California is mired in a financial crisis, perhaps the most difficult one the state has ever faced. This is news to no one.
The state’s legislative history is a litany of poor decision making and budget practices that favor short-term, patchwork solutions over long-term sustainability and solvency.
And now, few would argue that those who govern have moved much too slowly in preventing the crisis from becoming a full-scale meltdown.
In June of 2011, Richard Ravitch, former Lieutenant Governor of New York, and Paul Volcker, former Chairman of the Federal Reserve, took matters into their own hands. They shared a growing concern over the financial trajectory of the nation and how this trickled down into state budgets in the form of continued structural imbalances and an inability to provide basic services or invest in the future of state residents.
They formed a task force to focus on six states, including California, and got down to the business of dissecting California’s budgetary woes and drawing conclusions meant to correct course and avert any further damage to infrastructure and the economy.
The report was presented today at the Commonwealth Club in San Francisco and not only recommends concrete steps the state can take to reform its policies and protocols within government, but to also ensure that information is available for the people of California.
“When it comes to the services that most affect people’s lives — such as public education, safety, health, roads, mass transit, environmental protection, safety nets and much more — states play the most important role, one much bigger than the role played by the federal government,” said George P. Shultz, a member of the task force board of advisors and former Secretary of State, Treasury and Labor.
“Yet the information provided to citizens about those services is at best opaque and at worst deeply misleading.”
The task force’s findings were very much in line with what California Forward (CAFwd) has been championing as an organization for quite some time now. Not just in terms of the much-needed transparency mentioned by Sec. Shultz, but also their recognition that we will not simply grow our way of this situation.
Here is a summary of the report’s finding that are in line with CAFwd’s tenets and recommendations:
Extend the fiscal horizon to better meet the long-term needs of the state
- Develop a two-year spending plan with annual appropriations
- Include a five-year fiscal forecast focused in the areas on education, health and human services, criminal justice
- Adopt a five-year strategic growth and infrastructure financial plan, integrating growth with expenditures so decision makers have the tools for sustainable policy choices.
Explore existing tax structures
- Consider ways to broaden the base of taxation while lowering tax rates
- Align the allocation of revenue to structural changes designed to improve results and accountability
- Give all levels of government responsible for providing services adequate fiscal control to set priorities and adjust strategies so they can achieve objectives and be held accountable for results
- Reorient the tax structure to the new knowledge- and service-based economy
Rethink pensions, retiree healthcare and Medicaid
- Recent legislation largely addressed pensions for those hired after 2012 but left existing obligations largely unaddressed.
- Retiree healthcare costs must be considered.
- The state should work with the federal government to control healthcare and Medicaid costs.
Enhance monitoring of local fiscal conditions and develop better tools for managing over the business cycle
- Implement controls and measures for state intervention in cases of local fiscal insolvency
- Employ tools such as rainy day funds to weather fiscal storms, when needed.
“This year California’s state government will spend well over $200 billion, including federal funds, oversee the education of nine million students, incarcerate 150,000 prisoners, spend tens of billions of dollars on compensation and put citizens on the hook for billions more, protect the environment, build infrastructure, fund welfare programs, and pass laws and regulations affecting the jobs and wages of every private sector worker,” said David G. Crane, a member of the task force board of advisors, lecturer at Stanford University and former special advisor to California governor Arnold Schwarzenegger.
“But its current financial structure is not sustainable, and unless citizens are presented with the facts and legislators take action, the most basic services that they have come to depend upon will disappear.”
The task force has already done much of the due diligence that the California state government has neither the time nor the resources to do. Now the ball in is in the state’s court to take two subsequent actions it is perfectly capable of: listen and act.
