CA Budget About HOW We Spend … Not Just How Much

Jerry Brown Legislature BudgetGov. Brown’s opening general fund budget gambit of $122.6 billion – total spending including bond and special funds is $170.7 billion – sets a new record for state government spending.  That the big increases are coming from the man many regard as one of the more sane of Sacramento’s top politicians does not bode well for taxpayers. After all, this is just a starting point.  Now the real fun begins with those less well grounded in economic reality starting the annual ritual of “making it rain” for their favorite projects and special interest employers.

To the governor’s credit, he is paying attention to paying down debt and strengthening the state’s rainy day reserve, a wise move considering that state revenue is highly dependent on top earners and is thus very vulnerable to an economic contraction.

Still, leading Democratic lawmakers want more – a lot more.  They are already complaining that that the budget does not spend enough on early childcare programs, grants to families on welfare, or provide more money for affordable housing.

Let’s concede at the outset that Californians have widely divergent views about how much money should go to all the various things government does. For example, there is a legitimate debate about how much money we, the taxpayers, should be paying to deal with the water crisis. Or how much for K-12 education? Prisons?  The list is fairly extensive.

But too often we neglect a very important topic when it comes to spending. That is, are we actually getting value for our tax dollars?  Per pupil education spending is important, but a poor indicator of educational outcomes. Total spending on prisons is irrelevant if we are releasing dangerous criminals back out on the street. Californians are angry at traffic congestion, but what good is more transportation spending if it doesn’t actually help people get to where they want to go? Californians are sympathetic to the needs of the poor, but are justifiably outraged when needed assistance fails to get to the truly needed and, instead, is used to buy luxury goods or pay for expensive vacations.

We know that Governor Brown is capable of recognizing waste, fraud and abuse. Just a few years ago he put forth a very credible 12 point pension reform plan that would have corrected most of the pension abuses in California. Regrettably, except for dealing with the most obvious of abuses, the reforms were shelved due to intense pushback from public sector unions. This means that the ever increasing percentage of the general fund budget going to address pension obligations is more than it needs to be.

Taxpayer advocates are constantly told that the amount of tax dollars lost to waste, fraud and abuse is but a tiny fraction of government spending. To be blunt, we don’t believe it – and mounds of evidence supports our disbelief. Even the Los Angeles Times several years ago pegged Medi-Cal fraud in the hundreds of millions of dollars.

To understand why more focus in the budget process should be on oversight, the observations of Nobel Prize winning economist Milton Friedman are instructive. He noted that there are four ways people can spend money:

  1. You can spend your own money for yourself. (Being careful both about how much you spend and on what you buy);
  2. You can spend your own money for somebody else. (Being careful about how much you spend but less careful about what you buy);
  3. You can spend somebody else’s money for yourself. (Being careful about what you buy but less careful about how much you spend); and
  4. You can spend somebody else’s money for somebody else. (Where you care less both about how much you spend and what you buy).

Friedman’s thesis is that what government does is spend money in the fourth way. And that is why any discussion about the California state budget needs to include the question of whether taxpayers are getting value for the hard-earned dollars they send to Sacramento.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Originally published by at HTJA.org

Brown Cautious in 2016/17 Budget Proposal

brown prop 30 california budgetChanneling philosopher George Santayana (“Those who cannot remember the past are condemned to repeat it”), Gov. Jerry Brown presented his budget yesterday looking to the future by considering the past. Warning that budget writers “put out of their minds” thoughts of recessions that could cripple state budgets, he vowed not to repeat past mistakes of building budgets that cannot be sustained in difficult economic times.

Brown offered a chart that showed the rollercoaster budgets over the last decade-and-a-half with big budget hits from the dot-com bust and the mortgage crisis. Brown said using the budget history as a template, his team predicted the effects of another budget shortfall, which could happen soon. The average economic recovery period is five years, the governor said, and California is well beyond that point now.

Presenting a chart that showed recent deficits in the red, to prevent future large deficits Brown said, “If you do what I want” there would be less red on a chart during the next recession.

