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.
July 21, 2009; 5:00 PM ET
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