How wisely did state spend its surplus?
By Paul Jacobs
Mercury News
In Gov. Gray Davis' first term, tax revenues were flowing into Sacramento faster than anyone could have predicted. The state's fiscal drought was over, replaced by a flash flood of cash.
And the Davis administration, backed by the Legislature, was quick to spend the money on favored programs, including public education, unclogging highways, health care for the poor, home support for the elderly, and prisons -- and accelerate a planned cut in vehicle license fees.
Now, however, with the state facing a deficit estimated at $34.6 billion and substantial cuts in almost every area of government, a key question has arisen: How wisely was the money spent?
Davis administration officials argue that they had to restore programs ravaged by years of neglect. But critics say the administration invested money in services that state government had no need to fund.
A look at the record suggests there is evidence to support both arguments. For instance, despite billions spent on reducing the size of elementary school classrooms, California still ranks 48th in the number of pupils per teacher.
On the other hand, the state's Medi-Cal program provides one of the most generous levels of health benefits in the nation, offering 32 of 34 optional benefits permitted under federal rules, including acupuncture.
``The conclusion you have to draw is that California has been spending beyond its means,'' said Assembly Republican Leader Dave Cox of Sacramento. ``The reality is, we have enough for the programs we need, not for all the programs that people want.''
There is always considerable pressure to spend any surplus, either in added services or rebates to taxpayers. A recent sharp reduction in vehicle license fees complete with rebate checks to car owners -- started when funds were flush -- has now exacerbated the deficit.
Four years ago, lawmakers on both sides of the aisle were convinced that Federal Reserve Chairman Alan Greenspan ``had conquered the business cycle and we'd entered a new economic nirvana with endless capital gains and stock options forever,'' said Jean Ross, executive director of the non-profit California Budget Project.
Only a small minority of legislators urged restraint. Republican Sen. Tom McClintock of Thousand Oaks, who has consistently voted against state budget bills, said the spending spree guaranteed catastrophe.
``We cannot sustain growth in government spending at the rate that's been undertaken,'' McClintock said. ``It's just a matter of time before the whole thing collapses.''
The current budget crisis is centered on the state's general fund, which relies largely on personal income, sales and corporate taxes -- revenue not tied to specific purposes.
As long as the state's economy was booming -- as long as taxpayers were cashing out their stock options and reaping capital gains -- the general fund was not only full, but overflowing. And when the economy dived into recession and the stock market plummeted, the general fund ran short even as the spending commitments continued.
In the years of budget surplus, the splurge of spending under Davis was impressive, rising $20 billion or 35 percent, before the bubble burst on the economic revival and the startling deficits began to surface.
Education
In healthy budget years under Davis and his Republican predecessor Pete Wilson, almost half of the increases in state spending went to education -- to the state's public schools, community colleges and university systems.
``There was concern about our educational system, about the low level of funding and certainly about the low level of student achievement,'' said Kerry Mazzoni, Davis' Secretary for Education.
Proposition 98, a ballot initiative approved by voters in 1988, set minimum amounts of state funding for public schools and community colleges. Under Davis and during Wilson's final years, the state began putting more into education than the minimum.
There was money for reducing class size in the primary grades, cash bonuses for high-achieving schools and teachers, payments for teacher training and the rescue of low-performing schools, and even funds for raising the salaries of beginning teachers.
One feature of Proposition 98 is that each year's increase becomes part of the calculation for determining the following year's minimum -- increasing the state's obligation years into the future.
``Today we are $9.6 billion ahead of where we would have been if we had viewed Proposition 98 as a ceiling,'' Mazzoni said.
Because of the recent increases, California public schools rank 28th among the states in per-student spending -- up from 35th a few years ago, but still below the national average.
Only Utah and Arizona have more students per teacher.
One area where California does lead the nation is average teacher salary, at $53,870 last year. But when cost of living is factored in, California dropped to 16th, according to an American Federation of Teachers' survey in 2001.
``In Silicon Valley we have teachers leaving who can't afford the homes here,'' said Martha Wallace, who teaches social studies at the Ocala Middle School in Alum Rock.
Davis has proposed a $1.5 billion reduction in state funding for the public schools in the current year.
The state's economic woes also have forced Davis to abandon commitments to provide predictable, increasing funding to community colleges and universities at a time when enrollment is rising.
``It's virtually impossible to address this kind of deficit without addressing cuts in education,'' Mazzoni said.
Other state-funded programs also benefited in recent years and now face the budget ax.
Health
While the number of Californians on welfare has declined in recent years because of welfare reforms and a healthy job market, the number of residents eligible for Medi-Cal, the government-funded health care program for the poor, has continued to climb and costs have soared. More than 6 million residents are eligible for the program today -- the costs shared by state and federal governments.
The governor, however, is now proposing to reverse an expansion of the program in 2000 that added 230,000 Californians to the Medi-Cal rolls.
California has long had one of the most generous such programs in the nation, covering such optional benefits as acupuncture, hearing aids and dental services for eligible adults.
Davis is proposing to cut those benefits and 15 others, including hospice care for the terminally ill. Hospices provide homemaking, health care and other services.
