9 million going forward through the end of the next fiscal year.

The current and future spending breaks down to a projected $20.6 million this fiscal year, and $18.3 million next fiscal year, said Sonja Petek, principal fiscal and policy analyst for the Legislative Analyst’s Office.

“Contact tracing remains one of our many key tools in responding to the spread of COVID-19,” said a statement from Gov. Gavin Newsom’s press office. “It’s also an important measure utilized in high-risk and congregate settings. Contact tracing assists with notifying exposed people for possible post-exposure treatment, testing, and quarantine in a timely manner.”

Overall, Newsom’s budget proposes $110 million to increase public health and humanitarian efforts at the California-Mexico border — including vaccinations, testing, isolation and quarantine services — “and expanded statewide contact tracing activities to help keep Californians safe and slow the spread.”

Currently, 268 state employees have been redirected to contact tracing efforts, the governor’s press office said. But experts aren’t sure the investment will bring great returns — at least not right now.

Click here to read the full article at the OC Register

Newsom Budget: The Good, The Bad and The Ugly

The governor’s budget is a tale of the good, the bad and the ugly. We won’t see a real state budget until it emerges from the smoke-filled backroom following the May revise, but that didn’t stop Gov. Gavin Newsom from gleefully announcing to reporters how he would like to spend the windfall of other people’s money in a 400-page “summary” presented last week.

Here’s the good, the bad and the ugly of his proposal.

The Good.

The governor’s budget puts more money into the reserve accounts, accelerates the paydown of state retirement liabilities, eliminates some budgetary debt, and allocates 86 percent of the discretionary surplus to one-time spending rather than ongoing liabilities that has so often happened in past years.

That’s good because the good times won’t go on forever. While the budget projects healthy returns for the next couple of years, it notes that “[s]tructural (non-pandemic) downside risks to the forecast remain, including the challenges of an aging population, declining migration flows, lower fertility rates, higher housing and living costs, increasing inequality, and stock market volatility.”

That’s important because the top 1% of California taxpayers pay more than 50% of the state’s income tax revenues. The state is currently riding high on the wealthy’s stock market gains, but as the Federal Reserve starts raising interest rates, the party could be coming to an end, and soon.

The Bad.

The bad is that an already bloated bureaucracy is getting even more bloated. Under the requirements of Proposition 98, increases in spending for public schools and community colleges will be dramatic and, as has been much talked about in these pages recently, California’s public schools aren’t hurting for cash as it is.

According to the federal government’s National Center for Education Statistics, in inflation-adjusted constant dollars, per-pupil spending in California for public elementary and secondary schools in 2017-18, the most recent year for which statistics are available, was $13,129, the highest ever.

Under the governor’s budget, schools would see more than $20,000 per student, putting California in the top five of states in education spending – with little to show for it.

Even worse is the fact that there is little in the budget to address waste, fraud and abuse generally, not just in education. There is nothing to prevent another fiasco like we saw with the $20 billion in fraudulent claims paid by the Employment Development Department; still no accountability with the bullet train project and, in fact, the boondoggle is getting billions more.

Click here to read the full article at OC Register

More High-Speed Rail Money In Gavin Newsom’s CA budget. Here’s What It Would Do.

California’s high-speed rail would get about $4.2 billion toward finishing the central San Joaquin Valley portion in Gov. Gavin Newsom’s proposed state spending plan, which he unveiled Monday.

The budget describes the money going to the rail from Merced to Bakersfield as advanced work, while dollars would also go to advanced planning for the entire project.

Originally planned from Los Angeles to San Francisco, the rail project has been pared down to connecting the Central Valley without the larger city destinations on either end. In his first state of the state in 2019, Newsom said the project didn’t have the pathway to the longer route.

The project has been criticized, including from Democrats like Assembly Speaker Anthony Rendon, who called for the state to redirect high-speed rail money to urban transportation projects.

In the budget plan presented this week, Newsom said new money was important for “getting those final appropriations and finish(ing) the job in the Central Valley.”

The 119-mile high-speed rail project has been under construction in Fresno, Madera, Kings, Tulare and Kern counties for seven years.

