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Is this the budget that struck down the governor of California?
Gray Davis signed the 2003-4 state budget on August 2 -- just two months and two days late. Since the budget has rarely been enacted on time in the last 30 years, why the fuss? The real problem is that poor and working-class people keep paying more for less, while wealthy people, corporations, banks and bond investors stay on top. Why won't the Democrats or Republicans in the state legislature change this?
The new budget cuts vital services to Californians more than in the past because the Republicans refused to vote for any tax increase to plug the $38 billion shortfall. Education, health care, housing, the arts, the environment and state employees were hit the hardest.
In K-12 schools, the $288 million cut translates to a $180 per pupil decrease. The $293 million taken from the University of California and $204 million from the California State Universities will be partially offset by student fee increases of about 30%.
The Community Colleges, which have been consistently shortchanged on their share of education funds guaranteed by Proposition 98, will get no relief from a loss of about $82 million. The increase in student fees from $11 to $18 per unit goes straight to the state's general fund.
To make matters worse, child care programs are losing $384 million. The biggest cuts are in child care for people being phased out of welfare and payments to childcare providers -- two groups of the state's lowest-paid workers.
While low-income Californians struggle to pay tuition and find child care, they better not get sick. The state has reduced reimbursements to Medi-Cal providers 5%. Meanwhile, we all face increasing air and water pollution -- the legislature replaced funding for existing environmental protection programs with permit and license fees which they haven't yet enacted.
The dreary picture is completed by the near-demolition of the Arts Council. Cut by $11 million, it will be left with $1 million to provide programs for California's schools and communities.
Don't join the politicians in blaming the state workers -- public employees face a $1.1 billion reduction, either through layoffs or pay cuts.
But is this year really that much different? In the last decade, K-12 spending has increased and the University of California and State University systems have gained more state support. At the same time, the community colleges have largely been left out of the gains which they were supposed to share under Proposition 98. Health care had also received some increased spending, especially for the healthy families program. All of these services are about to shrink.
But other funds have been shrinking all along. Cal Works, the program for moving welfare recipients to work, has never received more than the minimum required by federal law. Environmental protection, transportation and housing have gotten ever-shrinking portions of the pie. According to the New York Times, California has cut spending by $12 billion over the past two years.
In fact, the rate of increase in state per capita spending since 1980 is significantly lower than it was from 1959-1980, less than 1% per year (see Figure 1), despite right wing claims of runaway spending.
Why are we losing ground? The prevailing wisdom is that we are in bad shape because the economy is bad. California is losing tax revenue because of the recession and services which had been increasing need to be cut back. We just need to grit our teeth and face reality, they say. Things will get better when the economy improves.
This does not explain why the rate of spending fell during the past twenty years. The fact is that the current crisis has roots in the prosperous times just past, as state tax policy has made the rich richer. California is 21st among the 50 states in state and local taxation.
Tax relief has been a budget priority in the past decade, but the relief is for the wealthy. Sales taxes, which hit the poor most heavily, have gone up. Down are corporate taxes, which were cut early in the 1990s. Gone is any state inheritance tax, abolished by initiative. This prevents any replacement of revenue lost from the federal phase-out of the estate tax.
Missing is an increased tax on higher income brackets, which was temporarily imposed by a Republican governor during the last recession. The current administration, with its Democratic legislative majority, could not reimpose this progressive taxation, in part because of the requirement of a two-thirds vote for any tax increase.
To fund the meager budget, the two parties were able to agree to borrow $18.2 billion, of which $10.2 billion is in new deficit bonds to pay off last year's shortfall and stretch it out for another five years. Another $7.5 billion in "borrowing bonds" will finance pension payments and current operating expenses. The problem is that the increased debt, along with the old debt, must be repaid with interest.
This is called "debt service", and it has been a rapidly growing feature in the California budge, eating up funds that could be used meet our needs. Normally, bonds are issued to finance "capital expenditures": schools, transportation projects, waterworks, etc. While we are paying additional interest which benefits the wealthy individuals and financial institutions that buy bonds, at least we are usually buying something of value.
In this case, the bonds are incurring additional debt to pay off existing debt. As Lebenthal, a major bond trader, described it in a newsletter, "it's just like Farmer Brown sitting down, tucking in his bib, and devouring the seed corn."
And the price we pay goes up: California's plummeting credit rating increases the interest rate at which the bonds are issued. The shakiness of the investment drives the price of the bond down, which further increases our cost of borrowing, while the rich profit.
What California needs is a people's budget, which focuses on providing basic needs like education, health care, housing, transportation, environmental protection, recreation and the arts. We need to raise the money by taxing the wealthy individuals and corporations who are profiting from our misery. We must elect our own representatives, people who do not accept the limitations which are currently imposed on the legislature.
Democrat John Burton, president pro-tem of the State Senate, said of the new state budget, "It is the best we can do."
The people of California can do better.
[Marsha Feinland is state chair of the Peace & Freedom Party.]
This article is accompanied by a bar chart from the California Budget Project, 921 11th Street, Suite 502, Sacramento, CA 95814 (www.cbp.org). Captioned "Figure 1: Average Annual Percent Change in Real Per Capita General Fund Spending", it says the source of its information is "CBP analysis of Department of Finance data". The data displayed is
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