FROM SACRAMENTO — Gov. Arnold Schwarzenegger invoked Winston Churchill on Tuesday in trying to rally legislators to mop up the state's gushing red ink.
"Like Winston Churchill said," the governor told a rare joint session of both legislative houses as lawmakers sat passively and glum, "a pessimist sees difficulty in every opportunity. But an optimist sees the opportunity in every difficulty."
Yeah, yeah! You'd have to be a fiendish idiot to welcome this opportunity: a shot at shortening the school year and increasing class sizes; a chance to phase out financial aid for college students; an opening to cut poor people's health and welfare services so deeply that some end up dying.
Those are among the extreme options that confront legislators in their efforts to close a new $24-billion deficit hole for the fiscal year starting July 1 -- after having thought they'd covered a $42-billion gap in February and a $17-billion pit in September.
This is "the greatest economic crisis since the Great Depression," Schwarzenegger reminded the policymakers packed into the Assembly chamber. "In the past 18 months, one-third of the world's wealth has vanished. . . . Our revenues have dropped 27% in the last year."
He turned and pointed to charts behind him: "You can see right here. . . . We are now back to the same level of revenues we had in 2003. And when you adjust for inflation and population, we are back to the level of the late '90s."
OK, so there really is a golden opportunity here. And that is to go all the way back to 1978 before Proposition 13 passed and dramatically lowered property taxes. No, I'm not talking about going back to the old tax rates. Leave the rates alone. But reconstruct the tangled, unhealthy relationship between the state and local governments.
Prop. 13 shifted control over the remaining property tax revenue to Sacramento. Capitol politicians rationed it out -- they've been re-rationing it ever since -- and kicked in about $6 billion in annual state "bailout" money. The bailout has never really ended. The result is that roughly 75% of the state's general fund flows to local governments and schools.
Power was transferred from school boards, city councils and county boards of supervisors to the governor and Legislature. It's a mishmash of governance with the state dictating to locally elected officials and usually not providing enough money to pay for the mandates.
Local governments perpetually have their hands out to Sacramento because Prop. 13 made it much more difficult for them to raise their own revenue. Any local tax hike must be approved by voters -- by a two-thirds majority vote, strangely, if it's for a specific purpose.
"When they made the Prop. 13 deal, there were two sides of the equation and they only solved one," says Bob Hertzberg, former Assembly speaker and currently co-chairman of California Forward, a reform group. "One side was to protect the people from the government coming in and wildly raising property taxes. That was done. But we didn't really resolve how to pay for the services that people want.
"So we created this government structure held together in Sacramento by duct tape and bailing wire."
It's a major cause for California Forward. And Hertzberg was in the Assembly chamber to hear Schwarzenegger touch on it. Calling for an unraveling of the state-local relationship, the governor said: "We all hear from the local officials about the heavy hand of Sacramento. If we are providing fewer resources, we have an obligation to cut most of the strings and mandates and to get out of the way.
"Right now we are cutting billions of dollars from our schools, so shouldn't we give districts more freedom and flexibility and not tie their hands with strict rules like who is allowed to mow the lawn or fix the roof or do the plumbing?"
Well, there the governor is venturing into the rocky political terrain of labor unions. And, no, Democrats are not enthusiastic about allowing schools to "contract out" and hire cheaper nonunion workers.
But legislators of both parties are enthusiastic about paring back mandates and easing the state's financial burden. This, in turn, would allow local governments and schools to recapture much of the control it lost three decades ago. Local citizens could have a better fix on where their tax dollars are being spent and exactly which politicians are screwing up services. Government would be closer to the people.
"We have a tremendous opportunity here," says Senate leader Darrell Steinberg (D-Sacramento), a former city councilman who long has advocated what policy wonks call state-local "realignment."
"I'm convinced realignment has to be part of the budget solution," he says. But "the challenge," he adds, is to find a revenue stream that would flow to local governments and help them pay for many of the services now financed by the state.
Democrats have just begun searching for the stream and it's all very vague. But some of the ideas involve tapping redevelopment, vehicle license and DMV kitties. Another thought -- and this would generate opposition from the right -- is to lower the two-thirds vote requirement for passage of many local taxes.
Assemblywoman Noreen Evans (D-Santa Rosa), who presides over the two-house budget conference committee, even advocates giving counties the power to impose their own income taxes with a majority vote of the electorate.
She also thinks Democratic legislators should again try to raise taxes on a majority vote, calling them "fees" to skirt the two-thirds vote requirement. They did that in November, but Schwarzenegger rejected the measure and has vowed to again.
The sinking ship does need Churchillian leadership.