# Why is California always nearly bankrupt? **URL:** \ **Category:** Factual Questions\ **Created:** [August 28, 2014, 8:12pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788 "2014-08-28T20:12:47Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [August 29, 2014, 4:18pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/41 "2014-08-29T16:18:50Z")
So for an outsider looking in and trying to follow the discussion: is it fair to say that to increase spending, you need a vote of 50%+1, either by proposition or by the Legislature, but to increase tax revenue, you need a super-majority of some sort? If so, the mismatch between the two strikes me as a recipe for financial problems. ---
**Author:** ![silenus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/silenus/32/166_2.png) [@silenus](https://boards.straightdope.com/u/silenus)\ **Post date:** [August 29, 2014, 4:54pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/42 "2014-08-29T16:54:29Z")
California has a spending problem **because of** the revenue problem. Most of us in the state _like_ the things the state is spending our tax dollars on, and want them to continue to do so. On a side note: you’d be surprised at the number of people who don’t understand marginal tax rates. ---
**Author:** ![CC](https://avatars.discourse-cdn.com/v4/letter/c/f1d935/32.png) [@CC](https://boards.straightdope.com/u/CC)\ **Post date:** [August 29, 2014, 5:20pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/43 "2014-08-29T17:20:41Z")
> [@OldGuy](#): > > …One big reason states are close to bankrupt is that they’ve made pension promises, including health. Promises are “good” to make because people like to receive them. They are easy to make because they don’t affect the current budget if you don’t fund them completely – that is, you as the current government reap the benefits of “being nice” but pass the costs along to future governments who have to balance the budget. > > This problem has been exacerbated because people are living longer and health costs have risen so fast. That means that even had the promises made in the past been fully funded, the benefits might now cost more than anticipated. In addition all the money in the pension plan has not continued to grow at the rate anticipated due to the sharp market drop in 2007-8. In Illinois, if the pensions had been funded as the law required, there would have been plenty of money to pay the retirees now, even with the market drops. I don’t know about California, but much of the political rhetoric here has pointed the finger at “greedy public employees,” for insisting that their contracts be honored and conditions of employment be met, even though the problem was the weaselly legislators who grossly underfunded the system. ---
**Author:** ![The\_Second\_Stone](https://avatars.discourse-cdn.com/v4/letter/t/bbe5ce/32.png) [@The\_Second\_Stone](https://boards.straightdope.com/u/The_Second_Stone)\ **Post date:** [August 29, 2014, 6:37pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/44 "2014-08-29T18:37:24Z")
> [@Northern\_Piper](#): > > So for an outsider looking in and trying to follow the discussion: > > is it fair to say that to increase spending, you need a vote of 50%+1, either by proposition or by the Legislature, but to increase tax revenue, you need a super-majority of some sort? > > If so, the mismatch between the two strikes me as a recipe for financial problems. Spending is also a super-majority of two-thirds. [Scandals cost California Democrats supermajority in Senate – The Mercury News](http://www.mercurynews.com/california/ci_25267973/corruption-scandals-cost-california-democrats-supermajority-control-senate) California legislature is controlled on spending bills (taxing is a third rail that they don’t even try to touch) by one third of the legislators if they can stick together. Rule by minority. The problems have been complex, but that is a huge contributing cause. During the recent Democratic super-majority spending bills got passed on time and that probably helped the economy greatly. But three senators have got in trouble and their voting power yanked by their chambers. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 29, 2014, 6:59pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/45 "2014-08-29T18:59:38Z")
> [@Bone](#): > > From the previous posts, it seemsl ike Prop 13 is consistently blamed, with the inability to raise taxes going hand in hand with that. CA doesn’t have a revenue problem, it has a spending like a drunken sailor problem. Revenues in CA have been quite healthy over time. [Here’s a pdf from the state](http://www.dof.ca.gov/budgeting/budget_faqs/information/documents/CHART-J.pdf) showing historical revenues and expenditures. Do you notice the 20% drop in revenue between 2007 and 2008 in this table? That’s exactly the problem. During this period you could lay off everyone in state government and you still wouldn’t have closed the deficit. If more money had come from property taxes the impact would have been much less. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [August 29, 2014, 7:00pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/46 "2014-08-29T19:00:50Z")
