Balancing California Budget

February 12, 2009

The golden state is in deep economic crisis, sharing the status quo of the nation.

As per – California would have the 7th highest GDP in the world if thought of as a country (not including the US as a whole, if so, it would be 8th).

A great state like California being the epicenter for – besides earthquakes,


Biotech and stem cell research

Entertainment symbolized by Hollywood

Diverse talent and skill pool making outstanding contributions in various fields.

Yet, the fundamental responsibility of the state government to balance the budget postponed indefinitely due to partisan politics with Republican minority misusing the two-third majority approval against the incumbent Democrats in the legislature.

As a result, the taxpayers of the economy are abandoned and the entire population is at the mercy of the minority rule upholding the conventional ideology against contemporary wisdom.

It is Déjà Vu for those following the federal government struggle to get the economic stimulus bill approved by both Houses of Congress.

The dilemma of balancing the budget with the political parties’ resistance to compromise is a daunting task for any administration. It is beyond comprehension that failed policies and inconvenient principles continue to dominate the center stage at both state and federal level in legislative matters.

California budget deficit currently at $42 billion with unemployment skyrocketing to 9.3% and expected to worsen by the year-end;

Clearly, the economic recession is widespread and taken severe toll on the present and future taxpayers of the economy.

How does the state reduce the budget deficit of $42 billion?

Generally, the options would be exploring ways to generate revenues and cutting costs proven liabilities with no income or other benefits to the taxpayers of the economy.


How does the state generate revenues?

Usually, the government revenue sources are taxes paid by individuals and Corporations.

They are in the form of income tax, estate tax, corporate tax, payroll tax, sales tax, customs and excise duty on export and import items as well as fees and charges for any government provided services. If the state has other assets in the form of government bonds and treasury bills, they comprise negotiable instruments to borrow money.

In addition, the government could potentially expect income from investments in industries via quasi contracts, state run institutions, sale and/or leasing of government land to private sectors and trade goods and services with neighboring states or foreign governments. Some states find ways and means to share natural resources with their neighbors within and outside the nation for income.

Then, a federal aid to boost social services, health and educational programs is other channel for financial assistance.

Obviously tax increases is the common strategy for meeting budget shortfall. If income and aid are available from stated sources, then funding expenses is affordable.
Spending or Costs Elimination:

In this category, the lawmakers vehemently opposed to tax increases propose massive cutbacks and reduction in spending by a sweeping shutdown of essential services and programs with dire consequences in the long term.

Ironically, investment in education, health, housing, energy and environment are easy targets as “wasteful spending” for legislators in opposition to tax hikes during budget crisis. Those policy makers fail to understand the importance of protecting and nurturing the beneficiaries of these programs as they contribute to the economy today and tomorrow as taxpayers.

Lately, legislators have taken a swipe at education or investment in public school systems at both state and federal levels. It is tragic that such measures are even contemplated leave alone legislated in the industrialized and advanced nation that should be leading the world in K-12 educational program.

The public school system in the State of California and across the nation is in shambles. The infrastructure and the general classroom environment are in desperate need of face-lift to improve academic performance by students of all socio economic backgrounds.

Every dollar spent in a child is an investment in future.

Complete overhauling is required in areas like classroom size, materials including new Textbooks, enriched curriculum with emphasis in Math and Science, Music and Arts, Sports facilities, recruitment of qualified teaching staff, Teachers’ salary, training and professional development, new energy efficient buildings regardless of districts and zones in every state.

Undoubtedly, education must be a priority with K-12 system being the foundation for young minds entering the academic world. The reason United States is lagging behind in international standards is due to neglect of our school system particularly the early learning stage (K-12) when the opportunity to help every student thrive is available to educators.

Therefore, the state and the federal government are obligated to enhance achievements in educational programs through investments in the state-of-the-art educational system.

Similarly, health, housing, energy and environment are equally important as the taxpayers benefit from adequate health care, proper housing, affordable energy, clean and safe environment.
Pragmatic Solutions:

The best option to reconcile California budget is to consider both tax increases and costs reduction as suggested by many analysts and experts on this issue.

According to the analysis by San Jose Mercury News, February 8, 2009

Budget spending outpaced inflation and state’s growth.

Interestingly, the social services and K-12 education received proportionately less funding as compared to the extra spending identified in Criminal Justice, health care and filling the gap for the reduced vehicle license fee in the analysis of actual spending in 2007-2008.

First, action is required to identify the revenue sources via tax increases.

1. Marginal increase in Sales Tax of goods and services including the sales on the cyberspace would provide an even tax distribution for the society.

