Are We Afford to See the History Repeat Again

Laurel Lucia contributed to this blog post.

California's 2021-22 budget volition accept an enormous bear upon on the nature of California'due south recovery from the COVID-19 pandemic. The Governor's 2021-22 budget proposal would restore some disquisitional funding for public wellness and education, but it volition not exist sufficient to get California's economic system and low-income Californians back on track. To avoid a prolonged economic downturn, and further damage to California's near vulnerable residents, California needs to make a much more than significant investment in the drivers of economic growth. Those investments will require endmost revenue enhancement loopholes and shoring up revenues in the coming years.

Californians have repeatedly voiced support for policies that support quality jobs and a rubber net that keeps people out of poverty. Research by the Labor Center has shown that California's progressive policies are tied to its economical success. The pandemic has jeopardized this success and thrown millions of families into crisis. While the stock market and high-income Californians are enjoying a robust recovery, many Californians face mounting debt, lost incomes, and devastating health outcomes. These impacts will non opposite themselves without public investment, as we learned from the Keen Recession. Significant spending cuts in California after 2008 led to the slowest recovery in history, characterized by wage stagnation, precarious piece of work, and deepening inequality. The choices we make this spring will shape the legacy of the pandemic; it's more important than e'er for California to brand bold choices and exist a model for equitable recovery.

California needs a more than ambitious recovery plan

While the news is full of optimism about vaccines, unexpectedly stable state revenues, and long-overdue federal stimulus, there are several looming risks to California'southward recovery. The past year has revealed the dangers inherent in an under-resourced public sector. After decades of underfunding public health, vaccination rollout and PPE distribution staggered nether logistical challenges, further prolonging the pandemic's damage. California'due south poorly funded schools have struggled to manage the costs of preparing for reopening, getting applied science to students, and retaining staff to support students. Equally in many states, California'due south unemployment insurance (UI) system has struggled to get billions of dollars to out-of-work Californians. Hospitals and schools face staffing shortages that will only get worse.

Equally the legislature and Governor negotiate the 2021-22 budget, they need to see several challenges:

• Local governments need help: California'due south local governments are in crisis. California lost more than 160,000 local authorities jobs in the start three months of the pandemic—virtually 170,000 as of Dec (compared to 142,000 at the lowest point after 2008). In May 2020 we noted that the impact of shelter-in-place orders on sales and tourism taxes made cities specially vulnerable to revenue losses. We are too seeing property values fall—in some places significantly, peculiarly for commercial backdrop—which volition hit local budgets in the upcoming fiscal year. Local governments utilise more three times as many people as the state—nearly 70% of public sector workers in California—and provide vital services, including transportation, public condom, public health, homeless outreach, and schools. Local governments fund the vast majority of infrastructure projects: roads, buildings, bridges, and transportation projects that generate thousands of jobs and millions in private sector spending. The Governor's proposed economical recovery provides no straight funding for cities and counties.
• Pandemic impacts accept been incredibly unequal: Nosotros are already experiencing a "k-shaped" recovery, in which those at the top recover quickly while those at the lesser keep to struggle. In fact, wealthier Californians have been by and large unaffected by job and income losses (which partially explains why the state'southward revenue picture is then much ameliorate than forecasted). Task loss has been heavily full-bodied among depression-wage workers. Almost 85% of Black workers in California have filed for unemployment; unemployment claims are as well concentrated in high-poverty areas. Unemployment for women has been higher throughout the pandemic. Health risks are also unequally distributed: women and people of color are disproportionately working in jobs that require close proximity to others and must be performed in person. The diff distribution of income and wealth posed a social and economic crisis earlier the pandemic, and will only worsen in the absence of strong public spending that helps close the gap between depression-income Californians and economic security.
• Californians have accumulated mounting debts: The Federal Reserve estimates that U.S. renters owe $1.six trillion in unpaid rent over the course of the pandemic; estimates for that amount in California range from $400 million to $3.6 billion. Suspension of student loan payments, recently extended through September 30, 2020, take prevented defaults but without significant federal pupil loan relief the resumption of those payments—and the accumulation of interest—will set borrowers back and suppress consumer spending.
• California's didactics and wellness care sectors are significantly under-resourced: The pandemic has exposed the fragility of sectors that are central to economical opportunity and security: child care, education, and wellness. The challenges facing public school districts and kid care providers—in reopening safely, recruiting and retaining staff, supporting the neediest students, and addressing equity gaps—have been existentially threatened by the pandemic. The weaknesses in our health care organisation and coverage have led to overwhelmed health care workers and devastating wellness outcomes. We discuss these challenges in more than particular below.
• California'southward infrastructure is not upwardly to the claiming of our future: The past several wildfire seasons have driven dwelling the hazard that climate change poses to California's future. Nosotros have non yet made the public investments necessary to support California'due south adaptation to a drier, hotter climate. Investments in alternative energy sources—including the workforce to manage them—and in mitigation strategies—such as burn prevention, sustainable housing development, and wetland restoration—cannot wait.

