Over the past weekend, Gov. Jerry Brown of California took to the safety of YouTube to reveal that the Golden State’s budget deficit is now $15.7 billion, far greater than the original $9.2 billion estimate in January.
California state taxes, already some of the highest in the nation, brought in an anemic 20% less revenue than expected in April, causing California’s deficit to nearly double in only four months. On Monday, Brown released a revised budget plan. California Dreamin’ it may be better known as.
Brown’s budget calls for new spending cuts, to which state workers have yet to agree; even higher taxes, at which voters may balk; and rosy revenue assumptions, which already came up massively short in April.
The new deficit strategy relies heavily on higher taxes: Raising the state sales tax from 7.25% to 7.5% and hiking income taxes on those making more than $1 million from 10.3% to 13.3%, the highest rate of any state. Although he calls his plan a “millionaire’s tax,” it would also boost rates on incomes starting at $250,000. Brown’s now famous explanation — “Anybody who makes $250,000 becomes a millionaire very quickly, if you save” — illustrates well the calamity that is California economics today.
If Brown’s plan fails, again, he would institute an automatic $5.5 billion cut to public and higher education. California’s children shouldn’t be punished for the mistakes of adults, nor should its residents be forced to choose between tax hikes and education cuts to try and solve their budget problems.
California should look to Wisconsin. Gov. Scott Walker closed a large budget hole without raising taxes or cutting education but by going straight to one of the roots of the problem — public employee unions. Last summer, Walker required union members to contribute 5.8% of their pay toward pensions and 12.6% of their health insurance premiums, while also reforming collective bargaining agreements for government workers.
At first glance, Walker’s reforms appeared to be political suicide. But as the returns come in, and schools aren’t closing, draconian cuts aren’t being made and taxes aren’t getting higher. Walker’s success leaves his opponents with little ammunition.
Milwaukee Mayor Tom Barrett, Walker’s Democratic opponent in the June recall election, hardly mentions Walker’s union reforms anymore. With Walker opening a lead in recent polls, top Wisconsin Democrats are angry that the Democratic National Committee is unwilling to invest heavily to recall him.
Wisconsin recently reported that property tax bills for the median homes fell by 0.4% in 2011, the first drop in more 13 years.
In January, Baldwin-Woodville School District reported a $100,000 budget surplus thanks to Walker’s reforms. And in Kaukauna School District, school officials say the pension and health care reforms will transform their $400,000 budget deficit into a $1.5 million surplus.
In Chief Executive’s annual survey of the Best and Worst States for Business, Wisconsin jumped from 41st place in 2010 to 24th place in 2011 and bumped up to 20th place in 2012. California, once again ranked dead last, is begging for similar public pension and health reforms.
California state teachers are the highest paid teachers in the country, with an average salary of $68,000. The typical pension plan allows them to retire after 30 years with 75% of their salary intact. It’s no coincidence that the California State Teachers Retirement System has a $65 billion unfunded liability.
Brown has introduced pension reform, but it’s been shelved for the past six months. Senate leader Darrell Steinberg and Democratic leaders have yet to commit to any increase in retirement age or pension contributions.
Until California addresses comprehensive pension reform, the state will continue to sink deeper into debt. Even Democrats in Rhode Island, New Jersey and Illinois are pushing through pension reform. There may eventually be hope for California. But, in the words of Winston Churchill, only after they’ve tried everything else.