Proposition 1A in 2008 provided a total of more than $9.9 billion to help pay for development and construction of high-speed rail in California.

Ahead of his big announcement Monday, Newsom had previewed that his budget would include spending some of the anticipated surplus on infrastructure, something lawmakers on both sides of the aisle say they support. On Monday, he announced he wants to spend $9.1 billion on transportation.

Click here to read the full article at the Fresno Bee

Beware of California’s Obscene Budget Surplus

Here’s a cautionary tale for California politicians who think voters will forever tolerate rising taxes as Sacramento swims in budget surpluses.

In 1978, virtually every political institution in California opposed Proposition 13, including big business, labor, local governments, and education advocates. Then voters stunned the elite political class by enacting the iconic tax-cutting initiative, a constitutional amendment that legislators couldn’t touch, by nearly a two-thirds vote.

The passage of Proposition 13 was driven by both fear and anger. The fear that motivated voters to the polls is easy to understand. Although unthinkable today — thanks to the security provided by Prop. 13 — in the mid-70s homeowners were literally being driven out of their homes by high property taxes. Howard Jarvis himself witnessed a despondent widow plead her case at the public counter in the L.A. County Assessor’s office where, regrettably, she collapsed and died of a heart attack.

The terrible fear of losing one’s home, even if the mortgage had been fully paid, was matched only by anger. If citizens believe today’s political environment is divisive, it was more so leading up to the election in June of 1978. Even those who cared little for politics rose up in rage after opening their annual property tax bills.

Part of that anger was driven by Governor Jerry Brown’s admission that California was sitting on a massive surplus. It was so large that California’s treasurer at the time, Jesse Unruh, labeled it as “obscene.” To Californians, the sight of government sitting on wads of cash while homeowners were losing their homes due to excessive taxation was just more gasoline on the fire.

Click here to read the full article on the San Gabriel Tribune

California’s budget process has devolved into a bad joke

Let’s face it. California’s budget process has devolved into a bad joke. The record amount of spending coupled with massive expenditures for wasteful, pork-barrel projects is bad enough. But the more insidious problem is the lack of budget transparency. This is not the way it is supposed to be.

As usual, Sacramento politicians are patting themselves on the back for passing an “on time” budget. True, the main budget bill was passed on June 13, two days before the constitutional deadline. But citizens would be mistaken to believe that the passage of the budget bill completes the budget process.

Ever since 2010, it has become common to enact politically motivated legislation as so-called budget “trailer bills” as a means to avoid meaningful analysis and public hearings.

What happened in 2010 that caused the budget process to be corrupted was the passage of Proposition 25, entitled the “On-Time Budget Act of 2010.”

Voters were told three things about Prop. 25: Budgets would be passed on time; it would increase budget transparency; and that legislators would forfeit their pay if the budget was not passed on time. All three were lies. Moreover, because the primary goal of Prop. 25 was to reduce the vote threshold for passage of the budget bill from two-thirds to a simple majority, it deprives the minority party of any meaningful input.

To read the entire column, please click here.

California’s Private Economy Fuels State Budget Surpluses

Taxes continue to pour into the state treasury, like spring snowmelt into Lake Oroville. Thanks to the engine of California’s private economy – the creativity of business leaders and productivity of employees – and the wealth it creates, Governor Gavin Newsom last week announced that revenues exceeded earlier budget estimates by more than $3 billion, enabling him to propose bolstering reserves, paying down debt, and boosting education spending.

Californians have enjoyed nearly ten years of economic growth, and one of the biggest beneficiaries has been the state budget. Since the depths of the recession the state budget has increased by 82% – that’s more than $95 billion. Compare that to the recession years when the Governor and Legislature were forced to cut tens of billions of dollars in spending.

Today with a healthy budget and continuing prospects for growth, Governor Newsom has set aside $16.5 billion in a rainy-day reserve to hedge against the next economic downturn and continued to boost education spending. In addition he proposes spending more than $9 billion to pay down unfunded pension liabilities and pay off longstanding debts and deferrals.

But what goes up inevitably will come down, and a key responsibility for a chief executive is to look to the future – not only to spread the blessings of prosperity but to protect against shortfalls.

