Jerry Brown's sad little speech

Even measured against the diminished expectations Gov. Jerry Brown has set, his 2011 State of the State message was a sad little speech.

Short on ideas, stripped of inspiration, and studded with clichés (“not a time for politics as usual”; “we owe it to ourselves and to our forebears—and to our children--to rise to this occasion”) the speech shoved everything else aside to dwell on what Brown called “Job Number 1,” the budget. By the time the speech limped to its conclusion, it had turned into Job All.

Brown’s explanation for his narrow focus? California is in fiscal crisis, “real and unprecedented.” But as Brown is old enough to know, the budget crunch is nothing new. It’s chronic. Ask Gray Davis and Arnold Schwarzenegger, who dealt with deficits of the same magnitude.

Better yet, look at Pete Wilson in 1991, who arrived to find a deficit of the same size, in percentage terms, as Brown inherited. In his first State of the State address Wilson acknowledged that California was in “heavy seas” and would have to cut the budget accordingly. He then went on to outline a program of “preventive” government to “give increasing attention and resources to the conditions that shape children’s lives.” Measured against Brown’s performance, Wilson today reads like Demosthenes and FDR rolled into one.

The saddest thing about Brown’s speech, though, was his attempt to turn his budget tactics into a matter of principle.

“Under our form of government, it would be unconscionable to tell the electors of this state that they have no right to decide whether it is better to extend current tax statutes another five years or chop another $12 billion out of schools, public safety, our universities and our system of caring for the most vulnerable,” he said in support of his call to put a tax extension measure to the voters this spring.

Even under California’s crazy system of government, there is no such right, of course. “The voters deserve to be heard,” he said. Didn’t they speak last November? Didn’t they elect Brown himself and put Democrats in control of the Legislature with an extra seat? In a representative democracy, aren’t such elections meant to establish the popular will?

The answers are yes*, yes*, and yes*. The asterisk means: not in California. Our state has a second form of government—its extensive system of supermajority vote rules and voter mandates on fiscal matters—that overrides the normal operation of democracy.

Everyone in Sacramento understands that the budget can be balanced only through a combination of spending cuts and tax increases. Voters know that. No one in the Legislature, including the Republican legislators who oppose the tax extension, is willing to vote for an all-cuts budget. But the current system of supermajority approval for taxes stands in the way of acting on what the voters decided in November. Republicans can block taxes without ever having to vote for the cuts that would inevitably result. It lets them be both irresponsible and unaccountable with little or no political risk.

The only reason to call a special election is to get around this broken system. For Brown, going to the voters is a matter of expedience, not principle. If he had truly wanted to be honest, and to help voters understand why California is in this mess, he would have said so.

Instead, California witnessed the spectacle of its newly elected governor, winner by 13 percentage points, begging the party that just got wiped out in November to let him hold a special election to ask voters to do the job that Brown and the Legislature just got elected to perform. That’s how California works now: First it makes men governor, then it makes them crawl.

Redevelopment: Grabbing other people's money

Two mistakes frequently mar news reports on the fight over Gov. Jerry Brown’s redevelopment proposals.

The first labels Brown’s plan a “state grab” of local redevelopment revenue. It is easy to understand how the media might make this error. “State grab” is how local officials like to spin the fight: They, the virtuous defenders of local government, are the victims, set upon by the big bad state. Many editors and reporters seem inclined to accept the local home-team spin as gospel truth. But in their uncritical acceptance of spin they confuse the public about who are the real grabbers and the grabbed in this fight.

Consider how redevelopment works. A local government, usually a city, designates a portion of its jurisdiction “blighted” and declares it as a redevelopment area. When that designation is made, the amount of property taxes that flow from land and buildings in the area to local governments—city, county, school districts—is capped.

Going forward, for the life of the designation, any increase in property tax collections from that area above the cap is diverted to the redevelopment agency, which uses it to fund infrastructure, subsidies to developers, and its own operations. This is true even if the increases are entirely the result of normal events—inflation, reassessment of properties at change of ownership, or new construction—unrelated to any of the agency’s activities. To put it baldly, the redevelopment agency grabs all the growth, known as the tax increment; the schools and county get nothing.

In practice, things aren’t quite so stark. When redevelopment areas get proposed, other local governments are often able to bargain for a share of the tax increment. And schools get made whole by the state, which backfills their lost revenue to the tune of $1.8 billion a year. But the essentials are clear: Redevelopment agencies are the real grabbers at the expense of other local governments and the state budget.