We cannot beget to repeat the mistakes of the Nifty Recession

California entered the pandemic in better financial shape than earlier the Great Recession; in 2019 the state had sufficient reserves to conditions a mild recession. In January 2020, in anticipation of continual acquirement and economical growth, Governor Newsom proposed a $153 billion budget that increased both one-fourth dimension and ongoing spending on education, housing, and health care, new programs to gainsay homelessness, and desperately-needed pedagogy funding. So the pandemic hit.

When the impacts of the pandemic began to hit in spring 2020, the Governor'south May Revision became a "workload budget": it froze most spending at 2019-20 levels, with few exceptions for COVID-related spending. The country ultimately adopted an austerity upkeep with merely $133 billion in full general fund spending. The budget fabricated astringent cuts to both K-12 and higher education, deferred an  important expansion of Medi-Cal, and eliminated proposed spending on housing and infrastructure.

It now turns out that the 2020-21 revenue projections were overly pessimistic. The adopted upkeep projected that revenues would drop past most $fifteen billion from 2019-20. Instead, revenues are on rail to exceed 2019-xx revenues, nearly matching the projected revenues in the Governor's January 2020 proposal. The legislature has already restored some of the cuts fabricated in 2020-21 effective July 2021, but these don't address the scale of revenue loss and price increases.

In December 2020, California officials estimated that this "windfall" could amount to $26 billion, driven by the wealth increases and stable employment of higher-income Californians. But despite the projected surplus for 2021-22, the budget forecasts deficits for the coming three years, through the 2024-25 fiscal yr. The Governor also projects that state job losses will non return for half a decade; the Congressional Budget Office (CBO) projects the U.S. economy will not recover 2020 job losses until 2024. The Great Recession had its nearly astringent fiscal impacts in the few years later on it began. We need to be planning ahead to preclude long-term damage to our economy and to California families.

It's of import to emphasize that California is not enjoying a "windfall;" we are on rail to lucifer non-pandemic revenues for 2020-21, and projected to lose revenues afterwards that. This is not the time to be complacent near the inadequacy of our revenue base for sustaining long-term recovery.

California was i of the near severely impacted states during the Great Recession. Credit ratings agencies flagged California cities as high risk for municipal defalcation. Like most states, California saw record job losses in the public sector, deteriorating levels of public infrastructure and services, and years of compromising on California'due south commitment to an equitable economy. Every bit nosotros wrote in October, the state's economy had barely recovered by 2019, and by many measures (job quality and public sector employment) the economy was more than vulnerable in 2019 than in 2007.

Studies of the impacts of the Groovy Recession confirmed the importance of fugitive austerity measures to forbid long-term economical harm. Research from the Groovy Recession demonstrated that curt-term labor markets take a stronger bear on on long-term outcomes  than previously understood. An analysis of job recovery in 50 states from 2008-2013 institute that states that cutting their public-sector workforce had deeper job losses overall and in the private sector. EPI found in 2009 that for each dollar of upkeep cuts, more than than 50% of the jobs and economic activity lost volition be in the private sector.

In 2010, the Labor Eye found that cuts of 261,000 jobs in wellness and human services would result in $21 billion in lost economic output, and $1.3 billion in state and local tax acquirement. Close to 25% of the savings from those job cuts would be negated due to loss in economic activity.

n 2018 dollars, the loss of 100,000 country and local jobs matching the distribution of actual job losses from 2008-2013 have an economic multiplier effect of 1.51: that is, for every state or local job loss and additional .51 jobs are lost in the rest of the economy. This represents $10.4 billion in directly income loss, and more than $3 1000000 in income loss induced by reduced consumer spending.

California has already seen meaning public job loss

From Feb to December 2020, California lost more 200,000 state and local government jobs, including most 170,000 local government jobs. The early fall recovery has clearly slowed; in December we had a internet loss of private sector jobs—in both the U.S. and California—for the first fourth dimension since April (Figure 2).

These losses come on the heels of years of declines in country and local employment. When compared to population growth, land and local employment was well below pre-Smashing Recession levels heading into 2020 (Figure 3). Since Feb, afterwards a short lag in job loss, the share of California'southward jobs in country and local government has continued the downwardly tendency that began in 2008.

