California: A Dream Decimated
In Sacramento, they can hear the chimes at midnight. State legislators and Gov. Arnold Schwarzenegger have been told by State Controller John Chiang that he will be compelled to pay the state's bills with IOUs starting tomorrow unless they come up with a way to close California's mammoth $24 billion deficit.
California has company in this eleventh-hour agony. Indiana, Arizona, Mississippi and Pennsylvania also went into the final day of the fiscal year facing the prospect of shutdowns of public agencies or paying bills through IOUs unless they devised ways to close the yawning gap between their obligations and their recession-savaged revenue.
The list of states -- Democratic and Republican, old economy and new -- is sufficiently diverse to dispel any notion that the fiscal crisis of the states is disproportionately the problem of one party or one region. It is, rather, hard-wired into the American system of governance, wherein virtually all the states have required themselves to produce balanced budgets even during depressions -- which means they must slash services and lay off workers even though such actions actually deepen the downturn.
But California is a special case simply because it's so big. Closing California's budget gap entirely through cutbacks in programs, as Schwarzenegger and the Republicans in the legislature propose, will deepen not only the state's recession but also the nation's. Fully 1 in 4 of the nation's underwater mortgages, for instance, are on California homes, and the effects of the governor's proposed cuts -- which UCLA's Anderson School of Business estimates will cause 60,000 state employees to lose their jobs -- will be to create a new wave of foreclosures and toxic assets on the banks' books. California accounts for 12 percent of the nation's gross domestic product and a disproportionate share of the federal government's revenues (and for every dollar that Californians pay to the feds, they get just 80 cents back in services).
Right-wing ideologues see the crisis as an opportunity to shrink government regardless of the consequences. Schwarzenegger is proposing to end welfare, not just as we know it but altogether, and to throw 1 million children off the rolls of the state's healthy families program. But the consequences of closing the deficit simply through cutbacks will be felt by more than the poor. Already reeling from $15 billion in cutbacks that the state put through in February, many school districts, including that of Los Angeles, have canceled summer school this year. Scholarships that enable students of modest means to attend California's fabled university system have been slashed. Most of the state's parks may have to be closed as well.
The terrible irony in decimating the public sector to save the state is that the California that was the epicenter of the postwar American dream was fundamentally a creation of government. Fighting a Pacific war during World War II compelled the federal government to spend billions on California industry and infrastructure, and the state was the leading beneficiary of Pentagon dollars during the Cold War. As Kevin Starr, California's leading historian, points out in "Golden Dreams," his brilliant new history of the state in the 1950s and early '60s, fully 40 percent of all defense dollars for manufacturing and research in 1959 went to California, anchoring the state's booming economy in a well-paid workforce that was either unionized or professionalized, and seeding an electronics and high-tech sector that was to blossom in the following decades. Building on that prosperity to create more prosperity, Earl Warren, Goodwin Knight and Pat Brown -- two Republicans, one Democrat -- invested state dollars in schools, universities, freeways and aqueducts that were the best in the world. The Golden State was never more golden.
Today, its governor seems determined to turn that gold to dross. On Monday, the Democrats in the legislature passed a budget that included cuts of $11 billion, levied a tax on oil companies and tobacco, and raised auto registration fees by $15 per car to keep the state parks from closing. Schwarzenegger reiterated his refusal to raise any taxes or fees and said he would veto the budget.
From a model for far-sighted investments in the future, California has become a state that uninvests in the present and has no vision at all for the future. Proposition 13, enacted by state voters in 1978, effectively blocked its cities and counties from funding their own endeavors, and the Republican minority in the legislature, abetted by Schwarzenegger, has made it all but impossible to invest in the kind of projects that Warren, Knight and Brown undertook. Today's California visionaries are calling for a constitutional convention to rewrite the plainly dysfunctional rules by which the state governs itself. It is not only Californians but also America that has a stake in their success. A California that decimates itself during recessions drags the rest of the nation down with it.