Saturday, September 12, 2009

Who Killed California?

Is the title of a devastating article from the inaugural issue of the new magazine National Affairs.

An excerpt.

“The story of California has always been a great American tale of triumph over long odds. Since its entry into the Union, in the aftermath of war and the midst of gold fever, the state has seemed an improbable colossus. But again and again, California has made its way through hours of challenge – not only surviving intact, but emerging as a model for the rest of the nation.

“In the 19th century, despite immense geographic, ethnic, political, and social differences, Californians managed to form a cohesive identity, resisting numerous efforts to divide the state. They overcame the "curse of natural resources" that so long afflicted other commodity-rich states (and still afflicts some, like Alaska), laying the groundwork for a thriving and diverse economy that now dwarfs those of many developed countries. In the 20th century, through one of the greatest feats of engineering in human history, they turned the semi-arid desolation of southern California into a booming megalopolis and home to the second-largest metropolitan area in America. California ranked 20th among the states in population in 1900, but by 1963 it was first, where it has remained.

“And through a series of social, political, and economic experiments, California has acted as America's foremost laboratory of innovation, trying out ideas the country as a whole would go on to adopt. In the 1960s under Governor Pat Brown, the state offered a model of modernization, building the most advanced education and transportation infrastructures in the nation. Under Brown's successor, Ronald Reagan, it offered a model of conservative governance that would go on to transform American politics. Hollywood has made California a crucial part of America's cultural identity, and Silicon Valley has put it at the heart of our vision of the future. For many decades now, Americans have seen California as a harbinger of promising things to come.

“Today, however, California has become a warning sign. Beset by economic disaster and political paralysis, the state is in the midst of a systemic crisis. And while the meltdown has certainly been accelerated by the recession of the past two years, its causes involve two decades of poor judgment, reckless mismanagement, and irresponsibility. How California got into this mess has a lot to teach the rest of the country; how it gets out will say a great deal about America's prospects.


“It would be difficult to overstate the magnitude of California's troubles. In economic terms, the state is simply broke: issuing IOUs as payments for goods and services, begging the federal government to back state debt (a request the Obama administration denied), and watching its credit rating plummet. To address a $42 billion shortfall in February of this year, the legislature enacted a package that included the largest state tax increases in American history, leaving California with the highest sales and personal income-tax rates in the country (though Hawaii would supplant its lead in the latter category in May). When another $26 billion shortfall emerged by summer, lawmakers — chastened by the 2-1 rejection of further tax hikes in a May 19 special election — agreed on another package that featured more than $16 billion in spending reductions, including deep cuts to education, health, and social services.

“That's not even the worst of it. For all of the high drama that has accompanied 2009's fiscal travails (a stunning populist backlash against high taxes, widespread public-employee protests over spending cuts), California's lawmakers let the crisis go to waste — failing to use the moment to improve the state's financial outlook. As the San Diego Union-Tribune's John Marelius noted:

“[California projects] a deficit of between $7 billion and $8 billion for the next budget cycle. Plus, federal stimulus money, $5 billion of which was used to backfill education cuts this year, may not be available. And about the time the next governor takes office, $16 billion in temporary tax increases that were included in [the] February budget deal will expire.

“As if that weren't apocalyptic enough, California's short-term ¬financial difficulties pale in comparison to its long-term obligations. In the most recent fiscal year, the California Public Employees' Retirement System and the California State Teachers' Retirement System, the state's two largest pension plans, lost a combined total of nearly $100 ¬billion — about a quarter of their value — in the market downturn. If legislators thought tackling a $60 billion deficit was trying, they are sure to love the challenge of making good on California's fixed pension obligations — which Governor Arnold Schwarzenegger has estimated are $300 billion in the red.”