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Californians Have Trouble Facing Budget Realities

By Tracy Gordon, research fellow, Public Policy Institute of California
This opinion article appeared in the Sacramento Bee on June 5, 2007

Debate over the state's budget for fiscal year 2007-2008 is in full swing. Once again, the state will be spending more than it takes in -- and once again, the gap most likely will be papered over with temporary solutions, leaving untouched California's habitual annual budget shortfall of $3 billion to $5 billion.

What makes California's budget gap so intractable? A recent report I produced with a team of academic researchers at the Public Policy Institute of California points to several factors -- many of which are simply facts of life in this state, such as large and diverse population and high labor costs.

But one leading culprit may not be as easy to face: us. We Californians are guilty of a serious mismatch between what we want from government and reality.

K-12 education provides a good example. Years of PPIC statewide surveys consistently show that this is the one area where Californians would most like the state to devote more resources. However, California hovers below the national average in per-pupil spending.

Why? First, California has far more of its kids in public school than are in other states -- about 11 percent more than the average state and even more when compared with such large states as New York, Florida and Illinois. This is mainly due to our younger population, not to differences in public versus private school enrollment or in school attendance requirements.

And second, California pays its public school employees some of the highest salaries in the nation, about one-third more than the average for the rest of the nation. Partly that's because California is an expensive place to live. However, if you look at what other California employers must pay workers with college or advanced degrees (like teachers), it's only about 15 percent more than the national average. Thus, the labor market explains only about half of the K-12 payroll difference between California and other states.

We clearly value our teachers and other school employees and want to reward them for their labor. But with a fixed pot of money, paying high salaries has meant that we can hire only a few of them. In K-12 education, California has fewer teachers and fewer support staff and other personnel per pupil compared with the rest of the nation.

Few Californians are aware of the uncomfortable tradeoff we implicitly make between salaries and staffing levels. And yet, according to our study, the same high payroll/low staffing choice shows up in many budget categories including transportation, corrections, police and fire protection, and government administration.

Why does it matter? With lower staffing levels, the quality of public service may suffer.

For example, California lags other states when it comes to test scores in 4th and 8th grade math and reading. When asked how to improve public schools, voters repeatedly indicate they want more teachers and other staff in the K-12 system. Just last month, in a PPIC Statewide Survey, respondents cited class size as one of their top educational concerns.

But the desire for more staff may be at odds with fiscal reality in California. At current salaries, putting more teachers in the classroom -- or cops on the street, or maintenance workers on the highway -- would be extremely costly.

Raising the number of teachers in California classrooms to the national average, for example, would cost an additional $15 billion -- almost $500 per state resident.

What choices are available to politicians in charge of setting the state's annual budget? They could raise taxes. California's property taxes are below average for the rest of the nation. However, that would require undoing Proposition 13, a virtual nonstarter politically. And even if voters agreed, increasing property taxes to match national levels would raise only about $7 billion -- just halfway to our target of $15 billion.

The state could lower public-sector salaries, a politically difficult option. And in many cases, reducing salaries would bring in little money because of our low staffing levels to begin with. For example, reducing prison guard salaries to match national levels, while continuing to compensate the workers for higher costs of living here, would save less than $1 billion, only about $24 per capita.

The choices that need to be made to permanently close California's budget gap are extraordinarily difficult. At a minimum, Californians have to be aware of, and accept, that there are tradeoffs -- such as higher taxes or lower public-sector salaries. As voters, we will likely need to signal that we're willing to make difficult choices before many politicians will consider taking a first step.


Fiscal Realities: Budget Tradeoffs in California Government

PPIC Statewide Survey: Californians and Their Government, May 2007

PPIC Statewide Survey: Special Survey on the California State Budget, May 2006