How California’s Fiscal Woes Began: A Crisis 30 Years in the Making

How Californias Fiscal Woes Began: A Crisis 30 Years in the Making

With California a day away from issuing IOUs instead of paying its bills, Gov. Schwarzenegger and
the legislature remain at odds over how to close a now $26.3 billion
deficit. Schwarzenegger on Thursday ordered a third unpaid furlough day for
235,000 state employees. With its $1.7 trillion economy sputtering
and 11.5% unemployment surging, California’s difficulty in
balancing its budget could affect the national recovery.

They begin with the

property tax revolt and the victory of Proposition 13. As California

experienced a dramatic escalation in home values, property tax

skyrocketed. Especially vulnerable were seniors on fixed incomes.
When then

Gov. Jerry Brown and the legislature dithered, conservative activists
led by

Howard Jarvis put a seductively simple sounding proposition on the

Under Proposition 13, the annual real estate tax on a parcel of

would be limited to 1% of its assessed value and this assessed value

only increase by a maximum of 2% per year, until a change in

Voters responded and Proposition 13 scored a dramatic victory with
65% of

the vote. Property tax rates dropped an average of 57%.

While homeowners celebrated, city, county and school district

sat in stunned disbelief. There were predictions of drastic cuts to

education and social services. But the ax did not fall as Sacramento,

with a multibillion-dollar surplus, bailed out local governments
and the

schools. But the state rescue was accompanied by a loss of local
control. As

a result of Proposition 13, school districts, county governments and

were forced to compete with state priorities for a slice of the state


“In the first years after Proposition 13 passed, the state was
able to

get by because it had a surplus,” says David Menefee-Libey, a

scientist at Pomona College. “But because the state is now
responsible for

funding local government and school districts the demands on state

became too great. The second strategy followed by [Governors
Gray] Davis and [Arnold] Schwarzenegger has been to
finesse the fiscal crisis by using budget gimmicks and by borrowing
to bridge the yearly budget shortfall. Now both options are

Proposition 13 has proved to be a two-sided sword. “One side was
to protect the people from the government suddenly and wildly raising
property taxes,” says Bob Hertzberg, a former Assembly Speaker and
chair of California Forward, a bipartisan reform group. “That was
done. But we didn’t resolve how to pay for the services that people
want. So we have created this crazy government structure in
Sacramento held together by duct tape and bailing wire. It’s not
coherent and needs to be changed.”

Proposition 13 further altered California politics by requiring a

two-thirds majority for tax increases either at the state or local

This requirement along with a constitutional provision requiring a

two-thirds majority to pass a budget — the result of a proposition

in 1933 — means it is far more difficult to raise taxes or pass a

in California than in other states. For more than 30 years California

been living with a system of minority rule in which 34% of the

or a local community can stonewall the majority. Facing this

post-Proposition 13 system, California’s various interest groups have

increasingly used the ballot box to protect themselves — but by so

have mandated budgetary havoc.

For example, pre-Proposition 13, California public schools were
among the

finest in the nation. After Proposition 13, education spending per
pupil dropped to 48th in the nation. The state’s educators and
parents then rallied behind Proposition 98, which by a complex
formula apportions roughly 40% of the state budget to K-14 education.
In the past three decades, other special

interests have authored — and voters have passed — numerous

measures dictating that millions in state funds go to various pet

Many of these measures, including a preschool initiative sponsored by

Schwarzenegger in 2002, mandate a program but fail to provide a
source of

funding. Each proposal alone might have merit, but collectively these

measures have locked most of California’s budget in place.
“Gradually, the

voters’ piecemeal decisions have bound the legislature in a

says Thad Kousser, a professor of political science at UC San

Similar to the Red vs. Blue state clash in the nation as a whole,
there are two Californias. Historically, there was the liberal north
versus the conservative south. Since the days of Governors Pat
Brown and Ronald Reagan, the clash has been between older,
predominately Anglo voters, living in the suburbs and rural counties and
largely voting Republican, and younger voters, more likely to be
Asian or Latino or black or Middle Eastern, who are more
prevalent in California’s urban centers and hip suburbs and who
predominantly support Democrats. As the state’s population has
become diverse and Anglo voters have seen their own children grow up
and leave the public schools, there has been a backlash of the first
against the second, as seen in conservative ballot measures such as
Proposition 13 , Proposition 187 and Proposition 8 . Conservative Anglos, a
minority of the state’s population as a whole, are vocal and
continue to exert power beyond their census numbers because they vote
in relatively higher percentages, and because GOP votes are required to
pass a budget or enact new taxes under the state’s unusual two-
thirds majority requirements.

Read “California’s Fiscal Crisis: The Legacy of Proposition 13” Read “Can the U.S. Afford to Let California Fail”