Why California's golden image so quickly lost its gleam
Sacramento, Calif. — California Treasurer Jesse Unruh and state Controller Ken Cory, their official pockets empty but their sense of humor intact, harmonized a bit to open their press conference here Feb. 16.
''Turn out the li-i-i-ghts'' they sang, ''the party's o-o-ver.''
When the applause and laughter died down, they announced, to no one's surprise, that next week Mr. Cory will have to issue ''registered warrants'' - in effect, IOUs - to pay the state's bills.
California has been broke for four months. A deficit of $1.5 billion to $2 billion for the fiscal year ending June 30 is projected. The state's credit rating has dropped, and not even banks that are anxious to help can risk lending the state money until the Legislature and the administration of Gov. George Deukmejian erect some kind of fiscal structure that provides for eventual repayment.
Messrs. Cory and Unruh explained that, beginning Feb. 23, some 10,000 businesses with state contracts, 75,000 taxpayers expecting refunds, and some state employees will get registered warrants instead of checks. Meanwhile, the new Republican governor and leaders of the Democratic-controlled state Senate and Assembly were reported to be tantalizingly close to agreement on a fiscal bailout program.
Governor Deukmejian has eased his no-new-taxes stance enough to agree to a ''stand-by'' increase in the state sales tax. The Democrats have accepted some $ 600 million in program cuts and agreed to roll over a $500 million-plus deficit into the next fiscal year.
However soon agreement comes, it is clear that California - which for the past four decades has done a pretty good job of living up to its nickname, the Golden State - cannot avoid issuing some IOUs before it can arrange new loans to pay with cash. (Some banks have announced they will cash the warrants for their own customers.)
How did it happen, Californians wonder, and who or what is at fault?
Most commentators, economic observers, and officials assess blame in this order: recession, inflation, Proposition 13, and politicians.
Had the recession not been so enduring and so deep the state would likely not be issuing IOUs next week. California's unemployment rate was 7.4 percent in September 1981; it stands at 11 percent today. For more than a year Controller Cory has been announcing a steady drop in revenue from the state's 6 percent sales tax and other sources.
Inflation swelled state coffers for years and infused the politicians with confidence that whatever local governments and school districts lost as a result of Proposition 13 (the 1978 measure that slashed property taxes) the state could make up. As Proposition 13 went into effect in July 1978, Gov. Edmund G. Brown Jr. and the Legislature generously allocated funds out of a whopping $8 billion state surplus to pay for local programs.
What's more, the state's burgeoning economy - led by the new high-tech industries - encouraged some of the most generous social welfare programs in the country. Medi-Cal became a model in the Medicare field. Not only were colleges and universities tuition-free, but those teaching in them enjoyed the highest salaries in the nation. In an almost feverish economy, personal spending and debt zoomed; shortages and speculation inflated housing prices to unheard-of levels.
But California had sufficient warning. By mid-1981 that $8 billion surplus was gone and Cory began to issue ominous warnings. By that time Prop. 13 had wrought a sea change in government relationships. Local governments had traded control of their own affairs to the state for financial aid and the state government had accepted burdens that would have been onerous in the best of times.
By June 1981 the 1982 political races were under way. Governor Brown, determined to go to the US Senate, had to take time out from campaigning to swat the Medfly. But he left it to Democrats in the Legislature - Assembly Speaker Willy Brown of San Francisco and Senate President David Roberti of Los Angeles - to seek consensus on how to handle the impending fiscal crunch.
The job never got done. If the economic recovery had begun in mid-1982 and revenues had begun to pick up, the estimates on which the fiscal 1983 budget was based might have proved close enough. But recession deepened, tax collections dropped, and Cory's warnings become more insistent. (Other tax cuts approved by the voters after 1978 - especially reduction of inheritance taxes and indexing of income taxes - added to the problem.) Cuts made in state programs, and a virtual freeze on state hiring and salaries, seemed to have little impact.
In mid-November Controller Cory borrowed $400 million from state banks to pay California's bills. That money has been used up, and more now is needed.
Defeated in his Senate bid, Jerry Brown returned to Sacramento late last year seemingly determined to tackle the budget crisis. He met every day with legislative leaders. But when it became clear that Republicans - particularly Assembly minority leader Robert Naylor of Menlo Park - were adamantly opposed to any new taxes, the governor seemed to lose heart. Suddenly, he was no longer meeting. He was not even available for comment. Jerry had decided to ''let George do it.''
The new Republican governor had campaigned strongly on a no-new-taxes platform. For two months he had no power, but he made his position clear to the Democrats in charge in Sacramento: the budget would have to be balanced by cutting, not taxing. And if that couldn't be done, then a way would be found around the constitutional requirement of a balanced budget and part of the deficit would be ''rolled over'' into the next fiscal year. This would be done in hopes of economic recovery.
And that is what apparently will be done. Governor Deukmejian appears to have made one concession: If revenue collections don't improve in the new fiscal year , a hike in the sales tax (1 percent, apparently) will be ''triggered.''
The whole macabre political minuet has occurred in the shadow of a new reality as obvious as the 14,000-foot Sierras that loom west of Sacramento: The party is over. California has to learn to live within its means in a new econcomic era.