Greetings From California: Letter From a State in Crisis
There is science, logic, reason; there is thought verified by experience. And then there is California.--Edward Abbey
Poking around this jumble of ramshackle trailers lined up along a dozen dusty, unpaved roads on the outskirts of the Torres-Martinez Indian reservation, surrounded by the barren and baking Southern California desert on three sides and a fetid, smoking rubbish dump on the fourth, you'd think naming this place Duroville was nothing short of a cynical, deliberate joke. Duro, in Spanish, means "hard" or "tough." Duroville. You know, Hard Times Town.
Instead, it's just a cutting coincidence. A decade ago, sensing opportunity amid a severe housing shortage for Mexican-born farmworkers who toil in the nearby fields, local resident Harvey Duro opened up this land for any campesino willing to park his trailer for about $500 a month. So what if there was no running water, no plumbing, no health regulation of any sort and if, in general, Duroville was really no better than the Dust Bowl-era labor camps described in The Grapes of Wrath?
Yet the 3,000 or so mostly Purépecha Indians (from the Mexican state of Michoacán) who populate this outpost between posh Palm Springs and the near-dead Salton Sea have fought relentlessly--and successfully, thanks to a recent court order--for the right to keep building this hardscrabble hamlet and are adamantly grateful for the modest haven it offers them and their families. Especially on a summer day like this, when the mercury tops 112. "Thank God for Duroville," said 45-year-old farmworker Elias. "Without this, where would we have to live?"
Elias knows of what he speaks. Just a few miles up the road, in the preposterously named flyspeck town of Mecca, several dozen of his co-workers simply sleep in their cars in the parking lot of El Toro Market. Riverside County officials, resigned to this degradation, are caring enough, or at least are realistic enough, not to evict them and instead provide toilets and weekly portable showers. "Things here are worse, worse, worse than ever," said Emanuel Benitez, a community outreach worker at the local office of California Rural Legal Assistance. "These people make about $13,000 a year. They have no money for rent. And anyway, there are no places here to rent."
All this, a mere two hours southeast of 90210.
As recently as a few years ago, it would have been an easy reporter's trick to juxtapose the Fourth World conditions of Mecca and Duroville with the lush golf courses, seven-figure mansions and glittering casinos thirty minutes away in the Palm Springs valley in order to prove that two very different Californias coexist, blithely ignorant of each other.
Nowadays, that seems too facile. Certainly, the socioeconomic distance between the two extremes remains vast, if not immeasurable. But now we are talking about degrees of pain and comfort rather than separate social universes. The city of Cabazon, for example, home to one of those mega-rich casinos, recently clocked in with a 30 percent unemployment rate. The wealthiest enclaves of California have hardly been driven into misery, but no social stratum is exempt from the crash of The Dream. A morning's ride west of Palm Springs, on the shimmering Orange County coast, the $500-a-night St. Regis-Monarch Beach resort, where AIG sponsored a free-spending bash last fall, just days after getting a federal bailout, has been seized by Citigroup. Like a record number of properties in California, the St. Regis has an "underwater" mortgage, owing $300 million on a hotel now worth maybe a third of the debt. Up the same coast, the ritzy San Francisco Four Seasons resort just defaulted on a $90 million loan. The rich, it turns out, aren't that different from us anymore. Even they are traveling less and cutting back on hot stone massages.
Let's make it easy to understand. California might be suffering its worst drought in decades, but the entire Golden State is underwater. Goodbye to those timeworn, bubble-gum-colored fantasies of the Endless Summer, California Girls and gleaming, pool-pocked suburbs. Hello to a new set of descriptors: "Bankrupt." "Ungovernable." "California Nightmare." "Failed State."
You know something is radically wrong when the mere act of the governor and the legislature agreeing on a budget to close a $26 billion deficit after months of haggling is hailed in bold headlines. Or maybe you get the message when you're a state contractor and you get an IOU instead of a paycheck and then find out the banks will no longer honor your scrip. Or you see that state unemployment rates are nudging 12 percent; that in LA County the poverty rate hovers near 20 percent; that some of the thousands of teachers who received pink slips are on hunger strike, while California schools are ranked forty-seventh in the nation; that the state college system has suspended admissions for spring 2010, raised fees 20 percent and forced its faculty to take unpaid leave two days a month; that thousands of state workers are being laid off and those who remain must take three furlough days a month for the rest of the year; that protesters in wheelchairs are blocking the halls of the Capitol; that a number of state parks are being closed; that California's bond rating is just above junk level; that Southern California had its highest peak in personal bankruptcies last year and that so far this year they're up 75 percent over that; and that one in four capsized mortgages in the United States is in California.
Recently, two Democratic representatives from the Central Valley appeared before a Congressional committee and, comparing their region's economic devastation to Katrina, asked to be declared a federal disaster area eligible for emergency relief. According to a Brookings Institution report, among twenty of the economically weakest metro areas in the country, four are in the Central Valley. One of them is the capital, Sacramento. In another, the Merced-Stockton area, the 70 percent drop in housing prices is so steep that homes there don't even qualify for federal recovery assistance. That's on top of the estimated 5 million impoverished Californians who have no cash assistance whatsoever.
Those east of the state line tempted by the allure of schadenfreude ought to think twice. California has the eighth-largest economy in the world and produces 12 percent of the national GDP. There can be no solid national economic recovery without a resurrection of California--something not very likely in the short term.
