Advancing a Free Society

California’s Cure: Worse than the Disease?

Monday, December 19, 2011

Let’s play doctor.

If you would: please cancel your tee-time, don your white coat, take out your stethoscope and a take a good look at your new patient.

The patient’s name: California.

The patient’s symptoms:

  1. Morbid obesity and a deep-red rash (General Fund shortfalls of $8-$9 billion in 2013-14 and 2014-15, tapering to a $5 billion hole by 2016-2017 – per last month’s report by the state’s Legislative Analyst’s Office)
  2. Binge-eating (voter-approved borrowing over the past decade – feel-good, pay-tomorrow bonds – that’s tripled the debt per Californian)
  3. Deep denial (lawmakers who think the days of deficits and deep spending cuts may soon be over)

Such is the mixed-up state of America’s nation-state. Last week, Gov. Jerry Brown slashed funding to higher education, childcare and school bus services. Brown was compelled to do so under a budget deal he cut with lawmakers, which dictated a mid-year “trigger” cut to offset shortfalls in anticipated revenue (here’s a list of where the budget axe fell).

And Sacramento’s reaction? A sigh of relief . . . because a last-minute revenue check was better than anticipated, the Governor cut only $980 million instead of the anticipated $1.5 billion.

And now, the expressed sentiment that the worst of it is over, happy days are here again.

Here are three reasons why such cause for optimism in Sacramento is premature, to say the least.

  1. The courts can undo what lawmakers want done. Take, for example, the $248 million cut to school-bus services. The Los Angeles Unified School District immediately filed atemporary restraining order to block the cut. Advocates for the elderly and disabled also see the courts as an avenue for testing if state budget cuts can be undone by the Americans With Disabilities Act. The new California budget formula: legislate . . . appropriate . . . litigate . . . recalculate.
  2. California’s economy remains sluggish. The Golden State’s unemployment rate fell from 11.7% in October to 11.3% in November, its fourth consecutive monthly decline – but still well above the national rate of 8.6%. That’s the good news, if you can call it that. The bad news: California created only 6,600 news jobs in November and 211,400 for the year – versus 1.3 million jobs lost during the recession. With high unemployment, a weak housing market and an uncertain world marketplace, California’s economy is no position anytime soon to make Sacramento flush with billions in unanticipated revenue.
  3. A voter-approved tax hike is a big roll of the dice. Gov. Brown is counting on the electorate for a bailout – five years’ worth of higher income taxes for earners making $250,000 and above; upping the statewide sales tax by half a percent to 7.75%. The last time Californians signed off on a tax hike via the ballot was November 2004’s Proposition 63 (an additional 1% state tax on earners $1 million and above, in the name of expanded mental-health services). Prop 63 had at least two advantages the Governor’s prop won’t next November: (1) it was seventh on the list, hidden in the middle of a crowded ballot of 16 measures; (2) it was overshadowed by more controversial concepts (state funding of stem-cell research, altering the “3 Strikes” law, adopting a “modified blanket” primary system). Brown’s tax initiative won’t go largely overlooked, ala Prop 63. Moreover, with at least five other tax increases potentially headed to the ballot, taxation seems destined to be the topic du jour on Election Day in California.

The failure to raise taxes via the ballot hasn’t been for a lack of trying. In 2006, Prop 86 sought a $2.60 tax on every pack of cigarettes sold in California. It received only 48% support, losing by almost 300,000 votes. In 2010, marijuana legalization gave it a go on the November ballot – Prop 19 promising $1.4 billion in revenue for the state (the measure’s title: “Regulate, Control and Tax Cannabis Act of 2010”). But Prop 19 received only 46.5% support, losing by nearly 700,000 votes.

The counter argument coming out of Sacramento: look at the polls. Indeed, a December survey by the Public Policy Institute of California put approval of Brown’s tax proposal at 60% with likely voters. But that was offering respondents just the Governor’s idea, and not a competing suite of tax measures.

This is where California stands at year’s-end: hoping for an economic recovery that’s still years, not months away in terms of reaching its full potency. That, and counting on voters to sign off on taxes – despite a potentially overloaded ballot that could tax their patience and lifestyle.

At a time when the state can’t afford new government, California has added a new branch: Ministry of Wishful Thinking.