California:
Using the Budget Crisis for an All-out Attack on the Population

Oct 21, 2009

For the last year, the California state government has been racking up big budget deficits. In September 2008 and February 2009, budget deals were supposed to close the deficits. But by the middle of the year, the government reported a new deficit of 26 billion dollars. In early July, the crisis got worse, as the state treasurer pronounced the government broke and out of money. For only the second time since the Great Depression, the state of California issued billions of dollars in IOU’s to pay some of its bills, which, by the way, posed real hardship on the poor and working class who had to pay big fat charges to have the IOU’s cashed.

Throughout this crisis, the Democrats and Republicans claimed to be in a political gridlock. On the Republican side, the legislators played to their voting base, taking an anti-big government approach and swearing that they would never, ever allow tax increases—only to have the Republican governor engineer big tax increases.

The Democrats posed as the guardians of social programs, education, workers and unions. But when the American Federation of State, County and Municipal Employees (AFSCME) circulated a statement of support for up to 44 billion dollars in new or higher taxes on the oil companies, tobacco and other companies and on the wealthy, so as to avoid making cuts to social programs and pay cuts for state workers—not one Democratic legislator signed it. "Of course there are going to be cuts," proclaimed Democratic State Senate leader Darrell Steinberg.

Finally, at the end of July, the crisis seemed to ease as Governor Arnold Schwarzenegger and the Democratic legislative leadership announced a budget agreement. Since the Republican Party is a minority in both state legislatures, the Republicans had the luxury of voting against the highly unpopular budget—even though they didn’t stop it.

It was all a political show. The office of the Republican governor drafted the budget, and the Democratic legislators passed it with remarkably few changes. And the non-partisan California Budget Project laid that all out in an August 6 report, comparing the governor’s proposals and the final bill.

The state budget was an enormous attack against the working population and the poor. The state deficit was used as an excuse to ram through big budget cuts and tax increases, in order to hand more money over to big business and the wealthy.

The Economic Crisis

The politicians all pretend that the main cause of the budget crisis is the economic crisis. "Reductions in economic output translated into massive reductions in the baseline revenue forecasts... of 20.4% for 2008-09 and 22.7% in 2009-10." So said the governor in his August 8 budget report.

Unemployment is not just a scourge for the budget, but for the real life and blood human beings. These"reductions in economic output" have created a massive and devastating human crisis. California is among the states hardest hit by the crisis. With 12% of the country’s population, California has 25% of all the foreclosures. As of September, the unemployment rate stood at 12.2%, the fourth highest unemployment rate in the country, behind Michigan, Nevada and Rhode Island. One million workers in the state have lost their jobs. The state’s labor force has shrunk so much, there are now approximately the same number of people working as there were nine years ago—when there were 3.3 million fewer working age individuals. Many of those who managed to keep their job have still suffered big cuts in hours, pay, or both. Low-wage workers who cobble together a living from two, three or even four part-time jobs are seeing one or two of them disappear.

A big proportion of the unemployed aren’t getting unemployment benefits. Either they have been out of work so long, their benefits have run out—even with all the extensions—or else they never qualified for unemployment benefits because they worked only part-time, or they worked as independent contractors, or they had not been on the job long enough before the axe fell.

There is also a worsening health care crisis. Millions of people are losing medical coverage either because their employers cut their jobs, their benefits or else because they could no longer afford to buy coverage on their own. According to the latest census data, as of April 20% of the state population (6.3 million people) had no medical coverage, which is one-third higher than the national average. Since then, the crisis has only grown worse.

Poverty is skyrocketing. Official statistics show that in a population of 37 million people, more than 5.3 million Californians (15%) had incomes below the official poverty line in 2008. Especially hard-hit have been children, one-fifth of whom are living in families with incomes below the poverty line. And since the official poverty statistics are notorious for underestimating the real level of poverty, the situation is horribly worse than what they indicate. This is especially so in those parts of California where the cost of living is very high.

Ripping Up the Safety Net

Faced with this disastrous situation for the population, Democrats and Republicans agreed to sharply reduce funding for programs that are supposed to help people in dire straits—thus aggravating the crisis still further.

