Neglected in Budget Discussion is How We Spend, Not Just How Much

Gov. Brown’s opening general fund budget gambit of $122.6 billion – total spending including bond and special funds is $170.7 billion – sets a new record for state government spending.  That the big increases are coming from the man many regard as one of the more sane of Sacramento’s top politicians does not bode well for taxpayers. After all, this is just a starting point.  Now the real fun begins with those less well grounded in economic reality starting the annual ritual of “making it rain” for their favorite projects and special interest employers.

To the governor’s credit, he is paying attention to paying down debt and strengthening the state’s rainy day reserve, a wise move considering that state revenue is highly dependent on top earners and is thus very vulnerable to an economic contraction.

Still, leading Democratic lawmakers want more – a lot more.  They are already complaining that that the budget does not spend enough on early childcare programs, grants to families on welfare, or provide more money for affordable housing.

Let’s concede at the outset that Californians have widely divergent views about how much money should go to all the various things government does. For example, there is a legitimate debate about how much money we, the taxpayers, should be paying to deal with the water crisis. Or how much for K-12 education? Prisons?  The list is fairly extensive.

But too often we neglect a very important topic when it comes to spending. That is, are we actually getting value for our tax dollars?  Per pupil education spending is important, but a poor indicator of educational outcomes. Total spending on prisons is irrelevant if we are releasing dangerous criminals back out on the street. Californians are angry at traffic congestion, but what good is more transportation spending if it doesn’t actually help people get to where they want to go? Californians are sympathetic to the needs of the poor, but are justifiably outraged when needed assistance fails to get to the truly needed and, instead, is used to buy luxury goods or pay for expensive vacations.

We know that Governor Brown is capable of recognizing waste, fraud and abuse. Just a few years ago he put forth a very credible 12 point pension reform plan that would have corrected most of the pension abuses in California. Regrettably, except for dealing with the most obvious of abuses, the reforms were shelved due to intense pushback from public sector unions. This means that the ever increasing percentage of the general fund budget going to address pension obligations is more than it needs to be.

Taxpayer advocates are constantly told that the amount of tax dollars lost to waste, fraud and abuse is but a tiny fraction of government spending. To be blunt, we don’t believe it – and mounds of evidence supports our disbelief. Even the Los Angeles Times several years ago pegged Medi-Cal fraud in the hundreds of millions of dollars.

To understand why more focus in the budget process should be on oversight, the observations of Nobel Prize winning economist Milton Friedman are instructive. He noted that there are four ways people can spend money:

1. You can spend your own money for yourself. (Being careful both about how much you spend and on what you buy);
2. You can spend your own money for somebody else. (Being careful about how much you spend but less careful about what you buy);
3. You can spend somebody else’s money for yourself. (Being careful about what you buy but less careful about how much you spend); and
4. You can spend somebody else’s money for somebody else. (Where you care less both about how much you spend and what you buy).

Friedman’s thesis is that what government does is spend money in the fourth way. And that is why any discussion about the California state budget needs to include the question of whether taxpayers are getting value for the hard-earned dollars they send to Sacramento.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.