Wednesday, April 29, 2009

Economic Crop Failure: a Primer for Understanding the May 19th Election

The six propositions to be voted on in the upcoming May 19th statewide special election are a symptom of a broken political system in California. This post is an attempt to sum up some recent history of this state for the less than fully politically obsessed, in an attempt to provide some basic information for making the most difficult and technical decisions California voters have been asked to weigh in on.

This is not an attempt at an unbiased or neutral history, but a progressive one. I believe the decisions we're making could have an impact on whether our state's political leadership has the chance to broadly once again take up the challenge of transition from a thing-oriented to a person-oriented society - or not.

I write from this viewpoint because I believe it provides the best view of the truth, which is that this is no accident. This state is in the mess that it is in very much by design. This is exactly where movement conservative forces, led by Grover Norquist and Americans for Tax Reform and joined by their elected allies, want this state to be. They have argued, organized and fought for exactly this situation. Their dream of standing athwart history and stopping it has been realized. The question before us is how to re-start the progressive history of our state.

Six data points

    The 2008-09 budget is about $105B, and the baseline proposed budget for 2009-10 is $111B. The biggest expenditure are K-12 education ($41B), Health & Human Services ($38B), Higher Ed ($13B) and prisons ($10B). (Governor's CA Budget Summary Charts, SUM-01)

    The budget disaster is both acute and structural. The projection for next year, should the May 19th elections fail, is for a $40B deficit. (CA Governor Budget Summary Charts. SUM-01 and subsequent charts that explain the projected effects of the May 19th ballot props.)

    We are a moderate tax state: California was 17th out of 50 in total revenue as a percentage of personal income (California's Tax System, CBP 2009 page 18).

    We are a low tax country. The US has some of the lowest taxes in the industrialized world. We are currently 17th out of 18 industrialized nations in total tax amount as a function of GDP. (Nationamaster/OECD)

    State government is not "growing out of control." It has grown modestly with respect to personal income over the past few decades. (Somewhat out of date, but based on BEA & LAO data, updated data forthcoming when I get a chance to pull it together.)

Recent history

The seeds of the current budget disaster were sown in 1978 under then-Governor and now-candidate Jerry "born again tax cutter" Brown, with the passage of Proposition 13. Prop 13 marked the final end of the era of government investment and growth started by Pat Brown (Democratic Gov of California from '59 to '67) that was then continued by Ronald Reagan ('67 to '75). While Prop 13 included a reasonable fix to increases on residential property taxes that were rising too quickly, it went too far by including a requirement that any tax increases of any kind must pass both houses of the California legislature by a two-thirds majority. This effectively locked the state into a semi-permanent structural deficit: a gap between the funds needed for things that clear majorities of voters want (investment in schools, health care, infrastructure, environmental protections etc) and what the tax system generates, and handed the power to freeze government completely over to a one-third minority. The majorities in favor of investment in society are even stronger if nonvoters are included, as documented by the Public Policy Institute of California's very thorough 2006 report, California's Exclusive Electorate.

The executive and legislative political leadership of the state had managed to more or less deal with these limitations until recently, when continued effective execution by movement conservative forces finally collided with this baseline increase in desire in the electorate for government services. The intensity of this collision has been further exacerbated by the bursting of the tech bubble in 2001 and a limp recovery, which was then followed by 2008's bursting of the housing bubble, which hit California with particular ferocity.

One result of this collision has been the election of an enormous number of Democrats to both houses, to the point that two-thirds majorities may be within reach over the next several election cycles. However, conservative forces took their biggest prize in 2003, when they were able to align around and fund the recall of Democratic Governor Gray Davis, ostensibly because of a deficit nearly the size of the project 2009/2010 deficit. Davis proceeded to lose a one-sided election to Schwarzenegger in an election that turned almost solely on anti-tax fervor whipped up by the Schwarzenegger campaign, an identical tactic that powered him again to victory over Phil Angelides in 2006.

Schwarzenegger's first act as Governor was to cut the unpopular Vehicle License Fee, but with no consideration whatsoever for either corresponding spending cuts or replacing the revenue. This act immediately increased the state structural deficit by at least $4 billion per year and started the state on the course that has led to today's tangled mess. This action was taken as a part of the "starve the beast" strategy demanded by Grover Norquist, which Schwarzenegger even referred to point-blank in interviews with several newspaper editorial boards.

Schwarzenegger may have had some early opportunity to make cuts and weed out inefficiencies. He made two primary mistakes. First was a fundamental underestimation of the difficulty of cutting the budget, because as Schwarzenegger now admits and frequently mentions, very large majorities of voters do in fact want government services. And Schwarzenegger loves providing them; he has even attempted to refer to himself as modern incarnation of Pat Brown. His fatal flaw as a free-lunch conservative has been his repeated denial of the revenue problem that he helped drastically worsen.

