It is the Revenue

A few years ago, when I was a Superintendent, I attended a Association of California School Administrators' meeting. I had a discussion with the Executive Director of the Association about why Sacramento could not get its act together in funding public education.

He said, "It is not that complex, it is the revenue".

I asked, what he meant by that? He replied that since Prop 13, there has been many tax cuts , tax loopholes, tax incentives; that have all worked to reduce the actual revenue the state brings in.

At the time, the Vehicle Licensing Fee had just been permanently cut, removing an eight billion dollar source from the state budget. That shortfall compounds itself, the eight billion is now ten billion.

Today, in the Sacramento Bee, an op ed piece spoke of the need for "legislators to stop thinking of ways of spending money they don't have, and start thinking of ways to spend the money they really have".

Sounds great, doesn't it? When you have a deficit (as in Federal Deficit), or need to balance the state budget, simply "spend the money you really have".

So, conservatives immediately pounce again, claiming overspending as the culprit. And they never admit their insane tax cuts have resulted in a chronic lack of adequate revenue.

The real cause of both the Federal Deficit, and California's budget hole, is ignored, because of its simplicity: lack of revenue.

Proposition 13, one of the largest cons in human history, is a case study point. The Proposition, pushed by conservative interests who were REALLY looking to cut their tax bills due to ownership of retail and rental property, effectively removed property taxes as the main support of public education.

Prior to Prop 13, about 80% of support for K-12 education was from local property taxes, 20% from state funds. There were problems with this support and the impact of inflation in the 1970s.

But Prop 13 was not really passed to address any of these concerns. In fact, proponents of Prop 13 did not care if 80% of the revenue for public schools would be dramatically cut. They really did not care what home value inflation was doing.

They cared about the millions tax cuts meant for THEM. Howard Jarvis, an aged and bitter conservative, reaped a harvest of millions from Prop 13. Gann, his partner in what amounts to a public crime, also made off like a bandit.

The only good thing about it all, is both were so old at the time they did not live to benefit any more than they did.

But Prop 13 was not finished. It ushered in the era of tax cutters; gave birth to the Presidency of Ronald Reagan, and culminated in the George W. Bush tax cuts, that have wrecked our economy.

Prop 13 left a ticking time bomb, that is now destroying California. Its relatively simple tax formulas were spawned because of an inflation in housing prices in the 1970s, that threatened to massively increase homeowners' property tax bills. So, it capped the increase, not at the rate of inflation, but cutting deep into the revenue source. What it did not address at all, was maintaining revenue sources in a deflation period. This was pointed out at the time of Prop 13's passage, but was discounted because "home values will always go up".

Prop 13 would have killed support for public schools, but then Governor Brown passed legislation shifting support to state revenues. Unfortunately state revenues were also attacked and reduced by the tax cut fever.


Reliable property taxes, based on property value appreciation, always had adequately supported schools, local government and services. Prop 13 that assumed housing values would always go up as a source of consistent revenue, was greatly flawed.

The housing bubble of 2000-2008 proved this flaw with great prejudice. Property tax revenue plunged because housing values dropped by half. Prop 13 had no adjustment to property depreciation, another bad law attribute.

In fact, nothing provided a hedge to this cut in revenue. Prop 13 really ended property tax as a reliable revenue source.

The result, a huge cut in revenue for local governments. And a revenue depletion echo that reduced state revenues as well. Tax cuts do not work to stimulate the economy. They are snake oil! They reduce revenue and actually retard economic growth.

The reason cities and counties are broke, is Prop 13, and tax cuts, not public workers' pensions. Cities and counties have lost billions due to just plain bad law; Prop 13 never provided a solution to what would happen to revenues in a deflation.

California led the United States into the hell hole of tax cuts. California led into a dead end of tax cut after tax cut, with the lie that they would lead to economic disaster.

Tax cuts, lead inevitably to spending cuts. In a recession, the government is the source of last resort, to help the unemployed, the sick, and the handicapped. And, government employment is an anchor to support the economy as it recovers. Without this life preserver, we sink into deeper into depression.

During the Great Depression the conventional wisdom by President Hoover, was to raise taxes , and CUT SPENDING. A balanced budget was seen as "the cure" for economic downturns. The "business cycle" had returned several devastating recessions since the Civil War, as income was distributed more to the top and less to the rest of the economy.

The government had no role to play in this, no government intervention was the conventional wisdom. And a balanced budget, tight money supply, was seen as all a minimal government presence should do.

When Hoover tried to balance the budget, to cure the recession of 1930, he triggered the Great Depression. And, when confronted with this catastrophe, he refused to involve the government. In short, no regulation, let the economy cure itself; balance the budget with spending cuts, people were hurting by then too much to raise taxes, which served to weaken the economy more by paralyzingly the government.

The result? A predictable catastrophe.

California cannot get out of the Great Recession for exactly the same reason. Government is said to regulate too much. So taxes and regulations are cut, deepening the recession. Government is cut, reducing its influence, just like 1930. The economy cannot fix itself.

We have cut taxes too much, we have to raise them, because the state is starved for revenue. But instead we cut state spending, draining precious capital out of the state economy; driving us deeper into a depression.

It's a cycle, cut taxes, reduce revenue, cut spending to balance the budget, that cuts demand, cut taxes some more.....and we spiral downward. the more we cut, the lower we sink.

States do not have the luxury of deficit spending.

And Californians still believe cutting taxes still can solve economic issues. They believe that the poison is the medicine.

So, we run out of revenue, cut state and local government and teacher jobs in an attempt to balance the budget, and drive deeper into despair.

Is there a way out of this? Probably not. We are stuck with forty years of an economic mistake and a con, and the average Californian does not understand any of it, so refuses to increase taxes to increase revenue, and we are sink lower.

It's is the REVENUE!