CA’s fiscal fandango needs some new moves
Cato’s Marc Joffe reveals California’s budget blues, where fiscal follies and terrible transit threaten residents. In Silicon Valley, San Jose’s public infrastructure creaks and groans, yet project budgets blow past expectations thanks to bloated bureaucracy. Local leaders can learn from it or be doomed to the same song and dance.
Most states came out of the COVID-19 pandemic in very strong fiscal condition. But with the American Rescue Plan funding now largely spent and future economic growth rates in doubt, fiscal challenges are returning, especially for states with high marginal income tax rates. Volatile capital gains revenue and out-migration to lower-tax states have clouded the fiscal prospects for California and New York especially.
With revenue growth flagging, now is a good time for states to look for budgetary savings. In this study, I find limited evidence that greater program spending correlates with better social outcomes, so state governments should be able to make extensive spending cuts without jeopardizing the quality of core services.
Opportunities for cost savings can be found in higher education, and, to a lesser extent, in K–12 education, where merging underutilized colleges and schools can lower administrative costs while freeing up valuable real estate.
States should also avoid overinvestments in public transit, which has seen decreased ridership in the aftermath of COVID-19. A survey of recent transit infrastructure projects shows that many are affected by large cost overruns and significant implementation delays. When combined with lower-than-expected ridership, these projects usually do not provide sufficient benefits to justify their enormous costs.
…
Monthly cash reports from state fiscal year 2023 show weakening revenue performance in New York and California. This finding tracks with more pessimistic budget forecasts from the California Legislative Analyst’s Office and the New York State Comptroller. States dependent on income tax revenue from high earners are prone to wide swings in collections coinciding with stock market movements, since many high earners receive equity-based compensation and/or earn substantial income from capital gains.
...
California accounts for a large proportion of state transit spending nationwide. In FY 2022, the state allocated $669 million of diesel tax revenues to local transit agencies under its State Transit Assistance program. California also supports public transit and intercity rail from its general fund and through bond issuance. In FY 2022, it allocated $3.7 billion from the general fund to the California State Transportation Agency to support transit and intercity rail systems.
Editor’s Note: San Jose residents suffer as they’re squeezed for more money as Santa Clara County’s VTA-BART project has ballooned past estimates, echoing Joffe’s warnings.
Unfortunately, transit spending often provides poor value for money. Planners often favor rail systems over buses despite their higher capital costs. Capital projects often come in well above budget, behind schedule, or both, as seen in Cato’s Public Transit Tracker. Yet rail is generally not necessary to serve the relatively low passenger volumes on most routes outside the most densely populated urban areas. Express commuter buses and urban bus rapid transit lines can serve medium capacity routes at lower cost and with greater flexibility.
Read the whole thing here.
Follow Opportunity Now on 𝕏 @svopportunity
We prize letters from our thoughtful readers. Typed on a Smith Corona. Written in longhand on fine stationery. Scribbled on a napkin. Hey, even composed on email. Feel free to send your comments to us at opportunitynowsv@gmail.com or (snail mail) 1590 Calaveras Ave., SJ, CA 95126. Remember to be thoughtful and polite. We will post letters on an irregular basis on the main Opp Now site.