budget – Page 5

“Myths vs. Facts” Propaganda Will Not Change Pension Reality

November 6, 2015 By Ed Ring Leave a Comment

California’s largest state/local government employee pension system, CalPERS, has posted a page on their website called “Myths vs. Facts.” Included among their many rather debatable “facts” is the following assertion, “Pension costs represent about 3.4 percent of total state spending.”

This depends, of course, on what year you’re considering, and what you consider to be direct cost overhead for the state as opposed to pass-throughs from the state to cities and counties. But CalPERS overlooks the fact that most of California’s government workers who collect pensions do not work for the state, they work for cities and counties and school districts. As can be seen on the “view CalPERS employers” page on Transparent California, there are 3,329 distinct employer retirement pension plans administered by CalPERS, and the vast majority of these are not state agencies paid from the state budget, but local agencies.

In a study earlier this year, “California City Pension Burdens,” the California Policy Center calculated 2015 employer pension contributions as a percent of total revenue for California’s cities to be 6.85%, more than double the amount CalPERS implies is the average pension burden. But this hardly tells the whole story, because CalPERS is systematically increasing the amounts that their clients will have to contribute as a percent of payroll, and hence, as a percent of total revenue.

UnionWatch has obtained budget documents from Costa Mesa showing how the pension contributions as a percent of payroll will grow between their 2014/15 fiscal year and 2020/21. Over the next six years, as the chart below shows, Costa Mesa’s total payroll is projected to grow from $50.1 million to $54.6 million. Their pension contribution, on the other hand, will grow from $23.2 million to $33.0 million. That is, their pension contribution as a percent of total payroll will increase from 46.3% of payroll today, to 60.4% of payroll in 2020.

Costa Mesa’s pension burden as a percent of payroll is a bit higher than average, but not much. And in terms of the percentage increases to pension contributions announced by CalPERS, they are typical. California’s cities, based on CalPERS announced pension increases, can expect to add another 15% of payroll to whatever amount they are already sending to CalPERS each year.

For every dollar they pay their employees in salary, should California’s cities be sending, year after year, $.50 cents or more to CalPERS? That’s the best case. It assumes that CalPERS will continue to be able to realize annual returns on investment of 7.5%, on average over the next several decades. It also assumes they’ve got the demographic projections correct this time, and won’t have to contend with the otherwise happy eventuality of people living longer than their current projection of approximately 80 years. These are big assumptions.

And how much of this fifty cents (or more) on the dollar do the employees themselves pay as a percent of withholding? In many cases, up until recently, they paid nothing. Or if they did pay via withholding, at the same time as they became subject to that requirement, they received a raise to their overall salary of an equivalent amount. But under California’s 2012 Public Employee Pension Reform Act, employees will gradually be required to pay more for their pensions – with a ceiling of 8% for regular employees, and 12% for public safety employees.

If they paid the maximum via withholding, for a miscellaneous employee in Costa Mesa, that 8% equates to a 4-to-1 employer match today, rising to a 5-to-1 matching in 2020. Similar employer matching ratios will apply for public safety employees. How many companies, anywhere, provide 1-to-1 matching, much less 2-to-1, or more? 5-to-1 matching? It is unheard of. For good reason – it is absolutely impossible for a private company to afford this in a competitive economy.

Returning to the Myths vs. Facts page posted by CalPERS, they also assert that “The average CalPERS pension is about $31,500 per year.” This is profoundly misleading. It is based on the assumption that every CalPERS retiree worked a full career in government. Returning to the CalPERS Employers page on Transparent California, one can see a more accurate estimate of the “average pension,” because it is limited to the average for retirees who put in at least 30 years of work. Take a look. For Costa Mesa, the average 2014 pension for a full career retiree was $91,805.

If our cities could afford this, nobody would care, but they cannot. If Social Security, which withholds benefits until a participant, typically, has worked 45 years, could afford to be equally generous, nobody would care. But the average Social Security benefit is around $15,000 per year and even at that pittance, without major restructuring it will go broke.

One can debate forever regarding how much of a premium public employees should receive over private sector workers because they’re, on average, more educated, or take more risks in their jobs. But as it is, taxes are going up to pay pensions and benefits to government workers that are by any objective standard many times greater than what private citizens can ever hope to achieve. No premium, however much deserved on principle, should be this big.

The insatiable demand by CalPERS and other government pension systems for more money to keep these pensions intact does more than create financial stress to our cities and counties. It exempts public employees from the economic challenges that face everyone else. It takes away the sense of shared fate between private citizens and public servants. It undermines the social contract. It exposes a self-dealing, hidden agenda behind all new regulations. It erodes the credibility of laws, ordinances, codes, because perhaps they are merely there to generate revenue.

CalPERS and California’s other government pension systems have the financial wherewithal to lobby and run PR campaigns that dwarf that of reformers. But myths and facts are not defined in press releases. They are defined by reality. The reality is that California’s pension funds have increased their required contributions as a percent of municipal budgets by an order of magnitude in just the last 15-20 years, and there is no end in sight. If and when they can no longer seize public assets to force payment, bully compliant judges to overturn reforms, or find enough money from new taxes to save their financially shattered systems, they are going to have a lot of explaining to do – not only to the beleaguered taxpayers, but to their own members.

