"Don't fall in love with politicians, they're all a disappointment. They can't help it, they just are."... ...Peggy Noonan.
Commentary of the Day - January 12, 2004: Waste, Fraud, and Abuse Not!
Governor Schwarzenegger revealed his proposed budget for fiscal year 2004 on Friday. In contrast to his rhetoric during the Davis recall campaign, Schwarzenegger's proposed budget deals far less with eliminating waste, fraud, and abuse than it does with repackaging the same strategies put forth by former governor Davis to deal with California's enormous deficits. The Davis budget was largely a "smoke and mirrors" effort, and the Schwarzenegger budget remains largely a "smoke and mirrors" effort. There is a difference, however. No one mistook Gray Davis for Harry Houdini. Schwarzenegger's background and public image, on the other hand, might just allow him to keep the illusion going for some time. And, if he can buy enough time from the taxpayers and from the bankers, there just might be an outside chance that the long-term structural problems inherent in the state budget will be addressed.
To make it through the coming fiscal year Schwarzenegger has proposed $6.8 billion in cuts to various state programs including K-12 and higher education, $4 billion in borrowing (on top of some $10 billion in borrowing needed to close the fiscal 2003 deficit), $1.3 billion in tax shifts that amount to cuts of that magnitude in the budgets of California's county and city governments, and fee increases of about $238 million. The largest single cut, $2.7 billion, is in the health and welfare budget. K-12 education will take a hit of about $2 billion, and the public higher education budget will be reduced by some $729 million. Part of this will be offset by about $150 million in additional student fees (after set asides for additional scholarship aid).
The $2 billion cut in the K-12 budget requires some further explanation. K-12 actually will receive more money in fiscal 2004 than it did in 2003, but the increase will be less than the amount this sector should have received (under the mandate of Proposition 98) to compensate for increased enrollment by the aforementioned $2 billion. As a result, California again will slip well below the national average in per pupil spending.
As it stands now, the funding of K-12 education in California is a mess. The schools are funded through scores of categorical programs as well as through money that is distributed on the basis of average daily attendance. Many of those who have been working in school finance for decades freely admit that they don't fully understand all the intricacies of the K-12 funding process in California. Any system that is this complicated is bound to have some pockets of wasteful spending. While the total amount of waste here most likely is small compared to the enormous state budget deficit, nevertheless, this is an area ripe for reform. There is some hope that the current budget crisis may lead to some progress in this area. But in the meantime K-12 students will be making do with less.
Higher education will take a major hit if the Schwarzenegger budget is enacted. The University of California system, which is the primary provider of graduate and professional education in the state, will see its budget reduced by 7.2% (the general fund reduction accounts for a decrease of 6.9%). Undergraduates in the UC system will see their fees increase 10%, while graduate students will see their fees increase by 40%. The fees for out of state students will increase by 20%. The California State University system budget will decrease by about 10.5% (the general fund reduction accounts for a decrease of 8.5%), while undergraduate students, graduate students, and out of state students in the system will face the same 10%, 40% and 20% fee increases as their counterparts in the UC system. The state's community colleges will see an overall increase of 17.3% in their budgets (9.3% of the increase will come from general fund and Proposition 98 moneys).
On the surface, the 17.3% increase for community colleges may seem generous. However, it does not keep pace with the rapid growth in the number of students eligible for admission to this system, and is made possible only because of huge percentage increases in student fees. Undergraduate students in the state's community colleges will see their fees increase by 44% (from $18 per unit to $26 per unit). The 44% increase is in addition to the 64% increase that was imposed for fiscal 2003. Students attending the community colleges who already hold a bachelor's degree will see their fees increase by 178% to $50 per unit. Thus, almost half of the increase in funds for the community colleges will come from the increase in student fees. In addition, the UC and CSU systems have been instructed to reduce new freshman enrollment by 10%, so these students will be redirected to the community colleges.
The intent of the governor's budget writers is most apparent in his proposed budget for the California State University system. Unlike the University of California system, which receives block funding from the state that amounts to less than a third of its total budget, the CSU system receives line item funding from the state, and the state contribution amounts to more than 80% of the system's overall budget. The governor's budget would completely eliminate $52 million in funds for outreach and EOP (Educational Opportunities Programs). These programs are intended to ensure that the most economically disadvantaged students who otherwise meet system admissions requirements gain access to the system. The governor's budget also would raise the student-faculty ratio by 1. This translates to a 5% reduction in faculty, to larger class sizes, and to less individual attention for students. The governor's budget also would require students who enroll in more than 132 semester units to pay the full cost of the excess units over 132. This would weigh heavily on students who change majors or who have transferred from community colleges, where advising often is hit or miss. In addition, it would make it almost impossible for a person who has lost his or her job owing to economic shifts to return to college to earn a second major in an area that may be more in demand. The $50 per unit fee for baccalaureate degree holders who wish to take additional community college courses also will be a major impediment to retraining displaced workers.
The budget reductions proposed by Governor Schwarzenegger clearly target the poorest of California citizens (State Treasurer Phil Angelides has characterized the proposed budget as "morally and economically bankrupt"), while giving the wealthiest Californians a pass. Taxes will not be increased, and the fee increases will have their greatest effect on the poor, and lower middle class.
Other observers have characterized the proposed budget as "risky". Even with the proposed reductions, there remains more than $99 billion in spending in a budget that is based on a number of questionable assumptions.
First, Schwarzenegger has to convince the legislature to enact the budget. This requires an absolute two thirds majority, which will not be easy to obtain in a legislature dominated by the opposing party. Second, he has to convince the voters to float $15 billion in new bonds to cover the fiscal 2003 and 2004 deficits. (Angelides is actively opposing the bond issue, which will be on the March ballot because Californians will end up paying another $15 billion or so in interest to retire this debt.) Third, Schwarzenegger's budget assumes that substantial additional revenues will be obtained through an improving economy and renegotiated deals with Indian gaming interests.
Only time will tell if Schwarzenegger can sell these repackaged Gray Davis proposals to a skeptical legislature and the voters. What is clear is that the waste, fraud, and abuse claims of the campaign were just as much smoke and mirrors as the proposed budget.
(A colleague from San Francisco State, Bob Daniels, has written a somewhat more critical assessment of Governor Schwarzenegger's proposed budget, which is available at http://taxprofessor.blogspot.com. Look for his January 11, 2004 commentary.)
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