Brown's California Dream Snarled by Dysfunction That Felled Schwarzenegger
California Governor Jerry Brown
Ken James/Bloomberg
Jerry Brown, governor of California.
Jerry Brown, governor of California. Photographer: Ken James/Bloomberg
California Governor Jerry Brown’s campaign pledge to fix perennial budget jams with his ripened political acumen failed to overcome the government dysfunctions that ensnared his predecessor, Arnold Schwarzenegger.
Brown, a 72-year-old Democrat who was governor from 1975 to 1983, conceded yesterday he lacks Republican support for a June referendum to keep higher sales, income and vehicle taxes from expiring. Extending them five more years, he had said, was crucial to closing a $15 billion gap in his $84.6 billion budget without slashing funds for schools and public safety.
Brown, who promised after his November election to make state government “more responsive” and “coherent,” was thwarted by partisan lawmakers entrenched in gerrymandered districts, the need for a two-thirds majority vote to raise revenue, a tax structure vulnerable to economic cycles and constitutional amendments that plucked budgeting power from elected officials.
“As long as you have the structures that have been wedded into the constitution, you’re going to have a hard time governing California,” said Jaime A. Regalado, director of the Pat Brown Institute of Public Affairs, a part of California State University at Los Angeles named for Jerry Brown’s father, governor from 1959 to 1967.
Specter of IOUs
Without an enacted budget, the state will be unable to issue $10 billion in planned revenue anticipation notes and may have to resort to IOUs for the first time in two years to meet cash-flow needs, Standard & Poor’s said today.
In New York, Democratic Governor Andrew Cuomo has more leeway. He announced an agreement with lawmakers for a $132.5 billion budget that closes a $10 billion deficit with a 2 percent spending cut and no tax increases. If a simple majority of legislators approve before the fiscal year ends March 31, it would be the first early state budget since 1983.
Until this year, California governors have needed a two- thirds vote in the Legislature to pass budgets. Assembling such a supermajority often required compromise between Republicans and Democrats.
That became more difficult as legislative districts were drawn to carve out “safe” enclaves for many lawmakers, leading both Democrats and Republicans to stick to party lines in budget debates, spurning tax increases or education cuts. The current budget, overseen by Schwarzenegger, passed three months late.
Legislative Boundaries
Voters, seeking to reduce partisanship, took the power to draw legislative boundaries away from lawmakers in 2008 and gave it to a bipartisan commission. In 2010, they replaced conventional elections with a system in which the top two finishers in a primary, regardless of party, run against each other in the general election. The changes take effect this year and next.
Political control of California’s budget by either party has been eroded by a series of ballot measures spelling out how the state must spend its money. A 1988 constitutional amendment, for example, locks in a minimum level of spending for public schools and community colleges. In 2004, voters guaranteed funding for local governments and prohibited the state from reducing property-tax proceeds to cities and counties.
‘California Dream’
“All of us in this state are somewhat culpable because the flip side of the California dream -- which is that all things are possible -- is that people think all things are possible in government,” said former Governor Gray Davis, who was recalled from office in 2003 over budget-deficit issues.
“They are, if you have a commensurate willingness to pay for it. We don’t,” the 68-year-old Democrat who served as Brown’s chief of staff in the late 1970s said in an interview.
Democrats, who control both legislative chambers but are four votes short of the two-thirds supermajority this year, sponsored a ballot initiative last November that lowered the threshold for approving budgets to a simple majority. While the measure prevailed, it didn’t lower the requirement for passing higher taxes, which gave Republicans the power to thwart attempts to avoid deep spending cuts by increasing revenue.
Schwarzenegger, a Republican, won two terms as governor with promises to fix the finances of the most-populous U.S. state. California, which produces 13 percent of U.S. gross domestic product, still ran out of money in 2009 and had to pay bills with IOUs for only the second time since the Great Depression.
Stopgap Measures
Schwarzenegger resorted to stopgap measures, such as delaying payments into the next fiscal year, and to borrowing money to bridge $100 billion of combined budget holes after his deficit-reduction plans were stymied by the Legislature.
When Schwarzenegger left office in January, with California’s credit rating the lowest of any U.S. state from Standard & Poor’s, he shoved onto Brown’s shoulders a $25 billion deficit.
Complicating California’s finances is its reliance on personal-income taxes. While the state is home to 14 percent of the companies in the Standard & Poor’s 500 Index including Apple Inc. (AAPL), Google Inc. (GOOG), Chevron Corp. and Wells Fargo & Co. (WFC), taxes from individuals generate more than half of general-fund money each year. That makes the state susceptible to revenue swings during economic cycles.
Vulnerable Taxes
“Our tax structure here is extremely vulnerable to recessions because we put the burden for our tax income on people who are in the upper brackets of income,” said Rob Stutzman, a Republican campaign strategist who was Schwarzenegger’s communications director. “There are too many people in California who don’t pay income tax.”
Since 2007, when the deepest recession in more than 50 years beset the U.S., California’s income-tax revenue has plummeted almost 15 percent to $47 billion. The portion of the general fund derived from income taxes rose to 51 percent in the last fiscal year, from as little as 11 percent in 1951, according to budget documents and the Commission on the 21st Century Economy.
“Every state has budget problems,” Stutzman said. “Ours have become as annual as the in-laws coming for Thanksgiving.”
To contact the reporters on this story: Michael Marois in Sacramento at mmarois@bloomberg.net; James Nash in Sacramento at jnash24@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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