Don’t Blame Arnold

Or the regents. Or Yudof. Why our state, once the darling of our union, is now its biggest joke. What makes our problems virtually unsolvable. And how we fucked ourselves — A letter from the founder

It’s a breezy 75 degrees in January, as I bob up and down in the shallow water by the Santa Monica pier. My view of the snow capped mountains in the distance is obscured by noisy children scampering through the sand on what may be the last beach day of the winter. One of the kids tumbles headlong into a pit dug hours earlier. His obese parents, lounging in stressed lawn chairs, barely flinch, unshaken that their most beloved offspring was nearly decapitated.

He’ll be fine, the father yawns through another mouthful of half-eaten Spicy Nacho Doritos. It will be a long, lazy day.

I am unapologetic in my belief—no, knowledge—that California is the best place to live on Earth. And while I can fill paragraphs blithering about how unique and grand our great state is, what I cannot boast about is its governance.

With all of our accolades come admonitions. We are the sixth largest economy in the world, but businesses are fleeing. We’re the nation’s “bread basket,” yet our agriculture industry is threatened by a complex water crisis. Our UC system is of the world’s finest higher education institutions, but is underfunded, and general public education in the state flounders.

And we can go ahead and add housing, employment, prisons, and healthcare to the crises pile. Most of the problems can be attributed to years of mismanagement resulting in soaring budget deficits. Last February it was $42 billion; today it stands around $20 billion.

Due to our state’s financial instability, last year California’s bond rating was downgraded to BBB, the lowest in the nation, meaning borrowing would become even more costly—and borrowing we love. Recently, the head of JPMorganChase speculated that California’s debt situation is more dire than nearly bankrupt Greece.

What poisons our state doesn’t have a simple, or even complex, antidote. They are structural quagmires resulting from generations of counter-punching and folly.

In 1911, Governor Hiram Johnson and fellow progressives amended the state constitution by introducing the initiative system through Proposition 7. The pioneering idea allowed Californians a direct hand in state lawmaking.

Fast forward to 1978. Fed up from years of property tax hikes, forcing some elderly to leave their homes, voters overwhelmingly passed Prop 13. The initiative drastically reduced property tax rates, capping them at 1% of the property value, with a maximum 2% increase per year. It also mandated state tax hikes pass a two-thirds vote in the legislature.

Given that property taxes were the primary revenue source for local governments, they became heavily reliant on Sacramento to pay for services—primarily schools. In response, Prop 98 was passed by voters in 1988. The initiative established a minimum share of the state budget be allocated to K-14 education (includes community colleges), computed by a complex formula, amounting to roughly 40% of the state’s general fund per year.

Using the initiative system to pass laws became an increasingly attractive option for politicians and special interests, rather than trying to hammer them through Sacramento. Without property tax flexibility and given the unpopularity of taxing the poor and middle class, an extremely progressive tax structure developed in the state, dependant on income taxes on the rich. In 2006, 84% of income taxes were paid by the top 15% of the population.

Multiple arguments of injustice notwithstanding, this provided a (comparatively) adequate revenue source for the state in good times. When revenues were supplemented by windfall profits from the tech boom in the late-90s, the legislature and voters decided to grow government programs and entitlements instead of investing in long-term economic growth. These programs are often paid for by bond measures which borrow against future revenues, assuming growth will sustain.

However, this tax structure doesn’t work as well when the economy tanks, like it did in 2008. Silicon Valley insta-millionaires became insta-homeless, and revenue sources evaporated. Dependence on the top tier of tax payers exposed the horrid volatility of the progressive tax structure—and compounded by the state legislature putting off paying debt and passing a balanced budget for years, left the state $42 billion in the hole (the average yearly state budget is around $100 billion).

Unfortunately, once entitlements are granted to a population, they are nearly impossible to take away. Deep cuts and fancy accounting prevented the state from complete collapse last year, but only prolonged the core problems. Schwarzenegger and friends could only cut and furlough so much. Meanwhile executives and the legislature continue to quarrel over what was left of the budget after Prop 98, bonds and interest payments, and other initiatives took their stake.

This would be no easy task with a well functioning representative government. Too bad we have one of the worst.

Our system is mired by slew of deficiencies, guaranteeing gridlock. Currently, our state Assembly and Senate districts have been gerrymandered into districts, “ c r e a t i n g some shapes that would make Euclides proud,” as John Ellis described in The Bruin Standard, December 2007. In the last redistricting effort, legislators drew the districts themselves, thus creating safe seats where the polar candidates would be re-elected.

Another component is mandatory term-limits for legislators. Because our representatives are so quickly in and out of their office, they must remain in constant campaign mode and often base political decisions on what would help them get their next job. The limited time they spend in the Capitol also means that institutional memory is not carried by the legislators, only by those who stick around, e.g. lobbyists. Some officials credit the two-thirds majority vote needed to pass the budget in the legislature as the cause for the stalemate— given Republicans, who are a minority but hold more than a one-third of the seats, will not compromise on the need to raise taxes.

But the Republican minority has been resilient in pressuring for spending cuts as the important alternative to tax hikes. This is an imperative perspective given that economic theory tells us raising taxes in a recession is a bad idea. Democrats counter that no amount of spending cuts could compensate for our gaping deficit abyss.

Whereas the Republicans are beholden to tax pledges and business interests, the Democrats can be found somewhere in the deep pockets of labor unions. SEIU, the teachers associations, and prison guard groups are some of the most powerful lobbies in the nation. They have massive budgets for political spending and are organizing specialists. Labor leaders openly threaten legislators who defy them.

Unions promote legislation which benefits only their members, at everyone else’s cost. When Schwarzenegger valiantly tried to limit union power with the 2005 special election, nurses and teachers took to the airwaves in a multi-million dollar campaign, calling him everything short of “babykiller.” His initiatives were squashed at the voting booths, leaving him politically neutered.

Our state constitution has the dubious distinction of being one of the longest and most convoluted in the world, and the bane of good government. There is a movement now to attempt to reform California by having a constitutional convention. But given the stronghold special interests hold now in state government, what will prevent them from manipulating the convention process?

Governor Hiram Johnson’s vision of direct democracy was a noble. But he could not have predicted it creating the mess we are in today. The laws that cripple us are, of course, the will of the people. And as legitimate as the argument against initiatives may be, the alternative is having a corrupt, do-nothing legislature make our governance decisions for us; a difficult proposal given that most Californians like our initiative system.

Yes, the governor, legislature, and special interests all have a hand in the mess we’re in today, but the main culprits are California’s 37 million residents who demand more services, less taxes, and are more likely to pick up the TV Guide than a voter guide (no offense, TV Guide). It’s the old adage that says, “the masses are asses.” I would add that asses elect like asses as their representatives, vote for asinine legislation, and then assume that it will all work together. And we all know what happens when you assume.

Spread the word. Before taking part in that rally—or even worse, voting—ask yourself if you think we can afford it. Consult reporting on Sacramento in major papers, and read what the works at the Legislative Analyst Office (lao.ca.gov), and the Public Policy Institute of California (ppic.org) have to say.

But I can’t blame you if you don’t. It will be warm soon, and that beach will look pretty enticing.