Eber: Dollars and Sense with Covid-19

By Richard Eber

If there is a silver lining with the Covid-10 Pandemic in California, it’s that city, county, and State governments are actually having to scrutinize their budgets to reduce cash outlays.

The last decade in particular has witnessed higher taxes and more government spending on services that may not hold the highest priorities for the majority of citizens.  Financing Medi-Cal, Sanctuary Cities, Cap and Trade, increased pension costs, housing subsidies, costly environmental policies, workman’s comp, transportation and many other programs, have placed undue stress on businesses.

Can they any longer be counted on to pony up billions of dollars each year of high taxes to bankroll a utopian Progressive agenda in California?

In the coming months, Governor Gavin Newsom is facing a two edged fiscal sword.

Losing an estimated 54 billion deficit has put him in the position of cutting expenses in virtually all parts of government.  Included in his current plans is to liquidate the 18 billion dollar budget surplus from last year to reduce the pain. This leaves more than double of this amount that increased Federal assistance will not totally make up.

Also to be considered is the high tax burden placed on the private sector by excess government spending.  Before the pandemic, businesses were threatening to crumble; now they are in a state of free fall with looming bankruptcy, reducing operations, or leaving the state to survive.

The poster child of the current pandemic is Elon Musk trying to keep his Tesla car plant open despite road blocks placed by the State and County governments.  Although a tacit truce has been reached, the long term outlook for Tesla continuing operations in California is bleak.  High taxes and operating expenses will likely result in the automaker to relocate to a more favorable locale.

 Even with Newsom’s cost savings efforts, very little is being done to deal with negative business climate in California.  What concerns many economists is how will these for profit enterprises be able to stay afloat on both a short and long term basis?

Areas of uncertainty include:

• Cap and trade green energy policies which has resulted in California having among the highest costs of electricity and gas in the Country.
• Workers Comp laws that place undue expense on business. While intending to assist workers, they actually encourage their employers to leave the State.
• The inability of the State to reign in the cost of housing  from poor to the very rich has lead to mass migration to other states.
• A massive high speed public transportation network in large cities that the poor do not make enough to utilize.  Along with this elitist approach are new pay to play rush hour  diamond lanes on freeways that only the wealthy are able to afford
• Non progressive sales taxes that low income folks are bearing the brunt of.

None of these factors seem to be on Governor Gavin Newsom’s mind in dealing with the corona Pandemic.  He wants to blame the virus for toppling his socialistic model of big government rather than the system he and other Democrats have created in the past couple of decades.  The fact of the matter is even before the Covid-19 plague began, there have been alarming signs that California’s mega economy has been on the verge of collapse.

Indicative of this peril has been the exodus of long time residents of the state for greener pastures. Even with the influx of undocumented immigrants and the homeless, population for California has remained stagnant the past five years or so. It is possible once the census is completed; a Congressional seat may be lost.

Even worse, those who are leaving tend to be prosperous in higher tax brackets.  This means lower revenues for the state to manage their bloated budget.

As a secondary factor for California’s continuing difficulties, Newsom will try to blame President Trump for destroying the State’s economy.   Just wait until Joe Biden emerges from his basement/bunker and the campaigning for the next occupant of the White House begins in earnest.   With help from their allies in the leftist media, President Trump will be depicted as the villain who has single handedly destroyed the Golden State.

In reality Newsom’s hope for the future is for the national government to bail California out of its fiscal malaise. He wants to continue to do business as usual without restructuring the current spending model of the State till things get back to normal. There is no thought on his part to reduce the costs of big government or deal with the current one trillion dollar deficit with public employer pension funds CalPERS and CalSTERS.

Local governments have less flexibility and resources in trying to maintain their services in the face of diminishing revenue.  They can’t afford to lose several billion dollars on the Bullet Train and take a dismissive “Blame it on the bossa nova” attitude.  For them, every dollar is watched and valued.  Fixing pot holes is more important than trying to save the world.

In the forefront of operating city governments, City Manager’s face the fire each day. This elite group is in charge, under the direction of elected city councils, for operating most cities throughout California.

With the average life expectancy in one location less than five years, city managers are never secure. At every meeting they are in danger by a 3-2 vote of being dismissed.

In addition to facing the scrutiny of City Councils, this City Manager’s must also deal with labor unions whose self interests don’t always correlate with the communities they serve.  As such these CEO’s of cities have to tip toe around the demands of civil service employees while at the same time provide an acceptable amount of services for the public.

To complicate matters even further, rising pension costs for workers, along with political pressure from labor unions, inevitably leads to Hopson’s Choice situations for City Managers. What should constitute their priorities in allocating scare resources?

Unlike Gavin Newsom, the blame game is not a viable option for city managers.  There are just so many consultants that can be brought in to deal with delicate matters. What makes things even more difficult is that the State, in recent years, has forced more responsibilities on local governments without funding these added services. 

This has left City Managers having little other choice but to increase sales tax’s to stay afloat, including the necessity of forking over more money to CalPERS.

As the Covid-19 crisis winds down, governments at all levels in California will be seeing their options decrease for raising taxes of all types.  As an indication, the election March 3^rd found most efforts to have the voter’s fork over higher property and sales taxes, go down in flames. 

This trend might be a preview of coming attractions as tax payers may have reached their vanishing point in contributing their hard earned dollars to those who govern them.

Only time will tell.

Source:

Richard Eber studied journalism at the University of Oregon. He writes about politics, culture, education restaurants, and was former city and sports editor of UCSB Daily. Richard is president of Amerasa Rapid Transit, a specialized freight forwarder.

The views and opinions expressed in this commentary are those of the author and do not necessarily reflect the official position of Citizens Journal.

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