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How did California get into this mess?

There's plenty of blame to go around in the budget crisis. Fingers can be pointed at Gov. Arnold Schwarzenegger, Democrats, Republicans -- and you and me.

July 10, 2009|John Vasconcellos

Iwas recently hospitalized with a life-threatening illness that it 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.

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.

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 until Gov. Gray Davis raised them to close a budget gap in 2003. When Arnold Schwarzenegger came into office later that year, he immediately reversed the hike -- 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 -- and the current global economic downturn and you start to see how state revenues have suffered.

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.

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 collaborative relationships with their fellow legislators.

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.

* Schwarzenegger: Despite his good heart and mind, our governor seems to be lacking proficiency in basic mathematics. While he has said the budget can't be balanced by cuts alone, he hasn't proposed solutions that would close the gap. And many of the cuts he has proposed would cost the state more in the long run.

* The Democratic majority in the Legislature: There is no denying that Democratic lawmakers failed to create a sufficient rainy-day fund, preferring to spend money when times were flush -- often using one-time revenue sources to fund ongoing projects. They did this both to protect services for needy Californians and because they are overly responsive to public employee unions, especially those in public safety.

* The Republican minority in the Legislature: Unlike their predecessors, who joined Govs. Ronald Reagan and Pete Wilson in meeting Democrats halfway, the current crop of Republicans in Sacramento seems unwilling to compromise. All but one has signed the "no new tax" pledge of Washington crusader Grover Norquist, whose stated ambition is to shrink government to "a size where we can drown it in the bathtub." This may make for good rhetoric, but it produces little in the way of sound public policy.

* We, the people of California: Voters in our state have repeatedly passed initiatives lowering taxes and earmarking funds for pet programs, thereby inhibiting the ability of legislators to make rational decisions about state spending. Voters seem to want an unsustainable combination of increased services and lower taxes.

That, in a nutshell, is how we got into this mess. It is the job of our current Legislature and governor to lead us out of the disaster, but it's the responsibility of all of us to understand the issues they face and demand a sound, long-term solution.

California is an economic powerhouse -- the eighth-largest economy in the world. And it is home to a wonderfully diverse, talented and creative population. But we now have some tough decisions to make. In the end, we will get the kind of government services we are willing to pay for. And we all need to participate in the discussion of what kind of state we want to have.

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