This is the Executive Summary of our full Citizens’ Budget for California. To access the entire California Citizen’s Budget, go to www.rppi.org/cacitizensbudget.html. For printed copies email your request, with address, to [email protected]. For questions about the report, contact [email protected] or 310-391-2245 Citizens’ Budget A Balanced Approach to Solving the Deficit while Safeguarding California’s Quality of Life By Carl DeMaio, Adrian Moore, Adam Summers, Geoffrey Segal, Lisa Snell, Vincent Badolato, and George Passantino Project Director: Carl DeMaio Sponsors The Performance Institute - The Performance Institute is a private think tank that serves as the nation’s leading authority and repository on performance-based management practices for government organizations. Its mission is to identify, study, and disseminate the leading management innovations pioneered by “best-in-class” government programs. Through its national conferences on pressing issues, interactive executive training programs, and best practice research projects, the Institute provides cut- ting-edge expertise in the design, implementation, and evaluation of strategies to solve operational challenges and enhance government performance. Reason Public Policy Institute - A division of the Los Angeles-based Reason Foundation, Reason Public Policy Institute is a nonpartisan public-policy think tank promoting choice, compe- tition, and a dynamic market economy as the foundation for human dignity and progress. Reason produces rigorous, peer-reviewed research and directly engages the policy process, seeking strategies that emphasize cooperation, flexibility, local knowledge, and results. Through practical and innova- tive approaches to complex problems, Reason seeks to change the way people think about issues, and promote policies that allow and encourage individuals and voluntary institutions to flourish. Copyright © 2003 Reason Foundation and the Performance Institute. Photos used in this publication are copyright © 2003, Gettyone. All rights reserved. April 30, 2003 Governor Gray Davis and Members of the State Legislature State Capitol Building Sacramento, CA 95814 Dear Governor Davis and Members of the State Legislature: s you are all well aware, California faces the worst fiscal crisis of any state in the nation Awith its mind-numbing $26-34 billion budget deficit. With each day that passes without action on the budget, the situation only gets worse. In order to contribute to the state’s effort to meet this fiscal challenge, the Citizens’ Budget outlined in this report provides a non- partisan and comprehensive plan that will balance California’s budget without raising taxes and without reducing vital citizen services. Before you consider this budget, there are a few things you should know. If you believe that our state government is 100% efficient and programs cannot possibly be redesigned to do more with less…then this budget is not for you. If you believe that the only way to balance the budget is to raise taxes…then this budget is not for you. If you believe that the only way to balance the budget is to sacrifice vital program services…then this budget is not for you. If you want to use the current budget crisis to play to your base and score political points…then this budget is not for you. However, if you are serious about balancing the budget while protecting the quality of life in California, then this budget plan brings good news and provides some much-needed advice on how this present crisis can indeed be addressed without resorting to the false choices of increased taxes or draconian cuts in services. Ultimately, the Citizens’ Budget plan provides more reductions than needed to balance the budget. Indeed, should all of the reforms and recommendations be accepted, California could emerge from this plan with a $6.5 billion surplus by 2005. How? The Citizens’ Budget plan calls for a fundamental overhaul of most state programs using proven management reforms that not only produce cost savings but also improve program performance. It implements well-documented innovations pioneered by other states that have demonstrated that state government can indeed do “more with less.” Most importantly, it keeps California’s commitment to investing in our children’s education and maintains public health and social services. At the heart of this plan is the belief that with serious effort and leadership, California’s best days are ahead of us. To get there, all sides of the budget debate must work together constructively—and all options and ideas must be put on the table. The time and effort put into constructing the Citizens’ Budget is but one initial contribution to that effort. Sincerely, Carl DeMaio Adrian Moore President, The Performance Institute Executive Director Senior Fellow, Reason Foundation Reason Public Policy Institute Citizen’s Budget Outline of Citizens’ Budget Plan (available at www.rppi.org/cacitizensbudget.html) I. Executive Summary: A “Balanced Approach” to Solving the Deficit while Safeguarding Quality-of- Life Priorities ......................................................................................................................................1 II. A 10-point Plan to Balance the Budget without Raising Fees #1: Put Politics and Accounting Gimmicks Aside to Create a Bipartisan and Effective Solution ...14 #2: Identify the Problem: Out-of-Control Spending ..................................................................21 #3: Target Spending Reductions Based on Priorities and Performance-Based Budgeting .............29 #4: Streamline and Reorganize State Government through Consolidation and E-Government ....42 #5: Create Personnel Reforms and Workforce Incentives ..........................................................57 #6: Enact Competitive Sourcing and Procurement Reforms........................................................69 #7: Protect and Improve Education ...........................................................................................85 #8: Implement Health and Social Welfare Reforms....................................................................94 #9: Adopt a Biennial Budget and Limit Constitutional Revenue and Spending..........................102 #10: Stabilize Revenues by Creating the Most Jobs-Friendly State in the Nation .......................109 About the Authors ..........................................................................................................................114 Appendix A: Tax and Fee Proposals Introduced by the Legislature as of April 3, 2003 .....................116 Appendix B: A Menu of Possible Reductions in Budget Line-Items ..................................................120 CITIZENS’ BUDGET 1 Reason Public Policy Institute and The Performance Institute Citizens’ Budget A Balanced Approach to Solving the Deficit while Safeguarding California’s Quality of Life BY CARL DEMAIO, ADRIAN MOORE, ADAM SUMMERS, GEOFFREY F. SEGAL, LISA SNELL, VINCENT BADOLATO, AND GEORGE PASSANTINO PROJECT DIRECTOR: CARL DEMAIO Executive Summary It is amazing what a difference four short years can make. In 1998, California was running a $12 billion surplus—economically on the rebound and adding nearly 500,000 new jobs to its economy that year. Yet, in the past four years, California has fallen from the most jobs-friendly state to the least jobs-friendly state in the nation.1 Instead of saving record-breaking one-time surpluses produced by the stock bubble of the late 1990s, the state went on an unsustainable (and undeniable) spending spree in 1999, 2000 and 2001. As a result, today California faces a monumental budget deficit of between $26 and $34 billion dollars—and its economy has shed over 489,000 jobs alone since March 2001! The state’s budget deficit is merely a symptom of an overall decline in our quality of life in California. Indeed, in terms of cost of living and quality of life, the average Californian is finding living in our state harder and less satisfying. Businesses are leaving the state in droves—not because consumers are not spending, but because the price of operating in California has skyrocketed due to higher costs for energy, workers’ compensation insurance, and regulation. Mismanagement of the state’s finances only contributes to a growing sense of uncertainty for businesses. In a sick cycle, as more jobs leave the state, the deficit gets worse with fewer and fewer taxpayers contributing. If every Californian that wanted a job could get a job, the state would actually face a budget surplus this year. 2 Reason Public Policy Institute and the Performance Institute A Tale of Three Californias: Past, Present and Future Past (1998): Surplus Present (2002): Deficit Future (2005): Possible ? $12 billion state budget surplus $26-34 billion state budget deficit Should the state adopt the Citizen’s • 8.6 state employees per • 9.3 state employees per Budget: thousand population thousand population • $1.5 billion surplus • K-12 education spending was • Lowest bond credit rating of all • 8.7 state employees per $5,756 per pupil, California US states! thousand population ranked 37 in achievement tests • K-12 education spending is • $10,000+ in per pupil spending, • Workers’ compensation costs $9,072 per pupil, California still and top 25 and improving in totaled $6.6 billion ranked 37 in achievement tests academic achievement tests • The state’s economy was (64 percent increase in • 600,000 new jobs created in creating 500,000 new jobs that spending, no increase