West Coast Wasteland
"The outlook for next year and the year after is worse," says veteran California observer and journalist Peter Schrag, over a BLT lunch at a casual-but-chic cafe in the Berkeley foothills. "The stimulus money goes away. The tax increases [passed in February 2009 after weeks of acrimonious debate] expire. If we're up shit creek now, we're going to be further up shit creek two years from now." Since the state, unlike localities, cannot declare bankruptcy, if its tax revenues continue to wilt it will have no choice but to dramatically scale back its spending on big-ticket items such as education, healthcare and prisons. Recognizing these realities, Schwarzenegger recently suggested rewriting the Constitution to ensure that the state never spends less than 10 percent of its general fund on higher education or more than 7 percent on corrections. But he didn't propose limiting what sorts of offenses would trigger a prison term; instead, he suggested cutting costs by wholesale prison privatization--a proposal almost certain to be defeated in the legislature.
Schrag looks out on his state and sees an eroding sense of common destiny--a great experiment gone awry, a place where racial and economic groupings are retreating into their own corners, where the social bonds that give people confidence in their futures are disintegrating. California's disarray is, for him, a psychological crisis as much as an economic one. If things get bad enough, he wonders aloud, "will there be some restoration of the public sense? Is there a point at which people will basically begin to develop a sense that something has to be done? And that could go in various directions. It could go in the direction of a furious backlash against immigrants, or a realization that we better do something else--tax millionaires, oil companies."
Lenny Goldberg, an economist at the left-leaning California Tax Reform Association, believes California's crisis is about a failure of will: the money's there, Goldberg says--even during a recession as deep as the current one, California's is still a nearly $2 trillion economy--but the willingness to access it through a viable tax structure is absent. Since it takes only a bare majority of state legislators to lower taxes but a two-thirds supermajority to increase them--a side provision to Proposition 13, the 1978 ballot initiative better known for limiting property-tax rates--the result, he says disdainfully, is a "roach motel." Once tax loopholes crawl in, they're all but impossible to remove. The GOP in California, long a minority in the legislature, has just enough muscle in Sacramento to hold the budget and tax process hostage to its no-new-taxes agenda.
Not surprisingly, Jon Coupal, the perfectly coiffed Tim Robbins look-alike president of the conservative Howard Jarvis Taxpayers Association (named after the anti-tax crusader who led the Prop 13 campaign), has a different take. For Coupal, tax increases to fill some of the holes in California's budget "would be a nonstarter." To him, it's all about waste, government inefficiency and a decades-long flirtation with "an entitlement mentality--whether it's healthcare, whether it's a free education. People have lost sight of the one thing government should do as a first priority--it's to preserve liberty." Downsize the state, move core social service functions to the private sector, and California's cascading budget crisis could be controlled.
Betwixt these donkeys and elephants, never the twain shall meet. Moreover, because of an extraordinarily restrictive term-limits law passed by voters in 1990, legislators in Sacramento no longer have the time to develop expertise about how their state works. As a result, few legislators in either party accumulate the confidence born of experience to challenge special interests. As Jim Brulte, a onetime GOP leader in both the State Assembly and Senate and a vocal critic of the restrictions of the term-limits law, explained at the Getting to Reform conference in mid-October, state leaders can never do what redbaiting Nixon did: "go to China." They can't challenge their constituencies to think outside the box.
In the case of the GOP, those interests tend to be rigidly anti-tax but somewhat fuzzy on exactly what programs to cut to balance California's budget. In the case of the Democrats, they tend to favor higher spending but don't necessarily support tax hikes to cover those bills. In the meantime, as momentum for reform slowly builds and voters' anger intensifies, the state continues its slow bleed.
Californians have long wanted to have their cake and eat it too, using the initiative process to mandate generous levels of spending on specific programs but using that same process to limit localities' ability to raise property taxes and state legislators' ability to raise state revenues. The result? California is increasingly reliant on borrowing, increasingly at the mercy of the credit markets and thus increasingly vulnerable to crises such as the seize-up of those credit markets in 2008.
Why does California have the country's lowest bond rating? "Because of our political and fiscal system," Goldberg believes. "We're so tied in knots, the market doesn't believe we can get a solution to our problems. It's the market saying, Your political system is really fucked up."
"Since '78," explains Tim Hodson, executive director of California studies at California State University, Sacramento, "we've developed a political culture that believes you can have world-class public services without having to pay for them. We need to get control of ballot-box budgeting."