"It's a perfect storm," said veteran political consultant Allan Hoffenblum, co-editor of the nonpartisan California Target Book, which tracks all of the state's political districts. With the high tide of the Great Recession battering the Left Coast, state government, instead of shoring up what it could, melted into what Hoffenblum calls "total dysfunction."
"During this crisis, no individual or institution has been able to assert any real leadership and bring people together for a common cause," he added. "This has created a power vacuum, allowing everyone to have a veto over everyone else. A weak Assembly speaker. A weak Senate leader. A weak governor. Arnold has flip-flopped so many times that there's nobody in Sacramento who trusts his word."
Nor is this by any stretch a strictly partisan issue. California is solidly blue. And although its Democrat-dominated legislature has a miserable 14 percent overall favorability rating, that rating rises to only 19 percent among Democratic voters. Californians are as liberal as anybody "at the federal level," said Mark DiCamillo, director of the respected Field Poll. "They're more supportive of national healthcare than the national average. But it's also true that Californians remain somewhat tightfisted when it comes to increasing state taxes."
California's political and economic crisis didn't begin with the current economic slump but has been brewing for decades. "You could go back to 1933, with the requirement approved by voters that you need a two-thirds majority to approve the budget," said Sherry Bebitch Jeffe, a USC-based political scientist. "Obviously there's Prop 13, which made things worse; there's the ballot-box budgeting--earmarking money for specific programs--that everyone from Arnold Schwarzenegger to Rob Reiner has used. And the runaway gerrymandering. It all makes flexibility impossible, and it empowers the special interests."
"No question the system is broken," said liberal Los Angeles Mayor Antonio Villaraigosa, who recently decided not to run for governor next year and whose city is grappling with a $530 million deficit. "It's a state on the brink, families falling through the cracks with IOUs as a safety net. It's mind-boggling to me how little controversy there is over the IOUs."
Maybe it's because Californians are so used to failure from Sacramento. For almost every one of the past twenty years, the state government failed to reach a budget agreement by the July 1 fiscal deadline. Indeed, in 1992 Governor Pete Wilson had to resort briefly to issuing IOUs. But this season's deadlock, finally (or more probably, temporarily) resolved after a near twenty-four-hour session of the legislature on July 24, took on high drama. "I don't know if it's fair to say, but it was like Arnold thought he was starring in his own Gunfight at the O.K. Corral movie and didn't give a damn that the movie house was burning down around him," said one LA City Council staffer.
In February the Democratic majority proposed to-the-bone budget cuts, but their offset measures to increase taxes on oil extraction, vehicle registration and tobacco enraged Republicans and evoked veto threats from the governor. Because California is one of only three states that require a two-thirds majority to approve a budget or even a tax increase, the small GOP minority had just enough votes to block passage. And entrenched gerrymandering makes their seats invulnerable, allowing them to take the most extreme positions. "For me it has been heartbreaking," said Democratic Assemblyman Kevin de Léon, one of ten conferees on the budget. "Back in February we came up with a good budget but with those two minor taxes--on oil and tobacco. That money would have gone right into education. But because of the two-thirds rule, and even though a majority wants it, we get handcuffed by a small group."
Aggravating matters, Governor Schwarzenegger took an intractable "no new taxes" position and then went a step further, saying the crisis was an opportunity to make "structural reforms." Translation: the governor demanded radical shrinkage of the public sector, including virtual abolition of CalWorks, the state welfare program, and a rollback of state employee pensions. He even threatened the "nuclear option": suspension of Prop 98, which requires that 40 percent of state revenues be channeled into schools. Four years ago, when Schwarzenegger attempted to impose a similar far-reaching conservative agenda through a set of referendums, he was mightily slapped down by voters and forced to apologize. Now, it seemed, he was trying to hold the state hostage to these draconian changes as the price of a budget deal. "He just got it in his head that his time is up and his legacy must be long-term reform," said Bebitch Jeffe. "So he's using the short-term budget as leverage. Either he doesn't understand, or he's taking a mammoth risk."
"Some of the cuts proposed by the governor are unimaginable," said Barbara O'Connor, political analyst at Cal State, Sacramento, a few days before the budget deal was reached. "In the end," she predicted, "it will be declared a win-win. No one will love it. Everyone will accept it."
Maybe. Because in the end, while Schwarzenegger was proposing Armageddon, the Democrats settled for mere catastrophe. When the budget details were unveiled, it was like viewing the emaciated corpse of a once great state. There are no new taxes. But hammer blows hit the poor, the elderly, the infirm and students and will keep them staggering for years. The deal called for almost $8 billion to be taken from education; more than $1 billion from state worker pay; an equal amount from Medi-Cal, the state's Medicaid program; $375 million from CalWorks; $226 million from home healthcare, in which patients and caregivers will now have to be fingerprinted; $124 million from Healthy Families health insurance, which means thousands of children will be wait-listed for coverage; and more than $4 billion confiscated from local governments, which will create a ripple effect of collateral damage. The proposed taxes on oil extraction, tobacco sales and vehicle registration were penciled out; the budget was balanced only through a set of accounting gimmicks, which merely kicked the crisis down the road a few months. The only winners in this deal were felons, who won a $1.2 billion cut in prison funding, which would reduce the prison population by some 27,000.
"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."