When he released his revised budget proposal last week, Governor Newsom recognized this, insisting that “We need to have a structurally balanced budget because we are entering the end of the beginning of a new phase of economic reality. The headwinds are real.”

The precarious condition of state finances is well known. The top one percent of earners pays nearly half of all income taxes and these taxes provide 70 percent of all General Fund revenues. The Administration forecasts that a moderate recession would reduce state revenues by $70 billion over three years.

The Governor and the Legislature should continue to insist on a savings strategy pioneered by Governor Brown. Top up the budget reserve, reject new taxes, and resist demands to build into the budget new, ongoing spending that will be painful to unwind when the economy slows.

The easiest money to save for a rainy day is money you haven’t committed to ongoing programs.

The good news is that the extra revenues the state receives once the reserve fund is filled are directed to infrastructure, which can be used to help create high paying jobs for skilled workers to improve and upgrade our highways, mass transit, public buildings and flood control facilities. This has the three-fold benefit of providing mobility, safety and public services for residents, creating well-paying jobs for Californians, and budgeting responsibly for the fiscal health of the state.

The budget windfalls should also allay the calls for new or higher taxes, which have proliferated in the early days of the legislative session. The existing state corporate tax rate, combined with the effects from federal tax reform, resulted in a surge of more than a billion dollars of new revenues this year.

 Only a few members of the current Legislature were in Sacramento during the last recession, so it may be understandable that many members call for increases in ongoing programs. But nobody wants to return to the bad-old-days of deep cuts to education and safety net programs. We can help those in need if the private sector continues to thrive and generate tax revenue. Success of the private sector economy provides the foundation for a state budget to provide services to the people of California.

Loren Kaye president of the California Foundation for Commerce and Education.

This article was originally published by Fox and Hounds Daily

Spending Plans Will Run Up Against Fiscal Reality


Gavin NewsomGavin Newsom was recently inaugurated as California’s 40th governor, taking over a general-fund budget that is flush with cash and a state government that is in remarkably good shape — at least superficially — from a fiscal perspective. For all his flaws, outgoing Gov. Jerry Brown left Newsom with a $15 billion surplus and a rainy day fund that is nearly full. As an added plus, the economy that is humming along even though an erratic stock market points to storm clouds on the horizon.

The big question is whether Newsom will heed Brown’s advice and govern as if there’s always a recession around the corner — or ignore the former governor’s warnings about Democratic lawmakers who always say “yes” to any “harebrained” spending scheme. Unfortunately, based on Newsom’s inaugural words, initial budget and many of his early high-level administrative appointments, the safe money is on the latter. Newsom wants to spend big.

One need not read between the lines in Newsom’s introductory words. He spelled it out clearly. Newsom pointed to Brown’s inaugural address, which quoted from the Sermon on the Mount. There was the foolish man who built a house on sand and the wise man who built it on rock. “For eight years, California has built a foundation of rock,” Newsom said. “Our job now is not to rest on that foundation. It is to build our house upon it.”

So now that the state is on solid financial footing, the new governor envisions a rapid expansion of government social programs. “We will support parents so they can give their kids the love and care they need, especially in those critical early years when so much development occurs,” Newsom said. That speaks to the $1.8 billion in early childhood programs that the new governor is touting. The term “we,” of course, refers to California’s taxpayers.

“We will launch a Marshall Plan for affordable housing and lift up the fight against homelessness from a local matter to a state-wide mission,” he added. The term “Marshall Plan” is not subtle. That was the American financial assistance program to help Western Europe rebuild after the devastation of World War II, at a cost of $100 billion in current dollars.

Continuing the metaphor of California as a home, Newsom added that “In our home, every person should have access to quality, affordable health care.” He has long advocated for some type of universal healthcare coverage (although not necessarily the single-payer system that failed to make it through the Legislature in 2017), and some of his most noteworthy aides have a background in promoting government healthcare programs.

“Everyone in California should have a good job with fair pay,” he said. “Every child should have a great school and a teacher who is supported and respected. Every young person should be able to go to college without crushing debt or to get the training they need to compete and succeed. And every senior should be able to retire with security and live at home with dignity.” Those are vague, feel-good ideas that would garner few objections. But his ideas for implementing them, such as his bidget plan for free community college, will come with a hefty price tag.

