Time to Rethink Political Approach to Problems

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Politics is a business with a short time horizon. It’s about today’s headlines, tomorrow’s news cycle and next year’s election. Life, though, is a longer-term proposition. Real people might suffer, or prosper, for years because of decisions made only to generate tomorrow’s desired headline.

Institutions we create are intended for even longer time horizons. Universities, cities and even societies have life cycles that can last for generations or hundreds of years. We think of them as perpetual.

So, why do we trust our lives and our institutions to people with a time horizon that extends only to the next election?

This can lead to lots of trouble. Consider California’s financial condition. Gov. Jerry Brown has received accolades from around the world for our “budget surplus.” He’s even been mentioned as a presidential candidate.

Problem is we don’t have a budget surplus, at least not in the way most businesses have to do accounting. We’re not fully accounting for accruing liabilities, commitments for payments to be made later, such as retirement payments.

Even in the limited sense that our budget is balanced, that balance is fragile and temporary.

Proposition 30 is generating significant state revenue, but the sales tax portion of that measure will expire at the end of 2016 and the more important temporary tax increase on high-income earners will expire at the end of 2018. That’s a problem for Brown’s successor. That’s a problem for us.

The incredible years-long stock market boom has been a major contributor to California revenues. Because of the state’s steeply progressive tax structure, California’s revenues rise and fall on the incomes of a relatively few very wealthy people. Those few wealthy people have done extraordinarily well because of the stock market. California has reaped a windfall.

Low interest rates have helped and, of course, interest rates can’t be expected to remain this low forever.

Cash shortage

In the meantime, California has not done much to change the trajectory of its spending. Eventually, the stock market will fall and California will have a cash problem, even if Proposition 30 is extended.

That means that Californians and California’s institutions will have a problem.

California has a standard reaction to cash problems. It borrows from other governments, agencies and retirement plans. It pushes, some would say shoves, costs down to counties and cities. Many of these cities and counties are already only marginally financially stable.

Cities such as Los Angeles are unable to maintain infrastructure as it is. Bursting water lines in Los Angeles, for example, are relatively common, a result of deferred maintenance or replacement. Absent structural reform, at the state and local levels, these types of problems will only get worse.

Road quality will continue to deteriorate. Traffic will get worse, because the money for needed upgrades won’t be there. Most locally provided government services will be delivered with delays, lines and the like. Or, local taxes will be increased.

Governments will likely adopt a triage type of response. Unfortunately, political triage is not like medical triage. In medical triage, urgency of need drives decisions. In political triage, votes, money and politicians’ short-term interests drive decisions. There is no reason to believe that political triage results in good outcomes. See San Bernardino, Stockton and Detroit for examples of what happens when things go badly.

Conceptually, fixing the problem is not that difficult. A more broad-based tax structure, one not dependent on the personal finances of just a few people, would end California’s recurring budget problems. Well, restraint on the spending side wouldn’t hurt either.

Politically, fixing California’s budget problems is very difficult because of politicians’ ambitions and short-term needs. Maybe what we need is an older statesman, one at the end of his or her career. One with experience and respect, with the credibility to convince Californians to take the medicine necessary to ensure the financial sustainability of California’s state government and its counties and cities.

Dr. Bill Watkins is director of the Cal Lutheran Center for Economic Research and Forecasting in Thousand Oaks.

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