Greetings From California: Letter From a State in Crisis
"It was like a suspense movie," said a jubilant governor, who later showed up in a web video happily brandishing a carving knife. "But we have accomplished a lot." Said Democratic Senate leader Darrell Steinberg, "We have cut in many areas that matter to real people, but I think we have done so responsibly. This is a sober time."
Other reactions were less sanguine. The second-largest public employees union, the Service Employees International, whose members have taken a 15 percent pay cut, has mailed out strike authorization forms and is threatening a statewide shutdown to forestall more cuts. SEIU Local 1000 president Yvonne Walker sent a letter to Schwarzenegger saying, "Governor, we've sacrificed. And now we've reached our limit."
The threat of an immediate lawsuit by more than 180 city and county governments forced the legislature to reduce the $4 billion confiscation of local revenues to a $2 billion "loan" in its final version. LA Mayor Villaraigosa, who called the budget "highway robbery" on his official blog, says the suit might still go forward. Pressure from environmentalists successfully excised an agreement to resume offshore oil drilling. And GOP objections kept the 27,000 inmates locked up pending a separate vote later this year. But in the end, the budget deal killed off any lingering notion of California as a land of plenty.
"When Democrats agree to a budget that is counter to why they are Democrats, it's time to hit the reset button," said Rick Jacobs, head of the 700,000-member California-based Courage Campaign. The liberal advocacy group has launched an ad protesting the budget, saying the state has been "closed."
But it's difficult to see how pressure from unions or progressive activists is going to be able to reverse or modify this budget in the short term--especially when it was approved by a liberal Democratic leadership. More likely, it will be revised--for the worse--if some of the projected revenues fall short. This is quite possible, given that economic analysts are predicting a second shattering wave of California home foreclosures, this time centered more on middle-class and high-end properties, while forecasters see unemployment rising through next year. Everyone knows the odds are that just a few months from now, the state will be right back in a sea of red ink, forcing even deeper cuts.
The state does need structural reform, if not exactly the way Schwarzenegger envisions it. What seemed like a fringe idea a year ago, when it was first floated in an op-ed piece, is gaining momentum: a constitutional convention of ordinary citizens that would rework the state structure. Its motor force is an unlikely suspect--a Northern California business group known as the Bay Area Council, whose scores of members span from the University of California, Davis, several media companies and banks to Hewlett-Packard, Google and Yahoo. The council is just one of a quickly multiplying array of bipartisan establishment groups pushing for a constitutional convention or similarly urgent structural reforms, including Forward California, which is led by former Democratic Assembly Speaker Bob Hertzberg and whose board includes AFL-CIO officials. "This movement is getting very real with every passing day," said Council CEO Jim Wunderman, who wrote the op-ed last summer. "New leaders and groups are coming to us, asking how to get involved. There is real momentum here."
And that's not just self-promoting hype. On the weekend before the budget deal, several hundred Californians joined Wunderman at a USC conference hall to endorse and start planning for a convention, which could be mandated through the initiative process. Rick Jacobs of the Courage Campaign was on the dais balancing out any notion that this was strictly an initiative of the business community. So were LA Mayor Villaraigosa, who says he "absolutely endorses" the call for a convention; the LA city controller; the progressive president of the LA City Council; reps from the Mexican American Political Association; Common Cause; and several other activist groups. It was a clear manifestation of at least the germ of a nonpartisan, broad-based reform coalition. "We want this to be dispassionate and deliberate," said Wunderman. "Not done overnight. That's why we think a constitutional convention is the best way to go."
No one involved in the movement wants to take an overtly partisan position. But there's general agreement on what needs fixing: the two-thirds budgeting rule has got to go; the once progressive initiative process, which has been "hijacked by special interests," as Wunderman put it, has to be reformed; gerrymandering must end; term limits, which have crippled the legislature, must be stretched; open primaries must be considered; and, most important, something has to be done about that third rail of California politics, Prop 13 and the taxation system.
The 1978 measure reduced property tax to a painless 1 percent a year, but it skewed the rest of state revenue. With property taxes so low, 55 percent of revenue comes from personal income tax; 45 percent of that comes from the top bracket (most states like to keep personal income tax to one-third of revenue). The state is far too dependent on income tax: when times are good, there's plenty of money; when they're sour, California goes bust. In just the first five months of this year, revenues from this tax plummeted 34 percent.
In addition, more than 30 percent of Californians pay little or nothing in personal income tax. And the bottom 85 percent of taxpayers contribute only 16 percent of income tax. This is an uncomfortable reality; progressives who say "tax the rich" don't always realize that in California, wealthy individuals (if not corporations) are the tax base. Conservatives, meanwhile, won't admit that intransigent defense of Prop 13 has turned California into a second-rate state. Even sectors of the business community are worried about the future.
While Prop 13 attracts new critics daily, few are confident it can be repealed. When Schwarzenegger ran for governor in 2003, he showcased Warren Buffet as his economic adviser. "Buffet said we had to get rid of Prop 13 and poof! we never saw him again," laughed political analyst O'Connor. More realistic than repeal is a "split roll," which would raise business property tax and close gaping loopholes that allow large corporations to pay less property tax than Ma and Pa. "Prop 13 has been a sacred cow, but it's time to look at it again," said Villaraigosa. "When people voted for it, they never expected the real beneficiaries were going to be big corporations." The San Francisco Assessor, Phil Ting, and the nonprofit California for Tax Reform are now preparing a ballot initiative, perhaps in 2012, to amend Prop 13 to tax commercial property, which some analysts believe could produce more than $7 billion in additional annual revenue.
What Californians really don't want is a permanent parlor game. In a show of defiance in May, they overwhelmingly voted down a package of initiatives backed by the governor and legislature that would at least have forestalled the current crisis. Everyone has his own interpretation. "Forget about eliminating term limits and the two-thirds requirement," darkly predicted analyst Hoffenblum. "The voters will never go for it. They are too distrustful of the politicians." DiCamillo of the Field Poll is also pessimistic about the possibility of structural tax reform. "Only sin taxes are palatable," he said. "Our polling shows no inclination toward shared sacrifice, because the voters themselves are already hurting too much. They're so worried about their own pocketbooks that there isn't much sentiment toward looking at this in a more mutual way."
California has always been as much a state of mind as a physical reality. The state's natural resources, along with its inhabitants' capacity to exploit them, made The Dream more likely than not. But now it's time to stop dreaming, says D.J. Waldie, who has the unique experience of living through this crisis as both an official of an LA suburb and a prizewinning author who plumbs the Golden State zeitgeist. "The middle class and the near middle class have been missing in action in paying for the sort of life they think California owes them," he said. "Instead, they believe that someone else should pay for the California Dream. Smokers. Drinkers. Gamblers. Millionaires. But not me.
"We have sold ourselves a vision of California, but we are not psychologically or emotionally prepared to make the hard choices. We prefer to point our finger at 'waste, fraud, immigrants.' Those are all straw men. It conveniently avoids the question of what we want and what we want to give up."