USC Price School of Public Policy

Critical Issues Forum

SPPD Forum Discusses State Fiscal Problems

By Blaise Nutter

USC Critical Issues Forum

With California facing a historic financial crisis, citizens statewide are looking for answers.

Some were offered and others refuted during a recent public forum of top policy advisers, academics and government officials at USC’s Galen Center.

This was the inaugural event in the USC Critical Issues Forum, a new series sponsored in partnership between the USC School of Policy, Planning, and Development and the USC Office of Government and Community Relations.

“The financial crisis in particular has laid bare the weaknesses in our major regulatory and legislative processes, our fixation on immediate gain rather than the long-term future benefit and low-performing public agencies,” said Jack Knott, dean of SPPD, in his introduction of the panel.

Knott told the audience that the fiscal crisis is structural in nature and that the public’s confidence in government’s ability to fix it is at an all-time low.

Knott co-hosted the event with Thomas S. Sayles, USC vice president of government and community relations, who echoed Knott in saying, “For the first time in my life, I am genuinely concerned about the future of this state because of this fiscal crisis.”

The panel discussed topics ranging from the origins of the fiscal problem to several possible solutions, with the disconnection between entities a major theme.

Fred Silva, senior fiscal policy adviser for California Forward, discussed the difficulty of tracking where state money is spent locally, especially property taxes.

Dowell Myers, SPPD professor and director of the USC Population Dynamics Research Group, highlighted the division between who pays taxes and who receives the bulk of services.

“The major taxpayers are age 45, 55, 60, and they complain a lot, because the money doesn’t go to them; it goes to these really young people under the age of 20,” Myers said.

In the coming decades, however, the number of retirees is going to skyrocket, and the young people will have to make up for that increase, Myers noted.

“Those are the people who are going to buy our houses, but we’re cutting back in our investments now in our future generation of home buyers,” he said.

Bernard C. Parks, Los Angeles city councilman, 8th District, observed that, while there are many reasons why officials fail to act in their constituents’ interests, the people just want their services.

“They do not have a real sympathetic ear that you did not get your property tax money,” he said.

According to Parks, the city will run out of money in the first quarter of 2010, but the pension, workers comp and medical care could bankrupt the city by themselves if nothing is done. If the city fails to make changes, “we just move that $250 million budget deficit this year to a $400-500 million one next year,” Parks said.

William T. Fujioka, chief executive officer of Los Angeles County, said: “The basic principle of a structural deficit is what you do with that one-time money – you put it into ongoing programs so your ongoing expenditures are higher than your incoming revenue.”

He partially blamed these deficits on term limits, putting crucial decisions in the hands of inexperienced lawmakers. Because of the stability of his board, Fujioka said the county cut its budget by $500 million without any furloughs or layoffs.

John Chiang, the California state controller, stressed that the state and its citizens will need to acclimatize to a “new normal” of lower state revenue and decreased services.

While the latest budget is “a giant step forward from where we were last year,” Chiang reminded the audience that budgets are plans, not reality, and warned against using budgetary “gimmicks” that might balance the books this year at the expense of the next.

“So is there a path forward?” asked Daniel A. Mazmanian, SPPD professor and director of the USC Bedrosian Center on Governance and the Public Enterprise. He offered a slate of popular ideas, such as altering Proposition 13 and 98; removing the two-thirds requirement to pass a state budget; repealing term limits; moving to a two-year budgetary process; redistricting; and modernizing the tax law.

Silva warned against these, the many “magic elixirs” officials might propose, and Mazmanian said the improvements will be modest unless the state clarifies a shared vision of California’s future and adopts a new social contract.

The panelists also took questions from the audience about the environment and education funding.

The event was co-sponsored by the USC Bedrosian Center on Governance and the Public Enterprise, the USC Lusk Center for Real Estate, the USC Population Dynamics Research Group and the USC Unruh Institute.



Photo by Tom Queally
Los Angeles councilman Bernard C. Parks, left, and John Chiang, California state controller