His second category of mistakes was that he squandered his considerable electoral mandate with a series of embarrasingly juvenile rookie mistakes early in his administration. He was yet another successful business leader that couldn't adapt to the reality of how to function in and lead a democracy, a lesson that Republican primary voters should (but likely will not) consider in evaluating candidates like Meg Whitman. Schwarzenegger's mistakes were a case study in why a lack of prior political experience should all but automatically disqualify a candidate, however charismatic, from pursuing executive higher office; he could have learned a good part of what he needed to know from a four year stint on a county central committee.

What is at stake?

The election hinges primarily on the passage of Prop 1A, a measure focused on limiting state government growth through an arcane and complicated formula. 1A is substantially similar to Prop 76 from Schwarzenegger's 2005 special election, which was voted down 62 to 38. This is a parallel result to Prop 13's 65 to 35 passage in 1978. California voters are showing a certain amount of rationality here: we understandably don't want taxes that cause acute pain, but we also want to avoid a hard spending cap that would lock in a low level of social investment. Prop 1A is a philosophical descendant of a more draconian national right-wing initiative effort called the "Taxpayer Bill of Rights," or TABOR. Colorado passed this measure in 1992 and has spent nearly every election cycle since then weakening it's provisions, to the point that it has now been substantially repealed.

The key difference between 2009's Prop 1A and 2005's Prop 76 is that the Governor placed some limited protections for school funding in Prop 1A, and by so doing was able to gain the support of (or to put it less charitably, buy off) the California Teacher's Association, the state's largest teacher's union. This move has effectively split the labor coalition that united to defeat the 2005 special election debacle. Both sides are weighing in heavily with millions of dollars of spending, and the TV ads have already started.

Movement conservative forces have carefully shaped this election to specifically exclude the consideration of actual solutions. As the nonpartisan California Budget Project puts it, "Basic economics demonstrates that carefully chosen tax increases are preferable to spending cuts when the economy is weak." Yet even a modest increase in progressive income taxes (for one example) hasn't even been on the negotiating table, or included as part of the solution. Facts like this strain the credibility of those who say this is the best deal we can get.

No on 1A, but why?

California is arguably the state that is farthest along in the historical arc of transformation from a thing-oriented economy to a person-oriented economy - even though most days, it feels like we've hardly started. The electorate's baseline demand for services like education will not decrease, nor should it, given the demands of both our state's commitment to social justice and the practical demands of the 21st century economy. The conservative definition of freedom, with it's nearly exclusive focus on property rights, has to be replaced by a more expansive, progressive and just vision of freedom.

The shoots of a real solution are just now starting to grow out of the weeds of the disaster. They've sprouted but are still growing mostly below the surface, but there's a lot to be hopeful about. Consider the following four developments:

Ongoing huge increases in voter registration and participation in the California Democratic Party (the CDP)

The emergence of five networks of data-driven grassroots organizing groups (PICO, MIV, CA Alliance, the CDP grassroots and Courage Campaign)

Increasing national progressive movement investment in ideas and strategic communications (like The Progressive Ideas Network and New Deal 2.0), and

The prospect of a Constitutional Convention, and Gavin Newsom's publicly-stated, on-his-website, nothing-unclear-about-it support for this idea.

There are also wildcards, such as the role Organizing for America could play, although it's unclear how their current focus on supporting the President's agenda and community service could connect to the biggest problems facing our state.

Given the massing of these progressive forces, the question then comes down to this: what will better accelerate this process? Senator Darrel Steinberg and Assemblymember Karen Bass are strong progressives, and the architects of this deal for the Democratic caucuses in their respective houses. It's tempting to trust the people who have studied this problem the most and who know it from the inside out. Right now, that's Assemblymember Bass and Senator Steinberg, who claim this deal truly is the best we can do.

But this deal is the result of their best efforts in a deeply broken system. This may very well be the best deal that they could get. But it is not the best deal that we can get.

The passage of these propositions step backward for our state. The California economy is facing a form of crop failure. Prop 1A would lock us into a drought when we need to be opening the gates and letting the irrigation waters flow. We need real solutions: we need to plant roots that will lead to progressive taxation, and either end the two-thirds requirement, achieve two-thirds majorities in both houses, or both. Voting no won't accomplish any of this, but your participation will. It's time to plant some seeds of a governing philosophy that will work for this state.


Calitics Endorsements: No on everything.

Courage Campaign Endorsements: No on everything. (and see their nifty multi-group slate)

SF Bay Guardian Endorsements: No on everything.

The California Budget Project has a lot of very detailed information, including an 8-page analysis of 1A.

The Governor's Budget Summary Charts page

The best arguments in favor of Yes on everything, via Sacramento consultant Steve Maviglio.