A Need for Knowledge

January 28, 2010

I suppose I shouldn’t be surprised about voters’ lack of knowledge of where the state gets its money and how that money is spent. Urban legends about the budget abound on both the left and the right. Still, the findings of the Public Policy Institute of California’s (PPIC) new poll were a bit surprising. Nearly half (49 percent) of the Californians surveyed by the PPIC answered that prison spending accounted for the largest share of state spending. Perhaps even more surprising, only 16 percent correctly answered the question with K-12 education. While corrections spending is on the rise and school spending has declined, the state still spends more than four times as much on schools as it does on prisons and corrections.

Californians were almost as confused about where the state’s dollars come from, with slightly more than a quarter correctly answering the personal income tax, which, in fact provides over half of the state’s general purpose revenues.

Only 6 percent of Californians and 8 percent of likely voters correctly answered both questions. Yet, nearly three-quarters of those surveyed believe that the voters should decide major questions of how the state raises and spends its money at the ballot box.

Based on these findings, we’d posit that there’s a significant need for increasing voters’ knowledge of the basics of public finance: How the state raises money, where that money is spent, and the rules that govern budgetary decision-making. That’s a fundamental part of our mission here at the CBP and clearly we’ve got our work cut out for us.

– Jean Ross

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Look North

January 27, 2010

Until last night, 2010 wasn’t shaping up to be a very good year for those of us who believe that public policies are critical to building strong families, communities, and economies. With health reform and climate policies potentially stalled in Congress and yet another massive budget shortfall here at home, there wasn’t a lot to cheer about.

Yesterday, Oregon voters gave us something to cheer about. Voters approved Propositions 66 and 67 by wide margins. These measures increased tax rates on high-income Oregonians and imposed a modest hike in corporate taxes.

Pundits, politicians, and pollsters debate public preferences as to how the budget should be balanced. But as the old saying goes, the only poll that really matters is the one on election day. And yesterday, Oregonians decisively demonstrated their support for schools, health care, and other services and the taxes needed to pay for them. Thank you, Oregon, for giving us something to cheer about.

– Jean Ross

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More Californians Giving Up Job Search

January 22, 2010

California’s jobless rate has stabilized, but don’t break out the champagne just yet. The unemployment rate has stopped rising because hundreds of thousands of jobless Californians are giving up their search for work. Consequently, fewer Californians are being counted as unemployed, even if they want jobs.

The state’s jobless rate held steady at 12.4 percent in December – equal to November’s revised rate, and just one-tenth of a percentage point lower than October’s rate. The unemployment rate flat-lined in December because more than 100,000 Californians dropped out of the workforce that month. This marked the largest monthly decline in the state’s labor force since the recession began and the eighth consecutive month that the workforce shrank. In total, California’s workforce has declined by nearly 400,000 individuals since April.

With another 38,800 jobs lost in December, more workers have simply become too discouraged about their job prospects to search for employment. The number of Californians who want a job and are available to work but are too discouraged to look for employment has more than tripled over the past two years. These jobless Californians are not tallied in the official unemployment rate once they go more than four weeks without searching for work. As a result, the top-line numbers in today’s unemployment report make the current economic situation look much rosier than it really is.

Given that hundreds of thousands of Californians have left the workforce in recent months, California’s jobless rate is likely to remain high even after hiring picks up. Many, if not most, of those workers will eventually come back to the labor force to search for work, adding to the total number of unemployed who are competing for jobs. Indeed, the latest forecasts from the Legislative Analyst’s Office and the Department of Finance project that California’s annual jobless rate will remain in the double digits through 2012. This makes it even more important for Congress to provide another extension of unemployment benefits before they expire in late February.

– Alissa Anderson

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Does California Get Its “Fair Share” of Federal Funds?

January 19, 2010

In his State of the State address, the Governor described the federal government as “part of our budget problem,” claiming that California only gets $0.78 cents back in federal spending for each dollar of taxes paid by California taxpayers. We’ve never been big fans of the debate over whether California and Californians get back in federal dollars as much as they pay in federal taxes. We’re one of the 50 United States and we’re part of a federal system. And the capitol of the federal government is in Washington, DC, not Sacramento. As a result, a disproportionate share of federal dollars are spent in the District of Columbia and nearby Maryland and Virginia. New Mexico, a state cited by the Governor in his speech, receives a large number of federal dollars because it is a small, poor state, but also because it is home to the Sandia and Los Alamos National Laboratories – which receive a large volume of federal funds.

It turns out that that not only is the Governor’s argument flawed from a policy perspective from our point of view, it is also based on seriously flawed data. California Senator Barbara Boxer released an analysis of how much California receives in federal funding that shows that, in fact, the state received more in federal funds in 2009 than state residents paid in taxes. The Boxer memo was posted on John Myers’ Capital Notes blog. Never one to accept someone else’s data without question, we reviewed the data and assumptions behind the data. Our own analysis suggests that California actually receives $1.50 back for each dollar in taxes paid, a figure slightly higher than the Senator’s.

How can the numbers be so different? The Governor’s figure is based on 2005 data and a deeply flawed study by the Tax Foundation. Using figures from 2005 ignores the significant infusion of federal funds from the American Recovery and Reinvestment Act (ARRA) of 2009. The second flaw with the Governor’s data comes from the assumption that all federal expenditures are paid for in the year incurred. This is tantamount to saying that there’s no federal deficit – an assumption that we know to be untrue. The federal government is spending more than it takes in largely due to moneys spent to respond to the “great recession,” as well as the cost of the wars in Iraq and Afghanistan.

We strongly believe that there’s a case to be made for federal aid to all states, not just California. With most states facing serious budget shortfalls, there’s reason to fear that another round of state and local government budget cuts could push the nation back into recession or, at a minimum, delay what is already anticipated to be a weak recovery. We hope the Governor will change his tune, join with his fellow governors, and call on Congress and the President to build on the success of the ARRA by providing states additional funds to blunt the impact of budget-balancing efforts.

Finally, if the Governor wants to take a positive step toward ensuring that California receives the funds and the representation in Washington that we deserve, we’d offer a modest suggestion: Support efforts to ensure a “full count” in the 2010 Census. Now that’s an idea we should all be able to agree on.

– Jean Ross

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Not To Flog a Dead Horse

January 14, 2010

Last fall, we argued that it appeared that the recommendations of the Commission on the 21st Century Economy (COTCE) were not, in fact, revenue neutral and that the proposed Business Net Receipts Tax would raise less than the tax that the Commission proposed to reduce or eliminate. In testimony before the Assembly Revenue and Taxation Committee yesterday, the Legislative Analyst’s Office (LAO) concurred with this analysis and estimated that the COTCE proposal would leave the state $10.2 billion short. With the long-term forecasts by both the LAO and the Department of Finance projecting red ink as far as the eye can see, that’s yet another reason why the COTCE proposals are a bad bet for California.

– Jean Ross

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