This gap represents lost teaching staff, school support staff, child protective services workers, preschool teachers, parolee counselors, public hospital nurses, transit operators, and many other jobs that grade the foundation of economical mobility for Californians. Two areas of underinvestment have been starkly exposed over the past year: education and health care.

California must invest more than in educational activity and health

California significantly underinvests in education

Quality education from early childhood through loftier school graduation is not only a vehicle for individual opportunity and economic security, it is cardinal to the economic resilience and innovation of our state. By whatsoever measure, California significantly underfunds education relative to other states. In 2020, Stanford researchers estimated that it would have $25.6 billion in additional funding to let local districts to meet the state's own educational goals.

Agreement the trends in per-pupil funding tin be challenging, considering many mandated costs for districts take risen much faster than inflation, requiring greater funding levels from the land just to maintain spending. For case, beginning in 2014, the almanac percent increases to state allocations take hovered effectually ane-2%, while just i mandated expense, contributions to CalSTERS, will double from eight.25% to 19.1% by 2023. Escalating expenses for special education take also far outpaced funding increases from the land—an estimated 20% in existent dollars, which local districts have had to absorb.

California'due south staffing levels also lag behind the nation: the number of students for each full-fourth dimension equivalent teacher was 20.9 in 2007-08, before the Great Recession began. In 2017-18, the last year data is bachelor, it was 21.1, after reaching a peak of more than than 23 in 2010-11. Educatee-teacher ratios in California are now the highest in the nation; the national average is sixteen. In 2007, PPIC estimated that it would cost $fifteen billion annually for California to match staffing ratios in other states. This underinvestment is despite California's higher needs population and could be driving California' s lower educational outcomes. Nearly twenty% of California students are English Linguistic communication Learners, the highest in the nation (and about double the national rate of x%). California'south loftier schoolhouse graduation rate is 83%, below the national average.

The pandemic has further decimated California's local instruction workforce. In Nov 2020, California had 888,600 people employed in local instruction, compared to more than than 1,030,000 in Nov 2019, a driblet of more than than 140,000. This drop erases the slow increase in local education employment afterward the great recession; it took nine years for local education jobs to recover (Effigy 4).

The state's formula for funding education leaves districts facing doubtfulness and issuing thousands of layoff notices every budget cycle. School districts are dependent on almanac supplemental appropriations from the budget to sustain basic services, as Proposition 98 funding has fallen well behind what districts need only to encounter country and federal mandates.

The Centers for Illness Control and National Education Association have estimated that schools will need billions to open safely and accost the consequences of a year of interrupted and remote learning for students, beyond the PPE and supplies covered by federal relief funds. California'due south share of these estimates would be $iv.3 billion for smaller grade sizes, $334 million for transportation, $471 meg in technological support, and $297 million to resume before and after school care.

Increasing the Local Control Funding Formula (LCFF) base of operations grant for school districts, making adept on promises to ameliorate facilities, fully funding transitional kindergarten and public preschool, and fully funding special instruction and other intervention services are primal to California's economic future. The Governor proposes to fund new initiatives on workforce evolution, but inquiry shows that early babyhood instruction, supports for students to graduate high school, and financial access to community colleges are foundational investments.

Inequities in admission to health care persist

California has made substantial gains in expanding health coverage under the Affordable Care Act, merely 3.5 million Californians lacked health insurance fifty-fifty before the pandemic and many Californians struggle to afford their insurance premiums and care, issues which are even more severe nether a pandemic and recession. Latinos and low-income Californians disproportionately lack coverage and face health care affordability concerns. Adopting a system that provides health coverage to all Californians under a unmarried plan, every bit is being examined by the Good for you California for All Commission, would be the most comprehensive style to address these gaps. Before COVID, many California policymakers had already identified the need for near-term investments that would move us closer to achieving the goals of improving health intendance access and equity such as:

• Expanding Medi-Cal to all low-income adults regardless of immigration status with a Full general Fund investment of approximately$ane.6 billion per year (estimated by Section of Finance in 2019, not including In Home Supportive Services costs), building on the state's recent expansions of Medi-Cal to all depression-income children and immature adults under age 26, and addressing a major gap for the state's largest group of uninsured individuals;
• Extending and/or expanding California'south program to make insurance through Covered California more affordable, with the details of possible state actions dependent on whether the federal American Rescue Plan bill includes the proposed temporary premium affordability improvements and eventually makes them permanent; and
• Improving admission to intendance by achieving a diverse health care workforce that is aligned with the state's health care needs, which was estimated by the California Future Health Workforce Commission to crave $3 billion in state investment over ten years.