There will be plenty of time to dissect the specific policy proposals that will move forward as the legislative session gets under way. For instance, the community college idea is a particularly bad one. California community colleges already are inexpensive. Making the second year of tuition “free” (the first year already is free for first-time California students) will only clog up the classrooms with free riders, thus making it tougher for those students who are serious about getting an education to get classes and improve their job prospects.

However, the main purpose of this article is to provide a warning amid the exuberance of a new gubernatorial administration. Basically, that financial foundation might be built less on rock and more on sand than many of us would like to believe.

There’s no complaining about the size of the budget surplus and rainy day fund, but there’s more to a budget than those items. As a comprehensive new California Policy Center report from Ed Ring and Marc Joffe points out, “We estimate that California’s total state and local government debt as of 6/30/2017 totaled just over $1.5 trillion. That total includes all outstanding bonds, loans, and other long-term liabilities, along with the officially reported unfunded liability for other post-employment benefits (primarily retiree healthcare), as well as unfunded pension liabilities.” That’s a 15-percent increase from two years ago—and a number that equals 54 percent of the gross state product.

The Brown administration had done little to deal with the unfunded liabilities. Its one major pension reform law, the Public Employees’ Pension Reform Act, was exceedingly modest. In the waning days of his administration, Brown’s attorneys argued before the state Supreme Court for changes in the “California Rule,” which restricts the ability of governments to reduce pension benefits going forward. That’s still unresolved and Newsom already has made clear his opposition to changes in pensions—and one of his top aides comes out of the California Labor Federation.

Bottom line: Just because the general-fund budget is in good shape does not mean that California’s overall fiscal picture is all that bright. A responsible new administration would attempt to fix those problems, which are crowding out public services at the local and state level, before engaging in a spending spree that will add to the state burden. Newsom’s early budget hits $209 billion overall and includes a grabbag of new programs, although he does send money to pay off some pension debt and is bolstering the rainy day fund.

The outgoing governor increased taxes early and often. It’s unwise to add new burdens on taxpayers, especially given that economic boom times always are followed by a bust and many Californians continue to flee the state’s high tax burden. Newsom already is proposing new fees on water and 911 service.

California’s most notorious public-policy disasters have come, counter-intuitively, during the best fiscal times, when revenues were swelling and budgets were flush with cash. The best example came in 1999, when Gov. Gray Davis signed a law that caused a pension-hiking frenzy and led directly to the state’s debt crisis. The stock market was riding high and the California Public Employees’ Retirement System (CalPERS) promised that increasing pensions by 50 percent retroactively wouldn’t cost taxpayers a dime because market returns would cover the costs.

It didn’t cost a dime, but cost billions of dollars annually in general-fund payments and added hundreds of billions of dollars in taxpayer-backed liabilities. The biggest danger to California is now a governor who believes that the state is in such great financial shape that he can start spending with wild abandon. He will not be restrained by the Legislature, which now has strong Democratic super-majorities that are itching to spend money. We don’t want to wish for an economic downturn, a stock-market crash or another busted housing bubble, but that appears to be the only hope right now to derail the coming spending train.

This column was first published by the California Policy Center.

Steven Greenhut is Western region director for the R Street Institute. Write to him at [email protected]

Gavin Newsom’s Budget Calls for More Spending, Higher Taxes


Gavin Newsom budgetTo the surprise of absolutely no one, California’s new governor has proposed a state budget with billions in increased spending and lots of tax hikes. And, as an added bonus, he is proposing new mandates on businesses and local governments as well as depriving Californians of the right to vote on certain kinds of local debt. From the perspective of taxpayers, this is not a propitious start.

Gov. Gavin Newsom’s budget envisions spending $144 billion of general fund dollars, a 4 percent increase over former Gov. Jerry Brown’s last budget, which clocked in at $138 billion. To put this in perspective, general fund spending was less than $100 billion just six years ago. In California, state government is the No. 1 growth industry.