Brown’s budget seeks to end that grab. He proposes to abolish redevelopment agencies as of July 1, 2011. In the first year, this would make available $1.9 billion of tax increment above redevelopment agencies’ existing obligations for bond payments and pass-through agreements with other local governments, money Brown would use to close the budget gap. After that, all the property tax increment revenues would once again flow to school, city, and county coffers as they did before the redevelopment agency existed. No more grabbing.

The second common mistake is to report that Brown is proposing to end local redevelopment. In fact, Brown simple wants to change how redevelopment is financed. He has asked the Legislature to pass a constitutional amendment to permit local governments to raise taxes and issue bonds for infrastructure and redevelopment with the approval of voters.

This alternative would let cities to do everything they do today with redevelopment: erect parking lots for museums, subsidize mermaid bars, hand out goodies to auto dealers willing to move from the next city over, build sports palaces for millionaire athletes and billionaire sports team owners. The only difference? Instead of financing it by grabbing other people’s money, they would have to do it directly and openly, with public consent.

That’s why Brown’s proposal throws mayors and other city officials into such a tizzy. It’s a small but telling blow against their privileges under California’s dysfunctional Prop 13 operating system.

That system absolves local elected officials of any responsibility for raising the tax dollars they spend and reduces public scrutiny of how they spend it. It lets them buy the goodies their constituents and campaign contributors like—from shiny downtown buildings to bloated police pensions—without having to ask for the money to pay for it. When their irresponsible decisions lead to unbalanced budgets and cuts in day-to-day services, they just point their fingers at the state Capitol for grabbing “their” money. If the latest PPIC poll, in which voters approved of Brown’s redevelopment proposal by more than a five-to-two margin, is any indication, at least one small piece of that system may be tottering.

The fly—and the elephant—in the realignment soup

Joel Fox, editor over at Fox & Hounds Daily and godfather of the professional defenders of Prop 13, is warning about “The Fly in the Realignment Soup” of Gov. Jerry Brown’s budget. Yes, voters tend to be more friendly to local than to state government, he writes. “But given the outbreak of scandal and questionable judgment exhibited by local officials and reported across the state, the governor may face an unexpected hurdle in selling his realignment plan,” which would transfer more authority from Sacramento to local government.

The fly in the soup is real. The least justifiable public spending in California happens at the local level. Strange, though, that Fox fails to notice the elephant it rode in on: the unintended and unworkable operating system created by Prop 13.

Local governments everywhere have their share of scandal and wasteful spending. But as we show in California Crackup, Prop 13 makes California even more vulnerable to those things. Shorn of their taxing power, local governments ceased to be of much concern to business and taxpayer advocates. That has left local politics to those more interested in grabbing a piece of the spending. And because local elected officials are spending tax revenue they don’t have any political or legal responsibility for raising, they are less careful about how it is used. It’s always easier to waste somebody else’s money.

The scandals that Fox cites, from the City of Bell to Vallejo, have their roots in a system he helped create and now ardently defends. There will be flies in the soup until the elephant is taken away.

Boyarsky: “Brown’s right on redevelopment boondoggle”→

At LA Observed, veteran Los Angeles journalist Bill Boyarsky cheers the prospect of ending California’s redevelopment agencies: “Close down all the redevelopment agencies. Let redevelopment beneficiaries like billionaire Phillip Anschutz, who owns downtown’s LA Live and Staples Center, finance their own projects. If we end the subsidies, we can put the money to better use—the schools.”

The road to budget hell

California has spent many years in budget hell. Deficit has followed deficit, alarm has followed alarm. The temptation is strong to greet this year’s news of budget crisis with a shrug of the shoulders and a yawn: What else is new?

But this year looks different. The two-year budget gap is over $28 billion, the state has piled up debts of more than $85 billion, the gimmicks have been used up, and Washington is turning its back on the fiscal plight of the states. California, a victim of the bizarre and radical governing system it has imposed upon itself, piece by piece, over a century, has seemingly reached a moment of reckoning. It will not get out of budget hell until it makes itself governable.

To understand what’s required to escape budget hell, it helps to know how we got here. There are four big pieces that paved the road to budget damnation:

The Prop 13 operating system. The first of these, you will not be surprised to learn, is Proposition 13. But not in the way you probably think.

