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Mark Baldassare: PPIC Comment: From CA Crisis to Innovation

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Reproduced from PPIC website


From Crisis Comes Hope for Innovation

By Mark Baldassare, president and CEO,
Public Policy Institute of California

This opinion article appeared in the
Sacramento Bee on February 24, 2009

Like earthquakes, wildfires and droughts, California’s budget crises are perennial plagues in this state, though budget problems are happening with more predictability.

In 2003, a budget deficit of $38 billion resulted in the history-making recall of Gov. Gray Davis, who was replaced by action movie star Arnold Schwarzenegger. This year, the sequel played for nearly four months as California state legislators scrambled to fill a $40 billion-plus budget gap.

Why is the world’s eighth-largest economy so prone to budget dramas, and what will be the political repercussions of the latest fiscal meltdown in California? Unlike other large states, California requires lawmakers to operate under three tough conditions: a two-thirds vote for passing state budgets and taxes, legislative term limits, and the citizens’ initiative process. Let’s look at the impact of these conditions.

First, the two-thirds vote threshold sets a very high bar for bipartisan compromise, often leaving tax increases and spending cuts off the table in favor of budget gimmicks and borrowing as lawmakers search for a two-thirds consensus. The track record in this decade readily calls into question the belief that a two-thirds vote leads to sounder fiscal policies.

Second, term limits have stripped the legislative bodies of two important ingredients needed to forge complex budget deals: a deep bench of fiscally knowledgeable legislators and long-term, trusting relationships. In the two decades since term limits took effect, the Legislature has struggled to pass a budget on time.

Third, the initiative process has made it easy for voters to restrict lawmakers’ abilities to raise revenues and make spending decisions – most famously through Proposition 13. In the past 30 years, the voters have enacted many ballot measures that lock in spending and tax decisions, leaving the Legislature with less wiggle room for making adjustments.

Another key factor in producing large budget gaps is that California’s fiscal system has not kept up with the new economy. The state today relies too heavily on volatile personal income taxes and capital gains as revenue mainstays. We also focus revenue collections narrowly on a state sales tax for goods even as we have moved to a service-based economy. We dramatically lowered the property tax and vehicle license fees without indentifying sources for replacing the money or lowering spending. Efforts to improve government efficiency and create a rainy day budget fund have remained on hold for years.

However, there is a silver lining in the current fiscal crisis. Recent polling by the Public Policy Institute of California finds that Californians are, for the first time, amenable to lowering the two-thirds majority vote for the state budget and taxes. This shift in opinion comes just five years after voters soundly rejected a ballot measure that would have changed the two-thirds threshold to 55 percent.

Currently, a flurry of activity is springing up around reform and restructuring proposals. Today, business and civic leaders will gather in Sacramento to discuss plans for a state constitutional convention that could overhaul the entire governance system. The Legislature will soon hold informational hearings on reforming the initiative process. Moreover, the governor and Legislature have convened a bipartisan commission on tax reform, which is scheduled to provide its recommendations by April 15.

In 2003, the budget crisis focused Californians on changing their political leadership. This time, under a much more severe economic downturn, Californians are attacking the state’s fiscal problem in another way – with a multitude of reform plans. Last fall, voters surprised the political establishment by passing an independent redistricting measure. Now, fiscal proposals and an open primary measure are headed for the ballot as part of the budget agreement. Will these reforms lead to a more efficient, effective, and responsive government? Stay tuned. Given the burst of creativity and the desire for change, California is becoming an incubator for innovati

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