No California spending plan would be complete without new “revenue enhancements.” And the biggest item on this list is the imposition of the “individual mandate” for health insurance. Recall that President Obama’s so-called Affordable Care Act (which was anything but affordable) imposed a burdensome tax on millions of Americans. (Indeed, it was only the fact that the ACA imposed a “tax” that saved it from a constitutional challenge).

The good news is that Congress repealed the tax at the federal level. The bad news is that Gov. Newsom wants to reimpose it at the state level in order to save Covered California from imploding. The cost to Californians for a state-imposed individual mandate with a penalty?: $700 per person, which is projected to raise $500 million in new revenue.

To read the entire column, please click here.

California’s Budget “Surplus” Ignores Crushing Debt Burden


BudgetCalifornia’s new governor, Gavin Newsom, delivered an inaugural address earlier this week that accurately reflected the mentality of his supporters. Triumphalist, defiant, and filled with grand plans. But are these plans grand, or grandiose? Will Governor Newsom try to deliver everything he promised during his campaign, and if so, can California’s state government really deliver to 40 million residents universal preschool, free community college, and single payer health care for everyone? It’s reasonable to assume that to execute all of these projects would cost hundreds – plural – of billions per year. Where will this money come from?

While California’s budget outlook currently offers a surplus in excess of $10 billion, that is an order of magnitude less than what it will cost to do what Newsom is planning. And this surplus, while genuine, is the result of an extraordinary, unsustainable surge in income tax payments by wealthy people. California’s tax revenues are highly dependent on collections from the top one-percent of earners, and over the past few years, the top one-percent has been doing very, very well. Can this go on?

To illustrate just how unusually swollen California’s current state tax revenues have gotten, compare state tax collections in FYE 6/30/2017 (our most recent available data) to seven years earlier, in 2010. Back in 2010, California was in the grip of the great recession. Total state tax revenue was $94 billion, and $44 billion of that was from personal income taxes. Skip to FYE 6/30/2017, and total state tax revenue was $148 billion, and $86 billion was from personal income taxes. This means that 80 percent of the increase in state tax revenue over the seven years through 6/30/2017 was represented by the increase is collections from individual taxpayers, which doubled.

It isn’t hard to figure out why this happened. Between 2010 and 2017 the tech heavy NASDAQ tripled in value, from 2,092 to 6,153. In that same period, Silicon Valley’s big three tech stocks all quadrupled. Adjusting for splits, Apple shares went from $35 to $144, Facebook opened in May 2012 at $38, and went up to $150, Google moved from $216 to $908.

While California’s tech industry was booming over the past decade, California real estate boomed in parallel. In June 2010 the median home price in California was $335,000; by June 2017 it had jumped to $502,000. Along the California coast, median home prices have gone much higher. Santa Clara County now has a median home price of $1.3 million, double what it was less than a decade ago.

As people sell their overpriced homes to move inland or out-of-state, and as tech workers cash out their burgeoning stock options, hundreds of billions of capital gains generate tens of billions in state tax revenue. But can homes continue to double in value every six or seven years? Can tech stocks continue to quadruple in value every six or seven years? Apparently Gavin Newsom thinks they can. Reality may beg to differ.

Just a Slowdown in Capital Gains Will Cause Tax Revenue to Crash

The problem with Gavin Newsom’s grand plans is that it won’t take a downturn in asset values to sink them. All that has to happen to throw California’s state budget into the red is for these asset values to stop going up. Just a plateauing of their value – which, by the way, we’ve been witnessing over the past six months – will wreak havoc on state and local government budgets in California.

The reasons for this are clear enough. Wealthy people, making a lot of money, pay the lion’s share of state income taxes, and state income taxes constitute the lion’s share of state revenues. Returning to the 2017 fiscal year, of the $86 billion collected in state income taxes, $28 billion was from only 70,437 filers, all of them making over $1.0 million in that year. Another $7.3 billion came from 131,120 filers who made between a half-million and one million in that year. And since making over $200,000 in income in one year is still considered doing very, very well, it’s noteworthy that another 807,000 of those filers ponied up another $15.1 billion in FYE 6/30/2017.