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Ed Ring is the executive director of the California Policy Center.

Filed Under: Top Stories Tagged With: budget, CalPERS, Ed Ring, Pension Reform Act, pensions

Gov’t Shutdown Could Mean No Food Stamps For Millions

September 24, 2015 By Connor D. Wolf 5 Comments

The Obama Administration warned Tuesday a government shutdown would mean 46 million people losing their food stamps. This despite a similar claim in 2011 being proven false.

According to the United States Department of Agriculture, the problem is a lack of reserve money. The USDA runs the food stamp program. It is officially known as the Supplemental Nutrition Assistance Program. If the government shuts down, the USDA claims, it will have to end benefits within the first several days of October.

“If Congress does not act to avert a lapse in appropriations, then USDA will not have the funding necessary for SNAP benefits in October,” Catherine Cochran, a spokeswoman for USDA, told The Associated Press. “Once that occurs, families won’t be able to use these benefits at grocery stores to buy the food their families need.”

Cochran refused to give details on how exactly the automatic food stamp payments would stop, or why it continued unabated during the 2013 shut down. The dangling of benefits in front of a shut down is not a new occurrence under the Obama administration. According to Politifact, in 2011 President Barack Obama lied when he warned Social Security checks would not be sent out if the government shut down.

A dispute on whether to defund Planned Parenthood is the main issue which threatens to shutdown the government. Lawmakers have till the first of October to pass a budget. If they don’t, the federal government will run out of funds and have to shutdown.

House Republicans passed a budget proposal Sept. 18 which would cutoff funds to Planned Parenthood for a year. The proposal looks unlikely to pass the Senate and even less likely to be signed by President Barack Obama. If the House proposal or an alternative doesn’t pass, the government shuts down.

The move to defund Planned Parenthood comes with renewed criticism over how the group handles abortions. The debate centers around a video The Center for Medical Progress, a right-of-center medical ethics group, published that shows a Planned Parenthood employee casually discussing, over a salad, how the organization harvest fetus organs after an abortion. The video was just the first in a series of footage that prompted a national backlash. This included renewed calls to end federal funding for Planned Parenthood.

The footage was part of a 3-year investigative effort. Dr. Deborah Nucatola talked to undercover actors she thought were buyers from a human biologics company.

Supporters of Planned Parenthood claim the videos were misleading and politically motivated. They also argue the organization offers too many critical services for women and families to be defunded.

Originally published by the Daily Caller News Foundation

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Filed Under: Top Stories Tagged With: budget, Food Stamps, Planned Parenthood, SNAP, USDA

On Bullet Train, Voters Finally May Get to Apply the Brakes

August 5, 2015 By Susan Shelley 9 Comments

Pencils have erasers. Computers have the undo command and the escape key.

If you had it to do over again, would you vote for the bullet train?

It was called the “Safe, Reliable High-Speed Passenger Train Bond Act” on the 2008 ballot, and it authorized $9 billion in bonds — borrowed money — to “partially fund” a high-speed train system in California.

The ballot measure required that there would be “private and public matching funds,” “accountability and oversight” and a focus on completing “Phase I” from Los Angeles to San Francisco to Anaheim. Bond funds could not be spent on the other corridors, like Fresno to Bakersfield, unless there was “no negative impact on the construction of Phase I.”

Today the estimated cost is over $68 billion, private and federal funds are not in sight, and accountability has been cut back — instead of two spending reports to the Legislature every year, only one report every two years will be required. And “Phase I” broke ground in Fresno.

Place your finger on the escape key and stand by. State Sen. Andy Vidak, R-Fresno, has introduced a bill, co-authored by Assemblyman Rudy Salas, D-Bakersfield, to put the bullet train before the voters again. If Senate Bill 3 (SBX1-3) can muster a two-thirds vote in the state Senate and Assembly, it will be on the June 2016 ballot.

The measure would freeze spending on the bullet train and direct unspent funds to the Department of Transportation to be used for roads, which would come in handy because California needs $59 billion just to maintain the freeways for the next 10 years. Gov. Jerry Brown has called a special session of the Legislature to look for revenue to fill the state’s transportation budget pothole after signing a “balanced” budget that left that item out.

The non-partisan Legislative Analyst’s Office offered some suggestions that illustrate the difference between what tax increases can raise and what the bullet train costs.

• Raising the tax on a gallon of gasoline brings in $150 million per 1 cent increase.

• Raising the tax on a gallon of diesel fuel collects $30 million per 1 cent increase.

• Raising the vehicle registration fee nets $33 million per $1 increase.

• Doubling the vehicle weight fees raises about $1 billion.

• Raising the vehicle license fee hauls in roughly $3 billion per 1 percent increase.

There are other options. The LAO says lawmakers could prioritize the budget to use money from the general fund to maintain and construct roads. Billions in cap-and-trade revenue, collected from fees now levied on gasoline and diesel fuel, could be used for highway projects that reduce traffic and improve mileage.

Additionally, $900 million that was loaned from state transportation accounts to the general fund could be repaid and used for roads. “Efficiency and effectiveness” could be improved by prioritizing cost-effective maintenance projects, increasing accountability and oversight, and examining Caltrans’ “capital outlay support” program to see if it is “operating efficiently.” Hint, hint.

