Institutional Causes of California's Budget Problem

Abstract

THE CALIFORNIA Journal of Politics & Policy Volume 2, Issue 3 Institutional Causes of California’s Budget Problem Bruce E. Cain University of California, Berkeley Roger G. Noll Stanford University Abstract Since the early 1990s, California has experienced recurring budget crises. This ar- ticle examines the combined budgets of state and local government and the institu- tions that create them to ascertain the problem. California collects more taxes and fees as a percentage of income than most states, but its local governments have lower revenues. Total revenues to all governments as a percentage of income are near the national average. The state spends less than the average for other states, but local governments spend more. Forty percent of the state budget funds revenue transfers that finance high local spending. The cause of this unusual fiscal relation- ship is decades of initiatives that constrain local revenues more severely than state. The state response, state-local transfers, has led to excess local spending and lack of clear accountability. The only plausible cure is initiative reform and revision through a state constitutional convention. All other pending reforms are palliatives. Keywords: California budget, state government, local government, taxes, initiative reform, government reform www.bepress.com/cjpp