Wednesday, June 03, 2009

At Least We Aren’t California, Part One

By Marc Korman.

At the last Montgomery County Young Democrats meeting, Councilmember Elrich was summarizing the County’s dire budget situation. One Young Democrat leader joked “at least we aren’t California.” Everyone laughed, but the thought of the comparison should give us brief pause. In Part 1, we will look at California’s institutional barriers to real reform that are deepening its budget crisis. In Part 2, we will discuss California’s missed chance of reform. Finally, in Part 3 we will examine some of the emerging comparisons between California and Montgomery County.

California and Montgomery County are both wealthier than most of their state or county peers. They are also both dominated by Democrats. Montgomery County’s elected leadership is entirely Democratic. California Democrats are not quite as dominant. The state’s governor is a nominal Republican, though what few friends in the legislature he has are on the Democratic side of the aisle. The state Senate has 26 Democrats and 14 Republicans. The Assembly has 51 Democrats and 29 Republicans.

Earlier in May, California voters (or at least the 28% or so who showed up to vote) rejected five of the six statewide propositions that were designed to save the state from its budget turmoil. California is facing an approximately $24 billion budget deficit. The package of initiatives that recently failed would have plugged most, though not all, of that hole through a combination of fund shifting and borrowing.

Although popular news stories are linking California’s problems to the general economic crisis, they are only tangentially related. It is true that California’s revenues have declined with the economy and California’s massive borrowing has gotten more difficult with the recession. But California was in trouble long before the housing bubble burst and the finance system collapsed.

Those on the left lay the blame for California’s woes at the feet of Proposition 13, the 1978 ballot initiative which capped property taxes at 1% of the property’s assessed value and limited increases in property taxes to 2% a year until there was a change of ownership. Those on the right blame California’s problems on its spending, which has grown quickly despite two major destabilizing California specific economic events in the past quarter century: the end of the Cold War which hurt the aerospace industry and the bursting of the Internet bubble which sent shockwaves through Silicon Valley.

But California’s current structural problems did not begin with the so-called tax revolution or the liberally spending elected leaders from Earl Warren to Arnold Schwarzenneger. Progressive Governor Hiram Johnson helped bring about the initiative, referendum, and recall in the state in the 1910s, firmly establishing California as a bastion of direct democracy. Since then, further statutory and constitutional changes have made California virtually ungovernable by elected leadership. Among the institutional barriers to reform are:

The 2/3 Budget Rule
In order to pass a budget, 2/3 of the legislature is required to vote in favor of it. Even the dominant Democrats have not been able to muster the type of numbers necessary and the partisan politics in Sacramento have prevented most legislators from crossing party lines. This has led to gridlock and brinkmanship during annual budget negotiations.

Overuse of the Ballot
California has a low standard to petition initiatives to the ballot, which can either be statutes or constitutional amendments. Constitutional amendments require an amount equal to 8% of registered voters who voted in the last gubernatorial election. Statutes, just 5%.

These low barriers to the ballot have led to major, complicated legislative packages being passed by the ballot box. The vast majority are bond and budget bills. As a result, California has a debt servicing level of 6% of its budget, compared to just 2% for Maryland. 85% of the state’s budget is controlled by state initiative, as opposed to legislative action. Meaning when it comes time to negotiate that budget requiring 2/3 of the legislature, they are really only negotiating around the edges.

Term Limits
California has strict term limits, holding Assembly members to three two year terms and State Senators to two four year terms. No state has shorter limits than California, though other states share the same length. These have led to three major problems:

1. Expertise in the legislature is almost entirely with the staff, not the elected officials. When I lived in California we had a joke, sooner or later every Californian would be Speaker of the California Assembly. That was because the Speaker would either be a new legislator who did not know what they were doing or a veteran legislature who was about to be term limited out. The job had a lot of turnover.

2. Elected officials care less about the long term effects of their action because they will not be in that office when problems arise.

3. Elected officials are constantly looking for their next political job, even more so than the usual politico. That means they are constantly playing to their base, raising money, and generally ignoring their actual work.

California famously recalled its sitting Governor in 2003, the second time in US history that has occurred. But recall efforts are being funded on a semi-regular basis to seek political vengeance. To get a recall on the ballot, supporters need to collect signatures equaling 12% of those who voted in that race in the last election. Most recall efforts do not get past the signature gathering stage, but that energy would be better served towards defeating candidates for reelection.

Next time, we will look at California’s missed chance at reform.