Warning legislators against creating new programs that will continually require state funding—even if the ideas behind the programs are noble — Brown said, “Too many goods, too quickly, become bad.”

Will Brown’s warnings be heard by legislators?

Maybe. With the change in the term limit law, legislators will have more time to serve in the capitol. Actions they take now they would have to live with in the coming years (as long as they are re-elected).

Still, majority Democrats and interest groups plan to test the governor over budget priorities. Brown seemed prepared to confront new demands. “This is not a candy store that you can pick out what you want.”

Some groups would not bother with debating issues in the legislature but are planning to take their proposals to the voters via the initiative process.

Governor Brown was asked about a number of proposed initiatives. While he said he did not want to comment on initiatives, he did, dropping boulder-sized hints of what he was thinking on some prominent potential ballot measures.

On the Proposition 30 income tax extensions, Brown cited a “fatal flaw” in the measure by stipulating that none of the tax revenue collected by the tax extension would end up in the rainy day fund. (Brown’s budget is adding $2 billion to the fund bringing it up to 65% of its constitutional mandate.)

The governor in response to a reporter’s question said that Prop 30 could make a future budget deficit worse because the tax measure relies so heavily on high-end income taxpayers, who see great drops in their capital gains during recession.

On the minimum wage, the governor pointed out that because the state increased the minimum wage a dollar on the first of the month, the budget had to set aside an additional quarter-of-a-billion dollars from the General Fund to cover state workers. Should the $15 dollar-an-hour minimum wage ballot proposal become law that would cost the state an additional $4 billion. The money has to come from somewhere, Brown said.

Addressing the $9 billion statewide school bond already qualified for the General Election, Brown said much of the money would end up with affluent school districts. It is not well targeted, he said, arguing that the legislature can do a better job than the “developers” who put this together.

Originally published by Fox and Hounds Daily

Gov. Brown budget plan boosts spending but Democrats seek more

As reported by the Associated Press:

SACRAMENTO, Calif. (AP) — On its face, Gov. Jerry Brown’s proposed $122.6 billion California budget plan would seem to please Democratic interests by pumping billions of new dollars into public schools, health care for the poor and public infrastructure, even as it bolsters the state’s rainy day fund.

Brown touted his income tax credit for the poor, a cost-of-living increase for the elderly, blind and disabled and more funding for universities and colleges when he laid out his general fund plan Thursday. He also urged fiscal prudence, calling for the state to put $2 billion more than legally required into its rainy day fund, bringing it to $8 billion by the end of fiscal 2016.

“You’ve got to plan for the down and level that out,” Brown said at a news conference, pointing to a chart showing the state’s boom-and-bust revenue history. “That’s what I’m trying to do in the budget.”

The Democratic governor’s general fund proposal marks the first step …

Click here to read the full article

CA Tax & Spend Issues Reflect National Debate

Yesterday, two articles appeared that took note of circumstances surrounding California’s taxing and spending. As the most populated state in the union that is not too surprising. However, is the national attention a reflection of how the press sees some of the coming debates in next year’s presidential contest?

On the surface, the news report in the Washington Times and the editorial in the Wall Street Journal seem centered on local California matters. But each has strains that echo in the national debate.

The Washington Times focused on the effort to change Proposition 13 by creating a “split roll” to tax business property differently than residential property. The article talked about the difficulty in amending Prop 13 in the past but suggested a change in Californians’ voting habits might make the property tax reform more vulnerable.

Others don’t see it that way. Claremont McKenna College professor John Pitney was quoted in the article. “A lot of Democrats would like to see it pass, but their messaging tends to work against it. Gov. Brown and other top Democrats have been touting robust revenues in recent months. But if government coffers are so flush, why raise taxes?”

The issue of those robust revenues was the subject of the Wall Street Journal editorial. The message from the Journal editors was to remember when past California legislatures splurged with surplus dollars only to face a day of reckoning when the economy hit a downturn.

The Journal complained that while much of the new spending is aimed at the poor, the spending programs instituted for the poor seemed to do little to relieve the problem of poverty with California maintaining the nation’s highest poverty rate. The Journal suggested the tax system was to blame for chasing middle class manufacturing jobs away.

