Fraudulent Budget Choices

California faces a budget deficit of perhaps $16 billion. A lot of organizations and people are saying how tough it will be to balance the budget. According to the choices offered on one site, it will be impossible. Next 10 which describes itself as an "independent, non-partisan organization that educates, engages and empowers Californians to improve the state's future" has posted its version of the 2008 Budget Challenge - which asks How will You balance the state's budget? - unfortunately. An person who really cares about the budget problems the state faces will find this tool less than useful.

The range of choices offered in the quiz are silly. Take an area I have worked a lot in - higher education, and the section on fees. The budget challenge offers four choices. #1 - Increase fees at about the rate of change in per capita income (5% per year) - labeled the status quo. #2 - Hold tuition constant for the next five year but increase general fund support to cover the difference. #3 - Increase fees by 10% a year and allow the public segments to retain the revenue. #4 - Increase fees by 10% per year and use the additional money to lower the deficit. Are those really the only choices? Would it be a good idea to establish a long term pricing policy not based on changes in the consumer price index? What is the relationship (or what should the relationship be) between fees and financial aid? Those options are not offered. Are those the only options that are available to keep higher education vital and yet to change the dynamics of the budget?

Or look at the range of revenue choices. For income taxes the survey offers #1 - status quo; #2 Raise taxes on upper income taxpayers by $2.4 billion or #3 - reduce taxes by 3.5% for all taxpayers. Unsurprisingly, about 51% of the responses so far have selected the option to raise taxes against higher income taxpayers. The remarkable issue here is that almost every attempt to raise taxes for the highest income taxpayers has yielded well below the projected level of revenue. We know that a) income taxes are a larger portion of state revenues than they were in the past and b) that because of the structure of the system they are more volatile than systems in other states. Yet, the choices don't offer options which try to make corrections in both areas.

Why for example does the set of options include a split roll on property taxes (where commercial property owners are taxed under a different formula than residential) and yet no significant change is offered for Proposition 98 (the school spending formula which has caused a good deal of the complexity in our budget)? The split roll has been offered in a couple of forms to the voters since the passage of Proposition 13 and has been consistently rejected.

One of the most annoying parts of the site is what happens when you make a choice - you are told that X% of the people who have used the site made that choice. Amilcare Puviani, the Italian economist who formulated the idea of the fiscal illusion, would be proud of that device. Among the options for the income tax it is obvious which one will be chosen (stick it to the upper income taxpayers - although upper income is not actually defined).

The range of choices that Californians need to make should be broad not narrow. But Next 10, either because of the way their program works or because of their bias, has limited the options that we should be choosing from. If this is the way state policy makers are actually trying to deal with the budget, we are in deep trouble.

A more helpful document to help us think about the budget problem came from the Legislative Analyst. In her budget analysis this year she proposed a set of changes which make both immediate and longer term sense. The LAO proposals can be found on their main site, where unfortunately you will also find that she has announced her retirement.