Sample Paper on California Revenue Structure

California Revenue Structure

Among the 50 states in the United States, the state of California, has the strongest economy. Economic experts argue that the State of California’s economy is ranked 10th among the world’s strongest economies. An analysis and examination of the state’s economy will come up with the conviction that over the years, California’s economy has been progressing at an alarming rate towards the conditions of ruin and bankruptcy. One of the worst conditions in the modern world is bankruptcy, and this is owed to the fact that normal activities and operations are jeopardized. It is unfortunate that California’s rapid progression to economic decline has been catapulted by various factors, including political factors, and seemingly, no significant interventions have been put in place to help arrest the downward and unacceptable economic progress (Cummins, 2015).

California’s fiscal and financial problems have been seen to surface from time to time leading to the coining of the concept of ‘boom-and-bust cycles.’ The state’s fiscal conditions experienced in the 1970s towards the 1990s played a fundamental role in its current nature of finances. The salvation of the situation experienced in the 2000s was not enough to prevent the state’s fiscal crisis from running into its second decade. The financial problems have to a large extent impacted negatively on California’s budgeting process, which apart from facilitating the growth of one of the top 10 economies in the world, plays a crucial role in the provision of funding for local governments. Moreover, California’s budget is crucial as it facilitates the provision of public education to myriads of Californians. Amidst the financial struggles, California’s budgeting, and revenue structures have also moved from a pre-1911 period when decentralization, disorganization, and haphazardness took center stage. Fortunately, an effective administration by Hiram Johnson saw the inception of the key components of California’s current revenue structure athough the myriads of problems previously experienced remained unresolved (Lawrence, 2012).

Problems of California’s revenue structure and how they make it difficult to develop a budget

As mentioned above, California’ revenue structure faces various challenges, which if not addressed, will have long-term implications on the state’s budgeting process. Having an understanding of what a budget is essential in the identification of how the financial problems inflict the budgetary process. Simply put, budgeting is an authoritative decision-making process that deals with acquiring, allocating, and using public resources (Cummins, 2015). With these perspectives in mind, one of the problems that California’s revenue structure faces is the controversial allocation of tax revenue, which is evident when the revenue is channeled to social welfare programs that the public consider or view as dubious. Apparently, the controversy that surrounds the tax revenue allocation has in one way or another made the development of the state’s budget difficult.

Every stakeholder involved in the allocation process makes decisions that favor one aspect while ignoring another, and this means that instead of the budgeting process being all-inclusive, it is controlled by specific personalities or authorities. This has also extended to the level of spending, which is currently an issue of concern in California. The controversial allocation of tax revenue in the state is catapulted by the fact it sees the involvement of political figures such as the governor of the state, committee chairpersons, and leaders from the legislature, who have their priorities and projections. With controversial tax revenue allocation, it is certain that there is never sufficient revenue to facilitate the budgeting process. The politicians involved, hijack the budgeting process while seeking to set aside significant amounts of revenue purposefully to satisfy their selfish interests.

It should be noted that a key component of any revenue structure is the budget, which ensures that there is a rightful acquisition, allocation, and utilization of funds. The lack of public accountability is one of the shortcomings of California’s budgeting process, and thus, it is a challenge that extends to the state’s revenue structure (Conti-Brown & Skeel, 2012). In the recent years, the officials of California’s government have been involved in the abuse of their fiscal responsibilities, and this has seen the exclusion of the public in the matters relating to how the state’s revenue is spent. Moreover, the lack of public accountability has seen political figures inflict burdening taxations to the Californians, particularly peasants and political rivals. Also, without public accountability, incidences of excessive spending and wastage of state revenue have risen in the recent years. This has compromised the transparency of the developed state budget, which in the 1970s led to the creation of a tax revolt movement.