The financial equality issue will certainly be a focus of the presidential debates. California’s experiments in searching for a solution to aid the poor through expanded spending programs will be fodder for that debate.

Meanwhile, the campaign to undo a portion of Proposition 13 is another “tax-the-rich” effort. The Washington Times observed the campaign to change the measure is focused on “giant corporations” and “America’s wealthiest commercial property owners.” This approach falls neatly into the anti-Wall Street rhetoric on the national level.

Of course, the split roll is not the same thing as attacking Wall Street. A split roll would affect all of California businesses.

The national media is interested in the themes presented by the California taxing and spending discussion. Will they sway potential voters? After all, Proposition 13 itself was the catalyst for changing the conversation about taxes in the 1980s. Those who desire to change that conversation would start with changing Prop 13.

California has often been called the bellwether for what will happen next in American political circles. How the California campaigns on taxes and spending progress (or do not progress) may once again serve that bellwether role.

Originally published by Fox and Hounds Daily

BURNING MONEY: Congressman Publishes 10 Most Atrocious Examples Of Government Waste

Sen. Tom Coburn’s legacy of exposing the worst of the federal government’s waste in his annual report may have a new man to carry the torch.

Freshman Republican Rep. Steve Russell laid out 10 of the worst instances of government waste Tuesday in his first “Waste Watch” publication, the Washington Examiner reports. The waste totaled more than $117 million and ranged across several government agencies. Coburn’s wastebook became famous for exposing government waste, but he retired at the end of the last session.

Here are Russell’s top 10 examples of terrible government waste.

1. U.S. Builds Melting Walls

The U.S. military spent $456,669 on a training facility in Afghanistan that melted when it rained. The military had the “dry fire range” built to use as a training spot with Afghan special police, but since the structure was built with bricks made mostly of sand, it only took four months for the walls to disintegrate in the rain.

2. Uncle Sam Pays For Contractors To Party Like It’s 1999

International Relief and Development, a nonprofit contractor that received about $2 billion in federal money to rebuild struggling countries, threw multiple lavish get-togethers that totaled $1.1 million. It billed the federal government for the parties – which included spa treatments, crystal chandeliers and a private zoo – saying they were for “training” and “staff morale.”

3. The Federal Government Accidentally Funded An Anti-U.S. Movie

In 2013, the U.S. embassy in Iraq paid for five Iraqi filmmakers to fly to the states for film classes at UCLA. As part of the program the students received a stipend to fund their own movie. One of the students, Salam Salman, focused his film on the 2007 shooting of 17 Iraqis by the U.S. private security company, Blackwater, an incident that hurt America’s reputation in Iraq.

4. More Explanation Needed For Big Payouts To Afghan Government

The Department of State gave the Afghan government $100 million in 2014 to help it close a budget shortfall that the Afghan leadership said was dire. Critics have blasted the department for failing to explain if the money was necessary and if the department will do it again. The funding of projects in Afghanistan has been rife with waste for years.

5. Storing Way Too Much Stuff For Way Too Much Money

The Department of Defense spent $15.4 million in 2013 to store millions of cubic feet of equipment that no one in the military needed for five years. Some of these items could be useful but much of it is outdated or costs more to store than it would cost to simply throw out and buy a new one. For example, one component of a power mast worth $391 cost the DOD more than $8,000 to store.

6. Feds Help Amateur Filmmakers Use Video Games

The National Science Foundation shelled out almost $700,000 to help amateur filmmakers create movies by using 3D characters in virtual worlds. The goal was to reduce the barriers to learning the technical skills involved. At least it sounds fun.

7. Government Teaches Conflict Resolution Skills To Moroccan Teens

The United States Agency for International Development dropped $559,000 in the last two years to teach teenagers in Morocco “public speaking, team building, and conflict mitigation techniques” in the hopes of reducing extremism. How effective this will be at reducing Islamic extremism is unknown.

