California Legislators Spend $200 Billion And Taxpayers Get Less And Less

Tuesday, July 7, 2020
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California’s 2020–21 $202 billion state budget spends about three times as much per state resident, adjusted for inflation, compared to California’s 1990–91 budget. And this is after $20 billion of COVID-19 related budget cuts. But as you look around the state, you will not see this much higher spending at work. You will instead observe public schools that are falling apart and potholes on major streets that are large enough and deep enough to take out your rear axle.

You will see fellow Californians waiting in line outside the Department of Motor Vehicles, some standing for an hour or more because there are no portable chairs for them to sit on. And while you are out driving, you may need to take a detour from a flooded boulevard where a Great Depression-era cast-iron waterpipe has burst, wasting millions of gallons of water. This will remind you that California systematically faces severe water shortages, partially because the state chose not to invest in new water storage and delivery systems since the early 1970s.

So why is the state government spending three times as much per Californian today and getting so little in return? One reason is that California taxpayers seem to be far too trusting that their politicians will represent their best interests. I suspect that very few taxpayers have any idea how much state lawmakers are spending, what they are spending it on, and whether the spending is cost-effective. If they did, they would be demanding accountability from the politicians who pass these budgets and who continue to spend more and more on budgets that deliver less and less.

There is an enormous disconnect between the value of state-provided goods and services taxpayers receive and how much is spent. By nearly every metric, Californians should be wondering where the money goes, because it is obvious that many priority public goods are not being supplied and this is imposing big costs on taxpayers, particularly on low-income households.

How big? California roads are among the worst in the country, so bad that Los Angeles drivers spend about $3,000 more per year in car repair, car insurance, lost time, and wasted fuel than in the rest of the country. About 80 percent of schools have substantial deferred maintenance, including many that are at risk for earthquake damage. Over 75 percent of water pipes are at least seventy-five years old, creating ruptures that damage property and waste millions of gallons of water each year.

The state budget is increasingly being consumed by three broad categories: education, health and human services, and the state prison system. Those three now eat up more than 90 percent of the budget. And without reforms, these will just get even bigger, further crowding out other budget categories that are suffering woeful neglect.

The largest budget category is health and human services, which now takes up about a third of the budget and which has increased substantially since California took a deep dive into the Affordable Care Act (ACA). Medicaid spending has been the biggest cost factor here, rising one-third just between 2012 and 2016. More than fourteen million Californians—the equivalent of the fifth largest state in the country—are now enrolled in Medicaid.

This decision has been costly because Medicaid is not incentivized to be efficient or provide quality health outcomes. State administrators have made significant mistakes administering the program, including spending over $1 billion in just six months to ineligible beneficiaries. A 2016 review of California’s Medicaid administration found “several areas of concern and instances of regulatory non-compliance in some of the program integrity activities, which create a risk to the Medicaid program.” These issues “[should be] satisfactorily resolved as soon as possible, particularly those that remain from the earlier review.”

Medicaid tries to contain costs by reimbursing providers at very low rates, but this reduces the number of providers who will accept Medicaid patients. Fewer Medicaid providers means that Medicaid patients often wait a long time to be seen by a provider, which in turn incentivizes patients to go to the emergency room so they can be seen faster. The problem of using the ER as a primary care alternative was supposed to be solved by the ACA. Not surprisingly, it hasn’t. And there is no resolution to this mess without substantial health care reforms, none of which are forthcoming. This means that state-funded health care will continue to take much of the state’s budget resources and continue to deliver unsatisfactory results.

The second largest budget component is K-12 education. Despite higher spending on K-12, California student learning outcomes have improved very little and remain among the worst in the country, particularly in the important area of mathematics, where less than 40 percent of high school students are proficient.

Deficiency in mathematics is particularly troubling because math cumulatively builds on itself, which means that once a student falls sufficiently far behind, it becomes very difficult to catch up. We are doing a great disservice to these children’s futures because math—and the associated process of logical thinking and processing—is important in many high-paying jobs, ranging from engineering and computer science to finance, accounting, and auditing. Without an adequate math background, many California kids will not have a chance to compete for these jobs because we have implicitly chosen not to give students the tools they need to succeed.

Many studies show that introducing modest reforms that utilize the benefits of competition would improve learning outcomes considerably. These include teacher tenure reform, merit-based pay (instead of seniority-based pay), more effective use of new learning technologies, breaking the link between seniority and layoffs, and expanding school choice for families. As a consumer of education services, what’s not to like about paying the best teachers what they are worth, using new technologies to improve learning, allowing parents to break out of a local school monopoly, and changing the way in which lifetime employment is given to teachers?

Unfortunately, these reforms are consistently blocked. Those who block are teacher unions, who in turn provide plenty of political support to state lawmakers. Political influence has its privileges, because nearly 70 percent of taxpayers do not support teacher tenure.

A second reason why California’s budget is so expensive and doesn’t deliver what it should is that lawmakers push their personal agendas on others. There is a simple model for making a budget, a model that was used with great success in California in the 1950s and 1960s under both Republican and Democratic leadership. The model was that lawmakers were public servants who were evaluated on how well they governed and delivered what citizens prioritized.

The plan? Identify the public goods and services most valued by citizens, and then provide those goods and services at a reasonable cost. And lawmakers understood that public expenditures had to deliver a high rate of return, because those tax dollars reduced private spending at a time when households were much less prosperous than today. The idea of brazenly pushing a personal agenda at that time would not have been tolerated by the political leadership. That was an era when the term “public servant” meant something very different than what it means today, if the term is even used today.

About 36 percent of California households live at or near the poverty line, where an extra few hundred dollars per year can mean the difference between being able to pay the rent and fix the car or having to choose between the two. California’s latest state budget is not one that will help this group of Californians. They will continue to struggle to make ends meet, they will continue to deal with underperforming schools, they will continue to dodge potholes while driving, and they will continue to sit in traffic, burning the most expensive fuel in the country, because the state has chosen not to expand its transportation network.

Sadly, none of this will change until voters choose to change it. If only they knew.