The state government ripped up the social safety net, cutting spending on welfare by 600 million dollars in each of the next two years. To justify these cuts, Governor Schwarzenegger in early July dared to complain, "... we’re expecting to have a 15% increase in caseload in 2009-2010. And the reason is very simple, because we are more lenient here, we are more generous in the state of California and also we are giving greater benefits for longer periods of time."

The entire statement is one big contemptuous lie.

Schwarzenegger calls welfare too "lenient" in a state that cut the number of recipients by 55% over the last decade. Today getting on welfare—and staying on—is harder than ever, and more than half the people who apply don’t get it. That means hundreds of thousands of people are without a job or income.

Schwarzenegger, who commutes daily on a private jet from his home in Brentwood to Sacramento, says welfare benefits are too "generous." Yet, this year the state cut the maximum welfare grant by 4%. For a family of three this spells a drop in the maximum grant from $723 to $694 per month. That’s about the same amount of money that recipients were getting 20 years ago. With inflation obviously eroding most of its purchasing power, the maximum grant now comes to 45% of the notoriously low federal poverty line.

Faced with the worsening health care crisis, the state government is cutting Medi-Cal funding, the state version of Medicaid. The state has severely restricted access to Medi-Cal. The 2% (132,267) increase in Medi-Cal’s enrollment in the last year doesn’t even put a dent in the numbers of those who are losing coverage.

The state is also reducing the kind of care that Medi-Cal provides. As of July 1, it cut dental care coverage for most adults. This condemns many people to lose their teeth. Moreover, it increases the risk of contracting potentially serious oral infections that endanger their lives. In 2007 a 12-year-old in Maryland with an abscessed tooth died because no dentist would take Medicaid. Seven other benefits will also be cut, including eye exams, eye glasses, podiatry and hearing. For Schwarzenegger and company, to be able to see, hear, walk or chew food properly are luxuries that poor people can do without.

The state government also increased co-pays and premiums for Medi-Cal recipients. Schwarzenegger extorted this money by threatening to yank health care coverage from 600,000 children in the Healthy Families program, which insures children of the working poor. Next time, the politicians will cut health care coverage for hundreds of thousands of children anyway.

The state government also slashed funding for every other possible social program, including reimbursements to foster homes, domestic abuse shelters, HIV-AIDS clinics, community clinics, maternal, child and adolescent health centers, children’s dental disease prevention programs.

The In-Home Supportive Services program—which sends health care workers to help the elderly and people with disabilities clean, cook, run errands and take their medicines so they can remain home, instead of being institutionalized—was also cut. Availability of domestic services will also be cut—which could very quickly push many clients out of their homes into institutions, that is, until the state government also cuts those programs.

Finally, the already meager income support for those with practically nothing—such as grants from the Supplemental Security Income/State Supplementary Program that serves 1.5 million elderly and disabled in California—were reduced, and the cost-of-living allowance was permanently eliminated. With these reductions, the maximum monthly grant for an individual comes to $850 per month and $1489 for a couple. These are both well below the federal poverty line.

Instead of expanding the safety net, just as the economy was plunging millions into poverty and misery, the state tore it to pieces, worsening poverty still further.

The Destruction of Public Education

"Go back to school" is the usual advice from politicians and corporate executives when workers lose their job. "Stay in school" is what they tell young people, especially young workers, who have few choices, given the fact that the unemployment rate for young people is now over 25%.

That’s exactly what millions of people are trying to do. Yet, when they try to enroll, the school door is being slammed in their face. The state is cutting the education budget by 11 billion dollars, more than at any time since the Great Depression.

Demand for enrollment in California’s two-year community colleges increased to 2.5 million, a record high. Yet more than 250,000 students were prevented from enrolling in community colleges due to cuts in classes and layoffs of teachers and staff. More than 1.5 million people are trying to get into classes that teach basic skills for high school dropouts and working adults, but are facing restrictions on enrollment, fewer course offerings and teacher layoffs. Funding for the University of California and California State University systems was cut by about 20% for the 2009-2010 fiscal year, which means double-digit tuition increases every year, along with cuts in enrollment for both systems. And funding for state assistance grants, which could help at least some students from the working class pay for their education, were cut in half.