> [@Bone](#): > > If you look over the last 15 years, state revenues went from 71.9B to 105.4B. That’s a 47.6% increase in revenues over the last 15 years. \*\*CA has a spending problem, not a revenue one. \*\* (I omitted the increase from the 2000 year to the 2001 year which jumped 22.7% because that would skew the results weirdly, but if you go back 16 years, the increase in revenue is even more dramatic at 80%). That’s only barely higher than the rate of inflation. In 15 years, according to [this calculator](http://www.usinflationcalculator.com/), the cumulative rate of inflation has been 43%. So, California’s revenues, in real buying power terms, have increased only slightly. > [@](#): > > Now during this time the population of CA has also grown significantly, but not nearly at the same rate as revenues have increased. Census data are only at the decade marks, but I think the estimate over the same period is around 25% population growth. So, in fact, real revenues _per capita_ have decreased significantly over the period you mentioned. Sounds to me like California doesn’t have the spending problem that you’ve described. > [@silenus](#): > > On a side note: you’d be surprised at the number of people who don’t understand marginal tax rates. It pales in comparison to the number who don’t understand the difference between real and nominal amounts. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [August 29, 2014, 7:04pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/47 "2014-08-29T19:04:14Z")
> [@Bone](#): > > The above however, is neither true nor a problem. No, what i wrote is precisely true. I described a ratchet effect on taxes, where it was easy to decrease them and difficult to increase them. This was a fact under Prop 13. Look at the language of the proposition and it’s right there. I made no comment at all on the relationship between revenue and spending. Also, you seem to believe that any discrepancy between revenue and spending is, by definition, a spending problem. Why is that? As **silenus** has pointed out, millions of Californians have made very clear, time after time, that they like a lot of the stuff that the state spends its revenue on, and yet some of the people who are happy to suck at the public teat are also the ones who complain about taxes. Also, the figures in your linked document are STATE revenue and spending figures. But, as has already been explained in this thread, Proposition 13 drastically reduced the revenues of local governments (to the order of $7 billion in the first year alone), and the reduction in local revenues has, in many areas of fiscal policy, required the state to step in and help out. So this “spending like a drunken sailor” stuff that you’re going on about is, to a considerable extent, the state taking up the slack for the loss of revenue caused by capped property tax rates. You can’t simply look at state figures alone. In fiscal year 1978-1979 (just after Prop 13 was passed), the state handed over almost $4.2 billion of its surplus to local governments to help offset the $7 billion shortfall they were facing. So, the state had a big rainy-day fund, and the supporters of Prop 13 decided to do a rain dance, wiping out the surplus. It’s been a rainy day every day since then, and the state has to try and plug the leaks. Also, as far as i can tell, the figures in your linked document are nominal figures, and have not been adjusted for inflation, which might change the equation a bit. I’m not arguing that there are no spending problems in California. There are ways that spending could be curbed, and even as a state employee myself i will concede that there are some areas of the state’s pension plans that might be a little too generous. But to simply carp about spending in a discussion like this is not really a very fair or productive way to approach the issue. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 29, 2014, 7:05pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/48 "2014-08-29T19:05:18Z")
> [@Carl\_Pham](#): > > Prop 13 has jack squat to do with the huge _fluctuations_ in California tax revenue that are the root of the OP’s question, and which make its budget feast or famine. For one thing, they just get funneled back to the counties for education. For another, they’re nowhere near in total revenue what the state collects in income taxes. And they don’t vary wildly, from year to year. They vary on a broad 10-20 year cycle along with California’s real estate boom and bust cycle. Education is an interesting problem. School districts don’t keep money from property taxes - it goes to the states where it gets returned based on a formula set quite a while ago. LA does quite well under this formula so it is unlikely to be changed. My district was a lot more rural when it was set, and so gets screwed by the formula - a district nearby had higher per pupil spending when it was set and does quite well. During the recession the state withheld a lot of money that was supposed to go to the schools to close the deficit. It was supposedly borrowed, but the result was teacher layoffs and increased class sizes. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [August 29, 2014, 7:18pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/49 "2014-08-29T19:18:03Z")
> [@Voyager](#): > > During the recession the state withheld a lot of money that was supposed to go to the schools to close the deficit. It was supposedly borrowed, but the result was teacher layoffs and increased class sizes. And that’s just at the elementary and secondary level. In the public university system, we were required to take furloughs, and to forego cost-of-living raises. We were told that this stuff would be corrected when things were going well, but that hasn’t happened. It’s been at least seven years since any pay increases, and the cost of living has increased about 15% over that time, meaning that we’ve effectively been losing money every year. And it’s not like this has translated into reduced fees for the students. The cost of attending a state university, whether the University of California or the California State University system, has more than tripled since 2000. I put together a spreadsheet a couple of years back to show my students the rising cost of university education in California. In 1980, it took about 31 days of work at the California minimum wage to pay for a year of tuition in the UC system, and just over 9 days at minimum wage to pay for a year in the CSU system. Now, it’s over 200 days for the UC, and just under 100 days for the CSU. ---
