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By mark.gimein - The Big Money
Sit down and hold tight because we're headed toward adding one more casualty to the bailout ward: the state of California.
The citizens of California went to the polls this week (who knew you could vote in May?) and voted down all five of the ballot measures the Legislature had crafted to keep California solvent for the next several years. The effort to put together the compromise with bickering state legislators (mainly his own obstreperous fellow Republicans) had led California's Governator to every stratagem short of locking up the Legislature with nothing but bread and water until they could come up with a spending plan.
That compromise was already falling apart, thanks to state revenues running $8 billion below projections. Now, money the state counted on for this year, as well as $16 billion in taxes for the next three, is gone, voted down by the voters. For next year the state is a whopping $21 billion short. California's credit rating is the lowest of the 50 states. And it's back to the drawing board on the budget.
California's budget battles, and especially the recent vote, are as good a study as could be of how direct democracy can go miserably awry. Direct democracy, in this case, is the California habit—and for new taxes, which the Legislature can't enact without an essentially impossible two-thirds vote, de facto requirement—of submitting the big and small questions of government to the will of the people. If you live in California, you have the luxury of marveling about this up close. For those in any other state, the only words that come to mind are, "There but for the grace of God go we."
You can't really understand the lunacy of California government unless you actually take a look at the propositions on the ballot. On the other hand, simply trying to puzzle through them could easily drive you crazy yourself. But let's wade in anyway—with thanks to the Los Angeles Times, the League of Women Voters, and Balletpedia.org. Without those guides any effort to understand this would be beyond hopeless.
Prop 1A is a stellar example all by itself of what's wrong with voter-run budgets. It would have raised $16 billion in taxes over four years while also requiring the state to store more of the money from years of surplus for the busts that eventually come. Where you stand on the first of these depends on your politics. The second—saving more money in boom years—is one that pretty much any sentient being recognizes as a good idea. But too bad, down it goes with the rest of the package.
The third ballot measure, Prop 1C—yes, we're skipping 1B; you'll see why in a second—would have let the state raise $5 billion by selling off future lottery profits (about $1 billion a year). It's a desperate, irresponsible, stopgap measure to which, unfortunately, no one (certainly not the voters) has proposed an alternative. Where the state will find the $5 billion to replace it is anybody's guess.
Propositions 1D and 1E would have let the state take some of the money from a cigarette tax (now earmarked for early childhood development programs) and a 1 percent levy on million-plus dollar incomes (dedicated to mental health services) and use them to fill the state's budget gap. Why, you ask, is all this money tied to specific programs? Because these taxes were themselves passed in ballot initiatives that restricted how the money could be used.
It's Prop 1B, though, that's the pièce de résistance. That one would have restored $9 billion in school funding that may (or may not, nobody is quite sure) have been cut by the suspension of a 1988 ballot initiative called Prop 98. Prop 98, which mandates certain state levels of school spending, was passed to fix a school spending crisis that came from property tax restrictions in Prop 13, the granddaddy of California anti-tax efforts. The Los Angeles Times more or less threw up its hands at trying to explain this, telling readers that 1B arose "from obscure aspects of school funding that are little understood beyond experts."
Like in some off-kilter biblical genealogy, Proposition 13 begat Proposition 98, which begat Proposition 1B. You can add on top of this that the whole special election was begat by Proposition 58—overwhelmingly passed in 2004 with Gov. Schwarzenegger's support—which requires the state to balance its budget every year, an idea that seemed fine in boom years but is now turning into a nightmare.
So where do we stand now? Well, first the federal government is now going to have to guarantee California's debts. Let's face it: California really is too big to fail. Second, the state of California will come up with some new sleights of hand which, like the lottery charade, are designed to pass through the fine print of restrictions on borrowing. Third—and biggest—even as the federal government is desperately ramping up its stimulus spending, Schwarzenegger and the Legislature will be hacking away at anything that pokes its head up in the budget, cutting spending Hoover-style in the midst of recession.
If, that is, the Legislature manages to get to any kind of agreement at all. Direct democracy has turned California's legislators into recalcitrant children. Constantly beaten up by the voters and caught between conflicting tax and spending initiatives (Cut taxes! Build prisons! Spend on mental health!), the Legislature has become the most dysfunctional in the country. In good times, sensing an opportunity, the legislators increase spending. In bad times, they throw tantrums, stare sullenly, and threaten to hold their breaths until ... well, just until.
Jennifer Steinhauer of the New York Times manages to find the one genuinely bright spot in all this, noting that "calls for a constitutional convention-six months ago little more than a wonkish whisper—[have turned into] a cacophony." The one ballot measure that did pass was one that limited legislators' salaries. On Thursday, a state panel followed up by actually cutting elected officials' pay by 18 percent. This is, as you'd expect, just about the most popular thing anybody in California government has done in years. "Reining in" the legislators has always played awfully well in California. Now there's a slight chance that the voters might recognize that it's time to rein in themselves.
Sit down and hold tight because we're headed toward adding one more casualty to the bailout ward: the state of California.