The scrimping, saving and tax hikes needed to maintain the freeways can’t begin to address all the other transportation infrastructure needs, and we still have to pay for the rising costs of Medi-Cal, unfunded pensions and health benefits for state employees, and desperately needed water projects.

In 2008, the ballot argument for the bullet train promised high-speed rail “without raising taxes,” but it’s a shell game if tax revenue is spent on the train while taxes are raised for the roads.

Sen. Vidak’s bipartisan bill ought to have the support of every lawmaker. Voters deserve a chance to undo the bullet train and escape from this mess.

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Reach the author at Susan@SusanShelley.com or follow Susan on Twitter: @Susan_Shelley.

Filed Under: Top Stories Tagged With: Andy Vidak, budget, bullet train, CalTrans, Department of Transportation, high speed rail, Infrastructure, LAO, Legislature

CA GOP Can Wield Power During Special Legislative Sessions

July 6, 2015 By Joel Fox 1 Comment

Photo courtesy of DonkeyHotey, flickr

Jerry Brown made the Republican legislators relevant again. Brown’s call for special sessions for transportation and Medi-Cal funding invariably brings talk about possible tax increases. With a two-thirds vote needed to raise taxes, and the Democratic majority shy of the super two-thirds mark, Republicans must be part of the conversation.

Despite their best efforts offering innovative approaches to some of California’s difficult problems during the legislative session, the Democrats on major bills and the budget that needed simple majority approval mostly have sidelined Republicans. But that will not be the case when revenue solutions are sought and debated during the special sessions.

According to the governor, the special sessions are about permanent revenue sources to bolster transportation infrastructure and Medi-Cal. While Republicans put forward plans to use current revenues to satisfy funding concerns for the roads, much of the talk will focus on tax and fee increases. Republicans have said no to the need for new taxes since the state is awash in new money. Even post budget signing, the Legislative Analyst’s Office reported the state brought in a half-a-billion dollars more that the budget anticipated.

(As an aside, Republicans may have already supported a tax in their road funding proposal depending on how a court rules. One Republican suggestion is to use cap-and-trade funds recently put on gasoline production to fund transportation. The California Chamber of Commerce has gone to court claiming cap-and-trade amounts to a tax. If the Chamber suit is successful part of the Republican transportation package is a tax.)

Republicans position on taxes will also be tested in any Medi-Cal fix. One of the leading proposals to fund Medi-Cal is to increase the tobacco tax. If the governor is searching for a permanent revenue source to fund Medi-Cal, tobacco tax seems a poor choice. The tobacco tax is a diminishing resource as fewer people choose to smoke. Increasing the tax on smoking is supposed to discourage the practice thus limiting future revenues. Relying on the tobacco tax to rescue the Medi-Cal program would seem short sighted given the governor’s stated goal.

Given the need for Republican votes for tax plans, Republicans are in the middle of the debate and can offer savings ideas and plans re-directing current revenues that cannot easily be dismissed by the majority. If the GOP simply gave in to raising taxes then the issue of Democrats needing a supermajority is moot. Republicans will use their leverage to be deeply engaged in any solutions.

Originally published by Fox and Hounds Daily

Filed Under: Top Stories Tagged With: budget, GOP, Jerry Brown, Medi-Cal

Gov. Brown Walks the Budget Tightrope

May 17, 2015 By James Poulos 3 Comments

Gov. Jerry Brown has unveiled the highly-anticipated revision to his annual state budget, teeing up final spending negotiations in Sacramento — largely with his fellow Democrats.

Despite a resurgence in California’s fiscal fortunes, including tax receipts some $2 billion in excess of estimates, “analysts are warning that California could be headed for more fiscal headaches as soon as next year,” the Wall Street Journal observed. “The state is constitutionally required to spend more on public education as revenue increases. This year’s revenue will establish a spending base for next year, meaning it could be harder for the state to balance its budget if the state’s income declines.”

Brown has made his reputation as governor holding the line on spending against steady pressure from his left. But Brown’s own favorite projects, including California’s high-speed rail plan, received his unwavering support, even drawing money away from expenditures favored by activists.

A selective windfall

Now, Brown has chosen to walk the budget tightrope in a way that will encourage his more profligate allies. Beneficiaries of Brown’s revised budget were set to include poorer Californians, unlawful immigrants and college students, as the San Jose Mercury News reported:

“With billions in better-than-expected revenue, Brown unveiled a $115.3 billion general fund spending plan that creates the state’s first-ever ‘earned income tax credit’ and would pay for Medi-Cal for some immigrants living in the state illegally.”

Brown’s revision also slipped in the results of a long-belabored deal with UC President Janet Napolitano, “who had demanded tens of millions of dollars more for her system to stave off 5 percent tuition hikes in each of the next five years,” as the Mercury News recalled.

But the revised budget plan went well beyond those measures, touching policy areas that have bedeviled Brown throughout much of his time in office.

Prison reform

Brown, for instance, used the revision to forge ahead with reforms to California’s prison system, which has been a virtual albatross around his neck since the Supreme Court ordered the state to reduce its crowded incarcerated population.

