California Sinking Amid Its Budget Crisis

A popular wives tale in California is that a huge earthquake on the San Andreas fault would cause the Golden State to sink into the Pacific Ocean.  It doesn't look like an earthquake will be necessary.  California's own budget crisis has the state drowning in an ocean of red ink.

Last Friday, Governor Arnold Schwarzenegger proposed a new budget that would dramatically reduce aid to some of its poorest and neediest citizens.

His $83.4 billion plan would also cap funding for local schools, cut state workers' pay and reduce 60% of state money for local mental health programs.  State parks and higher education are among the few areas the proposed budget doesn't impact.

The budget does not raise taxes, but assumes $3.4 billion in help from Washington, or roughly half of what the governor sought earlier this year in order to help close a budget gap now estimated at $19.1 billion. Billions more would be saved through accounting moves and fund shifts.

Elimination of  the state's main welfare program called CalWorks, would affect 1.3 million people, of which 1 million are children.  The program requires recipients to eventually have jobs and gives families an average $500 a month.  Eliminating those payments would save the state $1.6 billion, the administration said.  It would also make California the only state not to offer a welfare-to-work program for low-income families with children.

Under the proposed budget, local school funding would be frozen.  Education officials claim they are owed a $2.8 billion increase, without which they wouldn't be able to cover scheduled cost-of-living raises and other obligations.  Education spending has already been cut back substantially, requiring many districts to lay off teachers which will increase class sizes.

The governor's plan would reduce prison costs by shifting the responsibility for some state inmates to local governments.  According to his estimate, the state would save $248 million by sending new low-level felons to local jails instead of to state prisons and by shifting supervision of state juvenile parolees to counties.

Sacramento is also looking to borrow $1.2 billion in gas tax revenue and other transportation-related funds to help balance the budget.  Another idea is to raise more than $200 million by installing automated cameras at red-light intersections to ticket speeding drivers.

Schwarzenegger's latest budget proposal is merely a starting point for negotiations that typically stretch well into the summer.  His previous attempts to impose more dramatic spending cuts have been opposed primarily by Democrats who reluctantly agreed to substantial cuts last year.

A main source of California's fiscal woes is pension obligations to civil servants, yet Democrats continue to resist substantive reform.  "The cost of employee retirement benefits this year is $6.1 billion," said Mr. Schwarzenegger. "That is more than what it would cost to keep [the welfare-to-work program] CalWorks, child care, mental health services and in-home supportive services."

Democrats want the governor to agree to another income tax increase on the rich, even though California currently has one of the highest tax rates in the U.S.  Yet, IRS statistics indicate that $10 billion in wealth has been lost from out-migration in the last 5 years.

The ongoing budget stalemate is largely the result of a poorly designed political system.  Gerrymandered districts drawn by the legislators themselves, combined with a semi-closed primary election system, have tended to send the most extreme ideologues to Sacramento in the last decade.  Voters can correct both flaws when they cast ballots this year.

California is the only state with a requirement that a two-thirds majority vote be achieved for both passage of a budget and an increase in taxes.  So, if 51% of voters agree on how to fix the state budget, it still must be approved by two-thirds of each legislative house.  That requirement explains the consistent gridlock.

As a result of the ongoing budget squabbles, Schwarzenegger's job approval rating has descended to an all-time low of only 24% among likely voters.  The Legislature's approval is even lower, 11%, placing them below Attila The Hun.

Relief will likely come from the 2010 elections.  Any shake-up in the political mix will require a new set of faces in Sacramento and a new governor.  Unfortunately, given the rapidly deteriorating condition of California and the rest of world's economies, it may prove too little-too late.

Marko's Take

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