California Budget

I had been planning to write a couple of columns, one on the issues of the federal budget and one on the budget here in California. Since Governor Arnold will be giving his State of the State address this morning it seemed to make sense to do California today. I will be reworking a prior post on the subject and would welcome comments.

However I would like to make a request. While I obviously cannot control what you will and will not post, I’d rather not have this (or the Federal budget feature tomorrow) be a blame game thing. We can argue back and forth over who is to blame but the fact is we are where we are and need to focus on solving the issues rather than tossing blame.

Right now in California we are facing a budget crisis of epic proportions. It looks like right now we will have revenues of around $ 100 billion and spending of around $ 145 billion. This is a deficit of $ 45 billion or around 1/3 of the total budget.

 The result of such a crisis should be for members of both parties to come together to solve the problems but instead things have focused on the traditional rhetoric from both sides so I thought I would offer a bit of a reality check for the legislators.

Reality Check #1: Revenue

The first reality check is you are going to have to increase revenue. Whether this is through cutting out loopholes, increasing overall rates, increasing other fees or a combination of the three is certainly open for discussion, but you are not going to cut 20% or more from spending to close this kind of a gap.

So for the GOP, the reality check here is you have to accept that increases are needed, get used to it and try to find the least damaging way to make these increases. Do not simply oppose tax increases because you don’t like them, don’t get stubborn and ignore the fact that if you do not fix this the economy is going to be in even more serious trouble (if that is possible).

For the Democrats, the reality check is that this is NOT an opening to ’soak the rich’ and punish people for succeeding. It is a necessary step because of the financial mess but you should only make those increases that are required to close part of the gap. Some of these increases will be temporary and you should not grumble down the road about ‘cuts for the rich.

Reality Check #2: Spending

The next reality check is you are also going to have to cut spending. As with revenues this can be accomplished through a combination of factors like cutting waste, reducing the less important programs and the like. But in the end you are going to have to cut some spending that is going to cause some pain.

For the Democrats, the reality here is you have to accept that some hard choices will need to be made. I know education is important but we may just have to accept some cuts in areas we’d rather not cut. If you’re going to hike taxes, you also need to cut spending. It’s a 50/50 proposition and the burden has to be passed around (of course we might not necessarily split the spending and revenue changes on a dollar for dollar basis, but you get the point)

For the Republicans, the reality check is that you have to behave here like the Democrats need to behave on taxes. This is NOT an opportunity for you to cut every social program you don’t like. This is NOT an opportunity for you to pare government to the Libertarian ideal. And when some of these programs get increases down the road, you need to live with that.

Now just to put our current budget situation in perspective

Just for reference, the US budget did not reach these levels of spending and income until the mid 1960’s and at that point spending $ 100,000,000,000 was seen as a major problem. The budget in California that year was around $ 5 billion (or roughly $ 35-$ 45 billion in current dollars, depending on which conversion process you use).

Those numbers are worth noting given that at the time we had the best schools in the nation, the best roads in the country, etc.

There are of course many reasons for the increased costs and spending, though given that they have doubled with reduced returns it does beg the question of what happpened. I think one of the issues that also needs to be addressed is Reality Check #3.

Reality Check #3: Immigration

For both parties the final reality check is you need to address the 10,000 pound gorilla in the room which is illegal immigration (or undocumented workers if you prefer). Now, I am a huge fan of immigration. This is what made our country great and what will continue to help us grow in the future.

But there is a difference between those who go through the system and those who do not go through the system. I know that people like to say these immigrants perform duties that others will not but I am not so sure that is true. But either way the fact is that these immigrants are a large part of the budget problem facing many states.

When you don’t have documentation, you don’t get a paycheck, you get paid in cash. As a rule you don’t pay state or local income taxes and in many cases you don’t pay licensing fees for cars, etc since you can’t go in to apply for these programs without being legal. Yes, you do pay sales taxes, but you don’t contribute to the general budgets

At the same time you do take advantage of the programs paid for by the other taxpayers like schools, roads, public hospitals, etc When you’ve got 50 people paying in to a system and 75 people taking out of the system, the problem is pretty obvious.

As with spending and revenue, the solution here is not entirely obvious. While some groups would like to ’send them all back home’ I am not sure that this is entirely workable. Perhaps some of them should be sent back, others should be brought into the system. But either way you need to find a way to resolve this imbalance

For both sides you need to work through this problem without all of the rhetoric. The Left needs to accept that some of these people will need to be sent home and it’s not racism. Legal immigrants of all races are welcome to stay, but at least some illegal immigrants of all races need to go home.

The Right on the other hand needs to accept that sending everyone home just is not realistic as a solution. Some of these people have been here for years and just need a way to get into the legal system. It’s all a matter of balance.