The Dimming of a Dream in California

The California dream is fading. In the wake of a crisis-induced budget deal endorsed by Republican Gov. Arnold Schwarzenegger and passed Friday by a Democratic-controlled Legislature, Californians can look forward to drastic cuts in higher education enrollment and increased student fees and tuition, significant reductions in health coverage for the working poor, an end to cost-of-living increases for government workers and teachers, elimination of state support for immunization programs, reduction of welfare payments, and the closure of as many as 50 state parks.

And that's only for starters. The budget compromise that limped through the Legislature after an all-night State Senate session and Friday confrontations in the State Assembly was supposed to close a $26-billion budget deficit that has left California's coffers empty, and forced the state to issue IOUs to pay its bills. It came up $1.1 billion short, when the Assembly voted down two of the 31 measures that were part of the compromise and then quit for a three-week recess. (Environmental lobbyists succeeded in killing a bill to resume oil drilling off Santa Barbara, and local lobbyists beat back a plan to raid local gasoline tax funds for state purposes.)

Schwarzenegger could make up the difference by using his line-item veto or by allowing $900 million in state reserves to dwindle. But even if he does, it is likely that the Legislature will have to plug new holes in the budget before the end of the year and perhaps as early as September. Still, in a Legislature known for avoidance of hard choices, any sort of agreement seemed a victory of sorts.

"Given the magnitude of the problem, just surviving is a form of success," said Mac Taylor, the non-partisan legislative analyst. Taylor, who has a reputation for realism, said that a key measure of whether the deal succeeds will be the reaction of the credit markets. California currently has the lowest credit rating of any state and has found it increasingly difficult to borrow.

Schwarzenegger and legislative leaders were able to cobble together a deal only by taking a rosy view of prospective state revenues and budget savings. Many of these savings are "illusory," says Jean Ross, executive director of the California Budget Project, a non-partisan policy group. She cites as an example the projection of $1 billion in revenue from selling the troubled state workers compensation fund to a private insurer, an idea that has yet to interest any buyers. Others describe the budget deal more bluntly. "It's smoke and mirrors," says George Steffes, a veteran Sacramento lobbyist. The League of California Cities, criticizing the seizure of $1.7 billion in local development funds, denounced the budget as an "irresponsible Ponzi scheme."

Privately, even architects of the deal admit it is dubious. One veteran legislative aide, speaking on condition of anonymity, said he expects on the basis of precedent that the courts will overturn the state seizure of local development funds, but added: "It will take two years, so look at the money as a two-year loan."

Until recently, California's struggles have been of interest largely to political analysts and providers of state services who have been stuck with IOUs. But the effects of the budget meltdown are now being widely felt in a state that has an 11.6 percent unemployment rate and has lost 900,000 jobs since the recession officially began in December 2007. Government jobs have cushioned California in past recessions, but the cushion is gone. California lost nearly 21,000 government jobs in May and June -- the numbers are likely to go higher this month. And government employees who have held their jobs have taken a pay cut in the form of furloughs requiring mandatory days off. For faculty members and other employees at the state's two university systems, the pay reductions range from 5 to 10 percent. For many state and local government workers, the cut is as high as 15 percent. Since California has nearly 12 percent of the nation's population, the decline in purchasing power caused by unemployment and pay cuts will have an adverse impact on the national recovery.

What has happened in California cannot be measured fully by statistics. Ever since the state burst into national consciousness with the discovery of gold in 1848, California has occupied a niche in the public imagination as a place of limitless opportunity, the embodiment of the American dream described by William Faulkner as "sanctuary on earth for individual man." California was Hollywood, sunshine, beaches, abundance, freeways, great universities and a gigantic aqueduct that could be seen from outer space. In the imagination, at least, these overshadowed smog, factories in the fields, overcrowding, racial and campus unrest, and urban riots. As a Life magazine editorial declared in 1943, California was "dreamland." Not even the radical historian Carey McWilliams, one of the state's most trenchant social critics, was immune to this romantic view. "In California the lights went on all at once, and they have never been dimmed," McWilliams wrote in 1949.

The belief in the special-ness of California persisted throughout the 20^th century despite huge swings in the state's politics. Even after conservative Republican Ronald Reagan replaced liberal Democrat Edmund G. (Pat) Brown as governor in 1967, California continued to shine. One of Reagan's first decisions was to agree to a $1-billion tax increase -- $6.5 billion in current dollars -- that was then the largest tax increase in the history of any state. That action alone would put Reagan to the left of any current Republican officeholder in California. In his second term as governor Reagan negotiated with Bob Moretti, a bright and tough-minded Democratic Assembly speaker, to achieve a broad-gauged welfare reform bill that both reduced the rolls and raised the grants of the poorest recipients.

It is a different California now. When the State Senate passed its version of the budget compromise last week, Jean Ross of the California Budget Project posted a personal note on her organization's blog: "I've always proudly advertised the fact that I was born and raised in California and educated by the state's public schools from kindergarten through graduate school. Unfortunately, this budget agreement marks a rolling back of similar opportunities for the current and future generations of young Californians."

The state's current predicament is often traced to two seminal ballot measures approved by California voters. The most famous of these is the populist Proposition 13, passed in 1978, which curbed what were then runaway property taxes and imposed upon the Legislature a two-thirds requirement for any tax increase. A decade later, the California Teachers Association, a critic of Proposition 13, struck back with an initiative, Proposition 98, that dedicated 40 percent of general fund revenues to education. Liberals say that Proposition 13 has prevented California from raising money to pay for the services the state needs; conservatives say that Proposition 98 imposed a budget straitjacket upon the Legislature. Some nonpartisan analysts have found merit in both arguments.

But on close examination it seems excessively simplistic to blame either or both of these measures for California's current plight. After all, both were in effect in 1991, when California was hard-hit by a recession caused by the implosion of the aerospace industry. At that time Republican Gov. Pete Wilson came up with a plan to cut spending, which Democrats opposed, and to raise taxes, which Republicans abhorred. But Wilson leaned on Republicans and Democratic Assembly Speaker Willie Brown did the same with Democrats, and the crisis was solved.

Many proposals are on the table of various think tanks in California for reforming the state's budgeting and taxing procedures. None has been seriously considered by the Legislature or the governor. And while some business and government leaders have called for a convention to revise a state constitution often described as archaic, it seems increasingly clear that California's problems cannot be solved by process alone.

What California may need more than anything is leadership -- of the kind that Pat Brown and Ronald Reagan and Pete Wilson provided as governors and that legendary Assembly speaker Jesse Unruh as well as Moretti and Willie Brown brought to the Legislature. That at least is the opinion of longtime lobbyist Steffes, who was legislative liaison for Reagan and a constructive participant in the welfare-reform bill negotiated with Moretti. "Reagan and Moretti and all the others had plenty of flaws, but they came to Sacramento to do something," said Steffes. "Where are the leaders now? Who is willing to say I'll risk my office for something I believe in?"

The answer to these questions may be that California's leaders are gone -- and with them the dream that made this state such a special place.