2. Increasing Vehicle License fee for all is necessary to address the massive deficit. In this context, it is important to raise another explosive issue of undocumented workers in California without drivers’ license or vehicle registrations.

Issuing drivers license and allowing all undocumented workers to register their vehicles would not only generate income for the state, it would also strengthen state and national security with the documentation of all residents in the state.

Subsequently, acquiring vehicle insurance by the undocumented workers would minimize the burden on registered owners in addition to stimulating the economy through insurance industry.

At present any vehicle registration or insurance by undocumented workers carried out in a back alley manner depriving the state due proceeds.

3. Target items for tax increase to reduce health care costs such as tobacco, hard liquor products and items subject to possible health abuse.

4. In the establishment of social standards, tax increases on winnings through gambling and advertisement sales of pornography (assumed to be a multibillion dollar industry) is justified to make way for important social services and programs.

5. Review and revise taxation policy for California Corporations hoarding income in tax havens along with their offshore subsidiaries.

6. Airport tax, Port fees, dutiable goods, customs and excise duty are other sources of revenue.

7. Increase tax on entertainment industry to pay for education, kids welfare, community hospitals, colleges and institutions.

8. Specific environmental protection act by levying heavy penalties on environmental pollution (air, land and sea) through negligence such as oil spilling, carbon emissions and violation of aviation standards.

9. Marginal increase in gasoline tax would enable energy efficient programs such as solar, wind and hydro thermal power.

10. Last but not the least, leasing government land to corporations and scientific institutions, university laboratories or airline industry with enforcement of strict environmental regulations, not excluding sale of government assets no longer useful in the short or long run.
Costs Reduction:

Criminal Justice System:

A thorough examination of the Criminal Justice system is necessary from the analysis and news reports.

The State must devise a mechanism to reduce prison population through major social reforms at all levels beginning with the juvenile detention center.

Further, the parole system, three strikes law and other misdemeanor charges reassessed and offenders deployed in monitored community services rather than crowding prisons is the ideal strategy to cutback spending.

Health Care:

Healthy Approach to reducing health care costs –

Medicaid for senior citizens and economically disadvantaged population.

Promoting preventive care with immunizations.

Early diagnosis of diseases through annual or bi-annual medical checkups and

Subsidized prescription drugs through tax incentives to pharmaceutical and bio-tech industry are few possibilities to deal with health care crisis.

Counseling services and Therapy for psychological and other mental health problems as a preliminary screening process to ease the substantial costs in this regard.

General well being encouraged through active life combined with healthy diet in schools and other areas of the community.

Vehicle License Fee backfill – To be reinstated as outlined above.

General Government – Electronic record keeping and updating technology would considerably improve efficiency and prohibit excessive spending in administrative services.

Higher Education – Engagement in community development activities in return for student loans is a progressive cost recovery scheme.

Transportation – Cost savings methods and effective transportation means aimed at conservation of time and energy recommended for this expense.

Resources and environment – Best to follow guidelines suggested above for environment.

All other costs and spending not discussed or highlighted must be carefully reviewed and those proven redundant with no benefit to taxpayers or the State eliminated to reconcile the budget.

Time for Action by California Legislators

Investment in better education and all of the essential services means building future with healthy, responsible and productive citizens as opposed to increasing prison population demanding major diversion of funding to criminal justice system.

There is an urgency to underscore the fact that not all taxpayers necessarily benefit and appreciate the frugal tax savings by preventing tax increases because such action favors the wealthy minority while leaving the majority marginalized in a society.

If the legislators really care for their constituents and the state/nation they pledge to serve, they need to pause and reflect on the realities of depriving majority of the population to decent lifestyle and economic prosperity, the predominant cause of the current sluggish consumer spending.

Often, provision of unemployment and social security benefits, Medicaid, health insurance, food stamps…dismissed as socialized enigma in a Capitalist economy. Unfortunately, a reminder is required that subscribers of these benefits and services ultimately contribute to the success of the capitalist system as consumers of various products and services.

As stated earlier in the blogpost titled Redistribution of Wealth, Oct 31, 2008,

Promoting economic status as highlighted above…

Eventually, create a fair system of sharing the economic burden by all rather than only by the affluent ones.

Such farsighted and permanent solutions are in direct contradiction to the myth and misnomer of the doctrine against short term tax increases essential to combat severe economic recession.

Socialism, Marxism may well be the nemesis to Capitalism,

Capitalism cannot thrive without consumerism – – That is the fact

California budget crisis must be resolved with no further delay.

It is time for legislators to set the priorities right to fit in with the new millennium goals.

Thank you.

Padmini Arhant


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