Texas vs. California Part II: Legislation by initiative is paralyzing the state and handcuffing the legislature’s ability to do the job they were sent to Sacramento to do. With the California economy struggling and mired in deficits, the Governor and the legislature have limited options.
This is part two of a series examining the economic fortunes of both states. See part one here.
California, like Texas, has more than its fair share of economic problems. The difference is that everyone knows about California’s problems; the state has been pretty up front and honest about it, whereas Texas is in complete denial about their issues, to the point of poo-pooing a $27 billion budget deficit. Because deficits don’t matter, right Dick Cheney?
With current unemployment in California at 11.7% and a state government that’s possibly even more dysfunctional than our national government in Washington it’s hard to see brighter days coming. But at least the state is realistic about where it is.
Governor Jerry Brown recently signed into law the 2011-12 California state budget. In it are some pretty painful cuts—cuts necessitated by the Republicans’ refusal to even consider any kind of revenue increases.
Painful all cuts budget
The state budget cuts 22% of funding from the University of California system, and 25% from the California State University system (which means that tuition is going to be hiked again in both systems, after hefty fee hikes in the previous few years). It calls for a $10 per unit increase in the California Community College registration fees; it cuts $744 million from the state courts; it cuts mental health programs; and a devastating $2 billion cut to MediCal, the state’s Medicaid program, among many other cuts to social and public services. And of course there’s the closure of 70 state parks, pushing recreation further toward becoming the exclusive domain of the rich and powerful.
K-12 education was spared the axe…….for now. But if projected revenue increases do not materialize, the budget contains a mechanism to automatically slash $1.5 billion from the state’s education system.
Still, according to the official state budget, education funding is $6 billion below what it was in 2006-07, and that has to change. Long term the state is going to have to deal with its revenue problem (yes, a revenue problem) in order to restore funding to critical services, such as education, public safety, and public health.
Despite the draconian cuts to both state budgets, the major difference between California and Texas is that a huge majority in the California government realizes that the state’s budgetary shortfalls cannot be solved through cuts alone; that although no one likes paying taxes, they’re a necessary “evil” that must be a part of any reasonable and workable budget solution. Revenue must be raised in order for the state to function, and for the state’s $35 billion in debt to be paid off. It doesn’t happen without revenue, and revenue means taxes.
Prop 13: The inspiration for “legislation by initiative”
Unlike in Texas, where a hard right wing ideology controls the state’s policies on taxation and spending, California is held hostage by its fourth branch of the government: The voters. The ballot initiative process was instituted in California in the early 1900’s as a means to curb the influence of the Southern Pacific Railroad, and in the last three decades it has nearly completely hijacked the state’s legislature. What was once a necessary tool to combat the influence and power of special interests in the state has now become the most effective weapon of special interests. And it all started with Prop 13.
California, like most states, was heavily dependent on the collection of property taxes as a primary source of revenue. The property taxes are collected by the state and distributed back to the local governments to pay for essential services, in particular schools. Texas is no different: That state is heavily dependent on a higher than average property tax rate for state revenues.
But in the 1970’s, property values in California started to skyrocket. And since property taxes were levied based on the value of the property, property taxes too went skyrocketing. This sudden shock to the system did not sit well with California residents, and in 1978, Prop 13 was put on the ballot.
Prop 13 changed the system in a number of ways: First, instead of basing the tax value on the assessed value of a property, Prop 13 set a baseline value at which the property could be taxed. That baseline would be determined by the purchase price paid by the current property owner. This means that if a property was purchased in 1975, and the purchaser still owns that property today, the baseline property tax value is the 1975 purchase price regardless of any increase in the property’s value over time. Any property purchased prior to 1975 was assessed at the 1975 value.
Prop 13 also sets the property tax rate at a fixed 1% of a property’s assessed value, and limits the allowable increase to the rate of inflation or 2%, whichever is less.
Finally, Prop 13 modified the state’s constitution to require a 2/3 majority vote in both houses of the legislature in order to pass a budget or to raise taxes (2010’s Prop 25 changed that, reducing the requirement to pass a budget to a simple majority). Taxes can also be raised via ballot initiative, but that would also require a 2/3 majority of the state’s voters. Highly unlikely to happen.
Prop 13 also does not differentiate between residential and commercial property.
The unintended consequences of Prop 13 have been to effectively handcuff the legislature from actually being able to legislate. Despite the Democrats’ 52-28 advantage in the State Assembly and a 25-15 advantage in the State Senate, they are still two votes shy in both chambers to be able to pass any real fiscal legislation. It has handed the minority 1/3 more power in the legislature than the majority 2/3.
With a growing state and a revenue stream that was cut off at the knees, and since nearly all of the property taxes collected was filtered back down to local governments, the state had to find another way to reimburse local governments for their expenses. California had to find new sources of revenue. Thus the state became increasingly dependent on a state income tax and state sales tax—the very taxes that Conservatives insist are stifling businesses, forcing them to leave the state.
Victimization of California’s schools
California’s schools have suffered the most from Prop 13. California was once the national model for education and education standards. The state’s k-12 school system was among the best in the country, and the universities were the envy of a nation. Today, according to Education Week, California’s schools rank 30th in the nation for academic achievement (Texas ranked 13th).
