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'Workout Plan' Could Leave California Worse Off

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    NEWSLETTERS

    Business groups around the state have released -- to much applause from the media -- a "California Financial Workout Plan." It's being touted as a "workout plan where taxpayers agree to 
    extend temporary taxes on the condition that state government fixes the underlying conditions that got 
    California in trouble."

    While the desperation for a compromise between hardline Democratic and Republican positions on the budget is understandable, this plan isn't it. It fails both in revenues and reform, by embracing temporary tax cuts that by their nature don't offer the revenues the state needs and combining them with reforms that either don't address the state's crisis or would make it worse.

    Let's look at each of the planks of the five-point plan.

    1. The plan seeks "constitutional spending controls... to ensure fiscal discipline. 
    Additionally, the state budget must include performance metrics so everyone knows if we’re 
    getting our money’s worth, along with multi‐year forecasts so we can see the long‐term impacts 
    of budget deals. In addition, lawmakers need to be required to spend more time reviewing the 
    effectiveness of programs and less time passing new laws."

    REACTION: This is more of the same bad medicine that got California into its current mess. The California constitution already has more spending controls, rules and mandates than any other state constitution in the country. All these whips and chains have made the state -- and its budget -- unmanageable. Adding more controls upon existing controls is like building more rooms on the Winchester Mystery House. It will just make things worse.

    A cynic might look at the business groups backing this and argue that some of California's biggest companies, having gone along with a system that has substituted democratic governance by elected officials for spending controls and formulas, are now trying to squeeze any remaining democracy out of the system.

    2. Reforming the California Environmental Quality Act in the name of improving job growth, and saving and "fixing" redevelopment and enterprise zone programs, rather than eliminating them as Gov. Brown has urged.

    REACTION: This shows the unseriousness of the workout plan. I'm no fan of CEQA, but environmental regulation is not at the heart of the budget crisis. And the enterprise zone and redevelopment programs have shown no demonstrated economic or jobs benefit to California. If you can't eliminate such corporate welfare, what can you eliminate?

    A better approach would be stronger direct support to industries in which California enjoys advantages: technology, trade, aerospace. Money currently being wasted on enterprise zones or redevelopment agencies could be used for those purposes.

    3. Pension reform that fixes abuses, along the lines of the Little Hoover Commission recommendations.

    REACTION: California badly needs pension reform to prevent future budget problems. (The impact of unfunded obligations hasn't hit yet). But Californians also need retirement security, as the private sector retirement benefits wither. The way to do this is to design public pensions that are less generous but secure enough to include private workers. Here, the workout plan misses a big opportunity.

    4. Realignment of local and state responsibilities along the lines suggested by the bipartisan good government group California Forward.

    REACTION: The California Forward principles are good ones, but the devil is in the details here. One concern: that the business groups won't support giving local governments the power to tax to raise funds for the programs they manage, because that would be seen as a reversal of Prop 13. A realignment that doesn't give local governments the power to tax isn't a real realignment.

    5. The business groups agree to support temporary tax extensions.

    REACTION: The tax extensions would preserve rates that have been in place -- rates that weren't enough to balance the budget under the current system. So this grand workout plan preserves temporary tax extensions that aren't enough to balance the budget -- and are temporary -- while demanding reforms that don't address the state's real problems or, in the case of "constitutional spending controls", are almost certain to make things worse.

    Back to the drawing board, business community.