When you think about California, do you picture sun-drenched beaches, golden deserts, and majestic mountain ranges? Many of us do. California is a state that occupies a unique place in the popular imagination, both for Americans and people around the world.
With a population of nearly 40 million, California is home to the largest state economy in the U.S. and is also the 3rd largest state (after Alaska and Texas), covering 163,696 square miles. With all that area to cover and so many people to serve, California manages a huge budget - $452 billion in 2015 - and maintains a robust public service to take care of infrastructure and provide the services that are necessary to keep life in the state running smoothly.
Let’s take a look at how California prioritizes spending and examine how the state’s municipalities generate funds for the many programs and services that they administer.
Did You Know:
- California spent $109.9 billion on education in 2015
- The State of California operates an open data portal, data.ca.gov, that provides a window into how state finances are managed
- The economy of California, measured as Gross State Product, grew to reach $2.3 trillion in 2014
- California was its own Republic until 1850
State Spending by Sector in 2015
Total State Spending: $452 billion
Pensions: $44.1 billion
Health Care: $83.6 billion
Education: $109.9 billion
Welfare: $46.9 billion
Protection: $39.7 billion
Transportation: $34.4 billion
California Infrastructure Projects
In 2015, California Governor Edmund “Jerry” G. Brown Jr. published a five-year infrastructure plan for the state. This plan was produced in accordance with the California Infrastructure Planning Act, which was passed in 1999 and requires the Governor of California to submit five-year infrastructure plans along with the annual budget bill. Due to financial difficulties that arose after the 2008 financial crisis, California didn’t publish an infrastructure plan from 2008 to 2013, inclusive; only in 2014 did the state begin publishing again.
The plan includes a proposed $57 billion investment in Californian infrastructure that would be rolled out between now and 2020. According to state rules, any infrastructure investments proposed as part of the plan must respect the equity, economic, environmental, public health and safety priorities that have been defined by the state.
Interestingly, more than 90% of the 2015 infrastructure plan’s proposed funding would be used exclusively to improve and maintain California’s transportation system, which includes highways, mass transit and high-speed rail.
Unfortunately, the majority of California infrastructure spending is funded through debt creation. To fund construction and maintenance of large-scale projects, the state issues bonds: general obligation bonds and lease revenue bonds are the most commonly used forms of debt. The numbers have been growing: between 1974 and 1999, Californians approved the creation of $38.4 billion in bonds to fund such programs; between 2000 and 2015, more than $103 billion worth of interest-bearing bonds have been issued. Another $35 billion in bonds are approved for creation but have not yet been issued. The issuance of new debt to finance infrastructure leads to massive increases in debt-service costs: today, nearly half of all infrastructure spending dollars go to paying interest on the existing debt.
The cost of servicing California’s debt in 2014 was more than $7 billion.
Another concern is California’s tendency to defer scheduled maintenance for existing facilities due to a lack of funds. As explained in Governor Brown’s 2015 Infrastructure Plan, state agencies are currently only spending money on the most urgently-needed repairs, foregoing important proactive maintenance and jeopardizing the future usefulness of the affected facilities.
It is in the context of deferred maintenance that we can understand why more than 90% of this year’s proposed infrastructure investments are reserved for transportation systems: state transportation infrastructure absorbs the highest level of deferred maintenance. The closest competitor, the California Judicial Branch, doesn’t even come close:
Dept. of Transportation: $59 billion in deferred maintenance
Judicial Branch: $1.93 billion in deferred maintenance
Municipal Funding via Service Charges
The California Controller’s Office publishes a yearly report that details revenue sources for Californian cities (with the exception of San Francisco County), providing insight into how municipalities are funded and managed within America’s largest state economy.
Charges for services including electricity, water, and waste disposal generate a large portion of cities’ revenue. From July 2011 to July 2012, service charges to citizens and government entities raised $22.5 billion, accounting for more than 40% of city revenues in the state. Electricity sales are the largest source of money for cities, having generated $5.7 billion during the same period.
It is clear from the current fiscal reality that California will continue to face financial challenges in the near term. Expenditures are outpacing revenues and debt remains a major concern. However, this does not mean that there are not positive developments occurring in the Golden State. Governments and residents are working to improve sustainability and efficiency in the face of record drought; city mayors are codifying progressive laws to protect the permissive, creative culture that defines California for so many. These and other initiatives showcase the character and resiliency of Californians even in the face of difficulties.
Today, the state maintains its role as a vast incubator of innovation and forward-thinking ideas, including those that have propelled one particular region of the state – Silicon Valley – into the hearts, minds and homes of the entire world with their products and technologies. Technologically and socially, California is where progressives, programmers and free-thinking philosophers dream big, invest creatively and push the boundaries of what we believe to be possible. The biggest and most powerful American technology companies call California home, as do the intellectual forefathers of the environmental, ecological and sustainability movements. Clearly, there is still plenty of inspiration to be found on America’s West Coast.
Ultimately, we can conclude that the ideas and trends that start in California are often the ones that – in time – capture the imaginations of us all.
Nathan Munn | BidNet.com