July 2002

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Cal-Tax Commentary 

Editor’s Note: As the state’s policy-makers try to deal with severe budget problems, debating higher taxes and/or reduced spending, Cal-Tax believes there should be more focus on existing spending at all levels. Billions of dollars are wasted each year, spent on questionable programs or to correct the mistakes of bureaucrats who aren’t getting the job done. Cal-Tax has combed newspapers throughout the state in recent years collecting examples of misused or abused tax dollars. They amount to billions of dollars. The examples in this commentary represent some of the many cases that can be viewed by turning to The Accountability Files at Cal-Tax Online. We believe that they help make a case for improvements to guard against such waste in government budgeting. Cal-Tax Digest has published two major roundups of examples, one last fall and another in June 2002.

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The state budget being considered by the California Legislature is a major disappointment to this state’s taxpayers. The Legislature is proposing to raise taxes yet ignoring well-documented reports of fraud and wildly reckless public spending by state and local government, including schools.

Taxpayers deserve a budget process that gives the public confidence that spending is well managed. This process should systematically review spending programs and measure their cost-effectiveness and performance. It would be able to assure taxpayers that fraud had been eliminated and wasteful spending had been rooted out.

Media reports, as well as government audits, are strong indications that public dollars are misused in California. Details on these reports can be found on the Cal-Tax web site under The Accountability Files: http://www.caltax.org/member/digest/jun2002/6.2002.AccountabilityFiles.01.htm

Wasted tax dollars well into the billions have occurred in California, based on newspaper and government watchdog reports, often in programs that cry out for tighter controls. Keep in mind that if state spending had been held to 6.2 percent of personal income, as it was in 1998-99, there would be no budget deficit in California.

Briefly, here are some examples over the past three years that suggest government spending needs comprehensive, systematic review:

WELFARE FRAUD. The Los Angeles County Grand Jury reported that welfare fraud may be costing taxpayers as much as $500 million a year (Los Angeles Times).

POOR FOOD STAMP ADMINISTRATION. California faces tens of millions of dollars in federal penalties due to incompetence in managing the food stamp program. U.S. Department of Agricultural officials said this state is operating the most error-plagued program in the nation. According to federal data, errors were found in 17.4 percent of the cases last year (Los Angeles Times).

MEDI-CAL FRAUD. Fraud reaches 70 percent of the billings in the Medi-Cal section that deals with crutches, adult diapers, wheelchairs and other medical equipment. The FBI has estimated that Medi-Cal fraud in California will eventually total $1 billion (Los Angeles Times).

ORACLE DEBACLE. The Bureau of State Audits reported that the state entered into a no-bid, $95 million enterprise licensing agreement with Oracle Corporation for more software than was needed, paying up to $41 million more than it should have (San Jose Mercury News).

SOARING SICK LEAVE. Use of sick leave and resultant overtime in the state prisons system has increased dramatically in the first four months of a new labor contract approved by the Davis administration. A 20 percent hike in sick leave will add $12.5 million to the state budget over a full year. Overtime would be up $58.4 million. The new contract makes it more difficult for prison wardens to clamp down on suspected abuse of sick leave (Los Angeles Times).

OAKLAND SCHOOLS. State auditors found 400 more teachers on the payroll than in the district budget. Dan Siegel, school board president, said: “Nobody knows how many teachers are working for the district – at least nobody knows for sure.” (San Francisco Chronicle)

LAUSD’S GHOST EMPLOYEES. The Los Angeles Unified School District’s $5 billion payroll is plagued by waste, fraud and even “ghost employees” illegally drawing paychecks (Los Angeles Daily News).

STATE STOPS AUDITS OF SCHOOL ATTENDANCE. Bowing to pressure from school districts, the Davis administration announced that it was scrapping its program of auditing school attendance. The action likely means that taxpayers will be paying for students not attending schools (Sacramento Bee).

L.A. NEEDS BETTER MANAGEMENT. Los Angeles City Controller Rick Tuttle says the city is mishandling taxpayer dollars to the tune of more than $100 million a year. Mr. Tuttle said the city has allowed permit and license fee payment checks to sit uncashed for months (Los Angeles Daily News).

