The California government faces a $24 billion dollar shortfall. Here are some sensible proposals for helping cut the budget deficit, that will never happen.

#1. Charge market prices for utilities like water and electricity. Every other year, the State goes through a water shortage, or blackouts, because the state keeps the price of electricity and water artificially low, encouraging wasteful uses for water, like maintaining golf courses in Palm Springs. If utilities were allowed to charge market prices for water, gas and electricity, we would never have shortages, the state could raise more revenue from taxes, and consumers would make smarter decisions about consumption of resources.

#2. Allow companies to sponsor government things. People are used to sponsorships and advertisements – hence Oracle Arena in Oakland, giant billboards lining 101 in SF, even the school I attend, named for Donald McKenna. Why not allow companies to sponsor government operations? The MTA in New York is trying to sell naming rights to a subway stop, which, in an ideal world they would not have to do but should, because that gives them more revenue. California should consider the same. Unfortunately, CCSF just tried to let people sponsor courses that were about to be canceled, but the Board of Trustees is considering canceling the plan, which, in my opinion, is such a stupid decision to be grounds for throwing all of them out.

#3. Let public transit sink or swim. Public transit is, around the world, a money pit. In California less than 1% of all trips are made on public transit. Furthermore, subsidies for public transit average about 45 cents per passenger mile, while federal subsidies for highways average about 0.1 to 0.3 cents per passenger mile, which is not even a close comparison. With subsidies making up so much of public transit’s budget, their routes and ideas for new lines are political decisions – a Congressman wants the public transit to run to his district, or his mom’s house, etc. Furthermore, the subsidies make it impossible for private transit and bus companies to compete with public lines. Giant subsidies for public transit also mean that more money gets spent out of general transportation funds for public transit, rather than for highways, which are much more efficient.

I believe the government should let BART, Muni, LA Metro and the other lines to become nonprofit groups, responsible for raising revenue to match their costs. Then these companies would be forced to make business decisions – raise prices or close down lines that are unprofitable and focus on the lines that are making money. They would not build two new stations less than a mile from each other within five years, like they just did in Dublin/Pleasanton. The companies would have to figure out ways to keep worker salaries manageable. And the state would not have to subsidize these companies any more. 

(A quick caveat: BART is one of the best-run public transit companies in the country. And by best-run, I mean that people actually want to ride it, for the most part. In that case, it shouldn’t have much of an issue surviving without subsidy).

#4. Legalize and heavily tax marijuana. I don’t have much to add to this discussion, although the consumer benefit would far outstrip the revenue for the state. If you want to discourage something, tax it heavily – don’t ban it! The street price of marijuana is higher than it would be if it was illegal. All of the profits go to drug dealers, who use the money to invest in growing marijuana, which makes our ban part of the reason that the problem will never go away.

#5. Charge people fees for driving on the freeway. Traffic jams are terrible for three reasons. They waste time (and increase stress) for everyone that drives through them, they increase pollution, and they cause the whole region to become less desirable, because it takes longer to go places. This is because it’s free to drive on the highways, so everyone does, and everyone does so at times that are convenient for them, leading to massive backups. If it cost money to drive on the roads during peak use hours, people would reconsider their driving habits.

When London introduced congestion pricing earlier in the year, charging a fee for driving in the city center, overall traffic fell about 17 percent, but congestion fell 30 percent. My favorite example is SR 91 in Orange County, which was built by a private company because the regular highway was chock full of traffic but the local government had no money to build a new highway. There is no congestion on SR 91, because if there were traffic jams, fewer cars would pass through the toll plazas and the company would make less money. When there’s an accident, the company quickly sends a crew to move the car to the side of the road, to keep the cars flowing. While these services cost drivers in cash, they save money in time and frustration, because the highway is not congested. The state could sell off sections of highway to private firms, like the city of Chicago did with the Chicago Skyway (an immediate $1.8 billion cash inflow). Competition would ensure the tolls reflected the costs of maintaining and operating the highways.

#6. Raise sales taxes on socially damaging products. Alcohol served at bars (which leads to drunk driving), cigarettes (health problems, secondhand smoke), gasoline (pollution), fast food (obesity and other health issues), bullets not used on hunting grounds or firing ranges (which lead to murder, accidental discharge, etc), fall into the category of products which, when consumed, impose a cost on the public at large.

Most economists would support these proposals, but they will use the rest of their breath to tell you that most of these are regressive taxes. Higher costs for gasoline, transit, and utilities will hurt poor people more than they will rich people. This could be offset by a decrease in the income tax for the poor (a greater incentive to work) and an increase in income taxes on the rich, who have enjoyed historically low income taxes.

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