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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.

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Comments

2 Comments

  1. Raoulle Shabazz

    SSU students complain about the cost of school, then vote to finance a new building, thereby raising the cost of school. There is still room to cut the budget, isn’t there?

    April 19th, 2011 8:45 am

  2. William Mannone

    I find it odd that Republicans efforts to represent a dissenting view during the budget process is described as “intransigence” whereas the years of Democratic control of the Assembly and Senate and their inability to properly fund pension, nor reform them are not pointed out as “poor judgement” or “lack of oversight”.

    Politicians want to describe the budget problems as ” .. the need for more revenue …” rather than ” .. the is what the people of California have given you in taxes and fees, now construct a budget that matches it … ”

    Sometimes, instead of looking for existing options for encouraging businesses to come to California, or expand, the legislature punishes them with higher taxes. These taxes are passed on to the consumer, which hurts us all.

    Example:
    Oil, one of the horrors of the modern world (as described by Democrats) is a source of revenue in the form of a tax. If petroleum products are so terrible, and the “green” technologies the way of the future, why not just ban the production of oil? Wouldn’t that speed up the development of “renewable” sources? I already hear, “We can’t stop oil production. That would be silly.” Of course it would. There are no green energy sources ready to step up and fill petroleum’s role. Instead of taxing it, why not allow for MORE production and exploration as a source of additional revenue? Not to mention the jobs that this increase would produce.

    Things that are taxed are used less. Things that are subsidized are used more. The Democratically controlled California legislature knows this but still goofs up.

    Example:
    Cigarettes, another horrible product of mankind, is taxed in California to fund health programs. However, as the taxes on cigarettes rise, the more smokers quit using a LEGAL PRODUCT. Smokers quitting is the said goal of the taxes. So, as more smokers quit, the funding for health programs goes away. Therefore, as one goal is reached (no more smokers) another goal (health care) is no longer funded. There seems to be an error in the logic of that plan. Instead of letting responsible, tax-paying men and women make their own decision to start (or stop) smoking, the California legislature believes that we are unable to make our own decisions. The same theory regarding smoking in bars and restaurants holds true. Instead of letting the business owner decided if there is to be smoking in their establishment, and further, to allow the general public to decide with their patronage if these businesses survive, the politicians step in and attempt to think for us.

    Other sources of revenue that would not harm the general public are shunned as “.. not politically expedient …”. How about a tax on cash transfers of money out of the state that a processed outside of a bank?

    Other savings:
    Disallowing illegal aliens from attending our schools, getting government provided services (except LIFE THREATENING health care), and taking up space in our prisons.

    Making California a “Right to Work” state would show businesses that California is a place to start or expand operations. I am not saying to ban unions, I am saying let the employees of any business make up their own mind. Allow companies and workers to decide rather than the legislature.

    There is a solution to the California budget mess and it lies in the removal or complete change of attitude of politicians in Sacramento. Unless and until that happens, filling the “budget deficit” will be routine.

    April 24th, 2011 7:32 am

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