California budget crisis spurs reform efforts

California's slow and lackluster emergence from recession is prompting a wave of concern that the Golden State's glory days are gone for good – unless voters take action to address a dysfunctional governmental system.

Few disagree it's broken. California's finances are a perennial disaster; even after this summer's battle between Gov. Arnold Schwarzenegger (R) and the legislature to close a $26 billion budget gap, the Legislative Analyst's Office estimated this week that the state will run $20.7 billion in arrears over the next 18 months.

The state's bond rating hovers above junk status, and legislators' ability to fix budgets by raising taxes or cutting spending is hampered by voter initiatives.

California was hit hard in the downturn, and the economic pain is expected to linger longer here. It leads the nation in foreclosures, with 459,906 homes lost to banks since the start of 2007, according to real estate research firm DataQuick. It lost the most jobs in the past year – 732,000 – and its unemployment rate has climbed to 12.2 percent, the fourth highest in the US. The University of California system is coping with a 20 percent funding cut this year.

The state now spends more on prisons than on higher education, say some politicians. Last year, it spent $10 billion to house the country's largest prison population in a system so overcrowded that federal judges are threatening to force the release of 40,000 inmates.

No wonder the doomsayers are having a field day. Britain's Guardian newspaper asks if California will become America's "first failed state." The New Republic ponders whether the California dream has turned into "a nightmare." Fortune magazine speculates that the state's unemployment rate could reach 15 percent.

But not everyone buys into the gloom and doom. "There's a greater loss of confidence than we have seen in the past, but the past has also shown Californians have a tremendous ability to bounce back," California pollster Mark DiCamillo says.

Still, the political and economic turmoil has provoked introspection. A majority of voters say "fundamental changes" are in order, according to Mr. DiCamillo's Field Poll. But while they say they want reform, voters are loath to undo the ballot initiatives that many experts say have led to today's mess.

California's initiative process puts power in the hands of the people as in no other state. Some 400 initiatives have been on state ballots since 1976. These have set term limits, banned gay marriage, taxed millionaires, and set aside 40 percent of the budget for education. The process has been hailed for giving people unequaled checks on politicians – and criticized for creating constitutional changes at the voters' whim.

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