TURNING POINT ACADEMY. The state has spent more than $10 million to create and run (with a staff of 34) a military-style academy for troubled youths. It opened in March 2001. As of November, it had eight students. That’s $500,000 per student. Even if the school had attracted the 80 youths that were envisioned this year, which is one-fourth of the original goal, the cost to taxpayers for each kid’s six-month stay would be $50,000 (Sacramento Bee).

CONVICT’S $1 MILLION HEART TRANSPLANT. The state recently paid for a heart transplant for a two-time felon, the overall costs of which are estimated to reach $1 million. The average cost of a heart transplant in the country is just over $200,000. Of course, the average heart patient doesn’t have taxpayers pick up the tab at Stanford’s medical center (Sacramento Bee, Los Angeles Times).

PRISON GUARD CONTRACT. The Legislative Analyst’s Office says that a labor agreement approved by governor with the California Correctional Peace Officers Association will cost the state more than $500 million a year, possibly as much as $1 billion a year by 2006, when in full effect (Los Angeles Times).

ANOTHER PENSION GIVEAWAY. Governor Gray Davis on October 13 signed legislation (AB 616) sponsored by unions representing local government employees that is likely to have significant impact on the budgets of cities and counties – and taxpayers. It enables unions to negotiate agreements with counties that could amount to 50 percent annual increases in pensions for employees who work to age 60. The current value of the higher pensions for all those workers already employed is estimated to be about $1 billion (Sacramento Bee).

PENSIONS. The Los Angeles County retirement board has granted work-connected disability pensions to 53 percent of 1,034 retiring public safety employees in the past three years. That contrasts with 20 percent of retiring Los Angeles city police and firefighters receiving disability pensions. A disability pension provides a higher percentage of salary, with half of it tax-free. Surviving spouses also get 100 percent of a disability pension, not 60 percent under routine pensions (Los Angeles Daily News).

NEW CHILD-CARE SUPPORT COLLECTION PROGRAM: A BUST SO FAR? The rate of collection of the state’s new child support collection program is no greater than the system it replaced. According to federal figures; the new program delivered $1.1 billion in child support in its first full year of operation, 40 percent of what was owed (San Francisco Chronicle).

GOVERNMENT LOBBYING GOVERNMENT. Local government agencies, including cities and counties, spent $44 million lobbying state government during the last legislative session. That two-year total more than doubles the $18 million spent seven years ago when the Secretary of State’s Office started compiling the information (Orange County Register).

EXCESS ABSENTEEISM. Santa Barbara County taxpayers are paying $10 million a year as a result of excess absenteeism by public employees. Collectively, county bureaucrats are absent 444,000 hours a year. (Santa Barbara News Press).

L.A. UNIFIED LEASES ADMIN BUILDING. The Los Angeles Unified School District has leased a 29-story downtown office building for five years for the district’s administrative headquarters, even though the building has earned the lemon award twice from a downtown business group (Los Angeles Daily News).

S.F. SCHOOL SPENDING. When voters approved bonds and special property taxes to construct and fix San Francisco school buildings, they expected the money to be used for that purpose. The San Francisco Unified School District, since 1989, spent $60 million from bond funds on operations, not buildings (San Francisco Chronicle).

PENSIONS LURE MORE COPS. The city of Sacramento is facing an exodus of police officers lured into retirement by pensions that may be too good to refuse. How about 90 percent of their final-year salary for those with 30 years of service and past their 50th birthday. The city plans a $500,000 marketing campaign to increase the number of cadet applicants (Sacramento Bee).

WORKERS’ COMP COSTS HIT RECORD IN L.A. COUNTY. Los Angeles County’s workers’ compensation costs hit an all-time high of $242 million in 2001, a 65 percent increase in five years. Not one case of fraud had been prosecuted in recent years (Los Angeles Daily News).

MTA WORKERS’ COMP FRAUD. Los Angeles Metropolitan Transportation Authority officials have started trying to look into the question of fraudulent workers’ compensation claims, During the past five years, MTA’s workers’ comp insurance costs have climbed 51 percent, and possibly as high as $59 million a year (Los Angeles Daily News).