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Behind the Numbers of California Fiscal Crisis

Friday, July 17, 2009 at 08:15 AM EDT

Californians are scratching their heads trying to figure out why their government has run out of cash. Some blame the constitution. Some blame the governor. Some blame the lobbyists. Let’s run a few numbers.

The median wage of a California state employee is $66,000 (source). The median wage among all Californians (including those state workers) is just over $36,000. The state employee can retire with a full pension in his or her late 40s or early 50s, which essentially means that the taxpayers have to pay for double the number of state workers that are required to provide current services. In addition to salaries that are much higher than private sector equivalents, the state employee has health care and other benefits that by themselves may exceed the total compensation of a full-time private sector employee. The reasonable question to ask is not “How did they run out of cash?” but “How was this ever supposed to work?”

The picture is worse than the numbers would suggest. A lot of new Californians are working illegally. Their wages, which may be paid in cash, are less than $36,000 per year, and are not reflected in official statistics. Yet an immigrant who arrives to take a $10 per hour job still requires teachers for his children, policemen and firemen for his neighborhood, etc.

California has a tax burden of 10.5 percent of its citizens’ income, higher than the U.S. average of 9.7 percent (source). Due to the fact that California government has grown so much in the past few decades, its pension and health care payment obligations for retired state workers are going to skyrocket in the next 20-30 years. (The inefficient states of the Eastern U.S. were more or less equally inefficient in 1980 and had roughly the same population and size of government workforce.)

California could become solvent… if it can insure that everyone who moves to the state for the next 30 years is a medical doctor earning at least $150,000 per year from Medicare, Medicaid, and other out of state sources.

[Related: This guy calculates that, adjusted for inflation, California government now spends 3.54X as much per citizen as it did in 1970. It seems hard to believe, but I don't have enough data to contradict it.

The federal government is not doing a whole lot better, according to this Congressional Budget Office posting. What keeps the Feds going is their ability to borrow and print money.]