As the Los Angeles Times reported, the new budget revision “calls for shrinking the number of inmates housed outside California in the next year by 4,000 — reducing related state spending by $73 million. As of this week, the state had a little more than 8,000 inmates in private prisons in Arizona, Mississippi and Oklahoma, and another 6,250 prisoners in contracted lockups within the state.”

According to the Times, the cuts became possible because of the impact of Proposition 47, which thinned prisons’ ranks largely by slashing penalties and jail time for drug-related offenses. As CalWatchdog previously reported, although relatively few donors fueled the measure, Prop. 47 won the support of a substantial majority of voters in November.

Mixed reactions

In what has become a hallmark of his tenure in office, reactions to Brown’s adjusted numbers mixed praise with criticism. “We applaud the governor for putting money back into the pockets of those who work hard every day and pay their taxes – it’s the right move,” remarked Assembly Republican Leader Kristin Olsen, R-Riverbank, according to the Sacramento Bee. But, she added, Brown’s tax credit “will not end widespread poverty. That’s why Assembly Republicans have offered straightforward solutions to reform education and support the modern economy so every Californian can boost their earnings and quality of life.”

From the other side of the aisle, some Democrats registered disappointment with the limitations of Brown’s agreement on school funding. “We are pleased UC students and their families will avoid paying higher tuition next year,” said Senate President Pro Tem Kevin de León, D-Los Angeles. “But CSU, the workhorse of our higher education system, has been shortchanged. We have to support both of our public institutions of higher learning to make sure college is accessible to as many Californians as possible.”

Originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: budget, Education Spending, Janet Napolitano, Jerry Brown, May Revise, Prisons, Prop. 47, UC System

Revised Estimate for K-12 Spending: $6 Billion More Next Year

May 17, 2015 By John Fensterwald 4 Comments

Spending for K-12 schools in the coming year will be $6 billion more than Gov. Jerry Brown proposed just five months ago, raising per-student spending $3,000 – 45 percent – from what it was four years ago, according to the revised state budget that the governor released on Thursday.

State revenues have surged this year, and K-12 schools and community colleges will haul in nearly every penny because of Proposition 98, the constitutional amendment that puts schools first in line for restoring funding when the economy rebounds after a recession.

The new level of Prop. 98 spending for K-12 schools and community colleges will be $68.4 billion in 2015-16. That is $7.5 billion more than the Legislature appropriated last June for the current year. Surging revenues, which are projected to continue into next year, will bring the total increase for schools next year to nearly $14 billion in Prop. 98 spending (see pages 13-22 of state budget summary).

But warning that “the reality is another recession is coming,” Brown is splitting the increase between ongoing spending, one-time expenditures and paying off debts.

Local Control Funding: The Local Control Funding Formula, which provides general spending to schools, will remain his top priority. It will get $6.1 billion more next year, or about $1,000 more per student on average, with districts with higher proportions of English language learners and low-income children receiving more.

Paying off mandates: About $3.5 billion ($2.4 billion more than in the January budget) will pay for unreimbursed mandated expenses. Districts and county offices of education can use this money however they want, although the governor is encouraging them to spend it on implementing the new Common Core and science standards.

“I think there’s an expectation and hope that it will be put into Common Core implementation,” said David Plank, executive director of Policy Analysis for California Education, or PACE, a research center based at Stanford University, “Common Core is hard work and the money, I think, will be greatly received and put to good use.”

But Education Trust-West, an advocacy group for low-income and minority students, criticized Brown for not requiring districts to use the money for Common Core. “Districts will be pressured to use these funds for many other competing priorities,” it said in a statement. “We missed an opportunity to ensure our state standards will truly make a difference for all of our students.”

Special education: The Statewide Special Education Task Force, a group convened in 2013 to propose improvements to special education in California, received recognition in the revised budget – and $60 million for some of the actions it recommended. This includes $50 million in ongoing funding and $10 million in one-time funding to expand interventions for special-needs children under two years old, add 2,500 additional preschool slots prioritized for special-needs children and expand data-driven schoolwide behavioral supports.

End of deferrals: About $1 billion will pay off the final late payments to districts, known as deferrals, which forced districts to borrow money, sometimes at high interest rates, while waiting for state funding.

Advocates for young children and the Legislative Women’s Caucus had called on Brown to provide $600 million more for child care for low-income families by shifting that expense into Prop. 98. The Legislative Analyst’s Office had suggested freeing up money for non-Prop. 98 spending by adjusting property taxes that go toward education funding.

But Michael Cohen, director of the Department of Finance, said he was “not interested in manipulating the Prop. 98 guarantee” and “plopping things into 98” to spend additional money. The department, he said, distinguished programs that qualify for education funding.

Assemblywoman Shirley Weber, D-San Diego, who chairs the Assembly Budget Committee’s education subcommittee, said that she shares the “strong sentiment” to include more money for child care in Prop. 98, where that funding was included until it was shifted in 2010-11. The issue will be negotiated with the administration, she said.