There is an obvious conclusion here: if people are no longer making killings in capital gains on their sales of stock and real estate, California’s tax revenues will instantly decline by $20 billion, if not much more. And it won’t even take a slump in asset prices to cause this, just a leveling off.

Debt, Unfunded Pension Liabilities, Neglected Infrastructure

When considering how weakening tax revenues in California will impact the ability of the state and local governments to cope with existing debt, it’s hard to know where to begin. To get an idea of the scope of this problem, the California Policy Center just released an analysis of California’s total state and local government debt. As shown on the table, California’s total state and local government debt as of 6/30/2017 is over $1.5 trillion. More than half of it, $846 billion, is in the form of unfunded pension liabilities.

Calculating pension liabilities is a complex process, with controversy surrounding what assumptions are valid. In basic terms, a pension liability is the amount of money that must be on hand today, in order for withdrawals on that amount – plus investment earnings on that amount as it declines – to eventually pay all future pensions earned to-date for all active and retired participants in the fund. Put another way, a pension liability is the present value of all pension benefits – earned so far – that must be paid out in the future. The amount by which the total pension liability exceeds the actual amount of assets invested in a fund is referred to as the unfunded liability.

The controversy over what is an accurate estimate of a pension liability arises due to the extreme sensitivity that number has to how much the fund managers think they can earn. Using the official projection which is typically around 7.0 percent per year, the official pension liability for all of California’s government pension funds is “only” $316 billion. But Moody’s, the credit rating agency, discounts pension liabilities with the Citigroup Pension Liability Index (CPLI), which is based on high grade corporate bond yields. In June 2017, it was 3.87 percent, and using that rate, CPC analysts estimated the unfunded liability for California’s state and local employee pension systems at $846 billion. Using the methodology offered by the prestigious Stanford Institute for Economic Policy Research, California’s unfunded pension debt is even higher, at $1.26 trillion.

Where pension liabilities move from controversial theories to decidedly non-academic real world consequences, however, is in the budget busting realm of how much California’s government agencies have to pay these funds each year. California’s public sector employers contributed an estimated $31 billion to the pension systems in 2018. Extrapolating from officially announced pension rate hikes from CalPERS, California’s largest pension system, by 2024 those payments are projected to increase to $59 billion. And these aggressive increases the pension systems are requiring are a reflection more of their crackdown on the terms of the “catch up” payments employers must make to reduce the unfunded liability than on a reduction to their expected real rate of return.

Huge unfunded pension liabilities are another reason, equally significant, as to why California’s state budget is extraordinarily vulnerable to economic downturns. If assets stop appreciating, not only will income tax revenue plummet. At the same time, expenses will go up, because pension funds will demand far higher annual contributions to make up the shortfall in investment earnings.

A cautionary overview of the economic challenges facing California’s state government would not be complete without mentioning the neglected infrastructure in the state. For decades, this vast state, with nearly 40 million residents, has been falling behind in infrastructure maintenance. The American Society of Civil Engineers assigns poor grades to California’s infrastructure. They rate over 1,300 bridges in California as “structurally deficient,” and 678 of California’s dams are “high hazard.” They estimate $44 billion needs to be spent to bring drinking water infrastructure up to modern standards, and $26 billion on wastewater infrastructure. They estimate over 50 percent of California’s roads are in “poor condition.” In every category – aviation, bridges, dams, drinking water, wastewater, hazardous waste, the energy grid, inland waterways, levees, ports, public parks, roads, rail, transit, and schools, California is behind. The fix? Literally hundreds of additional billions.

What Governor Newsom might consider is refocusing California’s state budget priorities on areas where the state already faces daunting financial challenges, rather than acquiescing to the utopian fever dreams of his constituency and his colleagues.

California Doesn’t Have a Budget Surplus


BudgetIt’s become common folklore that California is booming and incoming Gov. Gavin Newsom and the Democratic supermajority have more taxpayer money than they will know how to spend, save or invest. Nothing could be further from the truth; and it’s the California voters and taxpayers who will continue to be pay for this mistake. We literally owe trillions that isn’t being discussed. Just the estimated payments on public employee pensions in California will increase from $31 billion in today’s dollars to $59 billion in 2024; and this number is based on non-recessionary conditions or a major correction in the stock market. And California immediately needs $800 billion to over $1 trillion worth of infrastructure repairs, upgrades and new construction.