**Author:** ![Bone](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bone/32/407_2.png) [@Bone](https://boards.straightdope.com/u/Bone)\ **Post date:** [August 29, 2014, 8:10pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/50 "2014-08-29T20:10:10Z")
> [@Voyager](#): > > Do you notice the 20% drop in revenue between 2007 and 2008 in this table? That’s exactly the problem. During this period you could lay off everyone in state government and you still wouldn’t have closed the deficit. > If more money had come from property taxes the impact would have been much less. So before 2007-08 CA didn’t have budget problems? That was a bad year due to a number of global economic issues and is somewhat of an outlier, but if that were the only issue CA would be able to recover easily. > [@iamthewalrus\_3](#): > > So, in fact, real revenues _per capita_ have decreased significantly over the period you mentioned. > > Sounds to me like California doesn’t have the spending problem that you’ve described. I think it’s more accurate to think of it as mhendo alluded to above. To wit: > [@mhendo](#): > > Also, you seem to believe that any discrepancy between revenue and spending is, by definition, a spending problem. Why is that? As **silenus** has pointed out, millions of Californians have made very clear, time after time, that they like a lot of the stuff that the state spends its revenue on, and yet some of the people who are happy to suck at the public teat are also the ones who complain about taxes. I think of it as a spending problem because I want the state to spend less. Yes of course millions of folks like getting shit that other people pay for. That’s essentially what happens when the state spends more than it takes in. So while you may deride Prop 13 and wish that it was easier to raise taxes, I would say the opposite and say it should be harder to spend money. Either of those options, or a combination of both, would strengthen CA on a fiscal basis. If we simply reverted spending to what it was just 2 years ago or better yet, 5 years ago, we’d have surplus out the wazoo. So yes, I see this as primarily a spending problem. I know I’m paying near 10% in state income taxes on top of the over 10% in sales taxes on top of all the federal taxes. And we’ve decided a good use of funds is to build a fucking bullet train. If I could vote to make raising taxes require an 80% majority I’d do it in a heartbeat. Once raising taxes is off the table, maybe the state will get it’s shit together and reduce spending. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [August 29, 2014, 8:43pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/51 "2014-08-29T20:43:19Z")
And yet we currently do have a surplus. Go figure! Of course, for the anti-tax brigade, this becomes a can’t-lose set of arguments. If our spending exceeds our taxes, then it just shows that the government is irresponsible and needs to cut spending. And if it manages to do that, and runs a surplus, it gets accused of being greedy and told to lower taxes even more. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [August 29, 2014, 9:44pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/52 "2014-08-29T21:44:50Z")
> [@Yllaria](#): > > Prop 58 Transfer between spouses or parents and children do not trigger reassessment. I know quite a few people who bought their parent’s home for precisely that reason. Where I live, your basic 3-bed 2-bath home is going to be $1.5M, so imagine the tax differential if your parents’ house cost under $100k when they bought it. I have a client who lives in a pretty ritzy area of the South Bay. She bought her home in the 70s for \< $100. The house next door just sold for \> $5M last month. I didn’t read this whole thread, but we also have the requirement of a super-majority to pass a tax increase (in case no one mentioned that yet). ---
**Author:** ![Bosda\_Di\_Chi\_of\_Tricor](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bosda_di_chi_of_tricor/32/16845_2.png) [@Bosda\_Di\_Chi\_of\_Tricor](https://boards.straightdope.com/u/Bosda_Di_Chi_of_Tricor)\ **Post date:** [August 29, 2014, 10:08pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/53 "2014-08-29T22:08:38Z")
Natural disasters, like fire, drought & earthquakes can bust a budget good. ---
**Author:** ![Punoqllads](https://avatars.discourse-cdn.com/v4/letter/p/d2c977/32.png) [@Punoqllads](https://boards.straightdope.com/u/Punoqllads)\ **Post date:** [August 29, 2014, 11:04pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/54 "2014-08-29T23:04:09Z")
> [@The\_Second\_Stone](#): > > Spending is also a super-majority of two-thirds. [Scandals cost California Democrats supermajority in Senate – The Mercury News](http://www.mercurynews.com/california/ci_25267973/corruption-scandals-cost-california-democrats-supermajority-control-senate) No. Passing a budget bill only requires 50% + 1, starting in 2011 following the voters passing Proposition 25. Introducing / increasing taxes still takes a supermajority. ---