The citizens of California went to the polls this week (who knew you could vote in May?) and voted down all five of the ballot measures the Legislature had crafted to keep California solvent for the next several years. The effort to put together the compromise with bickering state legislators (mainly his own obstreperous fellow Republicans) had led California's Governator to every stratagem short of locking up the Legislature with nothing but bread and water until they could come up with a spending plan.
That compromise was already falling apart, thanks to state revenues running $8 billion below projections. Now, money the state counted on for this year, as well as $16 billion in taxes for the next three, is gone, voted down by the voters. For next year the state is a whopping $21 billion short. California's credit rating is the lowest of the 50 states. And it's back to the drawing board on the budget.
California's budget battles, and especially the recent vote, are as good a study as could be of how direct democracy can go miserably awry. Direct democracy, in this case, is the California habit—and for new taxes, which the Legislature can't enact without an essentially impossible two-thirds vote, de facto requirement—of submitting the big and small questions of government to the will of the people. If you live in California, you have the luxury of marveling about this up close. For those in any other state, the only words that come to mind are, "There but for the grace of God go we."
You can't really understand the lunacy of California government unless you actually take a look at the propositions on the ballot. On the other hand, simply trying to puzzle through them could easily drive you crazy yourself. But let's wade in anyway—with thanks to the Los Angeles Times, the League of Women Voters, and Balletpedia.org. Without those guides any effort to understand this would be beyond hopeless.
Prop 1A is a stellar example all by itself of what's wrong with voter-run budgets. It would have raised $16 billion in taxes over four years while also requiring the state to store more of the money from years of surplus for the busts that eventually come. Where you stand on the first of these depends on your politics. The second—saving more money in boom years—is one that pretty much any sentient being recognizes as a good idea. But too bad, down it goes with the rest of the package.
The third ballot measure, Prop 1C—yes, we're skipping 1B; you'll see why in a second—would have let the state raise $5 billion by selling off future lottery profits (about $1 billion a year). It's a desperate, irresponsible, stopgap measure to which, unfortunately, no one (certainly not the voters) has proposed an alternative. Where the state will find the $5 billion to replace it is anybody's guess.
Propositions 1D and 1E would have let the state take some of the money from a cigarette tax (now earmarked for early childhood development programs) and a 1 percent levy on million-plus dollar incomes (dedicated to mental health services) and use them to fill the state's budget gap. Why, you ask, is all this money tied to specific programs? Because these taxes were themselves passed in ballot initiatives that restricted how the money could be used.
It's Prop 1B, though, that's the pièce de résistance. That one would have restored $9 billion in school funding that may (or may not, nobody is quite sure) have been cut by the suspension of a 1988 ballot initiative called Prop 98. Prop 98, which mandates certain state levels of school spending, was passed to fix a school spending crisis that came from property tax restrictions in Prop 13, the granddaddy of California anti-tax efforts. The Los Angeles Times more or less threw up its hands at trying to explain this, telling readers that 1B arose "from obscure aspects of school funding that are little understood beyond experts."
Like in some off-kilter biblical genealogy, Proposition 13 begat Proposition 98, which begat Proposition 1B. You can add on top of this that the whole special election was begat by Proposition 58—overwhelmingly passed in 2004 with Gov. Schwarzenegger's support—which requires the state to balance its budget every year, an idea that seemed fine in boom years but is now turning into a nightmare.
So where do we stand now? Well, first the federal government is now going to have to guarantee California's debts. Let's face it: California really is too big to fail. Second, the state of California will come up with some new sleights of hand which, like the lottery charade, are designed to pass through the fine print of restrictions on borrowing. Third—and biggest—even as the federal government is desperately ramping up its stimulus spending, Schwarzenegger and the Legislature will be hacking away at anything that pokes its head up in the budget, cutting spending Hoover-style in the midst of recession.
If, that is, the Legislature manages to get to any kind of agreement at all. Direct democracy has turned California's legislators into recalcitrant children. Constantly beaten up by the voters and caught between conflicting tax and spending initiatives (Cut taxes! Build prisons! Spend on mental health!), the Legislature has become the most dysfunctional in the country. In good times, sensing an opportunity, the legislators increase spending. In bad times, they throw tantrums, stare sullenly, and threaten to hold their breaths until ... well, just until.
Jennifer Steinhauer of the New York Times manages to find the one genuinely bright spot in all this, noting that "calls for a constitutional convention-six months ago little more than a wonkish whisper—[have turned into] a cacophony." The one ballot measure that did pass was one that limited legislators' salaries. On Thursday, a state panel followed up by actually cutting elected officials' pay by 18 percent. This is, as you'd expect, just about the most popular thing anybody in California government has done in years. "Reining in" the legislators has always played awfully well in California. Now there's a slight chance that the voters might recognize that it's time to rein in themselves.
When CA goes belly up, will the rest of the states be able to force them to scrap thier prop system? Or is it simply time to declare them a failed state?
ACK!
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