What government officials are doing to the K-12 public schools is absolutely criminal. In one year, officials have slashed spending by 17% per student. Statewide, more than 20,000 teachers and staff were laid off. As a result, class sizes have been increased. At the start of the new academic year in September, reports from schools described classes way over capacity. In Los Angeles, the Times reported, "Some classes are crammed with about 50 students, leaving some pupils to sit on desks or the floor and their teachers to grade hundreds of papers... If there had been rafters, somebody would have been hanging from them."

Increased class size means less education across the board, and, in many cases, it means no education. Meanwhile, programs not considered part of the "core" curriculum—such as art, music, vocational education and physical education—that are nonetheless vital for a child’s development have been decimated. Summer school was also cancelled.

Especially calamitous is the fact that the cuts come on top of decades of budget cuts and neglect. Having been ranked among the top schools up through the 1970s, California schools now rank 47^th in the nation in per-student funding. Before these latest cutbacks, the average California school already had 30% fewer teachers, 50% fewer site administrators and 90% fewer counselors and librarians than the average school in the country.

California—so huge and wealthy that it ranks as the eighth largest economy in the world—is funding education at a comparable level as some of the poorest states, like Mississippi.

Confronting these increasingly impossible conditions, the state government, with the very close collaboration of the Obama administration’s Secretary of Education Arne Duncan, is pushing what is called "education reform." This consists of greatly expanding the number of charter schools, that is, publicly-funded, privately-run schools. A special session of the state legislature is already scheduled to take up the issue. Under these "reforms," private interest groups, churches and businesses will be able to take public money to ram their own agenda. They will also have the green light to lower the wages and salaries of those who work at the schools.

At a time when the state says there is no money for education, the state government is getting ready to hand even more money over to private interests. This is one of the many signs that reveal the government officials’ real agenda in pushing budget cuts and so-called reforms.

Of course, the upper classes have many more ways to protect their children’s education from the consequences of these kinds of attacks. They often supplement funding for their public schools through private parents’ clubs, or even use their social and business connections to land private funding and support from foundations and other corporate sponsors. And paying the cost of a university education is much less of a problem.

But for the children of the working class and poor, it is another story entirely. They are increasingly being deprived of an education in even the basics. The government is destroying the education of an entire generation of workers.

Attacks against State Workers

Just like private employers, the state government is cutting its labor costs by pushing parts of its own workforce into poverty. This year Schwarzenegger required 200,000 state workers to take three furlough days per month, a 14% pay cut. This is the biggest rollback of wages and salaries of state workers in decades. It means that for someone making $38,000 per year or $3,166 per month, they lose about $443 per month. Many already living pay check to pay check have been pushed over the edge. They are losing their homes, and filing for bankruptcy.

SEIU Local 1000, which represents 95,000 workers, including almost half the civil service workforce, has posted links on its web site to food banks, utility discounts, housing subsidies and other forms of assistance. By the third furlough Friday, many are facing the reality of too many bills. The Sacramento Bee reports that clients for local food banks have doubled in the past three months, with many state employees. "I went because I was completely out of food," said a single mother who works at the Department of Motor Vehicles.

The state government is sending its own workers to food banks, the twenty-first century version of bread lines.

Of course, the state government may expect the workers to do the same work as before, but it is impossible. So services are being cut back exactly when the needs are growing. For example, those seeking unemployment benefits who don’t have access to computers or those who are trying to appeal denials are facing huge time delays. Often their paperwork is lost or misplaced. The general public is finding the same problems when they apply for routine things, like licences. There are long lines and long delays.

The state has also cut funding to county offices that administer many other social programs like welfare, Medi-Cal and food stamps. For those applying, the cutbacks mean more road blocks and difficulties to get on these programs. And staying on can be tricky and treacherous. Recipients have to submit paperwork every three or six months; and if the paperwork is lost or misplaced, they are automatically cut off. Even if they get back on, they are often not compensated for the benefits they lost.

