NPR and Budget Nonsense

Sometimes you wonder about NPR. Well actually, not that often. During this week they did some coverage of the budget discussions in Sacramento. California attained an exceptional status on many fronts in the last few years. For example, as a function of the political leadership's punting on addressing some long term budget problems, a few weeks ago California surpassed Louisiana as the worst credit in the country. The state also has the second highest foreclosure rate, the third highest budget deficit (as a percent of state spending) and the fourth highest unemployment rate (behind such powerhouses as Michigan).

NPR's coverage brought together some alleged experts who opined that the reason for the deficit and the continuing problem was a requirement which we share with only a couple of other states (which demands that two thirds of the legislature vote to approve a budget and tax increases) and the (in the opinion of these experts) actions run wild of voters who adopt propositions.

Nowhere in the story was there even a tiny recognition that during the administration of this governor that state revenues have grown rapidly - but state expenditures have grown even faster. Nowhere in the story was any recognition that based on population and CPI changes that our growth in spending should have been about half of what it actually has been. Nowhere in the story was there any recognition that prison costs (partially as a result of voter passed initiatives) have doubled in the last few years while inmate population has grown by only 5.5%. Finally, nowhere in the story was there any recognition that the structure of our revenues is based on a series of supposedly progressive principles which actually makes revenues much more volatile. Because of the structure of our tax system, (which has been adopted by the legislature - much of it with a 2/3 vote) when options and capital gains are good - we rake in the dough; when they are poor, revenues drop even faster than your 401K has in the last three months.

There was a lot of drama this week. Some of it was warranted. Changing the system in California will take time but the state's leaders had dilly dallied so long that they brought us to the abyss. The budget adopted by the Legislature on Thursday morning is not perfect. It raises sales taxes to make us one of the highest rates in the country. It adds a surcharge to the income tax (already close to the highest rate in the country). It may cut some things which we should not reduce. But it gives the state some breathing room.

With luck and a little diligence the state can come back from the abyss. After careful consideration we might adopt some additional restrictions on spending growth. Or we might change the fraction on how taxes and budgets are adopted. Or we might restructure the way we collect revenues to make them less elastic. One would hope that during the next sixteen months (the plan is supposed to work until June 2010) the state's leadership, including its political leadership, will take a deep breath, do some careful analysis (unlike the substance in the NPR story) and present some realistic alternatives to improve the state's situation.