OK Meg and Steve: Let’s Analyze California, Inc.


By Mark Paul
Special to Calbuzz

Meg Whitman says she wants to run California state government like a business.

Given all we’ve learned in the past decade about business — Enron, IndyMac, Bernie Madoff, Wall Street — some people hear that as a threat. I prefer to be hopeful. Long mired in consultant-speak and ideology, California government and politics could use a dose of the practices by which the best businesses thrive — open-eyed realism about a firm’s strengths and weaknesses; rigorous analysis; strategic thinking.

That hope withered the other day when I heard one of Whitman’s recent radio ads. “We know spending has been out of control in Sacramento,” she crooned from the speakers. Et tu, Meg? Say it ain’t so.

The only people who “know” state spending is “out of control” don’t know what they’re talking about. According to the latest budget estimates, the state will spend less this year than it did in 2005, when there were two million fewer people in California. And as this chart shows, when measured as a share of California ’s personal income, state spending is at the lowest level in a generation. If it’s smaller government you want, California has already got it, the smallest since Ronald Reagan’s final years in Sacramento .

When they say what they’ll do about “out of control” spending, Whitman and Steve Poizner, her rival for the Republican nomination for governor, point quickly to how many people work for the state. Here, too, they have flunked their business due diligence.

Yes, more people work for the state today than a generation ago. As this chart shows, their number has almost doubled in the last 35 years. But so has California ’s population. If state government employment were increasing faster than state population, you’d be worried. In this chart, you can see the opposite is true. The number of state employees per 1,000 Californians has declined since the mid-1970s.

And there’s more to the story. Not everybody counted in the tally of state employees cited by Whitman and others is a state worker in the usual understanding of that term.  More than 120,000 of them work for the University of California and California State University , public institutions that get some of their money from the state but control their own hiring.

The University of California , in particular, is a collection of many businesses, involving everything from undergraduate teaching to research institutes to hospital medical centers to nuclear weapons laboratories.

Most of the revenue for UC comes from sources other than the state budget — research grants, student fees, patient reimbursements for medical care, management fees, gifts. That explains how the university added nearly 25,000 people to its “state employee” headcount over the past decade even though it today receives less direct support from the state than it did in 2001.

It’s nonsensical to count all those new UC employees, who get paid from sources other than the state, as evidence of “out of control” spending in Sacramento . But that’s the horse Whitman is riding.

When you take all the university employees out of the mix, and look only at state civil servants — the blue line in this chart—there’s been almost no change over a generation. But the story doesn’t end there.

As everybody knows, California over the past three decades has locked up a lot more criminals, in the process quadrupling the number of people working in corrections. Corrections employees now make up a third of the state workforce, and an even larger share of workers paid from the deficit-ridden general fund.

In this chart, the green line shows that, when university and corrections employees are taken out of the mix (and they make up half the total), what people think of as the state “bureaucracy” has shrunk dramatically relative to California ’s population. In fact, since 2001, the number of non-college, non-corrections state workers has barely increased — even as the number of Californians has grown by the equivalent of the state of Louisiana .

That’s why, if you examine California state government as a business, one of the first things you are likely to notice is how few people it employs compared to others in its “industry.” Over that past decade, California has ranked between 46th and 50th among the states in the annual federal listing comparing state workforces to  population; its state workforce is about 25 percent smaller than the national average.

And if you think about it, that shouldn’t come as a surprise. Since 1967, every California state budget has been proposed — and later subjected to line-item veto — as by a fiscally conservative governor: Reagan, Brown, Deukmejian, Wilson, Davis, and Schwarzenegger, skinflints every one of them. If you believe California is out of line in how many people it employs in state government, you haven’t been paying attention.

Control the size of the state workforce? Sorry, Meg and Steve. Been there, done that.

Mark Paul, senior scholar and deputy director of the California program at the New America Foundation, is co-author, with Joe Mathews, of California Crackup: How Reform Broke the Golden State and How It Can Be Fixed (UC Press, forthcoming).

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There are 9 comments for this post

  1. avatar Sac Economist says:

    A great review of some ‘inconvenient’ facts. One of the principal reasons that the state budget problem lingers on and on is that most people don’t or DON’T WANT TO know significants facts, such as those you outlined. I’ve had several conversations with intelligent, well meaning individuals about the budget crisis in which they proclaim that the solution is simple “just stop spending money we don’t have.”

    In each instance I pointed out that this would necessarily mean less money for schools (larger classes, fewer teachers), reduce prison spending (send fewer people to jail), or reduce health assistance for the poor, sick, and aged (deny healthcare to poor children and the infirm). These are the only choices besides raising taxes. All of the rest of the budget is essentially legally dedicated to specific things (UC & CSU fees). The response IN EVERY CONVERSATION WAS TO CHANGE THE SUBJECT.

    If this is a typical attitude, you can understand why politicians don’t want to talk specifics. Look at how Gov. Schwarzenegger’s popularity crashed once he got serious about the budget. Of course the time-honored approach of conservative candidates is too trot out the great “fraud, waste, and abuse” myth. Gov. Schwarzenegger used this to get elected but quickly discovered there was nothing to it.

    Now Whitman and Poizner are selling this snake oil again. As long as voters are ready and willing to overlook inconvenient facts, politicians can continue to get away with selling medicine that won’t work. If you think this can’t go on forever, just Googe “ab fat belt” and see how many products pop up.

    • avatar robertraybishop says:

      Oh my learned friends. I think Meg, and just about every other politician has forgotten the single most important aspect of the job. It is not how to acquire more debt. It is to provide for the citizens of the state. Provide a favorable environment for manufacturing and other economic baseline businesses to return to California. Folks need jobs. Not talk. Not legislative “green” fog. And defiantly not a stimulus handout.

