CALIFORNIA
TAXPAYERS'
ASSOCIATION

JAMES W. BARNES
Chairman

LARRY McCARTHY
President

CAROL ROSS EVANS
Vice President

REBECCA K. TAYLOR
Chief Policy Consultant

DAVID R. DOERR
Chief Tax Consultant

STEPHEN J. KROES
Director of Research

JOYCE SHOWALTER
Director - Corporate Relations

RON ROACH
Editor

Cal-Tax Digest (ISSN 0008-0543) is published monthly, except August and December, by the California Taxpayers Association, 921 11th Street, Suite 800, Sacramento, CA 95814. Subscriptions are $59 a year. Periodicals postage paid at Sacramento, CA. POSTMASTER: Send address changes to Cal-Tax Digest, at the above address.

Unless otherwise noted, original material in Cal-Tax Digest may be reproduced, with attribution. Anyone wishing to reprint an original article or commentary is requested to first contact the editor of Cal-Tax Digest.

Opinion in this publication is that of the authors and does not necessarily reflect the views of the California Taxpayers' Association.

Cal-Tax is a nonpartisan, nonprofit corporation, founded in 1926, and dedicated to advancing economy and efficiency in government. For membership and other information, please write or call (916) 441-0490. The editor of Cal-Tax Digest also may be reached by e-mail (rwroach@speedlink.com).

Readers are invited to visit Cal-Tax Online at the Internet address of http://www.caltax.org.

Spending Priorities for 1997

By Rebecca K. Taylor

For taxpayers, 1997 could be as important a year - relative to government spending - as any year since 1963. That was the year when Cal-Tax consistently opposed efforts by the late Phil Burton (then a state assemblyman, later a member of Congress) to expand the state's welfare program.

Assembly Bill 59, which Mr. Burton steered through a hostile Legislature to the waiting arms of then-Governor Pat Brown, established in California welfare entitlements which federal legislation has just altered.

The 1996 changes in federal welfare law create opportunity in California, and other states, to design a time-limited cash assistance program that, hopefully, will reduce dependency by promoting job preparation and work. In the current program (serving 2.5 million parents and children at a cost of $2 billion in state funds), more than one-third of the recipients have been on aid at least five years. These numbers suggest something is woefully wrong with the existing program; that it is not assisting people to get back on their feet. Recipients could benefit from a revised program, not just taxpayers.

Governor Pete Wilson has proposed new welfare rules, which include the option of having private corporations run public assistance programs. The Legislative Analyst's Office has put forth an alternative model, and welfare rights groups have begun to flesh out their optimal programs, as have various legislators. County governments are particularly interested in seeing a workable program developed since under existing law, welfare recipients who fall through the slats could end up in the county's safety net - at county expense.

Failure to enact a new California program before the end of 1997 could subject the state to reduced federal support. However, we have to be realistic about the hundreds of thousands of jobs or community service positions that must be found or created to accommodate the welfare work-force. This is clearly a challenge, but officials working in good faith should be able to create a more workable public assistance program.

Welfare reform is not the only spending challenge state policymakers face. High on Cal-Tax's priority list is reauthorization of Senate Bill 1209 from the 1993 legislative session, a measure that empowered Caltrans to contract out design work on highway projects. Subject to extensive court review, SB 1209 addressed the cyclical nature of design work at the highway department, and authorized Caltrans to contract with private firms to expedite seismic retrofit and other engineering work. Senate Bill 1209 had a four-year sunset; it needs to be reauthorized in 1997.

(Caltrans' ability to contract out design work is the target of an initiative voters will have to deal with in the next statewide election. Put on the ballot by the labor union that represents state engineers, the measure would force the contracted-out design work back in house.)

There are other employee-related issues that merit close attention. Bills directed to the legislative committees that deal with public benefits have enormous cost implications. By way of example: one perennial proposal, AB 90 this year, by Assemblyman Joe Baca, would enrich teachers' retirement. Cost estimates prepared by the retirement system indicate that school districts could have to cough up as much as $100,000 per retiring teacher. Another bill, SB 234 by Senator Teresa Hughes, could increase retirement costs for some local government agencies by 25 percent, according to the Public Employees' Retirement System.

Do we wonder why government is so expensive? Fortunately, taxpayers can look to Governor Wilson for help on these and similar bills, should they survive in the Legislature.

And what about overly generous retirement programs already in place? For taxpayers, there appears to be no relief in sight. There is no bill to repeal a local government benefit that grants full retirement benefits at age 55 to public employees in Santa Clara County, Berkeley, Davis, El Monte, Huntington Park (and another 100 or so local agencies). Where is the bill to change the disability plan that allows cops and firefighters to go out at an average age of 42, with half pay for life, and no restrictions on subsequent employment?

These costly benefit programs have been the focus of research and legislative attention by Cal-Tax for years. One of our arguments is that there are smarter options now that were not available to public employees when the current benefit programs were implemented. Want to retire at age 50, or 55? Invest wisely in a 401K plan; don't expect taxpayers to foot your retirement costs. Disability benefits? The existing plan is hardly fair to the truly disabled. An alternative plan, combined with a healthy defined contribution amount, could underwrite generous benefits at less cost.

This short summary of important spending considerations has not even touched on the wisdom of reducing the size of more elementary school classes before assessment of the existing new program is performed. Prevailing wage, the obligation that makes rural school districts pay maybe 30 percent more than necessary for school construction, is being addressed by the Wilson administration, although labor unions at this writing were still trying to hang onto this antiquated and wasteful system with a steady stream of lawsuits.

The tax burden is the flip side of the spending picture. Spending commitments in such areas as welfare and expensive public employee benefit programs must be rationalized. When contracting out saves tax dollars without sacrificing quality, it should be done. We do not say that taxes must be cut for the sake of cutting taxes. We say it is impossible to have a competitive tax structure with mismanaged public spending that continues to exceed national norms in large categories. Setting priorities also could provide additional funds for vital services such as health care for uninsured children, more affordable higher education, and more cops on the streets. The choices are ours in 1997.

- Ms. Taylor is senior policy consultant at Cal-Tax.