Capitol Letters
Thursday, May 28, 2009
The voters’ overwhelming rejection of the cockamamie quintet of budget fix measures the Capitol elite put on last week’s ballot fully exposed the political and fiscal rot at the core of state government for all the world to see.
After years of pushing hard decisions down the road through borrowing and fiscal sleight of hand, it’s clear that Judgment Day has finally arrived for our action hero governor and his Sacramento cohort. As California’s budget meltdown commands attention from Wall Street to the White House, the state’s leaders face not only a one-year, $24 billion shortfall, but also years of compounding future deficits. Their tools: a total lack of good choices, an intractably Byzantine political structure, and a set of financial trap doors beneath almost every move that resembles a solution.
Capitol Letters
Here are 10 key factors shaping the crisis:
1) It’s worse than you thought. Financially, the defeat of the ballot props is just a footnote, with a mere $6 billion in lost potential revenue. In just one day after the election, the estimated $21 billion deficit for the fiscal year starting July 1 grew to $24 billion, as the recession ate away already anemic tax receipts. Meanwhile California’s horrible credit rating slammed the door on Schwarzenegger’s plan to borrow $5 billion of the solution.
2) Arnold is a failure. The Terminator found that it’s much easier to play a governor than to govern. His utter lack of serious political skill made him a joke in Sacramento, and he never effectively communicated the full, ugly truth to those who elected him.
3) Electing a new governor won’t help much. The state’s afflictions are deep and structural. With one exception—long-shot Republican Tom Campbell, who’s issued a thoughtful budget plan—the wannabes seeking Arnold’s job have yet to say anything that seriously addresses the mess.
4) Layoffs and furloughs won’t do it. GOP front-runner Meg Whitman keeps making tough noises about “body count” and threatening to layoff 40,000 state workers. Putting aside the impact on the economy, government services, and the unemployment rate, it barely makes a dent—a few billion in a $24 billion problem.
5) Cutting where it matters is a double-edged sword. For perspective on the problem’s magnitude, consider that closing the entire UC system would save $16 billion—still $8 billion short. Besides higher ed, big ticket budget items are K-12 schools and health care benefits for the uninsured; cutting either carries reams of unintended consequences, both social and economic. Example: A California Budget Project report shows Schwarzenegger’s idea to eliminate the Healthy Families Program, leaving 942,000 California children without health insurance (11,160 in Santa Barbara County), saves $400 million in state money—but costs $700 million in federal funds. Bottom line: $300 million in additional deficit.
6) Republicans ideologues are playing their own game. Grover Norquist, patron saint of GOP tax cut jihadists, famously said he wants government “down to the size where we can drown it in the bathtub.” Sen. Abel Maldonado, R-Santa Maria, shined light on what Norquist meant when he recently told The Independent that his anti-statist GOP colleagues urged him to help drive state government “off the cliff.”
7) The two-thirds vote is determinative. Although legislative Republicans are a small minority, the California Constitution’s two-thirds requirement for budget passage means they’re driving the wagon.
8) Obama may have to revisit loan guarantees. The president said last week he opposes a federal “bailout” for California. But the state doesn’t need a bailout; it needs loan guarantees, with credit markets all but closed to California, to pay bills through a looming summer cash crunch. Given California’s political importance to Obama—and its congressional clout—look for Washington to get reluctantly involved.
9) It all started with Prop. 13. Benefits and costs to homeowners of property tax cuts engineered by Prop. 13 aside, passage of the historic measure led then-Gov. Jerry Brown and the Legislature in 1978 and 1979 to cushion its impact on local jurisdictions, sending them $5 billion in state funds and permanently putting Sacramento in the business of financing schools, and programs for cities and counties. That fateful decision set the stage for today.
10) California needs a big fix. A host of underlying factors—the twisted relationship between state and local government, special interest ballot initiatives, the two-thirds requirement for taxes, gerrymandering, term limits, and the soft corruption of massive political donations—all contribute to the dysfunctional system. Reformers, led by the corporate Bay Area Council, are now proposing a clean slate, through a statewide constitutional convention.