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In California's Budget Crisis, Lessons for the Rest of Us?

Updated 6:56 p.m.
By Dan Balz
The decline in governance in the nation's biggest state has been on display again this summer as California's political leaders have struggled to eliminate a $26 billion budget deficit. The question is whether California's experience will transfer to the rest of the country.

The problems in California represent the confluence of economic and political forces that have created a moment of reckoning for the once-Golden State. One force is the fiscal impact of the deep recession, an affliction that has hit almost every other state in some form or another, resulting in drastic action. The other is a political culture that has made California increasingly ungovernable.

Its budget is not necessarily the worst off in the nation. By some measures, neighboring Arizona and Nevada, whose economies have been devastated by the home mortgage crisis, have suffered even greater shortfalls. But in sheer dollar terms, California's budget gap dwarfs those of other states in large part because of the sheer enormity of its population and economy.

Gov. Arnold Schwarzenegger (R) and legislative leaders announced an agreement Monday on a package that includes spending cuts, borrowing and budgetary sleight-of-hand (but no broad-based tax increases) to solve a three-week impasse during which the state was forced to issue IOUs in lieu of payments.

The package included cuts of more than $7 billion in education funding and more than $1 billion each in health and corrections budgets as well as in state workers' pay.

Other governors and legislators around the country have been forced to make cuts in services and raise taxes to balance their budgets this year. Federal stimulus funds have cushioned some of the blows, particularly in areas of health care and education, but have still forced painful state decisions that are affecting vulnerable populations and middle-class families alike.

Ahead lies another difficult year or more. Even with the stimulus funds available, states already face collective deficits of about $200 billion in the future. Depending on how quickly the economy recovers, those numbers could grow in the near future.

Beyond that, states could feel the added burden of new spending requirements if Congress and President Obama agree on a health-care package that includes a major expansion in the Medicaid population. No one in the states trusts Washington to pick up the cost of such an expansion.

California's problems appear chronic. Scott Pattison, executive director of the National Association of State Budget Officers, said he's not sure California has hit bottom on its budgetary woes. He fears the state has continued a pattern that has existed since the tech bubble burst at the beginning of this decade. "They've been pretty much putting Band-Aids on severe wounds and not dealing with the unsustainable path they're on," he said.

One reason California officials have papered over their problems is that they are handicapped by structural impediments that distort their budgetary process. For example, the state requires a two-thirds majority to pass the budget, a virtual guarantee that lawmakers collectively duck the most painful, but possibly necessary, changes to put the state on a sound fiscal footing.

Beyond that, the ballot initiative process in California has locked legislators and the governor into spending requirements and allocations that reduce flexibility when times are tough. Voters rejected a package of Schwarzenegger-backed initiatives in May that were designed to deal with the current crisis, even though many of them believed killing the package would make matters worse.

"I'm beginning to think it's almost impossible to be a successful governor out there," Pattison said. "There's too many impediments."

One impact of all this is a dramatic shift in Schwarzenegger's agenda, from large ambitions only a few years ago to a triage operation today. After his reelection in 2006, for example, Schwarzenegger looked to make California a leader in providing health care to its citizens. That effort died. Now, said Mark Baldassare, director president and CEO of the Public Policy Institute of California, "California is looking East for answers coming out of Washington. This budget is one that reduces health and human services."

The rest of the county has long looked to California as the future. Once it was a leader in developing public infrastructure and creating the most enviable system of public universities in the country. Now the country sees California and worries that its economic and political problems will infect others.

Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California, said the rest of the country can learn a valuable lesson from California's inability to deal with its own problems.

"This is where a culture of hyper-polarization eventually leads," he said. "Two armed camps, separated by an almost insurmountable gulf, a recipe of gerrymandering, ideologically tailored media and increasingly influential interest groups on both sides leads you to a point where, if every single elected representative faithfully represents the views of his or her constituents, there will never be agreement on anything, ever."

Schnur noted that Schwarzenegger is the third consecutive governor who occupies political space near the center of the ideological spectrum. "But he is the third consecutive governor who stands there all by himself watching the two party caucuses throw javelins at each other from their respective end zones.

Are there lessons for the rest of the country from California's long summer? If there are, they may be more political than economic, and may apply as much or more to Washington than to the states. The health care debate in Washington turns more partisan by the day, as President Obama and the Republicans challenge each other across a growing divide. California has demonstrated the limits of governing in that kind of environment.