Yes, Prop 13 cut property taxes. But its more important long-run effect was to transform how California governs itself. As we show in California Crackup, “By slashing local property tax revenues, putting up higher barriers for local passage of taxes and bonds, and giving the Legislature the authority to divvy up remaining property tax dollars, Prop 13 was the Great Centralizer.”

In the wake of Prop 13, California’s leaders had a choice. They could let local governments readjust to the new fiscal reality of the 1978 Jarvis-Gann measure, which cut local property taxes by the equivalent of 22 percent of local spending by schools, cities, and counties. Or the state could step in and use its own revenue to soften the blow. Then-and-now-again Gov. Jerry Brown and the Legislature chose to bail out local governments.

California’s new Prop 13 operating system, and the state’s willingness to bail them out, have largely turned local governments into spending agencies. Those elected to run local governments have little control over, or political responsibility for, raising the money they spend. As Bruce Cain and Roger Noll have pointed out, this arrangement “creates perverse incentives…. Because so much of local services are paid for by the state, local officials are in a position to reap the benefits of expanding local services, but state officials bear the political costs of either raising revenues or sacrificing other programs in order to finance expanded local services.”

And that is just what has happened. Compared to other states, California local governments spend more than average, despite local revenues much lower than average. The state has made up the difference, deepening its own budget problems and, as we’ll see in a moment, skewing priorities.

Budget bondage. The second stone on the road to budget hell is made up of all the fiscal provisions, many of them requiring supermajority votes in the Legislature, that litter the state constitution. There is the familiar two-thirds majority vote requirement for passing budgets, which was finally repealed last November. And the state spending limit. And the balanced budget rule. And the rainy day fund in which money must be set aside in good times. And the limits on borrowing, both in the financial markets and from transportation accounts and local government. And the Prop 98 funding guarantee for schools and community colleges. And all the initiatives mandating spending.

But the most critical has been Proposition 13’s two-thirds requirement for raising taxes. Last November voters extended this requirement to fees and to any bill that has the effect of raising any taxpayer’s obligation. There is no similar two-thirds requirement for cutting taxes.

This imbalance creates what I’ve called The Ratchet. This ratchet turns one way only: revenue lost by majority vote can only be restored by supermajorities, which have seldom materialized.

The Ratchet was cranked most furiously during the dot-com bubble of the late 1990s. As the hot money from IPOs and stock options flooded in, the Legislature cut the corporate tax, income tax, and, most precipitously, the vehicle license fee, a property tax on vehicles, dubbed the “car tax” by its opponents. When the stock market collapsed in 2001 and the IPO and stock option revenue disappeared, California’s ratcheted-down tax base could no longer support the base of public services. Rather than restore the revenue cut in the good years, Gov. Arnold Schwarzenegger and lawmakers patched over the gap for most of the last decade with gimmicks and massive borrowing. But when the second bubble, in housing, burst in 2008, the economy and tax revenues plunged and the permanent hole in California’s budget was again exposed. Closing the hole would have been difficult under any circumstances. But the task was made immeasurably harder by all the supermajority vote requirements.

Something for nothing. Lawmakers are required, in theory at least, to balance the budget. The voters operate under no such discipline. A large part of California’s budget crisis arises out of the bad habit of California voters of enacting what I call “something for nothing” ballot measures. In the two decades beginning with Prop 98’s passage in the spring of 1988, California voters considered 259 ballot measures. Of these, 127—nearly half—proposed to have something for nothing: that is, they increased spending or reduced taxes, or both, without offsetting funds. Of the 127 measures, 80, or about two-thirds of them, passed. Many of these measures were initiatives, and they came from all points on the political spectrum. There was the Three Strikes sentencing measure and Jessica’s Law and the stem cell agency and the children’s hospital bonds and the park bonds and the water bonds. Even Arnold Schwarzenegger got in on the act with his initiative for afterschool programs in 2002, the prequel for his gubernatorial campaign.

We want, therefore we borrow. These something-for-nothing measures contributed to the fourth big source of budget hell, the growing overhang of debt. Over the last decade California voters have approved more debt than in any time in the state’s history. In the traditional fashion, some of these bond measures financed construction of long-term capital projects that benefit the general public, such as school and college buildings. But others were entirely new. The 2004 stem cell bonds are debt taken out to fund an ongoing program. The $15 billion in deficit bonds approved in 2004 papered over the state’s inability to deal with post-recall budget crisis. The infrastructure bonds approved in 2006 broke with the state’s traditional policy of having users and beneficiaries pay for investments in roads and flood control. They instead transferred the cost to the general fund, soaking up dollars formerly available to pay for education, healthcare, and public safety. The percentage of the general fund used for debt service has tripled over the last two decades, to over 6 percent, on its way to a projected 9 percent by 2014.