PRAISE FROM EDUCATION GROUPS

Education groups generally had high praise for the revised budget. Plank called it a “spectacularly good budget for K-12.” Kevin Gordon, president of Capitol Advisors, a lobbying firm representing school districts and county offices of education, said it was “one of the best budgets for K-12 I have ever seen. It has fully discretionary money with no strings attached. That normally doesn’t happen.”

SOURCE: LEGISLATIVE ANALYST’S OFFICE

The Legislative Analyst’s Office estimates that extra revenue in the May budget revision will raise K-12 Proposition 98 funding to $9,978 per student –$656 per student higher than the inflation-adjusted, pre-recession spending level in 2007-08. The LAO’s estimate for 2014-15 includes one-time spending of $700 per student more than districts anticipated when they built their 2014-15 budgets; that money, totaling $4.3 billion, will be spent in 2015-16 and subsequent years. (click to enlarge.)

Adonai Mack, legislative advocate for the Association of California School Administrators, said his organization agrees with Brown’s priorities and appreciates that the governor didn’t permit other programs to encroach on Prop. 98 spending. “It’s a very good budget for public education,” he said.

Joshua Pechthalt, president of the California Federation of Teachers, said the budget reflected the right priorities in funding education and creating a new tax credit for low-income workers. But he added, “we have a long way to go before we restore the programs in education and social services we lost to a decade of budget cuts,” and called for making temporary taxes under Proposition 30 permanent.

Double-digit spending increases for schools is not expected to continue past next year. State revenues are expected to flatten with the expiration of temporary increases in the state sales tax and the income tax on the wealthiest 1 percent. And the portion of the revenue going to K-12 schools and community colleges will decline after next year to about the standard 40 percent of the general budget after past obligations to Prop. 98 are fully paid off. Called the maintenance factor, it was as high as $11 billion as a result of cuts made during the recession, but will be under $800 million after next year.

The new Prop. 98 numbers will ease anxiety in Los Angeles Unified, whose board approved a 10 percent pay increase for teachers without knowing how the district would cover the expense. District officials said Thursday that the $300 million to $400 million in additional state money next year – half for ongoing costs and half in one-time funds – would cover the costs of teacher raises. But they said they were unsure if they can avoid teacher layoffs next school year or how they will pay for promised future raises.

The Legislative Analyst’s Office estimates that extra revenue in the May budget revision will raise K-12 Prop. 98 funding to $9,978 per student –$656 per student higher than the inflation-adjusted, pre-recession spending level in 2007-08. However, under the new funding formula, some districts with fewer English learners and low-income students are still well below that figure. And all districts will face substantial increases in pension costs for teachers, which will rise an additional $3.7 billion collectively over the next four years.

Reporters Jane Meredith Adams, Susan Frey, Michelle Maitre and Sarah Tully contributed to the coverage of the state budget.

Filed Under: Top Stories Tagged With: budget, Common Core, EdSource, education, Education Spending, Jerry Brown, UC System

Schools Look to Gobble Up Surging State Revenues

May 8, 2015 By Louis Freedberg and John Fensterwald 1 Comment

As Gov. Jerry Brown prepares to release his revised state budget for the coming fiscal year next week, educators around the state are looking forward to hearing about the additional funds they will receive, a dramatic departure from the bleak years of the recession, when they braced themselves for further cuts.

Even for the state’s most experienced school finance experts, predicting how much California’s schools will get in new revenues is a next to impossible task.

This year the task is especially challenging because of the unanticipated interplay between two voter-approved initiatives – Proposition 98, approved by voters in 1988, and Proposition 2, championed by Brown and approved by voters just last November – on top of many unknowns about how much tax revenue the state will generate from a variety of sources.

One thing is clear: Schools and community colleges will be the big – and possibly only – winners when it comes to dividing up the extra revenues.

The Legislative Analyst’s Office and others estimate that California’s surging economy could generate between $4 and $8 billion more than the state had projected.

“Schools are the big winner,” Mac Taylor, the state’s legislative analyst, said at EdSource’s 2015 symposium, held last week in Sacramento in collaboration with the California State PTA.

The additional funds will arrive at a welcome time for schools, which are still digging out from the impact of deep cuts made during the recession. Schools are also implementing a range of reforms, including the Common Core State Standards and the Local Control Funding Formula, which prescribes eight priority areas in which school districts are expected to show improvement.

Complicating how the new revenues will be allocated is the unanticipated interplay of Prop. 98 and Prop. 2, which could result in all non-education social services and state government departments winding up with little additional money or none at all.

That’s because Prop. 98, setting the minimum levels of school funding, requires that the state’s first priority in revenue-rich years is to bring funding levels for schools and community colleges up to the level they would have enjoyed if there had not been a recession. That amount, called the “maintenance factor,” currently totals $2.6 billion.

Prop. 2, meanwhile, mandates that the state set aside the first 1.5 percent of state revenue, plus additional dollars when the state is flush with tax receipts from capital gains, to pay down state debt and build a rainy-day fund. Money for Prop. 2 would be diverted from funding for non-education programs and services.

“It is a very unusual situation for my bosses – the members of the Legislature and the governor – that they may have to deal with this very strange world,” Taylor said. “They will have to take some actions to balance all the competing demands.”

