The California Anti-Model

When looking for a state to emulate as a model for making hard choices, you could do a lot worse than the opposite of everything California has done for its schools in the last 30 years. Beginning in 1978 and continuing to this day, California has refused to make hard decisions on behalf of its schools, and the full ramifications are starting to emerge now.

In the 1960s, California had a model school system. Half of the state’s high school graduates went to college, compared to a third in the rest of the country. As California State librarian Kevin Starr said, “There was a mood that California had to educate the work force for this wonderful future that awaited it. Public schools were being built by the hour. An entire generation of talented men and women went into Public School teaching and administration.” The wonderful future that Californians foresaw was based on the fact that major industries – including entertainment, engineering, education, technology, and agriculture – were increasingly calling California home. Lured by jobs and schools that promised bright futures, Americans from other states were moving to California by the thousands everyday. The state became the most populous in the nation in 1962, with 17 million residents.

California schools – including its admirable public universities – continued to be one of the nation’s best through the better part of the 1970s. Much of their operating funds came from property taxes, although a California Supreme Court, Serrano v. Priest, altered that to a certain extent. But in general, as real estate prices increased due to a growing population, California schools benefited. This led to better students, which led to a better work force, which led to the better future Californians foresaw.

However, 1978 changed that. In that year, California voters passed Proposition 13 as a ballot initiative. Prop 13 made two dramatic changes: the annual real estate tax on a parcel of property was limited to 1% of its assessed value, and the assessed value could only be increased by a maximum of 2% a year, unless the property changed ownership. The desired result was obtained: taxes dropped precipitously. But it also meant that as land values have increased exponentially in California over the last 30 years, schools haven’t benefited. Measured in year 2000 dollars, spending per pupil in California went from more than $600 above the national average in 1978 to more than $600 below the national average in 2000. Not surprisingly, California’s schools have plummeted. The envy of American public schools has collapsed. According to the National Assessment of Educational Progress test, only Louisiana and Mississippi students score lower in basic reading and math.

Not surprisingly, California’s future no longer looks bright. Its budget deficit has grown to over $40 billion and its bond rating has been lowered. The state’s inability to educate its work force has caught up with it as well: unemployment in California is well over 10%, which is high even for the current economic times.

Had Californians made a hard decision 30 years ago, the severity of these events could have been avoided. California’s model – higher taxes, better schools, a sought after work force – helped build California into the eighth largest economy in the world. But it required the sacrifice of higher taxes. That hard decision made the system work, and everyone in California benefited. Now, Californians are faced with much harder decisions – “Do we slash state spending by 25%? Do we increase taxes to 50%?” - if they want to save their faltering economy and state.

We would do well to learn by the California anti-model. Making the sacrifice now to pay for an excellent work force, avoids greater sacrifice in the future. And we will reap the benefits of having a thriving economy, meaning all decisions will be a little less hard. In that way, it is a sacrifice for ourselves as well as for others.

Raising the National Retirement Age

For many Americans approaching the age of 65, retiring then is a birthright. That's the age when social security has historically provided full monthly payouts to retirees.

But that age was actually changed in 1983, or rather, Congress legislated to change that age gradually beginning in 2000. As a result, everyone born between the years 1943 and 1954 will be entitled to their full social security payouts starting at age 66; for those people born in 1943, they turn 66 this year. For people born in 1960 and later, they are entitled to full payouts when they turn 67.

Yet even with this delay of the national age of retirement, social security is in danger insolvency. It is estimated that social security payouts will exceed social security taxes collected sometime in the year 2019. For a time, there will be sufficient funds to honor all social security obligations in the social security trust fund, which the federal government has developed over the decades by investing in US bonds the difference between the social security taxes collected and the social security funds paid out. However, those funds will eventually exhaust themselves. The Social Security Administration estimates this will happen by 2041; the Congressional Budget Office estimates by 2052.

Either way, we know we're on borrowed time. Had we made the hard choice to push back the national retirement age more aggressively in 1983, we wouldn't be in this situation now. And as a result, we're left with even harder choices to make now. But if we make those harder choices today, we'll save future generations of social security beneficiaries from making choices that are even worse. Our sacrifice will be their support.

Our suggestion: push back the retirement age aggressively. Today, if we begin to push back the national retirement age to 73, we will restore long term solvency to the social security trust fund, saving the program for future retirees and saving our tax dollars which almost certainly would have gone to bolster the gap in social security funds.

Something's Gotta Give

The premise from which these posts are written is simple: Something’s gotta give.

That’s it.

As a country, America has disliked making choices for several decades. We want lower taxes and more social services. Strong industrial growth and a clean environment. The benefits of two incomes and a stay-at-home spouse. Whether the product of arrogance or American optimism, we have believed that hard choices about the allocation of our resources were unnecessary.

But hard choices are necessary, and avoiding them is not an infinite loop. Eventually those choices must be made, and they only get harder the longer we put that off. Consider a few examples:

• If we had established higher fuel standards 15 or 20 years ago, Detroit automakers wouldn’t have over invested in vehicles with low gas mileage, which combined with the rising cost of energy to kill the sector of the car industry that Detroit relied on most. It would have been a hard decision 20 years ago, but it would have been less painful than the bankruptcies Chrysler and GM are encountering now.
  
• If we had properly established universal health care in the early 90s (when Clinton wanted to do it) or the 70s (when Nixon wanted to do it), our health care costs wouldn’t be spiraling out of control now. There were solutions at the time that would have effectively provided widespread coverage while shifting incentives within the industry to avoid unnecessary procedures. It would have been a hard decision 15 or 35 years ago, but we wouldn’t be faced with a health care industry that eats more of our income every year now.
  
• If we had maintained a budget surplus at the beginning of the decade, we would be in a better position to prop up the economy now without the risk of inflation. It would have been a hard decision 10 years ago to maintain or lower government spending while there was a surplus, but we wouldn’t face the economic hardship or potential for inflation that we do now.

And there are other examples like those. The premise again is that something’s gotta give. Our suggestion is that we should give. For an entire generation.

Americans today should collectively decide to sacrifice for the next 20 years in order to set up the next 100. This is a vague concept that we’ll flesh out with our posts here. But the idea in general is simple. By reducing particular personal and government spending while allowing certain taxes to increase and saving more, we can restore long-term prosperity to the nation. We’ll sacrifice for a generation to save the generations that follow.