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California Budget Update

Original post made by stephen levy, University South, on May 19, 2012

California continues to struggle with state budget deficits. Revenues are rising but not by enough to eat into the deficit as health care and other costs continue to increase. In addition the state now faces paying back funds that were "borrowed" to balance past budgets and are now due.

At the same time education funding is declining in terms of real funds per student and all segments of the public higher education system are seeing cuts in state funding, increases in tuition and cuts in class offerings and enrollment. These education cuts go against the fact that CA will depend more in the future on the education of our children and the higher education cuts reduce access at a time when we need to increase access.

California competes for talented workers and entrepreneurs and needs to offer world class education, infrastructure and public services to compete successfully in the future.

The CA budget deficit ($16-17B for this fiscal year and next) seems unresolvable but yet it is less than 1% of our annual state income for residents and businesses. At the same time the federal deficit and those in many European countries is upward of 10% of GDP.

So we have one-tenth as large a budget challenge as the nation but you would never know it from comments on Town Square and elsewhere. The Town Square comments accurately reflect the strong feelings and lack of compromise seen also in the Legislature. Although residents in polls want to maintain and increase most services, especially in education, and they are open to more taxes on upper income families, they are less willing to tax themselves.

I will vote to restore the revenues cut earlier in this decade although I would have preferred a sales tax on services to the rate increases proposed by the Governor and Molly Munger.

I also think a new social contract on public employee retirements benefits needs to be developed. While much focus is on pensions, the other large growth area is retiree health benefits reflecting the national struggle to get health care costs under control.

Cities, like Palo Alto, are beginning to develop new arrangements for retiree benefits but the state still needs to step up. In addition it is probably right to reduce the expected rate of return on pension investments although this will increase the amount needed to be set aside.

While necessary retiree benefit reforms will have most payoffs only after several years.

For the moment I am not optimistic that any sense of compromise will surface to resolve the state budget situation.

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