This year California’s governor and state legislature are choosing to spend $15 billion on the Department of Corrections and Rehabilitation (CDCR), which incarcerates 127,000 prisoners. 

Now that Governor Brown has acted on all 1,217 bills sent him by the legislature, we are turning our attention to the 2019 legislative session. One GFC focus will be improving the quality of services provided Californians. Below is a overview of two of the most important services.

On September 20 the Federal Reserve recognized a truth long covered up by California's public pension funds.

In its latest quarterly Financial Accounts report the Fed revised its measure of unfunded pension liabilities owed by state and local governments to $4.1 trillion, more than double the amount previously reported.

The California Prison Guards Association (CCPOA) is spending $500,000 on TV ads against Marshall Tuck in the race for Superintendent of Public Instruction. Why would the largest recipient of state spending on California’s prison-industrial complex care about the identity of the state’s next SPI? 

Where are legislator tweets about CA’s schools?

Donald Trump trolls California. Of course, trolling is not a presidential responsibility outlined in Article II of the US Constitution. But many California state officials troll Trump and likewise are not fulfilling any of their responsibilities under Article IV of the California Constitution.

The measure that matters.

California will spend more than $16,000 per pupil next school year and the state’s Legislative Analyst’s Office reports California’s per-pupil spending ranks in the middle among the states and predicts its ranking likely will increase as new data are released over the next few years.

For the 12 months ended June 30, 2018, the S&P500 returned >14 percent but California’s State Teachers’ Retirement System (CalSTRS) earned <9 percent. Some of the underperformance results from the difference in allocation to equities (the S&P500 is 100 percent invested in equities while CalSTRS is not), but CalSTRS’s underperformance (37 percent) is more than twice its allocation to non-equities (14 percent).

<20 percent went to citizen services.

In January 2012 California Governor Jerry Brown announced he would ask California voters to approve temporary sales and income tax increases. Later that year his proposal was embodied in Proposition 30, projected by the Legislative Analysts Office to raise $6 billion per year for four years and smaller amounts for three years (ie, $42 billion or less). 40 percent of P30 revenues were to be provided to schools and community colleges*, the balance to the state. Marketed as “Temporary Taxes to Fund Education,” P30 passed. Seven budget years later, the results are in.

Triggered by recent earnings reports from CalPERS and CalSTRS, some readers have asked why California’s pension funds are underperforming the overall stock market. Eg, for the fiscal year just ended June 30, 2018, CalSTRS and CalPERS earned only ~two-thirds the stock market. While the question is best asked of their Chief Investment Officers, one reason might be portfolio construction designed to minimize contribution volatility. CalSTRS’s most recent CAFR discusses volatility on page 29 here.

Dear California State Legislators,

July 18 marked Nelson Mandela International Day. There is so much to celebrate about Mandela but of particular relevance to your job is one of his most famous quotes: “Education is the most powerful weapon which you can use to change the world.”

You and the governor run K-12 education in California. You write the Education Code, which governs schools run by government employees. No other government-operated enterprise in California receives more money.

Seeks to level playing field against self-dealing adults.

According to the Sacramento Bee, California Governor Jerry Brown has asked the California Supreme Court to accelerate consideration of a lawsuit the outcome of which is existential for California classroom funding.

California has two state-operated enterprises (SOE’s), each with annual revenues of ~$100 billion: K-12 education, which serves six million students, and Medi-Cal, a single-payer health insurer covering 13.5 million low-income Californians. K-12 services are largely provided by public employees while Medi-Cal pays for services largely provided by private sector employees.

>100% of schools’ share went to increased retirement spending.

In January 2012 California Governor Jerry Brown announced he would ask California voters “to approve a temporary tax increase on the wealthy, a modest and temporary increase in the sales tax, and to guarantee that the new revenues be spent only on education.” Later that year his proposal was embodied in Proposition 30, a temporary tax increase projected by the Legislative Analysts Office to raise $6 billion per year for four years and smaller amounts for three years. Marketed as “Temporary Taxes to Fund Education,” P30 passed. Seven budget years later, the results are now known…

Start with $1,815.

Via a budget trailer bill signed into law last month, California has budgeted $5 million to establish a “Council on Health Care Delivery Systems” charged with developing a plan “for advancing progress toward achieving a health care delivery system that provides coverage and access through a unified financing system for all Californians.” Made up of five members, three chosen by the governor, one by the Senate Rules Committee, and one by the Speaker of the Assembly, the Council will start meeting in 2019 and must submit a plan to the legislature and governor on or before October 1, 2021.

But scalable only with action by state legislature.

EdSource reports that heavy investment in teacher preparation doubled math scores in a low-income, mostly African-American and Latino San Francisco school.

The Democratic Caucus in the California State Assembly has published a video praising the 2018–19 state budget and in particular the $16 billion in reserves the state now has set aside in preparation for the next downturn in state revenues. That praise is well deserved.

OPEB (“Other Post Employment Benefits”) debt largely consists of subsidies to retired employees for medical insurance premiums. OPEB debt owed by the state doubled in the last decade to more than $90 billion and state spending in the 2018–19 California state budget on OPEB will be >80 percent higher than a decade ago. The burden of that spending disproportionately falls on discretionary General Fund programs, as explained here.