California and its local governments are facing tough choices this fiscal year—basically cut services to balance the budget or raise taxes dramatically to pay for it. But why?

It turns out that revenue declines are only a small part of the problem. The real answer lies in the fact that the cost of government rises each year without any change in services—it comes in the form of salary increases and benefit increases.

These amounts are largely negotiated in secret and buried in public employee agreements that rarely if ever see the light of day. Does this mean that public employees do not deserve raises? Absolutely not—they should and do receive annual increases.

Most public employees automatically receive a three to five percent “step” increase each year. The raises we hear discussed in the limited public releases about these negotiations are increases on top of these basic increases — the so–called COLA or cost of living adjustment.

For example, in Vallejo, a city which recently filed for bankruptcy protection, some unions were scheduled for 21 percent COLA increases over three years—on top of their regular step increases of 3-5 percent.

Democrats’ efforts to impose significantly higher taxes on the state’s businesses and wealthiest individuals is but the most recent incarnation of the tyranny of the majority prophesied by leading thinkers in our nation’s founding. The concept that a majority can abusively (or tyrannically) take the property of others for the interests of the many has long been the focus of constitutional scholars and philosophers in our society.

And yet the desire to dramatically fine narrow segments of our society to fund the general government, at the exclusion of others and, in many instances to subsidize others is one of the common mantras of state and local finance. Today the legislature pursues businesses and the successful to fund a government whose spending is accountable to no one.

It happens at all levels of government. Local governments tax hotel residents to fund local programs like parks and senior centers. Senator Obama proposes a new shift to a more progressive federal tax system that would eliminate the tax liability of some ten million Americans. The state legislature targets a narrow group of people who already account for a disproportionate share of the state budget.

This morning I received an email that exposes one of the roots of one of the foundations of the funding crisis in California higher education. It was an electronic newsletter from Cary Nelson, the President of the American Association of University Professors calling for national unity in support of the efforts by the University of California, the California State University and the California Community Colleges to fight state efforts to reduce their budgets.

The column discusses the potential reduction in the number of students who will possibly be able to attend the state’s public universities and calls for all faculty members across the nation to rise up, sign a petition and enlist their friends to fight the cuts to higher education in this year’s budget. Its primary focus—making sure that the public subsidy in higher education is maintained at its current or even higher levels.

Tuesday, July 1st, California will enter another fiscal year without having approved its budget for next year-again. It has gotten to the point that no one really expects it anymore, but we all moan and complain when it does not happen. The only years we come close are years when there is so much money, everyone’s thirst can be slaked from the fountain of money California’s powerful economy is capable of generating.

And little happens, at least for the first 30 to 90 days because the consequences are delayed by the timing of the billing and payment processes of the state accounting system. No big deal, right? But it IS A BIG DEAL! It shows just how dysfunctional our legislative processes have become.

For voters and workers in the state, it is almost insulting to say, “Go pay your mortgage, balance your checkbook and pay off your credit card bills on $45,000 a year, but don’t get mad at us for not being able to balance a $100 billion budget.” Californians are rightfully incensed.

The real problem at the heart of the budget process is not declining revenues, tax-and-spend liberals, greedy unions, obstructionist conservatives, or cheapskate taxpayers –it is the absence of leadership at the helm of the state. Between the governor and Democrat and Republican leaders, no one is willing to step forward, navigate a wise course and carry the message to the voters.

The Republican Party does not
need to be re-branded as pundits claim, it simply needs to return to
the core values that make it great-a commitment to personal freedom,
individual integrity, and global American leadership.  Oh yeah, and it would be nice if someone besides Democrats defined it.

SF Chronicle political writer Carla Marinucci describes how Schwarzenegger and McCain are striving to rebrand the GOP  to be seen as the party of the center (click here to read her article). The GOP IS and always has been the party of the middle- the middle class.  THAT is where it needs to return.

The last 20 years since President Reagan have been about helping elites reshape and redefine America.  Whether
Hillary’s health plan, the Kyoto protocol, the UN determination of
Middle East policy, it has all been about elites telling Americans what
is right for us to do.

The American people, and
especially the middle class, are tired of hearing about this crisis or
that and what government needs to do.  They are willing to
work and work hard, but they need to know with certainty that they will
reap the fruits of their labors-NOT that they will be frivolously taken
away to fund a new government program.

Vallejo is a poster-child for what is wrong in California’s state and local government finance system.  The city of 117,000 in northern California had been flirting with bankruptcy this entire fiscal year, and was finally forced to declare itself bankrupt after months of failed contract negotiations with the city’s two largest employee unions-police and firefighters.

The city was facing a projected $16 million deficit next year on a budget of some $80 million and had already used up its reserves and almost all possible accounting gimmicks just to get to that point.  Even though the city undertook major service cuts last year and this year, there was still no room to accommodate the reduction in revenues that this year’s real estate collapse has brought on.  And it is not just the economy.  How can this be you might ask?