The violation of the norm of ‘balance’ is another problem with California’s revenue structure. A mention of the violation of the norm of ‘balance’ means that the spending in various governmental programs or departments exceeds the revenue allocation or the funding. Essentially, one of the objectives of developing a budget is to prevent or minimize the possibilities of overspending and with the violation of the norm of ‘balance’, the accomplishment of this objective is jeopardized. It should be noted that in California, overspending by state authorities and stakeholders is the norm, and this means that the budgets developed are null and void. Moreover, the violation of the norm of ‘balance’ triggers mistrust and this affects or makes it difficult to develop a budget (DiSalvo, 2015).

It cannot go without notice that California’s revenue structure is surrounded by the lack of comprehensiveness. The latter refers to the centralization of accounting of government spending and revenue. Simply put, it is vital that all revenue and spending of the state be channeled to one account. The significance of channeling the two components to one account is that tracking of every fiscal pattern is made easier (Wallace, 2010). If there is no flow of the mentioned components in the central account, then it implies that they are ‘off-budget.’ Arguably, the lack of comprehensiveness in the state of California has made the development of budgets difficult because accounting for revenue and spending is hectic.

Another problem with California’s revenue structure is the involvement of rational decision-making in matters related to revenue and budgeting. An assumption of rational decision-making is that policy makers, who in most cases are authoritative individuals of the state, are in the same position and play the same role as consumers in private marketplaces. With rational decision making, the policymakers rank their set goals and objectives in order, conduct an evaluation of the options that could play a fundamental role in meeting the set goals, and come up with a decision of a course of action. The purpose of involving a rational decision-making process is to ensure that public funds or resources are allocated to people or areas where they are needed most.

The shortcomings accompanying the rational decision-making process outdo the positives, and this is why it is one of the problems faced by California’s revenue structure. Agreeably, the leverage on rational decision-making processes sees policymakers make decisions in a vacuum, and this means that the opinions or ideologies of the public and the larger budgeting environment are ignored. Moreover, the involvement of the rational decision-making process sees policymakers ignore the influence of the public who play a crucial role in spending decisions of the state (Cummins, 2015). The involvement of rational decision-making processes interfere with budget negotiations, and through this, the development of budgets is made difficult.

Crisis budgeting is also a menace when it comes to California’s revenue structure. In essence, crisis budgeting gives a description and explanation of the budgeting environment, particularly when there is a breakdown of the normal procedures of budgeting. This was the norm in California in the early 2000s and previous years. During crisis budgeting, the primary concern of the policymakers is to come up with a balanced budget. However, the primary concern is compromised by the fact that the policymakers do not share a common concern. Many a times, California’s policymakers have failed to share a common concern when coming up with a crisis budget, and this has not only impacted negatively on the budget development but also the allocation of revenue (Cummins, 2015).

In the recent years, California’s crisis budgeting has been catapulted by various fiscal conditions. One of the fiscal conditions that have triggered the same is the numerous budget projections indicating imminent deficits. Another trigger of crisis budgeting in California in the recent years has been cash-flow problems that have to a large extent affected the ability and capability of the state to carry out its routine functions. Moreover, California has had a plethora of long-term financial commitments, which have triggered crisis budgeting. Looking at the conditions that have triggered crisis budgeting, it is eminent that they are caused by policymakers, and thus, the same could also be extended to normal and routine budgets making their development difficult.

For the past four decades, a critical problem, which has received much attention of Californians together with those in authority, is budget gridlock. The latter is one of the problems facing California’s revenue structure, and it refers to the state’s incapability and inability to pass spending plans at the start of the fiscal year (Calefati & Harrington, 2015). The fact that budget gridlock is an issue in California underlines the inefficiency and ineffectiveness of the political system of the state. Budget gridlock has had numerous negative consequences on matters relating to revenue and budgeting of the state.