Under one possible scenario that Taylor and the LAO laid out, the non-Prop. 98 side of the budget could receive $1 billion less next year than they got this year, possibly even requiring spending cuts that would put the Legislature in a bind and pit school advocates against a range of other interest groups. Taylor said programs subject to cuts could range from health and social services to higher education and criminal justice programs.

“There are many scenarios where the bottom line will be worse, where the Legislature will have to act to bring the budget in balance,” Taylor said.

Mike Herald, legislative advocate for the Western Center on Law and Poverty in Sacramento, said he expected legislators would find it “unpalatable” to reduce funding for human services in a year where there is going to be a substantial surplus. “It’s hard to explain to disabled adults surviving at poverty levels on Supplemental Security Income that they can’t get any increases for food when there are billions of dollars more in state revenue,” Herald said.

Brown’s budget for next year, which he proposed in January, assumed $7.8 billion more from Prop. 98 through a combination of increased state and property tax revenues for 2014-15 and 2015-16. About $4 billion of that will go toward ongoing funding for the Local Control Funding Formula, which provides extra money to school districts with high numbers of low-income children, foster youth and English learners.

“That is an enormous amount of new money in a relatively short period of time,” Taylor pointed out.

But school districts also face rising expenses, including increases in pension obligations for teachers and administrators that will be phased in, reaching $3.7 billion more per year by 2020-21.

Taylor noted that despite the massive inflow of funds to the schools in inflation-adjusted dollars, schools will only receive on average about $200 more per student than they did in the 2007-08 school year, when funding peaked.

“But if you think about what we went through, the worst recession in decades, the fact that we have bounced back and are above where we were at the beginning of the Great Recession, that is not bad,” he said.

Louis Freedberg is the executive director at EdSource. Email him or Follow him on Twitter.

John Fensterwald covers education policy.

This piece was originally published by EdSource

Filed Under: Top Stories Tagged With: budget, EdSource, LAO, May Revise, Prop. 98

Top 5 Taxes You May See on 2016 Ballot

March 13, 2015 By Joel Fox 1 Comment

Last June, I wrote a column forecasting from least likely to most likely the tax increase measures that might be on the November 2016 ballot given the conversations going on then.

Time for an update.

As is nearly always the case in the political world, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

By measuring fact, rumor and innuendo I’ll offer my reading of the top five tax possibilities for the November 2016 ballot.

First, a word about those that did not make the list this time. Previously, a soda tax was on the list but that possibility seems to have faded for the moment. Instead, advocates are considering labeling sodas with more information about the sugar content.

There is a constant buzz about restructuring the entire tax system and that has been heightened by the introduction of a bill by Senator Bob Hertzberg that would re-do the tax system, cut some tax rates, and introduce a service tax. Hertzberg hasn’t developed the plan in full as yet. Both the left and the right have attacked the idea. However, he also is working closely with the Think Long Committee, which has the resources to qualify a measure for the ballot. As of now, the idea is not ready for consideration.

To the list, then:

OIL SEVERANCE TAX. Previous Ranking #3.

Whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire Tom Steyer. He said he would rather work through the legislative process but the bill would unlikely pass the legislature. Steyer also is said to be interested in promoting an initiative that would require a two-thirds vote in local communities to approve fracking for oil. While he has the resources to do more than one measure, the odds are he would focus on just one, if any.

SURPLUS! NO NEW TAXES. Previous ranking: Unranked

Okay, this is obviously not a tax increase measure. However, with the recent announcement of one billion unexpected dollars in the state treasury many experts predict that the state budget will have a surplus of two billion dollars or more. Under such conditions, some observers suggest new taxes won’t fly with the voters, so why try? A lot will depend on the fiscal situation heading into next year’s budget, but even if the economy holds steady and the budget is in good shape, it is hard to imagine there won’t be at least one tax increase measure on next year’s ballot. Still, the chances are more likely today than they were a year ago that a surplus could stall the tax increase movement.

SPLIT ROLL. Previous ranking: #2

While there is still an on-going grassroots effort to promote a split roll property tax requiring business property to be taxed on a different basis than residential property, big players have yet to commit to funding such an initiative. Certainly, there would be big money spent to oppose such a measure so both sides are considering the issue carefully. The school establishment would have to step up to support a split roll and consider how a property tax on the same ballot with an extension of the Prop 30 taxes will play. Also, a school bond measure may be on the ballot attracting attention from the school folks. A couple of sources tell me a little air has come out of the split roll effort, so while it certainly hasn’t gone away, it drops to #3.

CIGARETTE TAX: Previous ranking: #4

The possibility of a cigarette tax on the ballot has moved up simply because some of the items in front of it moved down in the rankings. There really hasn’t been a change in the emphasis of a cigarette tax by proponents. They will try the legislative route but if unsuccessful will consider going to the ballot where they were very close to passing a measure the last time they tried. No Lance Armstrong on their side this time, which is a good thing, although they’ll miss the money his group donated.

EXTENSION OF PROPOSITION 30. Previous ranking: #1

No change here. Many insiders believe Proposition 30 would be the easiest tax to pass since it is already levied. Especially if the sales tax piece is removed, many voters would not directly feel the tax’s pinch. All the spending interests may not be happy since schools get most of the money, but extending Prop 30 still stands as the most likely tax measure to be on the ballot. The biggest question: What will Governor Brown say about continuing the “temporary tax?”