  2. avatar FakeMegWhitman says:

    You boys here at Calbuzz sure are crazy! You point to your facts and figures, I have consultants to do all that for me. But, of course we can all agree that state government spending is out of control. And I, E-Meg, will put a stop to it. How, you ask? Well…Oh look! Look there! It’s my record as a CEO, isn’t it bright and shiny? Doesn’t it just sparkle against my billions of dollars? Oh, You forgot what you were asking me? You’re lucky I answered your question to begin with! Anyways, vote for me.

  3. avatar Diogenes says:

    So, General fund spending as a percentage of personal income. How about a graph of General and Special fund spending over time? Another question I would have is why would the population doubling necessitate a doubling in State staffing especially when many “State” programs are delivered by County governments? Perhaps the total staffing increase is in those programs driven from direct State delivery and needed by population/caseload increases but I don’t see that from these charts.

    • avatar Andy says:

      Actually, a big part of the problem there is the shifting of activity TO the General Fund. For example, cutting the Vehicle License Fee (a local government fee collected by DMV) and then backfilling that tax cut with GF dollars.

      Republicans praised local control and less state government, but their budget proposals result in the opposite and create much of the deficit, when you consider not just the funding shift but also the borrowing that was done to cover for the damage.

  4. avatar Rosa says:

    What I find disgusting about the whole eBay thing is that what makes eBay work is that for many people, selling on the Internet is the only chance they have of making a living. And it’s the buyers and sellers who made it work, not some corporate suit.

    I see Meg used to work for Bain Company, the very company that was hired to oversee UC’s Operational Excellence plan. Their first report about UC Berkeley came out this month and contains gems such as this one about the IT infrastructure:

    “High energy consumption: 95% of servers (by number) not in central data center, resulting in sub-optimal distributed HVAC systems.”

    There’s a reason UCB servers are distributed–many of them are dedicated to research that is funded by the federal government and many of those projects require top security clearance.

    People who can’t look beyond numbers that look nice and neat on a PowerPoint are idiots, and Whitman is seemingly one of them.

    (If you’re interested in Bain’s interim report, it can be downloaded here:

  5. avatar chrisfinnie says:

    Pesky people with your inconvenient facts. Never, never let that get in the way of a good soundbite or an appeal to people’s baser emotions (read fear and greed). The voters of this state have let ourselves be duped for decades by the later. What makes you think we’ll change now?

  6. avatar Moravecglobal says:

    (Context: greatest recession in modern times)
    Sorry Tale of Chancellor’s Office UC Berkeley: easily grasped by the public, lost on University of California’s leadership. The UC Berkley budget gap has grown to $150 million, & still the Chancellor is spending money that isn’t there on $3,000,000 consultants. His reasons range from the need for impartiality to requiring the consultants “thinking, expertise, & new knowledge”.
    Does this mean that the faculty & management of UC Berkeley – flagship campus of the greatest public system of higher education in the world – lack the knowledge, integrity, impartiality, innovation, skills to come up with solutions? Have they been fudging their research for years? The consultants will glean their recommendations from faculty interviews & the senior management that hired them; yet $ 150 million of inefficiencies and solutions could be found internally if the Chancellor & Provost Breslauer were doing the work of their jobs (This simple point is lost on UC’s leadership).
    The victims of this folly are Faculty and Students. $ 3 million consultant fees would be far better spent on students & faculty.
    There can be only one conclusion as to why inefficiencies & solutions have not been forthcoming from faculty & staff: Chancellor Birgeneau has lost credibility & the trust of the faculty & Academic Senate leadership (C. Kutz, F. Doyle). Even if the faculty agrees with the consultants’ recommendations – disagreeing might put their jobs in jeopardy – the underlying problem of lost credibility & trust will remain.
    Contact your representatives at Cal: tell them of the hefty self-serving $’s being spent by UC Berkeley Chancellor Birgeneau & Provost Breslauer.

  7. avatar Moravecglobal says:

    Public universities are into a phase of creative disassembly where reinvention and adjustments are constant. Even solid world class institutions like the University of California Berkeley under the leadership of Chancellor Birgeneau & Provost Breslauer are firing staff, faculty and part-time lecturers through “Operational Excellence (OE)”. Yet many employees, professionals and faculty cling to old assumptions about one of the most critical relationship of all: the implied, unwritten contract between employer and employee.
    Until recently, loyalty was the cornerstone of that relationship. Employers promised work security and a steady progress up the hierarchy in return for employees fitting in, accepting lower wages, performing in prescribed ways and sticking around. Longevity was a sign of employer-employee relations; turnover was a sign of dysfunction. None of these assumptions apply today. Organizations can no longer guarantee employment and lifetime careers, even if they want to. UC Berkeley senior management paralyzed themselves with an attachment to “success brings success’ rather than “success brings failure’ and are now forced to break the implied contract with employees – a contract nurtured by management that the future can be controlled.
    Jettisoned Cal employees are finding that the hard won knowledge, skills and capabilities earned while being loyal are no longer valuable in the employment market place.
    What kind of a contract can employers and employees make with each other? The central idea is both simple and powerful: the job or position is a shared situation. Employers and employees face market and financial conditions together, and the longevity of the partnership depends on how well the for-profit or not-for-profit continues to meet the needs of customers and constituencies. Neither employer nor employee has a future obligation to the other. Organizations train people. Employees develop the kind of security they really need – skills, knowledge and capabilities that enhance future employability.
    The partnership can be dissolved without either party considering the other a traitor.

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