First, the problem has directly affected individuals who are reliant on the state for funding. Second, the problem has seen an escalation of California’s credit rating, and this has resulted in intensive borrowing to finance developments such as infrastructure and other short-term projects. The implications of the problem are also extended to budgeting because annual budgeting processes and decisions are delayed, and through this, the annual development of budgets in California is made difficult. Currently, it cannot be argued that budget gridlock is a thing of the past in California owing to the fact that the state still engages in borrowing to fund various projects. Moreover, the factors triggering the problem such as the two-thirds requirement to pass the budget, the volatility of income tax revenue, as well as political interference are still largely in existence (Hill & Analyst, 2005).

Most importantly, California’s, like every other state’s revenue structure is affected by economic uncertainties. It should be noted that just like the federal government, California’s policymakers frequently run a deficit and make attempts to see the stimulation of the economy through a wide range of fiscal measures. Economic certainties and downturns have played a large part in the revenue loss recorded by the state, particularly in the modern times when there is an increase in the demand for social programs (Johnston et al, 2008). The impact of economic certainties is that they push budgets towards imbalances making the development of the same difficult. Moreover, economic downturns could see the budget affected in the short-term in that a foundation for the development of the budget for an upcoming fiscal year may not be laid.

Potential Solutions

It is vital that the state of California should overcome or address the problems identified above if it is to have an effective and efficient revenue structure. Numerous potential solutions to the problems facing the state’s revenue structure are in place. First, coming up with an effective debt management strategy will be crucial to addressing the problem of borrowing and debt. Second, the formulation of strict regulations and policies could help address the controversies surrounding the state’s tax system.

The controversial tax system has seen the infliction or imposition of higher taxes to peasants. This could be addressed by the formulation of the regulations and policies, and, in the long run, reduce the resistance from Californians when it comes to the issue of taxation. The embrace of transparency in every department or program of the state is also essential if California is to have an effective revenue structure. As mentioned earlier, there are several corrupt government officials in California who play a part in the misuse of public funds and resources. With the embrace of transparency, there is no doubt that this problem will be addressed. Thus, the state should ensure that budget revenue allocation information is available to the public. The enhancement of transparency also depends on whether the state will avail a budget review period, which receives input from the public. The state should also ensure that policymakers are held accountable for their responsibilities to ensure that transparency is enhanced (Conti-Brown & Skeel, 2012).

In a bid to address the tax burden imposed on local citizens, the state of California should consider comparing its taxation rates to those of other states, as this will enable it come up with acceptable rates. The state should also embrace an overhaul of the tax system to ensure that there are adequacy and equity. Moreover, the economic uncertainties that are a major menace to California’s revenue structure should be addressed. In addressing the same, the overreliance by the state on personal income tax, which has largely contributed to the annual volatility of the general funds, should be halted, and the state should seek for other avenues of revenue generation. To address the issues of periodicity and budget gridlock, it is important that the state should embrace its previous biannual cycle because of its numerous advantages over the current annual cycle on which the state leverages (Conti-Brown & Skeel, 2012).

References

Calefati, J. & Harrington, T. (2015). “California, Suffering With a $26 Billion Deficit Not Long Ago, Now Has an $8 Billion Surplus.” Tribune News Service. Retrieved online from http://www.governing.com/topics/finance/tns-california-surplus.html

Conti-Brown, P., & Skeel, D. A. (2012). When states go broke: The origins, context, and solutions for the American states in fiscal crisis. New York: Cambridge University Press.

Cummins, J. (2015). Boom and bust: The politics of the California budget. Institute of Governmental Studies Press

DiSalvo, D. (2015). Government Against Itself: Public Union Power and Its Consequences. Oxford: Oxford University Press.

Hill, E. G., & Analyst, L. (2005). Revenue Volatility in California. Report, Legislative Analyst’s Office of California, Sacramento.

Johnston, J. M., Pagano, M. A., & Russo Jr, P. A. (2000). “State limits and state aid: An exploratory analysis of county revenue structure.” State & Local Government Review, 86-97.

Lawrence, D. (2012). California: The Politics of Diversity. Boston, MA: Cengage Learning.

Wallace, S. (2010). State and local fiscal policy: Thinking outside the box?. Cheltenham, U.K: Edward Elgar.