**Author:** ![BrightNShiny](https://avatars.discourse-cdn.com/v4/letter/b/7bcc69/32.png) [@BrightNShiny](https://boards.straightdope.com/u/BrightNShiny)\ **Post date:** [August 29, 2014, 11:32pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/55 "2014-08-29T23:32:58Z")
I’m not going to defend California’s tax or budget systems, because they are pretty screwy and should be overhauled. And it’s perfectly fair to criticize it on fairness grounds or efficiency grounds. But, the system manages to function adequately most of the time. It just can’t handle major monkey-wrenches. If we’re looking at the most recent crisis, then a lot of state and local governments had budget crises in 2008 and 2009 nationwide, because we were in the worst recession since the Great Depression. And the previous budget crisis was caused by the poorly designed electricity deregulation scheme, which was a self-inflicted wound, to be sure, but if that hadn’t happened, there wouldn’t have been a budget crisis. A better system would be able to handle monkey-wrenches, and we should change CA’s tax and budget system to better handle them, but it’s not as if CA is “always nearly bankrupt” as the OP claimed. ---
**Author:** ![Askance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/askance/32/8281_2.png) [@Askance](https://boards.straightdope.com/u/Askance)\ **Post date:** [August 30, 2014, 1:36am UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/56 "2014-08-30T01:36:02Z")
> [@SanDiegoTim](#): > > Back to the original question, the answer is very simple…the Democrat party has been in charge a couple of decades. And that’s the truth. That will come as a shock to a certain Mr Schwarzenegger. ---
**Author:** ![silenus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/silenus/32/166_2.png) [@silenus](https://boards.straightdope.com/u/silenus)\ **Post date:** [August 30, 2014, 2:14am UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/57 "2014-08-30T02:14:07Z")
And all the other Republicans in the Assembly who have been blocking things for a decade. ---
**Author:** ![The\_Second\_Stone](https://avatars.discourse-cdn.com/v4/letter/t/bbe5ce/32.png) [@The\_Second\_Stone](https://boards.straightdope.com/u/The_Second_Stone)\ **Post date:** [August 30, 2014, 5:00am UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/58 "2014-08-30T05:00:38Z")
> [@silenus](#): > > And all the other Republicans in the Assembly who have been blocking things for a decade. Decades plural. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [August 30, 2014, 6:28pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/59 "2014-08-30T18:28:44Z")
> [@Bone](#): > > I think of it as a spending problem because I want the state to spend less. That is certainly a valid desire, but it’s not consistent with the evidence you’ve presented. You didn’t say, originally, that you thought California should spend less money in a general sense. You said “Look at how much more money California is spending every year! There’s a runaway increase!” But your data doesn’t show that. It shows that California is actually spending less money per citizen over time. That’s not anywhere near the problem you described. If you had come in and said: “California is definitely on the right track. We’re spending less per citizen in real terms every year. There’s a long way to go, but if we continue in this way, we’ll get spending down to much more reasonable levels”, then the data would support both your desire that spending be less _and_ the reality of what spending is doing. > [@](#): > > If we simply reverted spending to what it was just 2 years ago or better yet, 5 years ago, we’d have surplus out the wazoo. This, to me, demonstrates that you still aren’t considering the difference between real and nominal values, or the relevance of measuring per-capita spending. If we could all go back to when a gallon of milk cost a nickel and you could buy a new Ford for $2000, the numbers would look a lot better, but modern economies have inflation baked in, and you have to consider that. > [@](#): > > And we’ve decided a good use of funds is to build a fucking bullet train. No argument that this was a dumb idea. > [@](#): > > If I could vote to make raising taxes require an 80% majority I’d do it in a heartbeat. Once raising taxes is off the table, maybe the state will get it’s shit together and reduce spending. The problem with this idea is that it’s demonstrably untrue. The general public will still vote to issue umpteen billion in bonds to build a fucking bullet train, or some other foolish project. And then what? The “starve the beast” strategy of making it really hard to increase tax revenue and hoping that spending will fall in line has a relatively poor track record of woking. What it tends to do is ratchet ever further toward crisis. Yes, in the long run, the state can’t spend more than it collects in taxes, but in the short run it can really fuck things up on the way there. ---
**Author:** ![suranyi](https://avatars.discourse-cdn.com/v4/letter/s/e36b37/32.png) [@suranyi](https://boards.straightdope.com/u/suranyi)\ **Post date:** [August 30, 2014, 6:37pm UTC](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788/60 "2014-08-30T18:37:19Z")
> [@Askance](#): > > That will come as a shock to a certain Mr Schwarzenegger. And Mr. Wilson. And Mr. Deukmejian. Really, where do people get the idea that California has been run by Democrats for ages? It may be true now, but even in the fairly recent past, most governors have been Republican. [Previous page](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788.md?page=2) [Next page](https://boards.straightdope.com/t/why-is-california-always-nearly-bankrupt/696788.md?page=4)