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Fixing California, Inc. for the Long-Term

by Mike.Klayko on ‎07-28-2009 04:50 AM (562 Views)

This week we finally got some good news regarding California’s budget mess with the Governor signing our state's budget after he and the state legislators finally agreed to make some tough decisions in terms of cutting expenses. While this is a step in the right direction, I would like to propose a solution to avoid playing re-runs of this movie next year. Simply put: Run California like a healthy business.


Business leaders like me understand that you can never balance the budget if you spend more than you earn. Since revenue is not guaranteed, spending is the only part of the balance sheet that you can control. Period.


Here are some expenses that the state should cut to prevent a repeat of this year's debacle. As a reminder, please use your own stamps for any hate mail you may send my way.


State employees: According to the state controller's office, there are more than 244,061 active employees that work for the government, accounting for a monthly payroll of $1.5 billion. That’s $18 billion per year. Ouch! Furlough programs and personnel reductions need to be more drastic and are only a short-term fix. We should look at privatizing some of the services you provide. We could save money, create jobs in the private sector – generating revenue, not burning through it – and in some cases, we would get better, faster customer service.


State programs: If California were a business, it would eliminate or change programs that under-perform.


Public Education

California spent more than $68 billion last year total to fund K-12 programs, representing a per-student cost of $11,626. Yet in the fields of math and sciences and just about every other category, California students consistently fall below the national average, according to the National Center of Education Statistics. Let’s reduce overhead spending and pay for teachers who perform well instead of promoting bad practices through a job protectionist schemes such as tenure of K-12 teachers. This limits competition, promotes mediocrity and, worst of all, may discourage our best and brightest from entering the education field.


Welfare Programs

Despite our woes in education and the high cost of living in our state, a lot of people still want to live in California. That’s great. What’s troubling is that we have a disproportionate amount of people who want to live off of California. Welfare was created for temporary relief for the unemployed and/or impoverished during the Great Depression. It’s is not an entitlement and should certainly not become a permanent way of life. If California were a business, these programs would be overhauled to set more stringent criteria and limitations. Different from Social Security and unemployment programs, which bring in their own “revenue”, welfare compensates recipients for their under-performance. I know that there are legitimate cases for welfare but we have unwittingly provided a way for many to abstain from personal responsibility courtesy of California taxpayers.


State officials: As the CEO of a company headquartered in California, my employees and I are paid for performance. Apparently this concept is foreign to the officials at CalPERS and CalSTRS, which are two of this nation's largest public employee pension funds. According to the Sacramento Bee, CalPERS' holdings have fallen from $239 billion to $175 billion, a loss of more than 25 percent. CalSTRS' assets have dropped nearly 30 percent, from $162 billion to about $114 billion since both funds closed their books last year. Yet CalSTRS saw fit to award its chief investment officer a bonus check of $322,953 while doubling the base salary for that job to $330,000. CalPERS paid its chief investment officer an even better base salary of $555,360 and a bonus of $208,677. This isn't exactly paying for performance.


The bottom line is we need to do a better job of managing the bottom line. In addition to making California more business friendly, take it one step further and make it business-like. Don’t spend more than you earn. Take a hard look at underperforming programs and people. Ask us for help. Healthy businesses in this state understand a thing or two about balancing a budget.