California budget crisis spurs reform efforts
With a $20.7 billion shortfall expected over the next 18 months, the California budget crisis remains severe. Economic recovery may help ease the budget crunch, but many say true reform is needed.
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California may "suffer from too much democracy," says journalist and historian Peter Schrag, author of "California: America's High-Stakes Experiment."Skip to next paragraph
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Arguably the most controversial initiative is Proposition 13. The 1978 measure requires legislators to approve tax hikes by a two-thirds majority and capped property taxes at 1 percent of assessed value. Intended to keep taxes in check, the policy means the state must rely on its progressive income taxes for revenue, which then rises and falls with the economy.
Californians must rethink tax policies if they want to end the roller coaster of boom and bust, says Jerry Nickelsburg, a senior economist at the University of California, Los Angeles. "If [we] want to retain the [tax] system we have now, we are just going to have these cycles of deficits."
Recent polls show that Californians are reluctant to embrace tax reforms.
"The trouble is that no one can agree on a solution," says Henry Brady, professor of public policy and political science at the University of California, Berkeley. "[W]e are at a tipping point where California has to ask itself if it still wants to provide the institutions it has become known for."
Some Californians say only a constitutional convention can solve the crisis – a daunting prospect and one that critics fear would be hijacked by ideologues. California voters may be able to weigh in on the matter in 2010, with two planned ballot measures that call for a convention focused on changing the budget process – possibly diluting the requirement for budgets to pass with a two-thirds majority – and reining in initiatives.
Fixing the state may ultimately depend on whether the impetus for reform outlasts economic recovery. Most economists agree California will bounce back. While the state trails in emerging from recession, its long-term growth potential is strong. Export activity with Asia is increasing, housing prices are stabilizing, and job losses are slowing.
Some areas will rally faster: The technology-driven Bay Area will grow sooner than the Central Valley, where housing and agriculture have been hit hard. The state remains at the forefront of innovation: 40 percent of venture capital in the United States is still spent in California. Silicon Valley techies reign over the Internet, and Hollywood still produces blockbusters. The state will continue to draw immigrants in search of a dream.
"Right now, things are out of whack," says pollster DiCamillo, "[But] I would not be the one who would say, 'This will be it for the California dream.' I think it will rebound." •