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Cynthetiq · 07-10-2009, 11:59 AM

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View: The California Budget Crisis - Analyzing the Causes
Source: Politicsoftrust
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The California Budget Crisis - Analyzing the Causes
The California Budget Crisis - Analyzing the Causes

By Senator John Vasconcellos

Recognizing the devastation impending for my beloved California and its people, my conscience no longer permits me to remain silent regarding what accounts for our current budget crisis.

I was recently hospitalized with a life-threatening illness that took doctors several days to accurately diagnose. Until they fully understood the problem -- which turned out to be an antibiotic-resistant staph infection -- they couldn't prescribe the medication that would cure me.

The experience got me thinking about California.

Our state's protracted budget crisis sometimes seems unsolvable. But part of the problem may be that those who are trying to solve it don't fully understand its cause.

I represented the Silicon Valley for 38 years in the Legislature, and I chaired the Assembly Budget Committee for 15 of those years. As a result, I have some insights into our current crisis that may be useful.

As well as anyone, I know the history of our current crisis and believe Californians must understand its root causes in order to make wise decisions to solve it. My purpose here is to offer information which will empower Californians to wisely choose the most promising path forward.

The Current crisis is well-chronicled. The immediate problem, of course, is a $26-billion shortfall, which we must now plug if California is to pay its bills. But before we can fix things, we have to understand how we got to this point and that the consequences of inaction are catastrophic.

In fact, most of the draconian cuts being proposed are only going to cost us more in the long run. Reduced school days equals less learning, reduced higher education spaces and Cal-Grants limits the capacity of our work force to compete in the Global economy, and 81,000 fewer home care workers will send aging Californians into more expensive Nursing homes. Reducing 900,000 kids’ vaccines threatens our public health, eliminating our Cal-Works program makes 500,000 mothers and 1 million children destitute and closer to homelessness.

A combination of many factors has led to this perfect storm.

A good place to start is with the slew of revenue reductions that have hit the state since 1978, when Californians passed Proposition 13. The initiative dramatically reduced most property taxes and resulted in a 57% reduction in property tax revenue during its first year, and its effects continue.

Another revenue drop came in 1982, when voters passed an initiative abolishing the state inheritance tax. Before that, California had taken in nearly $1 billion a year in estate taxes.

And there are vehicle license fees. Starting in 1998, the fees were reduced incrementally as part of a bipartisan agreement to provide a benefit to the people while the state was experiencing good budget years and a surplus. The deal was that the fee reduction would remain in place until such time that revenues couldn’t sustain it, whence it would be restored.

One party reneged on the legislative deal to end the fee reduction after revenues declined significantly in 2003. When Arnold Schwarzenegger came into office later that year, he immediately reversed the hike Gray Davis had initiated administratively-- at a cost to state coffers of about $4 billion each year since then.

Add to that the collapse of the dot.com bubble in 2004 -- which resulted in a drop of several billion dollars in state revenues from capital gains taxes – add to that the current global economic downturn and you start to see how state revenues have suffered continuously and the perfect storm started brewing.

In addition, many leaders held unrealistic expectations regarding the continuing growth in the U.S. economy, which encouraged the Legislature and the people to enact other revenue reductions and tax breaks, even as the state’s population and needs grew.

Next, consider a series of structural complications that hamper the Legislature's ability to come up with solutions.

First among them -- again -- is Proposition 13, which requires a two-thirds vote of both legislative houses to raise taxes. This has meant that a small minority can keep the majority from enacting tax hikes that would help balance the budget. Specifically, the Senate Republican caucus reportedly operates by ‘The Rule of 8’ whereby all 15 of those men follow their caucus majority. The effect is that 8 male Republicans can thwart the aspirations of a majority of 39 million Californians.

Term limits, enacted by voters in 1990, were designed with good intentions. They would, their backers said, allow for more turnover in state government and more opportunity for worthy candidates who wouldn't have a chance against incumbents. But term limits have also meant that many legislators don't have deep experience in the state issues facing them. They also don't have enough time in office to develop relationships and trust among their fellow legislators that are inevitably required for any group to compromise and make tough decisions collaboratively.