Where have these pieces left us? With a unworkable fiscal system and badly skewed priorities.

• State general fund spending, measured as a percentage of California personal income, is lower than at any time since Ronald Reagan was governor. California now spends less than the national average on state functions (but is at the top in transferring state dollars to local governments.) Yet because of past tax cuts and the effects of the Great Recession, state revenue, also at a 30-year low as a share of the economy, isn’t sufficient to cover the combination of spending on state functions, even at its reduced level, and transfers to local government.
• Without the discipline of having to raise their own tax revenues under the Prop 13 operating system, local governments have let the pay and benefits of their employees soar. As Cain and Noll show, California has only 11.8 percent of local government workers in the country, less than its share, but pays them 15.2 percent of the national payroll for local employees.
• California’s broken system of government has produced a major shift in spending priorities. Over the last 25 years, the share of the state general fund spent on criminal justice, mostly prisons and courts, has gone from 5 percent to 13 percent. Likewise, the share of the state’s output spent on local public safety has soared; state and local government in California is today spending about $10 billion a year more on public safety than if its share were at the same level as in 1989. This extra spending does not buy more public safety services. California cities generally have far fewer police per 100,000 population than elsewhere in the country, and the state has less than its proportionate share of prisoners. No, this $10 billion consists almost entirely of higher compensation for correctional officers, police, and firefighters, whose pay and pensions dwarf the compensation public safety employees receive in other states. The gold-plated pay in public safety has come at the expense of higher education, social services, and the fiscal stability of the state.

California’a politics is awash in calls for different budget results: more taxes, less taxes, less prison spending, less debt, lower pensions. But it has not awakened to the fundamental challenge. California doesn’t need just to change budget priorities. It needs to fix the broken system that generates these bad results—and that will keep delivering bad results until it is overhauled.

Think Long Committee “Unlikely to Produce Reforms that Challenge the Political Status Quo”

David Kersten and his team have put out an assessment of the personnel and objectives of the Think Long Committee, the California reform group set up by the “homeless billionaire,” Nicolas Berggruen. Kersten’s conclusion: the Think Long Committee is in too much of a hurry to rush to the ballot and is therefore unlikely to develop or achieve the comprehensive political and governance reform the state needs.

It really is budget Doomsday in California

Let’s take as a given that the chances of passing a reasonable California state budget—one that puts the state on a path to long-term solvency while protecting the most essential public services—range from improbable to zero. Still, even against those long odds, wouldn’t it help things along if Dan Walters could be bothered to give his readers more facts and less snark? 

In his Dec. 15, 2010 column, “Brown’s doomsday strategy very risky,” Walters chides California’s old-new governor Jerry Brown for suggesting that the huge gap between expected revenues and baseline spending will force unpleasant cuts in schools. That gap amounts to more than $20 billion in the coming year, equivalent to nearly one-quarter of the annual general fund budget. Walters implies that Brown is pursuing the state equivalent of a “Washington Monument strategy.” That’s when bureaucrats defend their budgets by arguing that any cut will to force them to wipe out their most publicly visible activity. 

“No politician ever threatens to cut welfare grants, health services for the poor or other programs that don’t affect middle-class voters,” Walters writes; “instead, voters are told that their personal safety and/or their children’s futures would be at risk.” 

The only trouble is, all of this is either untrue or misleading. 

It doesn’t take much of a memory, or more than a couple of seconds on a search engine, to recall that some guy named Arnold Schwarzenegger threatened to not only cut welfare grants, but also eliminate them altogether. 

“California no longer has low-hanging fruits,” Schwarzenegger said way back in May. “As a matter of fact, we don’t have any medium-hanging fruits. We also don’t have any high-hanging fruits. We literally have to take the ladder away from the tree and shake the whole tree.” How soon we—or at least some of us—forget. 

What’s true for welfare grants applies to health services for the poor. Politicians like Schwarzenegger have not only threatened to cut them; they’ve actually carried out the threats, reducing benefits in recent budgets. 

But it’s also misleading in the extreme to imply that cuts to health services don’t affect middle-class voters. About two-thirds of Medi-Cal dollars go to care for the elderly and disabled. Without Medi-Cal, the cost of their care would otherwise fall on their middle-class families. And every one of those Medi-Cal dollars is income to someone in the health industry—a doctor, nurse, lab tech, hospital administrator, nursing home operator. Those jobs account for around one-sixth of the state’s output. They also form the backbone of the middle class. California voters, who routinely tell pollsters that they want to protect health services, seem to understand this better than Walters. 

