Healthcare in California at crossroads

I recently wrote about Doctor’s Hospital being our “Canary in the Coalmine”, foreshadowing the financial death of Progressive government in California. But the issue is just another instance of the larger question of healthcare in California.

Indeed, Health care in California is coming to the front of the stage. For instance, the Contra Costa Times, as part of its extensive coverage of the Hospital’s fourth or fifth or sixth financial collapse, ran a front page article on May 12th about the State’s “health care quandary” entitled “Who’ll treat state’s poor?” Summarizing the State’s situation, the Times reports that we have 10 million MediCal recipients-30% of the state’s population, with an expected 800,000 more to be added next year (that number has now risen to at least 900,000) with not one new Doctor. The article also noted the Governor has added $1.2 billion to the state budget to cover the cost of these new recipients, although the President told us ObamaCare would cover these costs.

Unfortunately, the article’s title is exactly the wrong question to be asking. But it is the question the governor and legislature appear to be is addressing as they pander to the “poverty lobby” on health care, social justice and entitlements and work to garner more votes for themselves.
The true question for healthcare in California, is who will create an economy that provides good paying jobs, innovative products, and growing companies; An economy whose job creation eliminates the need for growing entitlements and allows people to voluntarily chose and pay for the health care plan, the pre-school, the university, the food, the housing, etc. that meets their needs and they can afford.

While the Governor and Democrats in the Legislature redistribute wealth and grow entitlements there are, according to the Employment Development Department, more than 1.2 million Californians working in low paying part time jobs while they fruitlessly search for full time work. The labor participation rate (the number of adults 16 to 60 years of age that should be in the workforce) in California is 62%, the lowest it has been in my lifetime (I am 68). More than 800,000 Californian have given up on finding work, artificially lowering the “unemployment” rate in the State, while the “underemployed” rate has climbed to 16.9%. The unemployment rate of Hispanic and black youths 16-19 year old is above 35%. The Census Bureau numbers tell us that California has the highest poverty rate in the country; Democrats couldn’t grow poverty faster if it was their stated goal.

Let’s not “give” the poor of California more, let’s boost them out of poverty.

There are two actions we can take to help the poor rise out of poverty and create a firm foundation for healthcare in California that works. The Governor and Legislature can 1.) Extend “targeted tax breaks” and “regulatory relief” to all businesses in California, not just “friends” and contributors and 2.) Stop the decline in public services-“Service insolvency”- caused by the granting of exorbitant pay, benefits, pension and lenient work rules for employees that results in a disproportionate amount of tax receipts being spent on employees, not services for residents.

On the first issue, Democrats in the State have demonstrated they know how to give “targeted tax breaks” as they dole out hundreds of millions of dollars to Hollywood movie studios to keep film production here or give Elon Musk, the founder of Tesla, Space-X and Solar City, hundreds of millions in subsidies to create jobs in California. Tesla, for example, received $31 million in 2009 in sales tax exemptions and $59 million in 2012 and 2013, for its model S sedan; it also received $10 million from the California Energy Commission to build its model X vehicle in Fremont, as well as $8.6 million in consumer rebates for its cars from the California Air Resources Board, and $26 million from the PUC’s Self-Generation Incentive Program.

Under the State’s Cap and Trade program it has sold millions of dollars in zero-emission vehicle credits, earning $130 million in 2013 alone by selling these credits to other auto makers. Finally, playing California like a fiddle, Musk has demanded, and is in negotiation with the State, for hundreds of millions in tax credits, permit fee waivers, CEQA waivers, and other benefits to build his new battery factory in California. Or, for another example, one can look at how the Governor is handling “regulatory relief” by modifying CEQA regulations to build his two legacy projects, the high speed choo-choo or his Delta destroying twin tunnel water give away to Southern California.

Targeted tax and regulatory relief are the worst form of crony capitalism. It allows the State government to reward those businesses and individuals who take the relief money and then pay $35,000 a plate to attend dinners with the president or governor or $15,000 to $70,000 to play golf at Torrey Pines in the annual “Buy a Democrat legislator” golf tournament. If targeted tax breaks and regulatory relief work let’s give them to all businesses and watch businesses grow, hiring thousands of workers, allowing those workers to buy the health insurance they want or choose the pre-school that fits their children.

Secondly, many governments in California have or are reaching “service insolvency” largely due to the exorbitant pay and pensions public sector employees.

“Service insolvency” takes place when the cost of government uses all available tax revenue to spend on the government itself, rather than services to citizens, requiring the entity to reduce or eliminate its services to those citizens. There are two great examples that have raised their heads recently: the City of Desert Hot Springs is currently considering keeping its Fire and Police Departments, reducing other services further than it already has, and declaring bankruptcy or contracting out both services. Statewide, the Governor has reallocated education funding to school districts (“Local Funding Formula”) throughout California to provide more services to low income or other in-need school populations; however, teacher pension costs have escalated in order to save CalSTRS, the teacher’s pension system. For school districts pension costs have gone up from 8% of their payroll to 19.2%. The teacher’s portion of pension costs has also gone from 8.3% to 10.2%, resulting in teachers demanding (and, in many cases, getting) pay increases to cover their increased costs.

In addition, the State’s contribution to teacher’s pensions is rising $4.5 billion this year. All cost increases will, of course, result the added revenue from the governor’s Local Funding Formula going to employee pay and pensions and, therefore, fewer services to children. And, remember this is the first year of five years of cost increases to try to save a bankrupt pension system.

So, what am I proposing here?

I am proposing that the State changes both sides of its financial formula: increase its revenue by stimulating business and cut its costs by reigning in its employee costs, benefitting both “the poor” and all citizens by the effort. This will be the foundation not only for economic growth and jobs, but the revenue to create a system of healthcare in California that serves all residents.

Extending targeted tax relief to all businesses will increase business activity; increased business activity will more than replace the taxes from lower tax rates and, therefore increase business taxes. Increased hiring will result in more spending by consumers and mean more employee taxes and sales taxes will be generated. And the new employees working and paying taxes will reduce the number of people who need health care subsidies, MediCal, “universal pre-school”, food stamps, transportation subsidies, financial aid for school and other government services.
Reducing government employee pay, benefit, and pensions (and changing outrageous work rules that allow employees to make millions in unnecessary overtime payments) puts more money into the productive segment of our society and funds more services for all citizens.

Or, as current situation in the Hercules-Pinole Fire district demonstrates, we cannot continue to support a government entity supported by families with an average income of $92,000 per year paying fire fighters (“public servants”) median annual incomes of $260,000 and whose fire Chief makes $395,000 per year (and all can retire at 50 with 90% of their pay). Wouldn’t we be better off to pay the firefighters a little more than what the average resident makes and lower taxes so these residents could live better lives and the district could hire more employees to serve the community?

Wouldn’t we be better off to lower the cost of tuition and fees to our universities and college so that more people can pay their own way, rather than have a small portion of the population pay for 40% or more of the students to attend for free?

Let’s get back to the Contra Costa Times and the $64,000 questions around healthcare in California. The Governor and our Legislature must ask and act on the right questions. A society can’t thrive without the active financial contribution of all of its citizens. Let’s change our worldview from “giving” to those in poverty to boosting them from poverty.

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