Briefing Report: Reform and Reform! What is Reform?

We are Asked, We Offer, We're Sent Away...
Tuesday, January 11, 2011

More of the Same...

Albert Einstein once defined insanity as doing the same thing over and over again and expecting different results. Year after year, the California Legislature goes through a death-struggle, racing against time, and hoping against hope to weave together an intricate, sometimes impossible budget deal to keep California from plunging off the fiscal cliff. Inevitably, the result is always the same: a budget built on assumptions and hope for rosy times ahead. This annual exercise produces little more than a variation of cuts and tax increases designed to sustain the existing structure of government.

We have reached a point in this state where government has become the constituent that politicians seek to serve. Even when facing a $28 billion shortfall in revenue to expenditures, there appears to be little stomach amongst the Democratic legislative majorities to undertake a systemic redesign of California's governmental structure. Sacrificing the well-being of the governed in order to keep all of the tentacles of the existing beast alive again appears to be the priority for the liberal leadership. Governor Brown has declared the problem to be worse than he ever imagined and his proposed budget relies on a combination of spending cuts and higher taxes over the next five years to solve the state budget deficit. Indeed, doing the same thing over again and expecting different results.

Let's Try Something New

State government is sorely in need of a top-to-bottom performance audit and the time has come, especially in this year of significant budget shortfalls, to commence the process of the complete restructuring of California's bureaucratic institutions. Every law, every regulation, every program, every department, every bureaucratic institution of state government should be subject to periodic review, reform, and (potential) elimination. That should be standard operating procedure for any government. Yet, in this state, business is driven away by the piling of laws, bureaucracy, and regulations that tax and restrict individuals and business functioning freely in our society.

California's jobless rate of 12.6 percent is among the highest in the nation. At the same time, California has the lowest credit rating of any state. Passionate late hour speeches by ruling party Democrats demanding that, "It can't go on like this anymore," "Things must change," and, "This process must be reformed!" while wringing their hands before casting annual votes for insanity go largely unanswered and mostly forgotten once the deed is done. Senate Republicans have tried to bring significant reform proposals to the table to restructure California government, only to be rejected after mere perfunctory review.

In the last year alone, Republicans sought to reform the structure of government through a variety of proposals, including establishing a Bureaucracy Realignment and Closure Commission based on the successful federal Defense Base Realignment and Closure Commission. SB 835 (Strickland) of 2010, proposed the creation of an independent commission charged with examining state bureaucracies in California with the goal to eliminate or consolidate duplicative agencies and bureaucracies. Adopting such a plan would make reforms easy for the Democrats as it would take the difficult political decisions about shutting down programs out of their hands. This bill was killed by Democrats in the Senate.

Senator Hollingsworth proposed the creation of a State Inspector General who could act as an independent state entity with the sole mission to deter, detect, and disclose waste, fraud and abuse in state government. SB 887 would have subjected all state agencies, departments and programs to a twelve year sunset review by the Inspector General. This could have been a crucial step towards overhauling the duplicative and inefficient establishments within state government, and would have ensured that all governmental functions meet the fundamental standards of efficiency, accountability, and transparency. Such offices have been established in other states and have proven quite successful. This bill was killed by Democrats in the Senate.

These ideas did not take the Legislature out the process all together. The proposals provided that the plans would be implemented automatically unless the legislature adopted a resolution specifying otherwise.

Other measures, such as Senator Dutton's SB 942, sought to revise the regulatory writing process to ensure regulations have accurate cost estimates and establish an ongoing review of existing regulations to reduce duplicative, obsolete and ineffective regulations. This bill was killed by Democrats in the Senate.

SB 1160 (Dutton) would have required the Legislative Analyst and Department of Finance to employ a dynamic fiscal analysis rather than a static analysis of proposed tax laws and regulations in order to provide California policymakers and the public the true economic impact of such measures. Although this bill managed to pass the Senate, Assembly Democrats refused to grant it a committee hearing.

Again, these bills contain concepts of solid merit that have proven track records in other states, but were summarily rejected by the California's more liberal Democrats.

California has several "watch-dog" entities, including the Bureau of State Audits, the Department of Finance, the State Controller's Office, the Little Hoover Commission, and the Legislative Analyst's Office, all with various oversight roles. The problem is, none of them have real "teeth" to make the changes necessary. All too often, the legislature lacks the political will to make the necessary renovations to the state bureaucracy. Reports issued by California's existing "watch-dogs" are published, distributed, and then languish on shelves, collecting dust in legislative offices. Providing these existing or restructured "watch-dogs" with the authority to implement their recommendations appears the only way to make the significant changes necessary to reform this state's bloated bureaucracy. Republicans advocate significant reform by giving to these entities - which are designed to realign and shut-down inefficient bureaucracies and programs - the power to implement their recommendations.

But Instead...

Democrats often refer to Republicans as the "Party of NO." They accuse Republicans of being "obstructionists" and "partisan" for not supporting Democrat initiatives. Yet, when Republicans propose significant ideas offering positive change and major structural reform to our governmental system, the Democrats reject them without a second thought. But, California is facing a $28 billion deficit over the next 18 months followed by projected deficits of $20 billion annually over the subsequent five years. As part of the budget solution in 2009, the legislature adopted and governor signed the largest tax increase in California history. This deal temporarily raised the state income tax rate by 0.25 percent, increased the car tax from 0.65 percent to 1.15 percent, and hiked the sales tax by 1 percent. Despite this $12.8 billion dollar tax increase, after one year, revenue to the state was 26 percent below expectations. Now, Governor Brown has proposed a state budget that relies on $12.5 billion in spending cuts over the next 18 months and higher taxes over the next five years to solve the state budget deficit. These are the kinds of policies that have driven California's economy into this ditch and pushed job-creating businesses out of this state.

People thrive and economies prosper where economic freedom is enjoyed. When individuals are free to work, produce, consume, risk, and invest as they please, freedom is both protected by the state and unconstrained by the state. Over-regulation by a coercive government simply douses the flame of freedom. It is time to unleash the spirit of California enterprise once again. Reviewing, restructuring, consolidating, and eliminating bureaucratic programs and regulations that cost more to maintain than they derive in benefit, will lift the heavy chains that retard business and economic growth in this state.

The ultimate drivers of growth and economic prosperity are innovation, economic risk taking, and investment. The majority of this comes from small business. Legislative and regulatory mandates result in higher operating costs for small business creating a deterrent to small business growth and, hence, provide disincentives for economic risk-taking and entrepreneurship. Small businesses are impacted by local, state, and federal regulations. Regulatory reform is needed at all three levels to ensure that small businesses are not unduly burdened by unnecessary regulation. The state should pursue comprehensive reviews of rules and regulations to initiate reform efforts. Reviews should be focused on eliminating unnecessary or duplicative regulations, harmonize state and federal regulations to reduce compliance burdens, or providing waivers or variances.

The Stopping Point...

Government does not create jobs - the private sector does. Government spends too much money on too many things with money it does not have. People are already taxed beyond the breaking point. If the political leadership of this state wants to grow the economy, see unemployment decline, and state revenues increase, there are three essential steps: cut spending, lower tax rates, and reduce the bureaucratic burden. These are reforms that Republican's advocate.

Herb Stein, chairman of the Council of Economic Advisers under Presidents Nixon and Ford once said, "If something cannot go on forever, it will stop." Perhaps we have reached the "stopping point".


For more information on this report or other Governmental Organization issues , contact Richard Paul, Senate Republican Office of Policy at 916/651-1501.