By Post Editor  |  July 21, 2009; 5:00 PM ET
Categories:  Dan Balz's Take  
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Democrat puppets for the Public Employee Unions, have driven California off a cliff. Why we even have Public Employee Unions for government workers is forever a mystery to me. What we do know is that these unions have been phenomenally successful in bribing and intimidating Politicans like Steinberg. Their pensions that, we the taxpayers, are on the hook for are unsustainable. Governor Davis (and Steinberg) upped the pensions to the overpaid gov workers now make 90% instead of the outrageous 60% they were making. Anybody replacing your 401K money! I didn’t think so. Let us not forget the millions of now unemployed illegals that California loves to support. Illegals have destroyed the schools, filled up the prisons, and made most neighborhoods unsafe. But please, ask us for more tax money to support this broken system. THERE ISN’T ENOUGH MONEY IN THE WORLD TO CONTINUE THIS! BUSINESS ARE LEAVING AND TAKING THE TAX BASE WITH THEM!!
California has more rigged districts resulting in more disenfranchised voters than any other state. That is how these extreme left wing nut jobs stay in power.
We are Bankrupted!! HOW COULD WE BE ANYTHING ELSE!!!

Posted by: jonmurra | July 22, 2009 10:30 PM | Report abuse

"... a bandaid ..." The article and all commenters, so far, offer solutions which deal with the current situation - but not with the problem. The problem is offering unsustainable services to too many non contributing citizens. The U.S.S.A. is far beyond this problem and would have been bankrupt in 3/09 had it not been for the ability to print money. Socialized medicine is simply the opposite way the U.S.S.A. should be headed.

Posted by: IQ168 | July 22, 2009 10:58 AM | Report abuse

You cannot solve California's budget deficits without addressing Immigration Reform ... so after Health Reform Mr. President the next big item on the agenda is Immigration Reform ... the border western states, florida and new york are particularly hit hard ... i don't think is fair to have national concensus on dealing with this matter. Let California, Arizona speak for the mid-west states. All of the major issues on the President's agenda whether it is the economy/environment are all part of every day existence in California.

Posted by: amitchel | July 22, 2009 10:00 AM | Report abuse

If each correctional contract bed saves $30,283 in operating costs and avoids spending $300,000 for construction of a prison bed, why do we have so few?

If DC&R added 8,505 contract beds, 9 % of capacity, it would save $257.5 million in annual operating costs and avoid spending $2.6 billion for new prison bed construction. The savings could be applied to the deficit.

According to the state budget, each prison bed costs $52,363 in annual operating costs while contract beds cost $22,080, a savings of $30,283. The Department of Corrections and Rehabilitation (DC&R) has only 4% of permanent capacity in contract beds. Texas has 9% in contract beds and Florida has 6%. Any increase in contract beds would be opposed by the correctional employee unions and will not even be considered despite a $26 billion deficit.

Posted by: richmck | July 22, 2009 6:48 AM | Report abuse

Don't grant the legislative minority veto power over the majority. It confuses the issue of responsibility when you allow the minority to control the agenda. Bad, bad mistake. Undemocratic. Strange, even.

Posted by: nodebris | July 22, 2009 2:43 AM | Report abuse

California's budget problems have very little, if anything, similarity to federal budget issues. To begin with California, sort of, must have a balanced budget each year, whereas the federal government is free to have gargantuan deficits and a huge national debt.

Secondly as Dan Balz writes, the California budget, including any tax increases, must be approved by a two-thirds vote. This makes it difficult to address the structural causes of deficits in this state, the need to increase taxes on the wealthy and institute pension reform for those state, local employees who receive six figure incomes after they retire. There is also several billion spent on providing services for illegal immigrants, which is more of a federal than state responsibility.

On the other hand, if there was not a two-thirds requirement, Democratic legislators would be likely to impose significant tax increases on the middle class in lieu of reductions in spending. Some people in California seem to think the Obama administration and a Democratic controlled Congress will bail them out with another "stimulus" bill.

Posted by: Aprogressiveindependent | July 21, 2009 6:30 PM | Report abuse

The biggest lesson learned will be the painful consequences of the "Me first" mentality and the Reagan "Government is Bad" thinking.

People who raised their children in California in the 60s, taking advantage of the schools, colleges, roads, water works and on and on that tax dollars were supporting turned into "the gov'mint isn't getting any more of MY money" types who were collecting generous state pension and health benefits and voting against the future of their grandchildren.

This is what will happen across the country if we don't figure out a way to "become our brother's keeper" for health care reform for the future.

California is a harbinger ... be afraid, be very afraid.

Posted by: LAGirl1 | July 21, 2009 6:02 PM | Report abuse

The root cause of California's budgetary problem is a voting population that somehow came to believe that it could obtain services from government without paying the taxes necessary to pay for those services. That belief was then enacted into law, in the form of Proposition 13, which limited the ability of government to collect property taxes commensurate with increases in the value of the property being taxed.

In that sense, California has continued to act as a harbinger of the future. What California did with Proposition 13 was repeated by the Bush administration on a national scale.

Posted by: taikan | July 21, 2009 5:56 PM | Report abuse

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