A conservative estimate of California’s total debt by the California Policy Center in a 2017 study – before new tax and bond obligations recently voted in were factored – puts California’s total local and state debt at $1.3 trillion. The Stanford University Pension Institute (www.pensiontracker.org) in 2017 calculated California’s unfunded liability at $1.4 trillion and CalPERS also with an unfunded liability of $1.4 trillion, with CalSTRS billions underwater as well to give, “real state debt of $2.8 trillion.”

Whichever calculation is used California owes trillions and doesn’t have a plan in place to address this issue. What should be clear is that California does not have a surplus or anything near a surplus factoring in total debt and infrastructure for a basic, functioning society California citizens and non-citizens expect. This figure also doesn’t factor in health care costs rising under Covered California, Medi-Cal or possibly expanding Medicare to include all Californians living in-state.

These financial and societal facts will affect overall fiscal health and the ability to pay back debts accruing interest or fall under the category of a future obligation. Government services at the state, county and local level are at risk if a recent announcement by the CalPERS board is taken into consideration titled, “Risks Report,” highlighted, “The greatest risk to the system continues to be the ability of employers to make their required contributions.”

Taxpayers will have to make up the shortfall through additional taxes – like eliminating Prop. 13, voting in a VAT or services tax or some combination thereof – otherwise first responder response times, social services for the poor and needy, and environmental standard protocols will erode.

There are other factors California will need to overcome to pay back their debt and realize we do not have a budget surplus. California’s unemployment rate rate is 33rd in the nation at 4.1%. The national unemployment rate is 3.7%. We have the highest taxes in the nation when the variables of the gas tax, state income tax, and sales tax are put into the equation. Additionally, California has the highest housing and rents in the nation per amount of residents. The median home price in California is roughly $544,900 whereas the remainder of the United States is estimated at $220,000. We artificially suppress housing supply (particularly, single-family-home) – though demand hasn’t diminished – driving up prices. Our stringent environmental standards evidenced by CEQA, SB 375, AB 32, SB 100 and CARB is hurting job growth and economic sustainability.

High taxes and regulations; and a tough business environment are some of the reasons why Toyota, Occidental Petroleum, and Nestle USA food conglomerate left California. Now the second largest firm in California – McKesson Pharmaceuticals is seriously contemplating leaving for Texas – according to a report by the San Francisco Business Times. The issue isn’t whether or not these companies leave; instead it’s the high paying jobs with benefits across all income spectrums being driven out of California. Moreover, we need successful firms to assist tackling the trillions we owe in pensions, bond obligations and infrastructure requirements.

After this recent election where it has become proper to bash Republicans – especially California Republicans – many will postulate there is no difference between Republicans and Democrats. When there is nothing farther from the truth. I’m not speaking about politics, which is essentially the means for winning elections and building coalitions for governance, I’m speaking about actual policies. How do you allocate taxpayer money? Do you want to tackle California’s debt or speak about a surplus instead? Do you believe in abortion, gay marriage, some form of socialism? Do you build a larger navy to confront global problems? Do you believe in fracking?

Those are policy decisions that have wide ramifications for California policymakers and voters. The California Democratic Party currently believes in spending more than it takes in by amounts it will never be able to recover; though incoming Governor Newsom showed variables of fiscal restraint as mayor of San Francisco. Of course there are establishment cronies and swamp-dwellers in both parties; but if you only take environmental policy using Tom Steyer as an example there has never been a more powerful oligarch in recent memory.

The planet and California isn’t better off for the policies Mr. Steyer advocates for and our poverty and homelessness continues being the worst in the nation. These are examples of policy decisions similar to believing there is a budget surplus that have long-term, negative ramifications.

What the surplus doesn’t take into account is California’s real poverty rate that the Census Bureau standard now has at 19% and 43.9% higher than the remainder of the US. Disenchantment and disillusionment with both parties is en vogue, but there is to much at stake in our financial future to allow the Democratic supermajority be let off the hook by continuing to spout the mantra of budget surplus.