Prop 13 was the beginning of a trend. Special interests realized that they could bypass the state legislature and enact their own laws by putting them on the ballot. The result is a lot of new, shiny programs that the voters have placed into law, but no new mechanisms to pay for them. And since Prop 13 limits the legislature’s ability to raise revenues, the funding has to come from somewhere, and the state’s schools are the easiest target.
Despite efforts to better define them, funding mandates for the state’s schools are a bit murky and open to interpretation, making it easy to pull funding from schools to pay for other priorities. According to the National Center for Education Statistics, California spends $9,830.13 per student per year on education, compared to a national average of $12,097.91 per student. (Texas currently spends even less, tallying $8,047.74 per student.) Legislators say that they have control of only about 10% of the state’s budget due to the initiative process, so in effect, the initiative process has made defunding schools the only option.
Conservative ideology invades California
One of the ways California was able to survive the implementation of Prop 13 was through the vehicle license fee—more commonly known as the car tax.
As the LA Times’ George Skelton tells us, the car tax went from 1.75% in 1935 to 2% in 1948 “where it remained for the next 50 years with hardly anyone squawking.” The money was collected by the state, but went to the cities to pay for vital services. After 50 years of tranquility, Republicans determined that the car tax was no longer tolerable and was stifling the California taxpayer, so Republican governor Pete Wilson whacked it down to 1.5%.
Wilson’s successor, Gray Davis–a Democrat–apparently caught the Republican bug and cut the rate to 1.3%, and then all the way down to 0.65% during the days of a booming California economy. Then came the hammer: Rolling blackouts and an economic downturn. Davis came to his senses and upped the car tax back to 2%.
After successfully supplanting Davis in a recall election after making the car tax a major election issue, Arnold Schwarzenegger immediately busted the tax back down to 0.65%, and as Skelton argues, the state has never recovered. Local governments depended on those fees, and without them the state had to find another way to reimburse them.
Since then—and because of the cut–the state has been mired in debt, struggling each year (until now) to balance the state’s annual budget through accounting trickeration and sleight of hand. Had the car tax remained at 2%, or even Davis’ 1.3%, chances are that the legislature would not have had to find other ways to reimburse local governments for lost revenue, and California would not be mired in $35 billion of debt.
Public demands services, but someone has to pay for them
Look, it’s understood. No one likes paying taxes of any kind. Taxes are evil and despicable. Taxes represent the government taking away our hard earned money. But the thing is people also happen to like the things that taxes pay for an awful lot. Things like roads; sewer and water systems; clean beaches and city streets; public safety, including the ability to prevent and solve crimes; state parks for everyone to enjoy; and yes, even a high quality college or university education that doesn’t cost a student $40,000 per year in tuition. We like having clean water to drink and air to breathe. We like having hospitals. We like having a place to treat and house severely mentally ill citizens so that they don’t have to walk the streets aimlessly and potentially pose a threat to themselves and to society at large. The public demands prisons and a criminal justice system to punish criminals. All of these things cost money, and if the state didn’t provide them, then no one would—at least not at a cost that the average person could afford.
Democrats get this. Republicans don’t. But with the legislative rules the way they are, even with overwhelming majorities, Democrats are powerless to do anything about it. Well, not powerless exactly, but rather not vicious or ruthless in any way that would send a message to Republican districts. Democrats by and large are for fairness, usually to their detriment.
But there is light at the end of the tunnel. 2010’s Prop 20 changed the state’s redistricting process to remove it from politicians’ hands and theoretically eliminate the gerrymandering that plagued the state and created a huge partisan gulf. And as mentioned, Prop 25 amended the state constitution to allow the legislature to pass a budget bill with a simple majority, reducing the annual gridlock that prevented an on-time passage of the state budget every year–or sometimes passing one at all. The state’s primary election system has also been amended, allowing only the top two finishers in a primary election—regardless of party—to advance to the general election.
Slowly but surely Californians are starting to get it. But there’s still a long way to go. The state must wean itself off of the insatiable dependence on the direct democracy approach that is paralyzing the state. The state cannot hold its legislators accountable if they are not directly responsible for the problems and if they are not allowed the tools to fix them.
Let the legislators do the job they were sent to Sacramento to do instead of asking the voters to do it for them. And if the legislature enacts egregiously unpopular laws, then there’s a mechanism built into the state constitution for the voters to deal with it: A referendum. Via referendum the voters can directly voice their disapproval of the actions of the legislature, and California could be governed much more efficiently.
Without the myriad of ballot propositions writing new programs into law, legislators from both parties would then have more freedom to determine how best to use the state’s financial resources. They would be able to more effectively streamline the government and put money where it’s really needed instead of into programs that are no longer useful but are mandated by the initiative process. And if the voters don’t care for a legislator’s actions, they are free to make that displeasure known through a process called an election.
To learn more about California’s unusual system of governance, see the April 23rd, 2011 edition of the British publication The Economist. You can read the special report main story here, with more in dept insights into what has made the state tick here, here, here, and the story of Prop 13 here. There are other subscription only portions to the special report. If you don’t have a subscription, I highly recommend finding the issue in your local library.