8. A Lot Of Dead People Are Still On Social Security

About 6.5 million social security accounts belong to people who are at least 112 years old, which means all but a few are dead. Although the Social Security Administration sent few payments to these accounts, active accounts exemplify issues with record keeping for deceased individuals that are ripe for abuse by scammers who can continue claiming the benefits for the dead person and impersonate them to defraud other agencies.

9. The Environmental Protection Agency Spent Big To Track How Much Water You Use In Hotel Showers

The EPA spent $15,000 to create a system to track how much water each hotel guest uses during their stay. The hope is to encourage people to conserve more water when they see their consumption on a smart phone app.

 10. Missile Defense Agency Jumped The Gun And Overpayed Big Time

The MDA overpaid for a big contract by $11 million dollars even after an auditor warned it there could be problems. An auditor told the agency there was $200 million in questionable costs and needed more time to finish the audit before it should sign the deal. The audit was five days from revealing the massive waste, but the impatient agency went ahead and agreed anyway, a costly mistake.

Read the full report here.

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Originally published by the Daily Caller News Foundation

People Believe That Government Wastes Money Because It Does

According to a 2014 Gallup poll, Americans believe that their state government wastes 42 cents of every tax dollar. However, here in California, the political elite dismiss citizens’ widespread concerns about waste and, instead, complain that the taxes they collect from beleaguered taxpayers are not enough.  This complaint is hard to understand given that California has the highest income tax rate in America as well as the highest state sales tax rate.  Oh, and did I mention that we also have the highest gas tax in the United States?Notwithstanding this heavy tax burden, our political elites in Sacramento have recently put forward numerous proposals to raise taxes even higher, including new taxes on services, property, gas, oil and tobacco.  Apparently, it has never occurred to them that perhaps they should address the endemic waste, fraud and abuse that permeates all levels of government in California.

To set the record straight, the Howard Jarvis Taxpayers Foundation has released a new report titled Follow the Money 2014, documenting numerous specific examples of government waste that cumulatively add up to billions of dollars.

Politicians and bureaucrats are likely to ignore this information while continuing to demand more money, but taxpayers should hold them accountable for the mismanagement of our state.  The report includes instances of waste such as $848 million in overpayments by CalWORKs, $194 million in uncollected bills at the state toxics agency and University of California officials who seem to believe they should not have to disclose how they spend billions in taxpayer funds.

While the report sets forth numerous examples of waste, fraud and abuse, it still represents the tip of the iceberg. Last year’s report for 2013 exposed instances of waste, fraud and abuse was disheartening enough, but here we are in 2014 seeing that politicians have squandered billions of dollars more.

When taxpayers hear politicians talking about the need for “new revenues,” HJTA’s Follow the Money report provides a strong counterpoint as to why higher taxes are unjustified.  Despite the explosion of taxing and spending, our roads are ranked among the worst.  Although education spending has nearly doubled on a per capita basis since 1970, the US Chamber of Commerce Foundation gave our state an “F” for effectiveness per dollar spent.

Instead of devoting their energy to concocting new schemes to tax people more, California policymakers instead should channel their attention in a constructive way and focus on real solutions to our state’s chronically high unemployment and poverty.  And as the Follow the Money Report makes clear, our state leaders also need to focus on how they use the abundant resources given to them by taxpayers in ways that are neither wasteful not fraudulent.

Until that happens, taxpayers are well within their rights to reject any and all new tax proposals.

The report can be downloaded by going to HJTA.org where it will be found under “Hot Topics.”
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Billions Of Taxpayer Dollars Are Spent … Collecting Taxes

If Americans understood how much it costs the IRS to collect taxes, and how much it costs for taxpayers to file them, they might demand change, an economics lawyer said Friday.

“We’re talking about a massive amount of money,” Dan Mastromarco said at a Heritage Foundation event on tax compliance. “If we put that into a cure for childhood diabetes, cancer — pick your poison — space exploration. What we could do with that money that we just literally throw away.”