Finally, there have been news reports of much longer delays in the infrastructure projects that are supposedly coming out of the Obama federal stimulus, since the state workforce that administers and plans the work has also had its hours cut.

In every way, these cutbacks by state government are making the crisis more grave.

Tax Cuts for Big Business and the Wealthy

Right in the middle of the budget crisis, in September 2008 and February 2009, the state legislature passed corporate tax cuts that will save corporations close to three billion dollars per year. This wasn’t to help out struggling small businesses, the usual line. More than 90% of these tax breaks will go to businesses making over a billion dollars in profits per year.

This shows what’s really causing the budget deficit.

Big business gets tax cuts on a regular basis. Since 1981, these tax cuts have brought the share of corporate income paid in taxes down by half. If corporations had paid the same share of their profits in 2006 as they did in 1981, corporate tax collections would have been 8.4 billion dollars higher this year.

Many big companies pay no corporate income taxes at all. A study done in 2004 by Citizens for Tax Justice found that in 2001, 46 companies based in California that made over a billion dollars in profits paid no corporate income tax. Their names were never publicly disclosed, but it is assumed that among them are Walt Disney, Fluor, Health Net, Ingram Micro, and Computer Sciences.

The politicians regularly blame Proposition 13 for the California budget deficits and the cuts in social programs, education, etc. Prop 13 stops reassessments of property as long as it stays under the same ownership. Passed in 1978 when property prices and real estate taxes were beginning to increase rapidly, it was sold as a way to limit property tax increases for long-time homeowners, who were often on a fixed income.

But all that only disguised a money grab by big business, which used Prop 13 to make sure their properties were never reassessed. Disneyland in Anaheim, for example, is currently taxed at an average of about a nickel per square foot. For comparison, a median California home selling for about $330,000 last year would include a property tax of about $3,300 per year, or $2.06 per square foot. In other words, an ordinary home is taxed at a rate 40 times higher than Disneyland, owned by an entertainment conglomerate that made eight billion dollars in profits last year.

Estimates are that Prop 13 now saves California businesses six billion tax dollars each year. Under the guise of helping homeowners, Prop 13 actually shifted the property tax burden from businesses to homeowners, as well as renters—who pay the tax through their rent.

As for the income taxes for the wealthiest, the state government gave them a break on that, too. In 1993, the highest tax bracket was 11% of income, today it is 9.3%. That saves wealthy people another 5 billion dollars per year in taxes.

Taken together, all these tax cuts for business and the wealthy equal the size of the current record deficit. Of course, these tax cuts are year in and year out, costing the state hundreds of billions of dollars over the last decade.

The result is that year after year, the state government can’t pay all its bills and has gone deeper and deeper into debt. This debt is costly to finance. Within the last 10 years, the interest on California’s debt has tripled from two to six billion dollars per year. Those interest payments land in the pockets of the bourgeoisie, and those interest payments also happen to be tax free!

Contrast that to the four billion dollars in new, very regressive taxes and fees that the state government pushed through at the same time. Under the new budget, Californians are paying much higher vehicle license fees, sales taxes, gasoline taxes and income taxes. Cuts in dependent-care credits claimed by millions of families will cost them about $200 annually. As a result of these tax increases, most California adults are now paying hundreds, if not thousands, of dollars more each year to the state government.

These kinds of regressive taxes and fees that hit the working class and poor the hardest are nothing new. When all state taxes are added up, those earning less than about $18,000 paid about 11.7% of family income in state and local taxes. By contrast, the top 1% earning $430,000 or more paid only about 7.1% on average in state and local taxes. These latest tax and fee increases will make it even worse.

All the pay cuts and increased taxes on working people have just freed up more money for state government to hand over to big business and the wealthy, leading quickly to new deficits. Shortly after the budget deal was signed in early August, the state treasurer’s office reported that the state would run a new eight-billion-dollar deficit for the coming year. It estimated budget deficits ranging from 10 to 12 billion dollars every year until at least 2012.

Those deficits are the warning that the state government will continue to try to impose more sacrifices on the working class and poor in order to hand over even more money to the capitalist class.