Public health investment is insufficient

While plans for an effective COVID public health response are continually evolving, it is clear that substantial investment volition go on to be required in the adjacent upkeep year, and perhaps across. In the Governor'south January budget proposal, he proposed to spend over $820 million General Fund related testing and tracing and other public health responses and set aside $372 million as an initial investment in vaccine distribution which can be accessed immediately. The Governor intends to provide $1.2 billion from the December 2020 federal relief parcel to local health departments for testing, tracing, and vaccinations but it is not notwithstanding known how the remaining federal funds volition be allocated. It remains to be seen whether the proposed funds will be sufficient for finer addressing the spread of COVID.

The pandemic has highlighted the need for greater long-term investment in public wellness. California'due south public wellness funding has eroded over the final decade—the 2020-21 public health budget was $3.2 billion, less than the $3.four billion budgeted 1 decade before in 2010-xi, even though the overall state funds in the upkeep grew by 61 pct betwixt 2010-11 and 2020-21. California'southward state and local public health workforce funding has fallen by 14 percent between 2010 and 2019. The pandemic has also shown the need for ameliorate planning and investment in the tools needed to reply to a public health emergency, such every bit Personal Protective Equipment (PPE). California enacted a law in September 2020 that requires development of a state PPE stockpile for health care workers and other essential workers in order to save lives and jobs and foreclose the need to pay pandemic-level prices for PPE during the next public wellness emergency, notwithstanding state funding is still needed to implement the law. Public wellness staffing and PPE are just two examples of the public health investment needed, and further planning is needed to determine the total set of investments required to exist improve prepared when the next public wellness emergency hits.

Land spending is critical to California's economic recovery

A stiff public sector supports potent economic recovery. Budget cuts that put people out of piece of work and constrain their incomes come up with costs—induced job loss throughout the economy, lower tax revenues, and college program costs. Cuts to public spending don't only touch on the workers who lose their jobs; they ripple throughout the economy. Public spending circulates through the economy as transfer payments (e.one thousand., Medicaid benefits, food stamps, and TANF), grants, and contracts. Nearly a third of direct state spending supports jobs in the private sector.

Most public sector infrastructure projects are performed by private firms, who contract with the government and in plow hire subcontractors. The supplies fabricated for those projects are also tied to private sector jobs. Thousands of California's private sector workers are dependent on public funding, even if they aren't aware of information technology. Many other public sector workers perform their jobs using supplies produced by the individual sector: burn down trucks, instructional materials, buses, and computers.

During a recession, public budget cuts can hamper economic recovery. Country and local austerity—driven past counterbalanced budget requirements, plummeting revenues, and increased demand for services—was particularly widespread after the Great Recession, and is especially damaging given that 89% of California'southward public sector jobs are in land and local regime. Economists studying the Great Recession constitute that austerity was more damaging than previously idea, and that avoiding thrift was equally important every bit stimulus measures.

How nosotros tin rebuild California amend

Inadequate public investment now volition cement the inequality in the labor market that has characterized both the past decade and the past twelvemonth, and impairment California's long-term economical recovery. Addressing these challenges requires bold policies and more spending.

• Extend income back up: California can do more to get money to people who are hardest to reach and accept been most impacted—such as undocumented laid off workers, who have been left out of the federal stimulus. The $600 stimulus payment for low-income Californians signed February 23 is a good offset. An overdue EITC expansion would assist get more than coin circulating into the economy, creating jobs and preventing families from falling further behind, and distributing the tax burden more than adequately.
• Invest in core public infrastructure: Make long-overdue investments in education (including early childhood education) and health, ii sectors that course a core economical base of operations and which enable Californians to realize their full potential. Past several measures, California's investments in instruction fall well below national averages, despite our loftier toll of living. California too needs to invest in administration and technology to ensure that programs intended to support Californians—such every bit unemployment insurance and CalFresh—exercise so effectively.
• Expand our acquirement base of operations: California must use the  immense wealth created here to provide a foundation for long-term economic resilience. Each year, California spends billions through credits, loopholes, and other tax reductions for businesses and individuals; the California Budget and Policy Center estimates that $60 billion in almanac state tax expenditures go primarily to wealthy taxpayers and corporations. Economists take identified wealth taxation as a cardinal strategy for addressing widening inequality and providing sufficient revenues for public appurtenances.

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Source: https://laborcenter.berkeley.edu/california-cant-afford-to-repeat-the-great-recession-state-spending-is-critical-to-economic-recovery/

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