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Follow Joel Fox on Twitter @1JoelFox1

Originally published by Fox and Hounds Daily

Filed Under: Top Stories Tagged With: 2016 Election, budget, Cigarette tax, Fox and Hounds Daily, Gas tax, Joel Fox, Prop. 30, Property Tax, taxes

Committee Hearing Exposes UC’s Bloated Budget

February 27, 2015 By Dave Roberts 3 Comments

Tuition hikes marched to the head of the class at a recent hearing of California Assembly Budget Subcommittee No. 2 on Education Finance. Assembly members balked at a 28 percent tuition hike advanced by UC President Janet Napolitano and approved by the University of California Board of Regents.

According to the Los Angeles Times, “Neither the governor nor the California Legislature has the authority to force the UC regents to rescind the tuition increase.” However, the tuition hike is not included in the January budget proposal of Gov. Jerry Brown, himself also a regent, for fiscal year 2015-16, which begins on July 1.

Chaired by Assemblyman Kevin McCarty, D-Sacramento, the hearing flunked the UC system for wasteful and deceptive spending practices. A video of the hearing is here.

UC’s overall spending has grown by 40 percent to $26.9 billion since 2007, according to a report prepared for the Feb. 18 meeting. UC’s expenditures for instruction grew by 27 percent to $6.9 billion.

Yet during that same period:

Undergraduate enrollment by California residents increased just 4 percent.
Overall enrollment, including graduate and out-of-state students, increased 15 percent to more than 248,000 students.
Inflation increased about 12 percent.
The Higher Education Price Index, which measures the costs of goods and services typically purchased by U.S. colleges, increased about 18 percent.

Tuition increase

To help pay for UC’s spending increase, tuition increased 84 percent between 2007 and 2011. In Nov. 2014, the UC Board of Regents increased tuition and fees an additional 5 percent annually over the next five years to $15,564 from the current $12,192, pending legislative approval. The compounded increase is 28 percent.

Much of that tuition is supported by state taxpayers in the form of Cal Grants, which have increased from $295 million in 2007 to $882 million currently.

Some of the biggest cost drivers are employee salaries and benefits, retiree benefits and an increase in the hiring of administrators, according to the report:

“The number of highly paid UC employees has grown significantly. Nearly 6,000 UC employees earn gross pay of $200,000 or more. [T]he number of these employees has grown by almost 100 percent during that period, and overall pay to this group amounted to $1.8 billion in 2013.
“[A]dministrative staff, both in academics and other areas, grew far faster than faculty and faster than overall staff growth.” Tenure-track faculty increased just 3 percent from 2007-14, while senior management ballooned 32 percent and academic administrators grew by 19 percent.
UC believes its faculty members are underpaid in comparison with other universities. On average, UC’s full professors receive $150,455, associate professors make $98,804 and assistant professors get $91,155.
Pension benefits for more than 61,700 retirees and survivors total about $1.3 billion in the current year.
Employee health care costs grew between 8 percent and 11 percent annually from 2007 to 2012. Cost increases have slowed since then, but are expected to rise 6 percent this year. In addition, UC spent more than $263 million on retiree health benefits in 2014. The current unfunded liability for retiree health care is $14 billion.

The UC spending boost, tuition hikes and requests for more state government funding have created pushback in Sacramento.Gov. Jerry Brown and Assembly Speaker Toni Atkins, D-San Diego, are both UC regents and voted against the tuition hikes in November.

Brown has offered a 4 percent increase ($119.5 million) in General Fund support for UC. But only if there is no tuition hike, out-of-state enrollment doesn’t increase and UC begins to rein in costs. Brown and UC President Janet Napolitano have been meeting to work out their differences, with a report expected at the UC Board of Regents‘ meeting March 17-19.

Focus on students

At the start of the subcommittee hearing, Atkins emphasized the need for UC to get its spending in order.

“I announced in December that we would be looking at every aspect of the University of California’s budget,” Atkins said. “Every dollar appropriated [should be] spent for the intended purpose and in the right way. We will have open public hearings that are student-focused, looking at how much it really costs to educate students at UC and how we maximize UC’s acceptance of California students. No Californian should be priced out of UC.

“The state must do our best to make higher education a top budget priority. UC must do its part and become more efficient, enroll more Californians and not place increases on the backs of California students. Today marks the start of an overdue journey – a journey that will continue throughout the budget process for as long as it takes.”

Most of the testimony from witnesses at the meeting, with the exception of the UC representative, contended UC is not spending its money wisely or transparently. Paul Golaszewski, principal fiscal and policy analyst at the Legislative Analyst’s Office, led off by taking issue with UC’s contention that its professors are underpaid.

“We looked at data on faculty recruitment and retention over a number of years and concluded that it appeared that at the salary levels and the compensation levels they were offering, they had a very low turnover rate for faculty, something like 2 percent a year,” Golaszewski said. “It appeared that they were still able to get the types of faculty that they needed.”

He told the committee that it’s hard to know exactly what UC professors are doing to earn their salaries.

