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California, the movie: The show's not over yet

It's easy to look at the state and see no happy endings, but the story is still unfolding.

July 26, 2009

A state budget cycle, like a "Terminator" movie, is normally best understood in one of two ways: Either as a stand-alone feature with a constant cast of characters and a beginning, a middle and an end; or as an episode in a longer story arc whose true meaning the audience grasps only after sitting through the whole series and then talking it over with friends and strangers. But the California budget cycle that just ended ... no, that's not right ... the budget cycle that appears to have reached a crescendo of sorts over the last week does not provide the satisfaction of an end, and no one can seem to remember the beginning. It's all middle, with no break between the episodes, and the dialogue is merely a continuing loop. Nor does it seem to have a place in a longer, comprehensible narrative. Yet Californians are stuck in this movie, and we'll remain here until we think, write and finally act our way out of it.

The Legislature sent Gov. Arnold Schwarzenegger a budget on Friday, but there are few in Sacramento who believe that the current deal is any more reality-based than the one they reached in February or the one they reached the previous fall. No one is yet projecting a recovery in tax revenues, so we can expect to replay at least a few more times the contentious debate over whether to cut spending or raise taxes, forgetting all the while that this year we already have done a lot of both.

More than $30 billion has been sliced from the state budget in big chunks and in dribs and drabs, much of it from our future in the form of cuts to primary and secondary schools, colleges and universities. Medical assistance is cut back for the young, the old and the poor. Left on this course, California will produce a generation less healthy and less educated than the current one, and in turn less able to sustain an economy that can support the generation to follow. Yet future Californians still will be left to pay this year's bills.

At the same time, we have raised taxes, at least temporarily. Just when Californians need a little relief, sales taxes have risen by more than 10%. State income taxes, already the nation's highest in the top bracket, have gone up. The vehicle license fee, so recently slashed due to popular demand, remains well below its historic 2% of a vehicle's value but has nonetheless increased.

The deep recession that grips the state has exposed the structural flaws in our government and our tax system, and perhaps in the social contract that we constantly make and remake with each other.

But it hasn't turned California into the national basket case that outsiders imagine. Wags and pundits from Nevada to New York, with the schadenfreude we've come to expect when California weathers tough times, scold the state for its mythical hedonistic lifestyle and its presumed something-for-nothing, self-absorbed, live-for-today culture. This narrative instructs that the California dream is over, that we're just like everyone else, and that we must do penance for daring to mend or strengthen our social safety net, or for having adopted Proposition 13, or perhaps for some shadowy character flaw or existential sin.

This dream-is-over story has several plot problems.

First, it's not simply the California dream that was imperiled as the governor and lawmakers dickered over whether to cut spending or raise taxes. Blowing (again) the legal deadline for a balanced budget made the state a riskier investment for would-be bond buyers and other lenders, but doing it during a worldwide economic disaster made insolvency a real possibility. California has never been late in making a bond payment and has never failed to pay, and it won't fail this year either. But new bonds could still be deemed such a bad risk that further business with this state is impossible. And if that happens to the world's eighth-largest economy, all states, indeed all nations, are in peril.

Further, California's budgeting woes have far more to do with antiquated clauses in the state Constitution and tax code, and with our difficulty in reaching political consensus, than with any perceived profligacy or cultural failing.

The flip side is that California remains a fabulously wealthy state with an unusually creative and well-educated population and workforce, a mind-boggling treasury of natural and human-generated resources. Some perfectly nice states like, say, Kansas, Ohio or Tennessee don't have the same problems balancing their budgets, but their budgets, with all due respect, are minuscule compared with ours.

A number of distinct challenges

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