California's state finances are getting some national attention thanks to a new report, and not the kind of attention anyone would really want.
Bottom line: of all the nation's most populous states, California's woes seem to stand out.
The report was issued Tuesday by a group calling itself the State Budget Task Force, chaired by former Federal Reserve chairman Paul Volcker and former New York state lieutenant governor Richard Ravitch. The group examined the finances of six states -- California, Illinois, New Jersey, New York, Texas, and Virginia -- and found that state government spending, in general, is on a collision course with reality.
"The basic problem is not cyclical, it is structural," say the authors. "The time to act is now."
Tops on the list of concerns in the report is the high cost of Medicaid, the federal program providing health care for the poor or disabled and administered here in California via the state program Medi-Cal. Funding for the health care services, and rules about eligibility and spending, are shared between states and the feds.
"The rapid growth in Medicaid spending has pushed aside other types of state spending," says the report. "Both the states and the federal government need to find ways to contain and control Medicaid costs."
As the most populous state in the nation, and one where budget problems have persisted for years, it's no surprise that California would get some extra attention in the report. But what really stands out is the task force's warnings about the impact in California from efforts by Washington to cut federal spending.
For example, California could feel a larger impact than other states from efforts to shrink federal worker salaries and procurement operations. The report says that just a 10 percent cut in federal grants for things like highway funds and child nutrition programs could mean $6 billion less for California.
The task force says California, along with the other big states, could also take a beating if the feds decide to scale back federal income tax deductions for state and local taxes. The average IRS deduction for Californians who paid state and local taxes is $12,486. The report theorizes that the impact of a smaller tax break could be higher "incentives for individuals and businesses to move to lower-tax locations."
But the report saves its real criticism for the states themselves, including California, when it comes to internal budget decisions -- ranging from unfunded liabilities for public employee pensions to deferred highway maintenance and beyond. The task force particularly jabs states for what can best be described as dubious budgeting practices and "budget gimmickry."
The full report can be found on the task force's website.