Tuesday, July 30, 2013
Balanced budget is only the first step
There has been plenty of celebration about California having a balanced budget this year without needing to resort to deep spending cuts. After years of severe shortfalls, there is much to like about a balanced budget that makes strategic investments in education, health care and other key areas.
But as we look forward, it's time to start thinking beyond just balancing the budget and consider how the right kinds of public investment can position our state to be "golden" once more.
During this year's budget debate, Gov. Jerry Brown was widely quoted as saying: "Everybody wants to see more spending. That's what this place is, it's a big spending machine." But what if we thought of the state, instead, as a big "prosperity machine"? What would that look like? And what would it mean for individuals, families and communities across California?
For starters, it would mean having an ambitious, long-term vision for state spending, one that ensures robust investment in education, innovation and other building blocks of economic growth and broadly shared opportunity.
For example, why couldn't California strive for:
• Funding K-12 schools at a level that puts us in the top 10 of all states, rather in the bottom 10, where we've ranked for the past several years.
• Aligning support for the University of California, California State University and community colleges with the mission of the state's Master Plan for Higher Education, which calls for making a college education accessible – and affordable – to every qualified California high school graduate.
• Combating poverty by ensuring that low-income families have adequate access to services and supports – child care and preschool, job training, food assistance and modest cash assistance – that enable them to afford basic necessities, and find and keep good jobs.
• Crafting an economic development strategy that is based on effective state/local partnerships and investment, and that gives Californians – especially in less advantaged communities – diverse new employment and entrepreneurship opportunities and housing options.
• Making strategic infrastructure investments so that our transportation, water, energy and communications networks meet the long-term needs of our economy and our communities.
Undoubtedly, to "fiscal hawks" and other skeptics, these aspirations sound like a pipe dream – or worse, the California "spending machine" gone awry.
But we're not naive. We recognize that achieving these goals depends on boosting revenues over the long run. One approach would involve modernizing California's tax system to better align it with the state's economy.
For instance, policymakers could broaden the state sales tax to include some services, a move that would reflect the economy's fundamental shift to services in recent decades. In addition, policymakers could revise the state's personal and corporate tax structures to ensure that revenues keep up with long-term growth in income and wealth, especially at the very high end.
California also could look at changing basic "rules of the game" that stack the deck against healthy state and local finances, though the largest such changes would require voter approval. This could include removing the "supermajority" requirement for legislative approval of new state taxes. At the local level, taxing business property based on its current market value – rather than the value at time of purchase – would provide additional revenues while removing the property tax system's current bias again newer businesses.
At the same time, our state should examine tax breaks provided to individuals and businesses to make sure they have a clear policy objective and are working as intended. California cannot afford to forgo significant revenues each year because of tax giveaways and loopholes that have little or no rational basis.
Of course, any of the revenue possibilities suggested here should be subjected to serious deliberation, analysis and open debate. But the point is that our state does have options. We needn't be resigned to having a revenue system that can't keep up with a changing and growing California.
Strengthening our state's finances also should include measures that embody sound fiscal stewardship. These would include eliminating budgetary debt, ensuring adequate funding for retiree benefits earned by public employees and creating a well-financed "rainy day" fund that kicks in to prevent deep spending cuts when revenues are down.
Ultimately, thinking about state and local finance in new ways is how we invest in California's future and build pathways to opportunity. It's how we invest in a strong middle class and improve the chances that low-income Californians move up the ladder and make a better life for themselves and their children. And it's how we sustain California's role as a global leader in innovation in business, government, education, science and the arts.
In other words, creating a "big prosperity machine" means building a platform for growth that benefits all Californians. As the state emerges from the Great Recession, this is the vision of California that we need to commit to once again. This is the California I'd like to live in. A balanced budget relative to where we've been these last several years is fine, but it's time to frame a grander vision for the Golden State.
Chris Hoene is the executive director of the California Budget Project.