“Faculty workload data is much more difficult to come by,” he said. “We do have data on the student-to-faculty ratio. But that’s not telling you how much faculty are teaching. The University doesn’t track that data, the federal government doesn’t track that data. So that’s an area you might want to drill down and get a better understanding moving on.”

Undergraduates

Charles Schwartz, a retired UC Berkeley physics professor, has spent years analyzing and critiquing UC’s budgeting practices. His analysis concludes that UC spends an average of $7,500 per student on undergraduate instruction.

“They are charging undergraduates [tuition that is] almost twice what it actually costs them to provide undergraduate education,” said Schwartz. “That doesn’t sound right. What we face here is not just a UC habit of bad accounting, but a longstanding disease that infects all universities in this country. And this grossly distorts any discussion about student tuition, which is a big thing. People talk about it, but nobody says the truth about what’s going on.

“If you do not acknowledge the cost of that, and go about hiding that cost on the tuition bills of undergrads, this is not right. The challenge I bring to you is what can be done about it. The first thing you have to do must be to resolve the conflict between what I say about UC’s cost structure and what the president’s [Napolitano’s] office says it is. You need to find out which one of us is to be believed.”

AFSCME research director

Claudia Preparata, research director for American Federation of State, County and Municipal Employees, Local 3299, accused UC of having bloated management and hiding its cost. AFSCME represents 22,000 workers at UC campuses and medical centers.

“While we support more state investment, it needs to be tied to improved transparency and accountability for how UC spends its money,” said Preparata. “This is particularly true for UC executive compensation and the growth of middle management, both of which have come at a real cost to our employees, students and taxpayers. The lack of transparency obscures a redirection of money that used to fund instruction and other student services to [now] increasingly funding six- to seven-figure salaries and a growing army of middle managers.

“The numbers speak for themselves. In 2008 just 293 UC employees received gross pay in excess of $400,000 at a total cost of just $160 million. By 2013, after years of budget cuts and tuition hikes, 793 employees received these paychecks at a total cost of $452 million. During the same time period the cost of extra perks that 250 of UC’s highest paid employees receive – including housing, car allowances, moving costs and cash bonuses – swelled from $17 million to $24 million per year.

“We welcome the Legislature’s increased scrutiny of UC spending alongside a reinvestment in higher education. We believe the scrutiny should not be limited to the explosion of executive compensation, middle management, but also extend to policy directives that have paved the way for decentralizing financial decision making, eliminating transparency and enabling campus administrators to squander scarce resources, including outsourcing of UC career jobs to the lowest bidder with no accountability.”

‘Complex budget’

“It’s a very, very complex budget,” said Nathan Brostrom, the UC executive vice chancellor-chief financial officer. He believes UC has been a good steward of its funds. He described how UC has improved its pension system, which had been neglected during the financial crisis.

“First, we started contributions and dramatically increased them,” Brostrom said. “In 2009-10 we contributed zero as a university. This last year we contributed $1.3 billion – 14 percent of our employer contributions. That also couples with 8 percent from each employee. Second, we introduced a new pension tier, which increased the retirement age from 50 to 55 and the maximum age factor from 60 to 65. Finally, we also undertook internal borrowing, $2.7 billion, which has helped leverage and shore up the pension system.

“As a result, we have achieved some good results. We are now 87 percent funded, up from the mid-70s just a couple years ago. But we are bearing this entirely on our own. We don’t get any funding from the state for it, unlike any other state agency or the Cal State system.”

Aggressive efforts have also been taken to rein in health-benefit costs, he said. A new system called UC Care “is centered around our own medical centers to curb the costs and keep it in house,” he said. “We also undertook family member eligibility verification. As a result, we were able to contain the costs to 2.3 percent last year and 5 percent this year. And we are forecasting a 5 percent annual increase going forward.”

UC is also ensuring the continuation of in-state enrollment growth of 1 percent per year, or about 2,200 students, at a cost of about $22 million annually, said Brostrom.

Student-faculty ratio

One area that the UC has fallen behind in, due to a lack of funding, is the student-faculty ratio, he said. The ratio has increased to 21:1 from about 19:1 a decade ago.

“We really have not been hiring to replace the faculty members who are either leaving or retiring,” he said. “So there’s a fairly sizable amount that needs to go into new faculty hires. We also want to reinvest in instructional infrastructure, classroom technology and other instructional equipment.”

Brostrom concluded his presentation on an upbeat note. “Something we are most proud of is we are a world class university with very hard working, high achieving students, but we remain accessible to all Californians,” he said. “That’s something we not only maintained but enhanced during the budget crisis.”

Asked about the progress of Brown and Napolitano’s committee meetings, Brostrom said, “It’s been a very constructive process. We’ve been able to hear from experts both within the university and across higher education on different models and ideas. I think there will be things that will be constructive and helpful for the university to serve more Californians. Things that may help us reduce the time to [complete a] degree or increase streamlining of transfers. They may not all lead to cost reductions, but will provide more access to UC for all Californians.”

During the public comments portion of the meeting, numerous students complained about the high cost of tuition. They said it’s forced some students to become homeless, skip meals or work longer hours at a job, shortchanging their studies.

The subcommittee’s next hearing in early March will go into more detail on the UC budget, said committee Chairman McCarty.