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Fixing California, Inc. for the Long-Term

by Mike.Klayko on ‎07-28-2009 12:45 PM (728 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.

by jharan
on ‎07-28-2009 05:51 PM

The problem with your proposed solutions, Mike, is that the State of California is not a business. It is the resource of last resort for many people who have not been as fortunate in their lives as you or me. The governors "solutions" depend heavily on cuts to programs that are intended to help the poorest and sickest among us and that personally makes me embarrased to admit that I am a Californian.

> Since revenue is not guaranteed, spending is the only part of the balance sheet that you can control. Period.

This is simply not true. Granted you can't control revenue on a year by year basis (this I think argues for multi-year budgetting to even out the peaks and valleys in revenue), but if there was the political will taxes could be raised on the state's wealthiest individuals and corporations so as to lessen the brutality the budget cuts are going to have on our poor, sick and old. The fact that we let the oil companies pump oil out of state land without any payment when other states like Texas and Alaska derive revenue from it is the result of corruption and monied interest in Sacramento. Likewise with the Prop 13 properly tax benefits that accrue to immortal corporations that own real estate for long periods when individual residences are re-assessed to current market value everytime a home changes hands due to death, divorce and other changing individual family needs.

> California spent more than $68 billion last year total to fund K-12 programs, representing a per-student cost of $11,626.

Yet as a state we spend close to the bottom of the barrel per student. The following link:

describes how California's per pupil spending recently dropped to 47th out of the 50 states and this is in a state with a higher cost of living than most of the rest of the country. When I went to public school here in California back in the 60s and 70s, we did have an excellent public school system and that is because unlike us Boomers, my parent's generation was willing to tax themselves in order to provide a better life for their children. And with this budget and it's associated increases in tuition for higher education, it's only going to make things worse for today's students and aspiring future Brocade employees. When I went to UC Berkeley in the 70s, it cost $212.50 per quarter, or $637.50 per year. Today its over $8000 and that is before the upcoming fee increases that are part of this budget. So I am a Boomer, Californian, even more reason for embarrassment.

> Different from Social Security and unemployment programs, which bring in their own “revenue”...

Social Security is the biggest Ponzi scheme ever invented. People of my parent's generation have got more out of it than their contributions to it while they were working could ever have warranted as a return on investment. Us Boomers may likely at least get back much of what we put into it, but the Gen X'ers and those that follow will never see a dime since all of their contributions are going to go to pay benefits to us Boomers. So Social Security is merely welfare for the old. At least welfare has some means testing to it.

> 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.

Can't say I can disagree with anything you've said here, though this problem is not limited to executives in California State government. I need only think back to the news reports of bonuses paid to the executives of the Wall Street outfits that benefitted from the U.S. government's $700 billion welfare program for corruptly managed investment banks.

My advice for California voters who want to avoid this perpetual budget nightmare:

1) When a voter proposition comes along to do away with the 2/3 super-majority requirement for tax increases, vote for it. A simple majority to spend money but a super-majority to raise the taxes to pay for the spending is a formula for disaster and we've been living with that disaster for decades now because of the special place taxes have in what is supposed to be a democratic system. There is nothing in the US or California constitutions to protect individuals and corporations from their responsibility to pay taxes to support the government services they enjoy, so there is no justification for requiring tax increases to pass by a super-majority when every other decision that does not impede on recognized individual rights is made by a simple majority.

2) If a voter proposition comes along to fix Prop 13 so that it doesn't apply to business, vote for it, too. If Brocade employees who become first time home owners can afford to pay property taxes on the full market value of their homes, so can Exxon.

3) Next time a gubernatorial candidate comes along whose primary campaign plank is "ending the car tax" when he owns a fleet of Hummers, take a closer look at the alternatives.

Just my humble opinion,


on ‎07-31-2009 04:56 PM

Like Mike says, the state needs to be run like a business. California does have a spending problem, not a revenue problem. The state has made too many promises that it can't keep to too many people (example- can't keep promising a low-cost, hi-quality UC education to everyone when the admin, teacher payroll and program costs are so high). The reason for the 2/3 majority needed to increase taxes is so that a simple majority of voters who get the benefits and pay little or no taxes can't decide on increasing taxes that only a minority will be forced to pay. The state can't reduce labor costs because it's hamstrung from the unions. There is too much waste and beaurocracy (too many school districts, each having it's own admin and superintendent, etc). And there are too many agencies, boards, and commissions- CARB has outlived it's usefulness- air quality has substantially improved but it keeps over-regulating and putting new costs on businesses and people when the cost/benefit analysis doesn't justify it. California has too many structural problems and the only way to fix them is to put people in that run it like a business rather then politicians who keep promising all things to everyone.

on ‎08-19-2009 03:15 PM

A goverment and a for profit corporation are fundamentally different. One has the welfare of the community as its goal while the other is solely for monetary profits of its shareholders. Having said that, I believe Mike's point should be interpreted as "in order for a goverment to function well, it should be held responsible for results in the same way that a corporations employees are held responsible for its profits." Unfortunately, this is not widely practiced in California and in most cases where it is, it is not implemented

well. Jeff's example of school teachers illustrates this point.

Talking of responsibility: Arnold presided over the irresponsible spending that caused the current crisis and, after the damage is already done, is now doing lip service to the taxpayer's cause by showing opposition to tax increases.

Regarding Mike's statement on revenues not being guaranteed, a government enjoys some luxury that a corporation does not: it can increase taxes!