And finally, there’s Walters’ false implication that telling voters that schools are at risk is only some political game or gambit. 

As the Legislative Analyst recently reported, even if the state had enough revenue in the upcoming year to fully fund schools at the Prop 98 minimum guarantee, “the minimum guarantee would fall $5.2 billion short of fully funding baseline K-14 costs in 2011-12.” In other words, California is looking next year at a roughly 10 percent reduction in school funding, on the natural. This is on top of the recent cuts that have forced teacher layoffs, shorter school years, and bigger classes. And it’s before anyone in the state Capitol asks schools to share in the pain of closing the budget deficit. 

So say what you will about Jerry Brown, he’s not pulling anybody’s leg here. If this is not yet budget Doomsday in California, Doomsday is within sight. 

Is it politically risky to deliver that news? Probably. But somebody has to. We’re apparently not going to get the news from Dan Walters.

The missing voters

In a new column appearing in the Appeal Democrat, Thomas D. Elias takes me to task for suggesting, on this blog and at speaking events around the state, that the low turnout at the mega-millions June primary election was a signal of voter discontent with California’s broken government and politics. “'Voters have given up on believing in democracy under California’s current electoral system,’ moaned Mark Paul,” he quotes me as saying. It just isn’t so, Elias contends.

Sorry, Tom, but you couldn’t be more wrong. The only thing that makes me moan is people who hold themselves out as journalists and pundits but who can’t be bothered to check the facts.

Anyone with a whit of curiosity, five minutes of time, and an Internet connection could find the data in the chart below, which I drew from the official figures available on the California Secretary of State’s website.

It’s hard to see how any fair-minded person looking at the trend of voter turnout in gubernatorial years can conclude that the voter indifference in the June primary was an aberration, the result of having a contest only in the Republican race for governor. Voter turnout in the non-presidential years when California elects its governor and other statewide constitutional officers has plummeted over the last half century—by around 40 percent in primaries and about 30 percent in general elections. Although there has been some drop in voter participation in presidential elections, reflecting the new partisan reality that California hasn’t been in play in the last four national elections, the decline is not nearly as sharp and turnout has been been nearly level for the last three decades.

Yes, more people will cast votes in the November 2 general election because more people always vote in the general election than in the primary. But as Joe Mathews and I have been hearing dozens of times as we travel the state to talk about California Crackup, voters are appalled by the empty rhetoric and stale clichés of campaign-speak. They are disgusted by a deadlocked system of government that seems incapable of working. The governor’s race “has also been a disappointment: feeding their cynicism, taxing their patience — they long ago tuned out the incessant advertising — and instilling little faith that either candidate can deal with the state’s paralyzing dysfunction,” as Mark Barabak reports in the Los Angeles Times.

Elias believes “there’s every reason to vote this fall.” The voters we talk to, and those Barabak interviewed, know better. This has been the perfect Seinfeld campaign: the election about nothing. Here’s betting that once again, the number of eligible California voters who stay home will carry the day over those who go to the polls—a fact that’s not likely to change until we make the state governable again.

The Legislature is Polarized Because We Are

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It's an article of faith with California's reformers that small tweaks in the political system can quell the extremes of a polarized legislature and thereby bring it more in line with the virtuous moderation of the bulk of California voters. It's the faith that has given us, in recent elections, the independent redistricting commission and the jungle primary. And it's a faith based, as political scientist Alan I. Abramowitz pointed out again the other day, on a mirage.

As we write in California Crackup, "The trouble with much of the reform conversation is that it misses how much the underlying political landscape has changed." Over the past three decades Californians have been busy swinging their partisan identities more in line with their ideological preferences and sorting themselves geographically into communities of the like-minded.

Abramowitz illustrates the result in the graph above, which depicts the changing ideological views of Democrats and Republicans. "The most important source of polarization in California politics," he writes, "is the ideological divide between supporters of the two major parties." California has a polarized legislature because lawmakers accurately represent California's polarized electorate.

Crafting small-bore reforms based on a fantasy about the electorate you wished you had is a fool's errand. That's why, in California Crackup, we make the case for a system overhaul. Yes, it's hard to do. But unlike the goo-goo fantasies, it might actually work.