Thursday, May 21, 2009

California Stressin'

Another "special election" came and went this week - you might have read about it - and Californians rejected every new attempt to place a bandage on our hemorrhaging economy. In fact, voters approved only one measure, a ban on lawmaker raises when our leaders fail to balance the budget. Given that our state's credit rating approximates junk bond status, it's initially hard to understand why voters chose to reject the other propositions that promised to plug the leak.

Hard, that is, unless you consider that voters are tired of an assembly whose members are so obsessed with their own short-term gains, whose districts are so gerrymandered as to preclude any search for consensus, and whose options are so constricted by Prop 13 and fixed funding-equations as to render any decision about our fiscal priorities a wrenching choice between worse and much-worse.

The state, in short, looks to be screwed.

I remember back in the early 90s when magazine covers similarly presaged the end of the "California Dream." Then the dot-com boom washed ashore (bringing me to teach online communication classes in the middle of Silicon Valley) and everyone began buying mini-mansions. Credit was cheap, wages were rising, and the future looked bright.

I remember a faculty meeting when a respected senior colleague with connections in Sacramento assured us of an era of good times. Fat budgets meant more hiring opportunities, more travel support, and more flexibility to launch curricular experiments. It appeared that I'd moved to the Golden State at a golden moment. What could go wrong?

Now we confront a reckoning the likes of which have not been seen in a generation, maybe a lifetime. Our assembly is more rigidly locked into its death-struggle than ever before, with each side of the aisle drawing opposing lessons from the Tuesday election results. Republicans call for more tax cuts that benefit the wealthy. Democrats demand we hold the line on services that help the poor. And no one seems to trust the governor to wring order from our statehouse shenanigans.

Then today I read Jennifer Steinhauer's New York Times article about the growing movement to convene another constitutional convention, the state's first since 1878-79. Depending on our willingness to demonstrate that revered California quality of innovation, this event could cut the Gordian Knot of our state's woes. Assembly members are too feckless and too entrenched to make the tough decisions. And voters are too swayed by the emotions of the moment to connect their votes to past commitments or future implications. Indeed, as Steinhauer notes:
"[Our current] ballot initiative process - in which legislators or independent groups ask voters to mandate how the state’s money is spent or not spent - has become at times an exercise in fiscal self defeat, with voters moving to earmark money for one special program one year, only to contemplate undoing their own will a few elections later."
A constitutional convention offers a means, by no means a guarantee, for thoughtful discussion of the problems we face. Putting everything on the table, even rethinking California's 70s-era feel-good property tax laws that contributed seeds to today's thicket, might provide a way to start thinking strategically about the connection between income and outgo that has largely vanished from our political discourse.

This would be no one-time vote (less than a fourth of the electorate even showed up this past Tuesday). Rather, a constitutional convention would demand hearings, debates, expert opinion, and popular response: a real conversation about California's future that would take time and sustained effort. And unlike the tinkering that marks our proposition process, we can change things in a big way. As I noted on Tuesday, the day when state voters seemed to throw up their hands in disgust, Things Have Changed. We need a new dialogue about our constitution to reflect this new reality. I think our only solution is a constitutional convention.

Even with the drama of this past year, it'd be a hell of a show.

Read Steinhauer's article: California, Out of Money, Reels as Voters Rebuff Leaders


Jon said...

First of all, it's hard to have a tax cut that benefits the poor - because they aren't paying the taxes anyway.

Through a combination of neglect, economic ignorance, and sometimes malfeasance, California has indeed managed to kill the goose that laid the golden state eggs.

As California should have realized a decade ago when the flight from there began, and as New York state is just beginning to see, there is a limit to how much you can wring out of the productive sectors of society before they decide to go be productive somewhere else. There are precious few businesses in this day and age that are tied to specific geographies.

I think voters are wise to think about the fact that even with "diminished" revenues of nearly $90b this fiscal year, the state has managed to spend all that and more. When voters say "stop, there is no more" the response is "OK, I guess we'll fire all the cops and let a bunch of felons out of prison". Of course. They couldn't possibly cut the $1.5m in waste from the California Avacodo Commission (that's just the waste mind you), or $1b in fraud in MediCal.

The California state budget has increased 40% in about 4.5 years.
Has anyone's income gone up 40% in that time? No? Then just how is that supposed to work in a sustainable way? These are simple economic realities that cannot be papered over - even by a governor who is a cyborg.

Andrew Wood said...

As ever, I appreciate your thoughtful comments. And you are correct in the majority of your thesis that much fraud, waste, and abuse remains to be wrung from the California budget.

