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Disgusted with the California Budget

Posted by kevindick in Economics, Government, Voting on May 19th, 2009 | View Comments

First, let me apologize for the posting lull. I've been busy with work and also struggling with a sinus issue that has sapped my discretionary intellectual energy. But enough about me. In honor of California's special election on budget measures, I thought I'd shed a little light on the fundamental problem. Contrary to what polticians are saying, the cause of the budget problem is not falling revenues in a recession. Rather, the cause is a dramatic increase in spending over the last 10 years. If you live in California, you've probably read or seen numerous news stories about all the sacrifices in services we have to make to balance the budget. When I saw them, I became curious about how would go about making these difficult tradeoffs. From a public policy perspective, this is an interesting problem. I started looking at some historical data to get an idea of the choices we made on the margin in the past. The thinking is that newest spending categories probably have the least benefit. But my analysis went of the tracks very quickly when I discovered just how much spending has ballooned. In about five minutes of Googling, the problem was obvious. First, I found historical state and local per capital spending here. You have to look at state and local expenditures together in California. There is a lot of transfer of funds back and forth, as evidenced by the budget measures aimed at raiding local coffers for state needs. This data is from the US Census Bureau’s annual survey of State and Local Government Finances (which goes back to 1992). Now, it's in nominal dollars so I went to Bureau of Labor Statistics Consumer Price Index calculator to convert everything to 2009 dollars. Here's the resulting graph of state spending controlled for both population and inflation from 1992 to 2009: CASpending

As you can see, spending was flat from about 1992 to 1999. But in only 10 years, real per capita state and local spending has increased a whopping 38%! According to the official numbers for the 2009-2010 budget, we expect $86.3B in revenues and $111.1B in expenditures, for a current year gap of $24.8B (there's another $13.7B carried over from last year, but we wouldn't have had that either without the spending increase). If we had just managed to keep our real per capita spending at 1999 levels, we would only need to spend $80.4B today. That means that we would have a $5.9B surplus! So it's definitely spending growth that is the issue. Now, I don't know about you, but I can remember 1999 pretty clearly and I don't think I'm getting 38% better services. Do you? This sorry state of affairs viscerally disgusts me.

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ace

@Terrence $8200 per pupil for education. If we estimate there are 30 kids per class then each teacher is "generating" $246,000 in revenue! Let's subtract their salary of $30k. "Rent" for a space of 1000 square feet would be another $30k. $5k for furniture and $5k for supplies leaves $170,000 left over per classroom.

Let's assume that there are 20 classrooms per school. We have $3,400,000. We need some custodial help and say two managers. Call that another $150,000 in salaries.

Anyway you see where I am going...this is a business I want to be in!
Jay Greenspan

@Terence: do you happen to know how these numbers were impacted by No Child Left Behind and/or Prop 13?

It seems to make intuitive sense that the combination of Federal mandate and a lack of any ability to raise money through property taxes, the typical source in this nation, would put the burden on the state government.

I'd also be curious to see what impact rising health care costs have had overall. I tend to think that the increased cost of insuring state workers and caring for the uninsured over this time would be a terrible burden.
danielhorowitz

I think most states have significant increases in education expenditures over this time period.
rafefurst

The kids part should be a good thing, one would think. Is there any indication that the education system in CA is getting better since the increase?
Terence

So, I took at look at the state budget numbers (which won't indicate where any local spending increases may have come from), and here's an initial conclusion: kids and criminals. The state general fund spent about $58B in 1999, and about $90B in 2006. The biggest source of increased spending is kids and criminals. In 1999, per pupil K-14 spending was $5752. By 2006, this had become $8244. K-14 makes up the largest chunk of state spending, clocking in at $55B in 2006.

Another interesting increase is the cost of incarceration in CA. Judiciary and criminal justice cost the state about $6.4B in 1999, and had grown to over $12B by 2006. (There is upcoming non-discretionary spending coming up here because of the ruling that CA prisons have to build new health care facilities, which is going to tack somewhere around $8B to that number.)
rafefurst

Nice analysis.

So where is the extra 38% going to?