The vastness and complexity of the tax code contributes to high compliance costs, a huge number of people intentionally or unintentionally failing to pay the right amount of taxes, and a costly burden on the economy. The IRS reports it spends 41 cents per $100 to collect taxes, but the true cost is closer to $45 per $100, or $978 billion, when those factors are accounted for, according to research compiled by Mastromarco.

The code, which consists of 4 million words, is so complex, even the IRS can’t understand it, he said, pointing to a list of questions the IRS’s own taxpayer advocate service was unable to get the answers to. And the IRS could only answer 30 percent of more than 90 million requests for assistance in 2010.

“We really haven’t made this very clear to the American people,” he said. “They don’t see it. They don’t feel it. They don’t understand what this equates to — this is a huge amount of money. This is a good year of economic growth. This is beyond the GDP of many of the world’s countries.”

Mastromarco called for the IRS to disclose a more accurate accounting of the cost of its code to taxpayers, which might wake them up to the costly reality of the tax code.

“The reason nothing’s been done about this, is because we’ve gotten really good at making the pain gradual — making it so that we can’t see it,” he said. “We’re effectively numb to it.”

“Our goal should be to make compliance costs understood and transparent, and painful to the American people,” he added.

Mastromarco is a lawyer who has represented Fortune 500 companies, and has worked as assistant chief council for tax policy at the Small Business Administration and special U.S. trial attorney at the Department of Justice’s tax division.

Tax reform is an issue that may be taken up the new Republican-controlled Congress next year.

This article was originally published on The Daily Caller News Foundation.

The California Redevelopment Dispute

The fate of California’s redevelopment agencies (RDA’s) is frequently discussed in the news these days. However, resolution is close—on November 10th, oral arguments will be heard by the State’s Supreme Court in the case California Redevelopment Agencies v. Matosantos.

The issue at hand in this important case is the constitutionality of Governor Jerry Brown’s proposed elimination of all 400 of the state’s redevelopment agencies. A critical facet of his budget proposal, Brown claims the move will save the state $1.7 billion this year. Characterizing the state’s redevelopment agencies as a “piggy bank” from which the state must now draw, he plans to redistribute the money back to counties, schools, cities and other special districts.

However, he’s also proposed that RDA’s can avoid elimination if certain steps are taken by their local jurisdictions, including an agreement that the RDA’s will pay $1.7 billion this fiscal year and $400 million in subsequent budget years in statutorily mandated revenues to school entities and other special districts.

Panicked redevelopment agencies are contending that the proposed cuts violate Proposition 22, passed by voters in November 2010, which prohibits the state from borrowing or taking funds used for transportation, redevelopment or local government projects.

Opponents to Governor Brown’s proposal feel that RDA’s are needed more now than ever as the state struggles to recover from the recession. The wholesale elimination of RDA’s, they maintain, eliminates important tools to spur job creation, increase tax revenues, and induce economic growth.

However, proponents of Governor Brown’s proposal, including State Controller John Chiang, claim that RDA’s are mismanaged and waste funds that would be better used to pay for schools and other critical services. Chiang, who recently reviewed 18 RDA’s statewide, cited numerous reporting flaws, questionable payment practices and inappropriate uses of affordable housing money.

This issue –like so many the justice system and voters encounter– begs the question: which decision will positively impact the most people? If political radical and philosopher Jeremy Bentham, an early advocate of utilitarianism, were to ponder the situation, would he lend support to Jerry Brown, attempting to balance a budget and mindfully funnel funds into what he believes are our most critical areas of need; or would he cast his vote with the RDA’s, who enable and encourage local government autonomy and revitalization?

There’s no denying that the ruling by California’s top court – whether in favor, or a rejection of Governor Brown’s controversial move – will impact taxpayers and jurisdictions across the state.

The court has promised a decision by January 15, 2012, which is when the first RDA payments would be due.

(John Hancock is the President of the California Channel.  This article was first posted in Fox & Hounds.)

All rise for Supreme Court hearing on redevelopment

From the Sac Bee:

The California Supreme Court is hearing oral arguments this morning in one of the state’s budget nail-biters, California Redevelopment Association v. Matosantos.

