It was a pleasure to have accepted an invitation for a discussion earlier this week at Sonoma State University with students taking a public finance course being taught by Dr. David McCuan. We covered a wide range of issues related to the topic, particularly with reference to the California budget.
While obviously a mess and due mostly to Republican intransigence getting worse instead of better, there are solutions. These solutions don’t require calculus, trigonometry or understanding complicated algorithms; relatively simple mathematics will generally do just fine. A balanced budget means that revenues are aligned with expenses and reserves are set aside to account for fluctuations in revenue and expenses.
Would it be possible to balance the California budget by only cutting costs? Theoretically perhaps, but humanely no.
Potential spending reduction areas would include compensation realignment, especially with regard to pensions and other retiree benefits such as health care which have far too often been promised without proper payment being set aside. A recent issue of The Wilson Quarterly included a cover story about how to shrink America’s prison population which offers insight as to how California could do so, saving billions, while still maintaining public safety.
Raising revenue could come from various sources. California remains unique as an oil producing state which does not have an oil severance tax. Taxes upon residential property need not be affected for California to adopt a split roll with regard to commercial property valuation. Vehicle license fees could be adjusted back to rates paid prior to the Schwarzenegger era. As is done in many other states and countries, taxes on retail sales could be extended to certain services as well.
Next 10 developed an internet tool, the California Budget Challenge, to “create your own state budget.” It’s a challenge worth taking for a better understanding about how we raise revenue, spend it and fail to save enough through realistic reserving.