Commentary

California Budget Deficit Rising: Wasteful Spending, Minimum Wage Hike to Blame

Hans Bader
By Hans Bader | January 20, 2017 | 11:51 AM EST

California Governor Jerry Brown (AP Photo/Paul Sakuma)

California’s projected budget deficit is rising. “Gov. Jerry Brown’s administration miscalculated costs for the state Medi-Cal program by $1.9 billion last year, an oversight that contributed to Brown’s projection of a deficit in the upcoming budget, officials acknowledged this week,” the Associated Press reported today.

California’s projected deficits could have been avoided by curtailing wasteful spending. As the Reason Foundation notes, California spends more money to get worse roads than most states:

“California spends 4.7 times as much per mile of state-controlled highway as the national average. More specifically, for every $1 Texas spends on its highways, California spends $5.80. For every $1 Michigan spends on its highways, California spends $3. … California ranks 47th for highway conditions, while Michigan ranks 30th and Texas 11th. So while spending a lot less per mile, those states are able to have much better road conditions. In fact, over the last 20 years, California's highway system and road conditions made the least amount of progress among all 50 states.”

“… There is arguably more fat and wasteful spending at Caltrans than there is in any other state agency, which is saying a lot. Spending 4.7 times the national average per mile (in exchange for one of the poorest-ranked transportation systems in the county, no less) means a lot of bad decisions about spending are being made.”

But left-wing special interest groups that hold sway in California block reform.

California’s rising budget deficit could be reduced in future years by canceling a massive minimum wage increase that goes into effect by 2022 – an increase that economists warned against in vain.

California’s legislative analyst projected last year that the recent increase in the state’s minimum wage to $15 an hour will cost taxpayers $3.6 billion more a year in increased government worker pay. This is partly because already well-paid government workers sometimes have their pay pegged to a multiple of the minimum wage.

The increase will also drive up state welfare costs by wiping out many jobs. The American Action Forum predicts the increase will ultimately cost California nearly 700,000 jobs. An economist at Moody’s calculated that 31,000 to 160,000 California manufacturing jobs will be lost. 

Gov. Brown won’t be fazed by these job losses. Back in 1995, he declared that the “conventional viewpoint says we need a jobs program and we need to cut welfare. Just the opposite! We need more welfare and fewer jobs.” In signing the massive increase into law last year, Brown admitted that “Economically, minimum wages may not make sense.” But “politically they make every sense,” he said.

Job losses from the minimum wage increase will also reduce state tax revenue. Meanwhile, low income workers who manage to keep their jobs despite the increased minimum wage will face increased taxes and reduced federal earned-income tax credits and food stamps. As Henry Schmid notes, “the tax implications of going from a $10- to a $15-an-hour minimum wage” wipe out much of the benefit of any increase to the affected workers. “For a family of four with both spouses making the minimum wage, their federal tax will increase from $4,106 to $7,219, payroll tax will increase from $2,579 to $3,869, their earned-income tax credit (EITC) will be reduced from $596 to zero … and the $2,400 food-stamp credit will be lost.”

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law.

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