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Blame Prop 13!

Earlier today, reader James wrote in to berate me for ignoring the role Proposition 13 has played in California's fiscal woes. He's right! But I see no reason to detail the situation when Harold Meyerson has already done such a good job. Go read him. I will, however, quote Harold's conclusion:

Because California is so much larger than any other state, and its unemployment rate among the nation's highest, the collapse of its capacity to spend will counteract some of the effect of the federal stimulus and retard the nation's recovery -- much as its aerospace slump retarded the recovery of the mid-1990s. The Obama administration ignores California's plight at its own -- and the nation's -- peril. The nation's banks are stuck with so much bad paper from California mortgages gone awry that a huge contraction in state spending would make their assets even more toxic. In the short term, the only way to avoid a further downturn may be a federal loan to the state.

A more permanent, homegrown solution to California's woes (and it may take a state constitutional convention to get it) would require the state to eliminate the two-thirds threshold for enacting taxes, to repeal Proposition 13's freeze on the value of commercial properties (some of which are still assessed at their 1978 levels) and to end the process of ballot-box budgeting through the initiative process, which is now more dominated by monied interests than the legislature ever was.

That first bit is important. California accounts for 13 percent of the nation's GDP and 12 percent of its population. If the state collapses, the nation won't do much better. So expect the government to step in with some sort of bridge loan rather than letting Prop 13's long-run effects shred whatever good the stimulus was meant to do. The question is whether that loan can be conditional: Can the federal government make its loan contingent on procedural reforms that make California less likely to need this sort of help down the road? And how can those procedural reform pass a Republican minority that thinks an economic collapse might benefit them in the next election?

By Ezra Klein  |  June 2, 2009; 1:45 PM ET
Categories:  California  
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I wouldn't think that any courts would find that a federal grant/loan could be conditional on a constitutional change, although they do allow conditionality on state spending matches, etc. In any event, their is no public mood for removing prop 13 or changing the 2/3 majority for budget approval.

Arnuld complains today (probably rightly) that CA only gets 85 cents back for the fed. tax money sent to the treasury.

Meanwhile, the chancellor of the Cal State Univ system says they will have to cut 60,000 students from enrollment to meet the Gov's budget cuts. That will be popular.....

The tombstone will read: "Here lies the late, great State of California".

I'm hoping that the OR legislature installs an 'illegal alien' fence on our borders to prevent migration by the fleeing southlanders. At one time there was a sign just inside OR on the highways: "Welcome to Oregon. Don't forget to go home after your visit."

Posted by: JimPortlandOR | June 2, 2009 1:57 PM | Report abuse

as california goes, so will go the rest of the nation.
you wont need signs at the border, jim.
there will not be any place to migrate to... not oregon,
not washington, not nevada, not arizona.

if the government lets california go down,
the rest of the country will go down with her.

you mention the uc system...
cuts being made there are deeply, deeply unfortunate.
that system holds berkeley, ucla, uc irvine, uc davis, uc san diego....some of the best, world-class faculty, research and teaching in the is a network of universities that the whole country should be so proud of.
what a loss these cuts are to the young people of our state, and to our future.
i hope that somehow, some way, things will get better.

Posted by: jkaren | June 2, 2009 2:33 PM | Report abuse

even setting aside the legality of conditioning the federal loan on reforms, the incentives are just all backwards. the only way to get an agreement on both the loan and the reforms is with a single republican vote in both CA houses. as distasteful as some small tax increases are to them, reforming the tax code is moreso, and a "fiscally irresponsible handout" from the federal government will be even more so.

I am so disgusted, and I just don't see a lot of hope for better.

the only way I see around this is a prop that changes the 2/3 requirement, but this kind of prop is so process oriented that it has little chance of working.

Posted by: brandow | June 2, 2009 2:54 PM | Report abuse

"Can the federal government make its loan contingent on procedural reforms that make California less likely to need this sort of help down the road? And how can those procedural reform pass a Republican minority that thinks an economic collapse might benefit them in the next election?"

God I hope so. Can't really see where else but down this could go if it doesn't.

Posted by: StevenAttewell | June 2, 2009 2:55 PM | Report abuse

Shouldn't one of the procedural reforms be to take the decennial redistricting process for the state legislature out of their hands and put it into some neutral body? More competitive elections might make for more rational governing.

Posted by: TXAndy | June 2, 2009 3:44 PM | Report abuse

It is Prop 58 (Balanced budget amendment) that is problem in economic downturns rather that prop 13.

Texas another large state is surviving OK with lower taxes that CA (as is Florida).

Posted by: jwogdn | June 2, 2009 5:09 PM | Report abuse

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