Cities and redevelopment agencies have sued to stop the state from axing 400 or so agencies while letting them reopen if they contribute funds to schools. Here’s the case summary, courtesy of the court:

Original proceeding. The court issued an order to show cause directing the parties to show cause why the relief prayed for in the petition for writ of mandate should not be granted. This case involves the validity of recent legislation … dissolving and reenacting with changes the statutory framework for redevelopment agencies.

The state Supreme Court put the case on a fast track, placing most of the new provisions on hold and promising to issue a ruling by mid-January. The California Channel will air the hearing on its local cable channels as well as its website, www.calchannel.com. It runs from 9 to 10 a.m.

(Read Full Article)

Californians Should Get Another Vote on High Speed Rail

Imagine you found the house of your dreams. The price is $450,000. You sign papers only to later learn the sellers made a mistake. The price for the house is actually $1 million. Fortunately, under California real estate law, you can back out of the deal. But if you were a California voter buying a train instead of a house, you might be out of luck.

In November 2008 California voters narrowly approved—by a vote of 52.7% to 47.3%— Proposition 1A. The measure authorizes nearly $20 billion in state spending to establish high-speed train service linking Southern California counties, the Sacramento/San Joaquin Valley and the San Francisco Bay Area.

At the time, the entire project was expected to cost about $45 billion. Proponents claimed funds from other public and private sources would cover the project’s remaining costs.

Tom McClintock, Jon Coupal and I co-authored the opposition ballot argument. We called the measure a “boondoggle” that “could cost $90 billion—the most expensive railroad in history.” We warned that no one really knew how much the project would ultimately cost.

After years of waste and mismanagement, California’s High Speed Rail Authority (CHSRA) has finally admitted what critics like us warned all along: “Building the entire system will take longer and cost more than previously estimated.”

In fact, the price tag for this risky transit gamble is now nearly $100 billion—more than twice the original estimate. The new number is greater than California’s entire annual state budget. To fund the entire project today, every Californian, including men, women and children, would need to write a check for more than $2500.

Without those checks, existing funding will only be enough to cover the first phase of the project connecting Fresno and Bakersfield. Should additional funding materialize, Merced and San Jose will be the next stops.

Despite the uncertainty, the folks at CHSRA claim California voters still want to buy this train. At a recent press conference, CHSRA chair and former Democrat Assemblyman Tom Umberg said, “There are some things that do change—development changes, cost changes. But the will of the California voter, I believe, remains the same today…”

Mr. Umberg might believe California voters are still on board, but I’m not so sure. Much has changed since 2008. California’s unemployment rate has risen from single to double digits, the state’s budget has become much, much tighter, and our credit rating has been downgraded to the worst of any state in the nation.

Further, the deadly collision of two high speed trains in China earlier this year has prompted new worries about the safety of high speed rail and led to the recall of 54 trains, reduced speed limits and a moratorium on new projects in that country.

Finally, renewed concerns about our nation’s debt and overall government spending make the outlook for federal funding far less certain. Congressman Kevin McCarthy has introduced a measure that would freeze federal funding and require a thorough audit of the project. The measure, introduced last month, is being co-sponsored by nine other California congressmen.

Perhaps California voters support high speed rail regardless of the cost. If so, high speed rail proponents shouldn’t fear a new vote on their new plan. If not, it would be a breach of contract—or as liberal columnist Tom Elias puts it—“a bait and switch”—to move forward with a costly plan that is little like the one Californians voted for three years ago.

As even Mr. Umberg admits, there are other options for improving California’s crumbling transportation infrastructure. One hundred billion dollars—or even a smaller portion of that number—could do much to improve the roads, freeways, ports and airports Californians use every day. The taxpayers who will foot the bill should make this call.

To that end, Senator Doug LaMalfa plans to introduce legislation putting the project back on the ballot. California taxpayers should support his effort and urge Governor Jerry Brown, the Legislature and the CHSRA board to do the same.

(George Runner represents more than nine million Californians as a member of the State Board of Equalization. For more information, visit www.boe.ca.gov/Runner. This article was first published in Fox & Hounds.)