Our new governor has “proposed a new budget”:http://www.latimes.com/news/printedition/front/la-me-budget10jan10,1,6395213.story?coll=la-headlines-frontpage. It’s a challenging budget, to meet the challengingly large deficit we seem to have run up. But it’s not a very good budget. If the state were a business (and, really, it is just a specific kind of business), it would be mortgaging long-term success to reach short-term profitability. Wall Street may like that, but it doesn’t benefit buy-and-hold investors or expensive-to-train employees.
Now, any budget needs to do two things:
- Cut or finance the existing deficit
- Be deficit-free going forward
It needs to do these things without compromising the state’s key business activities:
# Bringing in new employers
# Encouraging existing employers to increase payroll
# Ensuring that citizens live safely
# Providing opportunity
So, how does the budget do at accomplishing A and B, while still continuing to carry out 1-4?
It does a mediocre job of A. There have been some cuts, but the Governator decided to back down when he was caught cutting services to the handicapped, and much of the rest of the cuts come from taking back funds that had previously been given to local government. There are some fee increases to create new funds , but no tax hikes, unless you count fees as taxes. Sacramento apparently doesn’t, but there’s really no difference. Fees work just like any other product pricing, they’re set to be high enough to actually create income but low enough to ensure that lots of people pay them. So, statistically, you’re likely — almost sure, even — to pay the fee. What’s the difference between a tax you must pay and a fee you will pay? So, higher taxes, moderate cuts, A is done but not done well.
It also does a pretty bad job of B. Apparently next year’s deficit “could run as high as $7 billion”:http://www.latimes.com/news/printedition/front/la-me-budget10jan10,1,6395213.story?coll=la-headlines-frontpage. It’s a start, but I’d rather see a two- or five-year plan to fix things up; that makes me feel better about baby steps.
What about #1? Does the state keep doing that? The theory is that, by not raising taxes, or fees on business activities, we keep businesses coming to California. But businesses have come here for decades with moderate taxation levels. They come here for the giant economy, they come here for the educated workers and the great ideas that come out of this state. Increasing fees for higher education could potentially threaten that.
So can taking monies back from local government. These are the entities that provide services like police and fire, upon which even the largest corporations rely. Will businesses move to benighted cities? We proved the answer to that question is “no” about 30 years ago. Keeping taxes down while increasing insurance costs is no good deal for business.
How about #2? Well, there will be some cuts that may “reduce job-training opportunities”:http://www.latimes.com/news/printedition/front/la-me-cuts10jan10,1,3323131.story?coll=la-headlines-frontpage, but, in today’s environment, it will be a long time before those who are in need of such training receive jobs. It’s probably a wash here.
For #3, well, taking money away from local government may have a very negative effect on safety. Funds will disappear from police and fire and prisons. Exactly how cities and counties will deal with this is unclear, but there could be decreases in headcount in public safety departments and even the release of some prisoners. Seems like a bad idea; see the potential increase in insurance costs mentioned above.
#4 is a very nebulous task. Providing opportunity; what’s that? Whatever it is, it’s likely that cuts in education funds and increases in college fees, along with a decrease in services for children, have at least a small negative effect on opportunity.
So here we have a budget that doesn’t really solve problems and doesn’t do a good job of doing the things that states need to do. How is that good business?