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A closer look at state spending

John G. Matsusaka's recent Op-Ed raised some critical questions about the state budget. State spending, he wrote, has seen a "whopping 40% increase" in the past four years. Where does that spending go? The Legislature has a proposal to raise $8 billion in tax revenue to ease the General Fund shortfall -- but why should residents approve higher taxes if they can't see any benefit from state spending?

The General Fund budget is approximately $100 billion and includes about $40 billion for K-12, $10 billion for higher education, $30 billion for health care and social services, $10 billion for state prisons and $10 billion for everything else.

Between 2003 and 2007, General Fund spending increased by $27 billion (36%), which was far higher than the growth in population and inflation. But spending increased by just $25 billion between 2000 and 2007, which was actually less than the growth in population and inflation. So whether spending is roaring out of control or barely keeping pace with inflation depends on what years you look at.

The $40 billion for K-12 education represents an increase of $8 billion since 2000. Spending per student adjusted for inflation, however, did not increase. And California ranks in the bottom 10% of states in the number of nurses, counselors, librarians and teachers relative to the student population.

K-12 education touches more Californians directly than any other state program, which may explain its widespread popularity with voters. There are 6 million K-12 students and perhaps 8 million mothers and fathers of students, but that does not explain why the other 24 million Californians think education is so critical. Higher education spending rose by $3 billion and covers many fewer Californians directly but is also seen by voters as vital to our economic and social future.

With a tidal wave of baby boomer retirements on the horizon, our students' success is critical for our economy. That is one reason 80% of local school bond elections pass even though most families have no children in school.

They see these students as a critical part of our larger "California family" and our California family's future.

The $30 billion that goes to health and social services (up $10 billion since 2000) covers the state's MediCal program and a variety of programs for disabled and poor residents. Health spending increases are the result of healthcare inflation, which all of us are struggling with. In addition, we expanded services to disabled residents and increased mental health services.

Why do residents spend $30 billion each year on programs that support poor and disabled residents? Perhaps residents see value in helping vulnerable members of our California family just as we give generously to people in need everywhere.

The $8 billion in tax increases would eliminate cuts of $500 a student in K-12 spending and eliminate proposed cuts in higher education, healthcare and social services. The $8 billion represents one penny out of every $2 earned each year by our California family. Instead of spending 6.5 cents of each dollar on the General Fund, we would spend 7 cents.

Matsusaka asks a fair question -- can we see any difference from the money we spend on state services? That's a hard question to answer, because most of the benefits of state spending are the result of money spent, not directly on most taxpayers, but on other members of our California family, namely students and lower-income families. And because spending, adjusted for inflation, is roughly the same as in 2000, is it even reasonable to expect that we perceive much of a difference?

My vote goes for raising the $8 billion in tax revenues. To me there are long-term benefits in maintaining our investments in education and maintaining our support for poor and disabled residents. And, I would argue, we would not be "raising" tax levels but simply reversing the tax cuts made during the dot-com surge, which, it turned out, we couldn't afford without cutting service levels.

One thing does puzzle me, though. No family would struggle this hard over whether to reallocate one penny out of every $2 of their family income. Why is it so hard for our larger California family to decide about $8 billion of our $1.6 trillion annual family income?

Stephen Levy is director of the Center for Continuing Study of the California Economy in Palo Alto.

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