Monday, December 22, 2008

The California budget

So why is California's budget now $130B when it was $65B in 1998?

Here are the reasons:

  1. Population growth. California's population has grown from 33 million in 1998 to 38 million in 2008, or a 13% increase in number of Californians needing state services such as driver's licenses and etc.
  2. Spiralling prison costs due to the "Three Strikes" law and the War on Drugs. The prisons budget this year is roughly $10B, or five times the $2B prison budget of 1998. Roughly $5B could be cut out of the budget by releasing all prisoners who a) were convicted of non-violent crimes, and b) have served at least 1 year in prison.
  3. MEDICAL COSTS. Medi-Cal and associated medical services (Healthy Families, care of the mentally retarded and mentally ill, etc.) was $51 BILLION dollars in 2007, and adjusted for inflation and for the increased number of eligible people (due to the recession and the melt-down of the private insurance system), that would account for $55 BILLION dollars in 2008 -- or roughly half the state budget. In particular, Medi-Cal enrollment has been skyrocketing for the past ten years (from 2.4 million in 1998 to 6.6 million today) which will triple Medi-Cal costs even *without* factoring inflation. By contrast, the state health care budget in 2000 was $13.6 billion -- considerably smaller.
  4. Inflation. The "core" inflation rate means that $65B in 1998 would be $84B today. Then increase by 13% for the population growth and that's $95B, which seems considerably less than $130B. *BUT*: Health care inflation has been even higher especially considering the huge increase in the number of people receiving Medi-Cal and Healthy Families. If you take $13.6 billion in 2000 and scale up for medical costs inflation to 2007 (last year I have numbers for), you're talking $18.24 billion. But then realize we have three times the number of people receiving Medi-Cal today. So simple inflation would say that in 2007, Medi-Cal would cost $55 billion. The actual cost was $44 billion -- i.e., the actual per-recipient cost of Medi-Cal is *less* today than it was in 1998.
So a short summary: The root cause of California's budget crisis is health care. Medi-Cal costs have exploded due to a) medical costs inflation and b) increasing numbers of people losing their health insurance and therefore becoming impoverished and eligible for Medi-Cal. The solution? Well, that's simple. A single-payer insurance system, either state-wide or nation-wide, which took all these health care related costs off the state budget would immediately give the state an enormous surplus.

BTW, for those who now will start whining about California's "high taxes": California ranks 20th on the list as far as taxes per $100 income are concerned. Californians pay more taxes than folks in Arkansas and less than folks in North Carolina. According to the Federation of Tax Administrators, Californians pay $10.50 out of every $100 income in state and local taxes of all types (sales taxes, property taxes, income taxes, etc.). So calling California a "high tax" state is a gross mis-reading of the statistics. California's budget problems have nothing to do with "high taxes", and everything to do with population growth and health care. In fact, you look at the numbers, and California's budget problem becomes stark -- if adjusted for health care inflation and population growth, you're looking at a $136B budget -- meaning that a $130M budget proposal already has a lot of cuts over what population growth and health care inflation would predict.

But hey, this is math. And math is hard. So let's just bash "extravagant spending" as the problem, because that doesn't require, like, math (ick!). And thus ignorance reigns... sigh!

-- Badtux the Math Penguin

Sources of information:
* The Tax Foundation
* Tom's Inflation Calculator, w/medical costs inflation numbers
* California State Budget Summary, 2008
* California State Budget Summary, 2000 (earliest I could find)
* Medi-Cal Summary, California Healthcare Foundation, 2001
* Medi-Cal Summary, California Healthcare Foundation, 2007
* U.S. Census Bureau


  1. #3 repeats #1


  2. Fixed. Too much cut-and-paste from the message posted on the original blog that this was posted on.


  3. Thanks for the vividly clear explanation. Many of these same problems are plaguing the budget in Washington State as well. :::sigh:::and yes, the "wild spending sprees" are to blame. Right.

  4. Do not forget that the feds have been cutting Medicaid Waiver reimbursements for the last few years. Normally, the increase in Medi-Cal enrollments wouldn't be as dire a figure. But the feds ain't ponying up anymore.


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