The Crush - January 2020 - 4

[ FROM THE PRESIDENT ]

Getting Fiscally Healthy

AN $18 BILLION RAINY DAY FUND IS GREAT, BUT HIGHER TAXES ARE NOT
By John Aguirre
When I moved to California in June 2010, the Great Recession
had wreaked havoc on California's economy and our state's
finances. The dire state of the economy required Gov. Jerry
Brown to attend immediately to the unenviable task of closing
a massive $26.6 billion budget deficit for the 2011-12 budget
year. State workers were furloughed, fees were increased, the
state borrowed from various funds, and a great deal of creative
accounting was used to produce a balanced budget.
Certain departments, particularly the California Department of
Agriculture (CDFA), were forced to implement significant budget
cuts; particularly hard hit were marketing and invasive pest
and disease prevention and management programs. The state
stopped contributing to the Pierce's Disease Control Program,
which placed a greater burden on winegrape growers and the
federal government to fully fund the program. And, due to
policies enacted during Gov. Gray Davis' tenure, the state's
unemployment insurance fund was quickly depleted when the
recession hit. Thus, forcing California to borrow $63.8 billion
from the federal government so the state could continue paying
unemployment benefits. Of course, California's employers had to
repay the debt through higher payroll taxes.
California's state finances remain a mess, compared to most other
states, but Gov. Brown deserves a great deal of credit for insisting
we prepare for the next economic downturn by investing in a
rainy day fund. Today, the fund has a balance of $18 billion in
reserve.
In Gov. Gavin Newsom's most recent proposed budget for 202021, the governor's office made clear the risks of an economic
recession have increased. California's economy has been battered
by waves of tariffs imposed between the U.S. and China, and the
risk of a global economic slowdown continues to grow with an
imminent Brexit and rising tensions in the Middle East.
Despite the real progress made under Brown to prepare for the
next recession and modest improvements to our state's fiscal
health, California continues to underperform when compared to
other states. According to George Mason University's Mercatus
Center, which studies economics and public policy, California
ranks 42nd among all states for fiscal health - which represents
an improvement from previous rankings.

4 / JANUARY 2020

Unfortunately, California has
done little to reform structural
problems that threaten our state's
financial well-being. Researchers
at the Mercatus Center aptly
point out that, "Growing a state's
fixed costs can crowd out its
core functions and its ability to
choose new spending priorities
for its citizens. That's happening
increasingly at the city and state
level."
In the case of California, rising pension costs are being offset
by reductions in social services, higher education, healthcare,
public works, public safety and recreation. Joe Nation, Ph.D.,
with Stanford's Institute for Economic Policy Research, observed
that state and local government contributions to employee
pension costs continue to skyrocket. From 2002-03 to 2017-18,
pension contributions by California state, county and local public
employers expanded on average by 400 percent.
The result is the average contribution rate by public employers
to state, county and city employees increased from 17.17 percent
in 2008-09 to 30.8 percent in 2017-18, and is projected to reach 35
percent by 2029-30.
Wow! Can you imagine what it would do to your business if
you had to contribute an amount equal to 30.8 percent of your
employees' salaries towards their retirement? You couldn't do
it and, frankly, it's highly unlikely California can sustain such
contributions without dramatic future increases in taxes or
cutbacks to government programs.
Under Brown's leadership, California made significant strides to
improve its finances, and Newsom seems to recognize the value
of the rainy day fund. Unfortunately, much more needs to be
done. If our state's leaders fail to address the structural issues
that threaten the state's long-run solvency, then California's
businesses and taxpayers will pay the price with higher taxes and
reduced services, and that represents a major threat to the ability
of winegrape growers to compete in a global marketplace.

The Crush - January 2020

Table of Contents for the Digital Edition of The Crush - January 2020