Getting a Handle on Long-Range Solutions

You may have read about what is purported to be a $12.6-billion state budget deficit, but don’t you believe it.

The true deficit--the deficit in unmet needs and unimaginative leadership--is unfortunately far greater.

California is a wonderful place to live, but crime, drugs, homelessness, congestion and pollution sorely afflict us. For all the talk of crisis, though, don’t expect any of these problems to be materially affected by the wrangling in Sacramento.

The governor and Legislature will cobble together a compromise of one kind or another that will close the deficit in the usual jury-rigged fashion, probably with higher sales taxes that will offend no one, in the long run, as much as the public good.

The real problem is not a lack of money, but of collective will. We’re still trying to spend our way out of problems instead of thinking our way out, and we actually encourage socially destructive behavior that adds to our expenses.

Perhaps worst of all, for such a citadel of free enterprise, we ignore the power of efficient pricing to achieve public ends quickly and cheaply.

“It’s no way to run a state,” laments Jeffrey Chapman, director of USC’s School of Public Administration in Sacramento.

Business shares the blame. By lobbying for narrow interests, industries promote the feeling among voters that the fat cats aren’t sacrificing, so why should anyone else?

Consider the interrelated problems of smog and congestion. We could alleviate them fast by allocating to motorists the true costs of driving, and then some. We could tax parking heavily, impose tough registration levies on gas guzzlers and raise money with sharply higher gasoline taxes. Through better-organized ride-sharing, express buses, park-ride lots and dedicated lanes, we’d have a realistic transit alternative paid for by polluters.

Yet in 1988 (the latest year for which figures were available), California ranked 48th among states in motor fuel sales taxes. Despite deadly smog that raises health-care costs and congestion that robs productivity, we’ll do little to discourage driving while we build expensive rail systems that take years to complete and deliver far less transit per dollar of expenditure.

Or take education. Gov. Pete Wilson’s proposed $55-billion budget for the fiscal year beginning July 1 allocates about $15 billion for K-12 schooling. Hardly anyone is particularly happy with our schools, and there is ample evidence that private schools perform better for less. At no additional cost (but potentially great savings), California could let parents choose any school, public or private, that met state standards, forcing educators to compete for pupils--and state funds--by doing a better job.

Criminal justice is another fast-growing area of the state budget, mainly because of soaring rates of incarceration and costly new prisons. Most criminologists say all this imprisonment has little long-term effect on crime. Closely monitored parole and electronic surveilance are vastly cheaper, and since three out of four inmates in our state prisons committed crimes that were in some way drug-related, a new approach to narcotics abuse surely seems warranted.

Public assistance? The state’s $4.4-billion welfare program (about half comes from the general fund that is the subject of the current budget fuss) “offers little incentive for recipients to work. In fact, in many cases there are strong disincentives to work,” says the state Legislative Analyst’s Office.

Wilson wants to trim the maximum grant for non-working welfare recipients. Yet we are a long way from the only sensible solution, which is mandatory work, training or education of some kind for every able-bodied person on welfare.

Worse, the system as it stands now pushes welfare recipients toward poor areas where there are few jobs, because the payment level is the same in, say, Los Angeles as in Visalia. The result is prolonged dependency, probably, and hardship for inland counties that are poor to begin with.

We can be even tougher with the rich. The top state tax rate is 9.3% on $55,000 of adjusted gross income. Raising it back to 11%, where it was in 1987 (there were admittedly more loopholes then), would reap an extra $3 billion. Equity demands it and, anyway, rich Californians can’t easily flee to neighboring states, the way rich New Yorkers can.

Other ripe targets for increased taxation include cigarettes, breast implants, fatty foods and legal fees. (Taxes on cigarettes and gasoline have risen in recent years, but not enough to reflect their social cost or seriously curtail consumption. For example, gasoline prices are near historic lows in real dollars.) We’d raise more revenue still by reducing barriers to entry and other needless regulations (of barbers, for example) that reduce competition and misallocate resources.

None of these obvious reforms is likely to occur. The democratic tendency toward compromise and stasis, the influence of private interests in Sacramento and the unwillingness of any portion of the electorate to suffer for the common good make most of these perfectly reasonable ideas seem preposterously far-fetched.

In frustration, Californians have enacted a welter of largely foolish initiatives. I voted for a bunch myself; now there are warning signs plastered all over everything, but no fewer health hazards, and my auto insurance still costs an arm and a leg. We also tried term limits, figuring maybe that would shake some lawmakers loose from the powerful interests that pay for their campaigns.

Should companies care about any of this? They have to. Government these days affects everything they do, for the most part necessarily. What could be more important to a healthy economy than an orderly, self-governing society capable of solving its own problems?

But the problem now is social paralysis. The result is a corrosive voter cynicism that makes real change all the more difficult.

Under such circumstances, turning away from public life and me-first rationalizations seem natural, but they are a tragic form of corruption for which we will increasingly pay in lost social cohesion.

And believe me, that’s very bad for business.