The 2002 reapportionment deal further exacerbated matters by creating "safe" districts for Democrats and Republicans, which have largely ensured that people at the liberal or conservative extremes of their party are seated.

So, if those are the basic problems, whom should we hold accountable? Each and all of the following bear responsibility.

1- Our Governor, who despite his good heart and mind, apparently lacks a key capacity essential for becoming a superb Governor; that is the same proficiency in basic mathematics which he himself stated that anyone who believed this budget could be balanced by cuts alone, was lacking.

2 - Our Democratic Legislative Majorities’ failure to create a sufficient rainy day fund when the we were flush with cash, applying one-time revenues to ongoing programs (building the Prop 98 base perpetually), borrowing to protect services for needy Californians and being overly responsive to public employee unions, especially those in public safety.

3 – Our Republican Legislative Minorities’ who contrary to their predecessors who joined Governors Reagan and Wilson in meeting Democrats half way with some cuts and some revenues. All but one has signed the ‘no new tax’ pledge of Washington D.C. crusader Grover Norquist, whose stated ambition is to shrink government to “a size where it can drowned in a bathtub”.

Then after Republican leaders in both houses concluded that some revenues were essential to solving our current crisis, they were dumped by their respective caucuses.

4-6 – Campaign consultants, the media, trade associations and their advocates.

7 – We, the people of California, preoccupied with our own life’s challenges, absent good information, lacking trust in our Legislators, share the apparent lack of mathematics proficiency with the Governor and some responsibility for our crisis. We continue to enact initiatives that inhibit the ability of legislators to control a majority of our state spending, while continually demanding an unsustainable combination of increased services and lower taxes.

The people’s lack of understanding can be shown most recently by the passage last November, in the midst of a major recession and state budget crisis, or expensive initiatives authorizing a California high speed rail system and earmarking funds for Children’s Hospitals, further tying the hands of legislators needing to make tough decisions about spending priorities.

8 – The utter silence of Statewide civic leaders including; business, labor, seniors, faith, educational, and social; sitting on the sidelines voicing little public concern or leadership regarding California’s impending demise.

Finally, we appreciate especially these truths;

1 – Government is counter-cyclical. A good economy provides more taxes and reduces the need for services; a poor economy reverses that equation.

2 – The State of California is a political entity, the most populous of our 50 states. Moreover, California is a powerhouse economic entity, the 8th largest economy in our world. Most basically, California is a social and moral entity whereby we must continuously reevaluate our contract with each other.

3 - We who make our home here constitute a highly diverse, talented and creative community.

4 - There is no such thing as a free lunch! We’re going to get the kind of government we’re willing to pay for.

The cynicism and mistrust of legislators that can certainly be traced directly to the current dysfunction in Sacramento, resulting from systematic problems that have been created, at least in part, by the voters of California. The result has been excessive partisanship, a lack of legislative, institutional and historical knowledge, and the utter absence of trust, both among the legislators and between the public and their elected leaders.

That said, for better or worse, we are all in this together, and we can only prosper individually if everyone does. That means preparing our young people for a fulfilling life and respecting the dignity of our aging population. We cannot sit idly by while our children are left less educated and our elders are left unattended. Let us agree to take the high road and reach for the California dream, recognizing that it all of us working together and supporting each to accomplish it.

Let us choose wisely and act accordingly—and immediately. The State we love so much needs credible action, and soon.

I was born a California Native. I loved it for many years, and as I got older I found that I did not like some of the core politics and policies that were slowly eroding the quality of life that I was seeking.

As I said in a recent blog entry, one cannot run any business, household, or government for very long when the spending exceeds the revenue. It's a simple math formula at it's heart but gets quite complex as you add the different services and revenue streams, but ultimately the outgo cannot exceed the income in any sustainable model.

The cuts in taxes or revenue streams made great headlines, but they don't balance the budget or the books.

I was surprised to consider the idea of term limits making it worse, but I agree as it takes time to understand the politics, process and budget, but the time you really grasp it, your term is over. I have a long held belief that term limits are best handled by the voting booth.

I remember Prop 13 being passed. I remember the services that were cut, one of which was public government displays of fireworks for the 4th of July.

The above article I found via the OpEd in the LATimes today. Does anyone else have any insight or comment?