County sucked into vortex of state’s woes

The state budget crisis is continuing to hammer our 58 counties. One rural county is operating from paycheck to paycheck, a dire situation, according to my sources.

Nevada County is better off than many but still facing some big challenges. Exisiting proposals call for deferring some state payments to our counties for seven months — worse than last year’s deferrals.

Our county’s biggest areas of concern are Health and Human Services (about $1 million a month of deferral) and Public Works (about $250,000 per month of deferral).

“While our reserves in these operating funds are strong and will cushion these cash flows, the cost of money impact will certainly be significant (well over $100,000),” according to county executive officer Rick Haffey in his weekly memo.

Staffing positions have been reduced from 976 when the current budget was adopted last year to 959.

Votes on the new state budget could occur as early as next Friday.

It’s been a tough week economic-wise:

•Gross domestic product shrank at a 3.8 percent annual rate in the fourth quarter, the biggest contraction in 26 years.

•The stimulus package passed by the U.S. House is running into opposition because it does not have enough infrastructure spending. The Senate is drafting an alternate package. Meanwhile, the stock market is losing confidence.

•Around here, the sale of Thomson Grass Valley — one of the biggest employers and tax revenue providers — is creating uncertainty. I’m optimistic it will be sold to a qualified buyer. I hope the new buyer will keep the existing operation intact. It will be a real test of how our community (and its touted attributes) are perceived by an outside business.

Prediction: The next two weeks will perk up with votes on a revised stimulus package and state budget. Seems our elected people can’t get it together until the “darkest hour.” How sad.

We’re still in a deepening recession, however. It’s one thing to pass a stimulus package, but it’s quite another for it to begin gaining traction. In short, the patient is still in ER, a long way off from the recovery room.

Author: jeffpelline

Jeff Pelline is a veteran editor and award-winning journalist - in print and online. He is publisher of Sierra FoodWineArt magazine and its website Jeff covered business and technology for The San Francisco Chronicle for 12 years, and he was a founding editor and Editor of CNET News for eight years, among other positions. Jeff has a bachelor's degree from UC Berkeley and a master's from Northwestern University. His hobbies include sailing, swimming, and trout fishing in the Sierra.

2 thoughts on “County sucked into vortex of state’s woes”

  1. It’s worth it to go to the state Controller’s website and take a look at the stunning list of projects and payments frozen or halted right now. I took a couple of hours last week to try to figure what portion of the frozen project work is in the Sierra Nevada and I came up with an unscientific $448 million. That’s just halted project work; it does not count halted payments to local governments or individuals.

    My organization is waiting for payment from the state for more than $60K worth of work we have already completed which is now more than 180 days overdue. I have a friend who owns an engineering firm who is waiting for more than $1 million from the state for work conducted in the last year. If I had the $60K the state owes us I would be spending most of it on payroll and goods and services.

    This halt in state funding has come at the worst possible time for our region. The national economy is still dropping, the region is in the fourth year of drought affecting other income streams, consumer confidence is at a low point and unemployment is higher than any time in 30 years. At just the time that we should be speeding up the distribution of bond funding to stimulate the California economy we have halted it due to a lack of political leadership.

    It is unconscionable, and our political leaders, of both parties, should be ashamed of their inability to make the tough decision necessary to pass a budget. I have followed this closely for years and I am now convinced that the problem is so deep that we need some set of bedrock structural changes to permanently address this problem.

    The changes we have made to the state tax structure over the last several decades, often times driven by Californians ability to vote directly on propositions, has led to a volatility in our revenue profile that is out of step with the current economy. Our state budget is too dependent upon personal and corporate income taxes, meaning that when the economy slips into recession revenue falls precipitously triggering deeper crises. We have also failed to adapt our revenue profile to a service based economy: we count on taxes from manufactured goods and global sales when more and more of our economy is based on services provided, which often have no tax at all.

    Finally, we have adjusted taxes and dedicated funds through ballot propositions with no long term mechanism to determine what impact those changes have had, or even if the changes have met their original purpose.

    All of these fiscal problems are made more difficult every year by political leadership that is so dedicated to ideological positions based on arcane theories of political philosophy that they cannot do what government is supposed to do: namely find solutions and implement them to solve problems.

    We need fundamental fiscal and governance reform and we are not going to get it under the current leadership. I am convinced that the only way we can reach a permanent resolution of these fiscal problems is to change how our state and local government finance system works from the ground up. That means a new state constitutional convention (focused on governance and fiscal reform).

    Such a convention would have a tough set of problems to deal with.

    Our spending is growing faster than our revenue and that has to stop. I think the only logical way to do that is to monitor performance on state investments and cut programs that do not work. If something does not work we should know it quick, kill it, and move on. We should also institute a clear pay as you go requirement, any new program must have a clear stable funding stream to be approved. We should also be looking at the direct impacts of changes in tax policy: if we reduce a tax (like the car tax) what is the direct impact and where is the funding going to be made up or services cut to compensate.

    Revenue volatility is an increasing problem; the dependence on the progressive income tax is at the core of the problem, which is a direct result of Proposition 13 shifting revenue from property to people. We need to institute discipline in the system, requiring that temporary spikes in revenue coming from good times do not lead to increased spending with out reserves to cover the down cycles. We also need to shift some of the tax burden to services, and perhaps reduce taxes on the sectors of the economy we want to encourage, like manufacturing, green tech, renewable or value added products.

    Finally, we are too focused on the short term. The one-year budget cycle means that every year we are matching revenue to spending rather than making strategic decisions about how we invest our dollars in long-term performance. We need a comprehensive multi-year fiscal plan that matches investments to improvements we want to see, and monitors performance to ensure results.

    Ultimately we as a civil society in California have failed to provide clear direction and oversight for government. Legislators can endlessly debate the minor questions of how we shift small portions of the budget around, without thinking strategically about where we want to go.

    I agree with you that we are going to see some action in the next two weeks, largely because our politicians know they cannot go any longer and that halting tax refunds will set off a firestorm.

    But the real problems need to be addressed and we can’t sit back anymore and count on our leaders to do the job. They are a failed leadership. We must demand reform and stability in our finances, and the only way I see to do that now is to convene a state constitutional convention.

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