That said, I disagree with your notion that the poor "aren't paying the taxes." It's simply incorrect to assert that only the wealthy shoulder that burden. Every day, all Californians - unemployed, working class, middle class, and wealthy - pay sales tax and user fees (and believe me, the state government charges for pretty much everything).

So if a member of "the poor" wants to purchase a Coke, he's gonna pay a tax. And if a member of "the poor" wants a driver's license, she's bound to pay. So everybody pays something. The issue then turns to percentages of income. Who pays more?

I believe that working and middle class folks actually pay a higher percentage of their income than the wealthy in absolute dollars. And I'm not alone in that assertion. Not long ago, Warren Buffett, no bleeding-heart liberal, stated that he pays a lower rate of taxes in real dollars than his secretary. And he's right. California's sales and income-tax-based economy disproportionately sticks the bill to the working and middle class. So let's place that canard about the wealthy being the only engines that move the world back on the shelf with Ayn Rand's other oddities.

Thereafter we can return to our point of agreement. Hard decisions about statewide priorities must be made. Personally, I think that we need to revisit Prop 13 and its shift from relatively stable (and local) property tax to relatively unstable (and Sacramento-based) income tax as a foundation of our revenue. We need to rethink that balance in a manner that doesn't return to the bad old days when little old ladies were being evicted from their bungalows because they couldn't pay their property taxes. Imagining a post-Prop 13 economy demands a much more broad-based and thoughtful process of deliberation than we've thus far seen in California.

In that sense, we agree.

Jon said...

Actually, Warren Buffet is a bleeding heart liberal. He can afford to be. As is my old boss Bill Gates. (and if you want to talk federal income taxes, the stats are definitely not on your side.)
The creation of wealth (versus the redistribution of it) is, in point of fact, the only engine that can drive an economy.
It is not strength, or even a function, of government to create wealth. As Lady Thatcher said, "The problem with socialism is that eventually you run out of other people's money."
Access to wealth only comes through "trickle down", but you can get poverty by "trickle up" if that is what you want.
If you cut the taxes on 10,000 poor guys by $100, they'll buy a few more six packs and a couple packs of smokes. If you cut the taxes on one small business by $1m, they'll be able to grow their business and hire more people.
And, to give those poor guys the $100 cut, you have to take the money from other people who worked to get it.

For a variety of reasons, California has just lost the edge as being a place in which it is so attractive to do business that it is worth the regulatory and legislative burdens.

This is the classic mistake in static analysis of an economy.
The plans just don't take into account that people will always respond in their best interest and that may not include just standing there and being bled white by taxes, fees, surcharges, etc. etc.

BTW, I know quite a few people that would be considered "wealthy". I don't know any of them that are "non-working". In fact, I long ago abandon wealth as a goal simply because I'm not willing to work that hard. I choose a different balance. For those who choose differently, it is all still there to be had.

Come on now. The young minds you mold deserve a better line of reasoning than "from each according to his ability; to each according to his needs".

;-) Love always, Jon

Andrew Wood said...

Once more, I appreciate your time in posting this reply. I only wish you had replied to what I said.

I don't recall citing or implying a Marxian ideology in my last comment on this topic. Rather, I am fairly sure that I cited a specific and verifiable claim by an undisputed icon of the investor class that you appear to revere. And I see no evidence to contradict the basic claim: when one adds all taxes and fees - federal, state, sales, and otherwise - the working and middle class "invest" a higher percentage of their incomes in the running of our states and nation than do wealthy and leisure class folks. Dismissing the insights of Warren Buffett because he does not adhere to some bumper sticker quotation from Margaret Thatcher does no service to your argument, Jon.

You may wish to lump opposing arguments into the all-purpose trash bin of socialism - the GOP hasn't produced much more than similar name calling silliness lately, by the way - and you may wish to demean working class folks for some propensity to spend their money on "packs of smokes" (not, you don't seem to imagine, on food, clothing, gasoline, health care, or rent). I simply do not share your caricatured view of the economy.

I teach at a working class university. Many of my students hold down two or sometimes three jobs. A large number of them care for children or older dependents. And they do not benefit from the tax breaks and loopholes that Sacramento and Washington have assured the wealthy and leisure class. This is not theory to me; these are people and circumstances that I know.

That's perhaps where we must depart on this topic, particularly if you limit the poles of this discussion to Stalin and Reagan. Otherwise, I hope you'll try again.

I'm heading to LA for a couple days, so - at least for now - any reply you care to share will be the last word.