The program is for the patient ``who no longer wants treatment to cure and who doesn't want to spend his or her last days in the hospital connected to monitors and tubes,'' said Jessica Klinghoffer, executive director of the non-profit Hospice of the Valley in San Jose.
To cut the program will end up costing the state more money, Klinghoffer contends, because patients will wind up in emergency rooms and hospitals.
``Of all the people in the world to take away a benefit,'' said Margaret Clausen, executive director of the California Hospice and Palliative Care Association, which estimates the state's savings at about $10 million. ``It's unconscionable.''
Prisons
Spending on prisons has more than doubled since 1990, rising even faster than the inmate population in an era of tough sentencing laws. A growing crackdown on crime was reinforced by a voter-approved initiative, the ``three strikes, you're out'' measure that assured long terms for repeat felons.
While the number of prisoners in state institutions has finally begun to level out, the number of older inmates has been rising, notes Margot Bach, a spokeswoman for the state Department of Corrections.
Department statistics show that there were 1,868 prisoners age 60 or older in 1998. In 2002, there were 2,708.
This graying of the prison population adds to the state's costs. State and federal courts have required that prisoners get all the care that is medically necessary, including where appropriate kidney and even heart transplants.
``We have no choice,'' Bach said. ``It's on the books. We have to provide inmates with medically necessary health care.'' And that has meant hiring more doctors and nurses at prison facilities and transporting prisoners outside for essential care.
Other court decisions have forced the state to deal with overcrowding by expanding the number of prisons.
And the California Correctional Peace Officers Association, which has generously supported Davis' political campaigns, has won substantial pay increases as high as 37 percent over the life of its five-year contract.
Social services
The past five years have also been a time of healthy increases for social service programs for the state's poorest residents.
The state, for example, has long supplemented Social Security payments to the state's low-income blind, aged and disabled population. The maximum payment for an eligible individual jumped from $650 a month in 1998 to $757 this year -- increases that contributed to a $500 million increase in spending on the program in recent years. To reduce the budget deficit, Davis has proposed rolling back the monthly payment to $708.
The state has also beefed up child abuse prevention and in-home support services that allow elderly Californians to remain in their homes.
``This has been a historically under-funded system,'' said Department of Social Services spokeswoman Blanca Castro.
Traffic congestion
In 2000, with the stock market and state revenues booming, Davis launched what was intended to be a six-year, $6.8 billion program to relieve traffic congestion in California. Among the state and local projects were plans to extend BART service to San Jose and to widen Highway 101.
General fund revenue, including sales taxes on gasoline, would go to finance Caltrans projects. The shift in gasoline taxes was made permanent by voters when they approved Proposition 42 last year.
``There was very little done by the previous administration to spend general fund money on transportation,'' said Caltrans spokesman Dennis Trujillo.
Now the governor is proposing to suspend the program, redirecting the revenue already collected as well as future gasoline sales taxes to close the general fund deficit. The traffic congestion relief projects will have to compete for a share of federal and state fuel taxes that finance most highway improvements, Trujillo said.
Restructuring
Sobered by the current budget crisis, Davis is now calling for a series of structural reforms that will allow him as well as future governors to deal with shortfalls more effectively. One of his proposals is to place proceeds from unexpected revenue growth into a reserve fund to be used for one-time, rather than ongoing purposes.
But elected officials often succumb to political pressures.
A. Alan Post, the state's non-partisan legislative analyst from 1949 to 1977, recently recalled proposing a plan to then-Gov. Ronald Reagan's finance director to use a mounting state revenue surplus to pay for land acquisition instead of using bonds.
The idea was rejected because Reagan wanted to cut taxes instead. Post said he was told, ``The governor wants to give the money back to the people. It will be a wildfire spread across the country, and he will be elected president.''
How four state programs grew -- and why
The state government workforce increased by more than 40,000 positions during Gov. Gray Davis' first term, or nearly 16 percent. A look at the four programs with the most employees -- higher education, the Health and Human Services Agency,the Youth and Adult Correctional Agency, and the Business, Transportation and Housing Agency -- shows that the gains sometimes lagged behind the increase in demand for state services, and sometimes exceeded it. K-12 education is not included because nearly all of its employees are at the local level.
Year '96-97 '97-98 '98-99 '99-00 '00-01 '01-02 '02-03 '03-04
Corrections 44,349 45,671 46,838 47,361 48,619 48,796 50,418 51,041
Higher education 93,265 91,341 98,035 104,315 112,301 119,202 119,392 118,350
Health and human services 36,788 36,195 36,733 38,229 39,450 29,046 31,100 31,210
Business transportation and housing 36,598 36,861 39,692 42,053 44,032 44,851 43,404 42,157
bayarea.com
COMMENTS by LL:
1. CA's 3-strikes law has GOT to be one of the dumbest pieces of legislation ever passed. It guaranteed a swelling prison population. Some ended up doing 25-to-life when the 3rd strike was shoplifting. At $60K per year per prisoner.
2. Anybody willing to attempt to prove that increasing educational funding improves results? Utah mentioned above has close to the lowest per-student spending and yet does quite well in results. Japan's schools average about 50 students per teacher and give significantly better results than US schools. |
