A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
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The budget crisis in Sacramento should serve as a warning to other states.
1 June 2009
In last months low-turnout special election, California voters decisively rejected most of a package of ballot referendums that would have helped easebut not solvethe Golden States $21 billion budget deficit. Voters approved just one of the ballot measures: a pay freeze for legislators. Californians had reason to be cynical about the Sacramento-sponsored ballot measures, which came just three months after the state legislature passed a $40 billion budget compromise of spending cuts and tax hikes. Given the unsustainable nature of Californias spendingcombined with dramatically reduced tax revenue in a recessionthe legislature is now being forced to reduce spending even further.
Californias problems stem from a dysfunctional, Democratic-dominated state legislature that has increased spending steadily while lacking the two-thirds majority necessary to pass commensurate tax increases. But California voters themselves also bear responsibility for the spending. Over the years, they have voted themselves billions of dollars in unfunded state mandates. Over the past several decades, these have ranged from conservative measures that boosted the prison population to liberal requirements that the state spend 40 percent of its general fund on public education. Other ill-considered giveawaysfrom sweetheart union deals for corrections officers to more money for public health carehave totaled $10.2 billion in spending over the rate of inflation during the past five years. Some have taken to calling California ungovernable, a characterization that will resonate with New Yorkers of a certain age.
A fresh round of spending cuts will be necessary, but not sufficient. The Golden State will spend $27 billion in state and local retiree healthcare costs in one decades time. Half the states personal income-tax receipts come from its top 1 percent of resident earners, some of whom have begun an exodus to Arizona, Nevada, or Colorado. Californias bond rating is the nations worst, severely restricting its ability to borrow. Unfortunately, states powerful unions will make long-term belt-tightening unlikely, if not impossible, without dramatic political reforms.
A key reform concerns the state legislatures structure. Self-serving district gerrymandering has made most seats in the legislature safe, thereby ensuring that both parties most extreme members are elected in partisan primaries without the moderating influence of competitive general elections. Far-left Democrats from Berkeley, philosophically opposed to any spending cuts, are paired with far-right Republicans from Orange County, philosophically opposed to any tax increases. This becomes a recipe for legislative gridlock, as seen in diametrically opposed votes on taxation and budgets. Fiscal responsibility becomes a casualty of party politics.
In 2008, however, citizens passed a redistricting-reform ballot initiative, which will go into effect after the 2010 census. This measure will help ensure a more representative legislature, giving rise to more pragmatic elected officials from both parties who might be able to rein in spending and pursue balanced budgets.
Still, the immediate future isnt promising. Much of the next round of spending cuts will come from what citizens rightly recognize as the essential role of government: roads, firefighters, police, and prisons. Meanwhile, entitlements and unfunded mandates, officially classified as non-discretionary spending, will prove legally more difficult to curtail without something like a constitutional convention, calls for which are gaining momentum.
California is a cautionary tale for other states that have declined to make hard choices. Federal stimulus spending offers states and localities a brief respite, but it will only delay the inevitable need for fiscal discipline. States face $2.73 trillion in pension, health, and other liabilities for public-sector workers over the next 30 years. Continuing the unsustainable status quo of spending, borrowing, and taxing will only guarantee future budget crises, escalating debt, and generational theft.
John P. Avlon is a senior fellow at the Manhattan Institute and the author of Independent Nation: How Centrists Can Change American Politics.