Why has it been so difficult to balance the budget in California?

Stanisevki and Fowler (2015) assert that since the period of the Great recession, California became “a state of paralysis”. The difficulty in balancing the budget emerged when there was a   high surplus in 1977-1978 which caused “taxpayer revolt” and adoption of Preposition. The article asserts that California is facing fiscal challenges and difficulties in budget balance due to ineffective institutional arrangements which has hindered effective decision-making. Lack of effectiveness in budgeting system has been brought by poor management in mobilization of revenue, education expenditure mandates, political division in revenue legislation and spending (Stanisevski & Fowler, 2015). Since 1978, the fiscal condition in California deteriorated due to the decrease in tax rate which then resulted to poor revenue mobilization. There education expenditure has contributed to fiscal problem due to the annual changes. Problem in budget balance is not brought by lack of budget affordability but rather it is brought by institutional ineffectiveness (Stanisevski & Fowler, 2015). Since the adoption of Preposition, the State legislature has been unable to raise revenues and to control expenditures. Generally, the article argues that there lack of effective budgeting process and it has led to long-term consequences.

 

Januta’s article provides important information based on problems facing California such as municipal revenues, property tax and so on. The author asserts Californians are facing many problems due to lack of funds. There are services which need to be fulfilled but there is shortage in finance which is contributed by lack of municipal property taxes. The contributing factors to these challenges are population expansion in urban areas, lack of expansion in municipal services, municipal costs inflation and lack of social and economic survives and development (Januta, 1968). Tax revenues are derived from property tax but the government derives its taxes from non-property taxes and such taxes are not suitable in dealing with problems which affect local problems. The point to note is that there is availability of municipal revenues but there is ineffective revenue-collecting process. There is an apparent unfairness on property tax. First, the tax property is regressive in that low paid workers are forced to pay high percentage of property taxes. There are also exemptions in property tax in that high administrative costs are included in the property tax and this leads to burden of taxation. Property tax in California has failed to  create economic relationship  in that tax focus on real property where new construction are undermined and  this negative effects  affects  both the investor and property owner (Januta, 1968).  Administration has failed to play its role in adjusting property tax in inflationary trend.  Note that sales revenue and income tax   increases when economy prospers and it is the role of administration to conduct property valuation. However, California is unable to administer tax and due to improper assessment, there is inevitability of inequities and taxpayer dissatisfaction (Januta, 1968).

 

 

 

Recommendations

Costello, Petaachi and Weber (2017) assert that balanced budget rules are effective in budget balance and they are associated with positive fiscal outcomes. The article argues that stricter budget laws are effective in tax increase, increasing asset sales, reduces expenditure and assist in fund transfer. Note that there is an inter-connection between asset sales and fund transfer and the two play role in budgetary requirement. In addition, both help the government in maximizing equity and effective utilization of resources (Costello, Petacchi & Weber, 2017). In this case, balanced budget restrictions controls the sales of assets and fund transfer. The article asserts that the important thing with balanced budget rules is that the government should be accountable in presenting a balanced budget, the legislature should be accountable in passing a balanced budget and fiscal period should not have a carried forward deficit (Costello, Petacchi & Weber, 2017). Generally, it is recommended that California should implement balanced budget rules in order to control the deficit. Tax policies will influence the government and State spending. For example, in property tax, politicians will control the deficit through inter-fund transfer.  Balanced budget rules influence the fiscal actions in that the State is able to deal with deficits through contemporaneous actions (Costello, Petacchi & Weber, 2017).

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference

 

Stanisevski, D., & Fowler, L. (2015). IS CALIFORNIA BROKE OR IS ITS BUDGETING SYSTEM BROKEN?

EMPIRICAL EXAMINATION OF THE BUDGET AFFORDABILITY, THE INSTITUTIONAL

ARRANGEMENTS, AND THE GROWTH OF DEFICITS IN CALIFORNIA. Journal Of Public

Budgeting, Accounting & Financial Management, 27(3), 377-402.

 

Costello, A. M., Petacchi, R., & Weber, J. P. (2017). The Impact of Balanced Budget Restrictions on States'

Fiscal Actions. Accounting Review, 92(1), 51-71. doi:10.2308/accr-51521

 

 

Januta, D. (1968). The Municipal Revenue Crisis: California Problems And Possibilities. California Law

Review, 56(6), 1525.