“He did address some of the serious issues,” suggested one Californian commentator in weak fashion. In truth there was much that could have been far more serious about the Californian Governor’s last State of State speech (January 7). Initially, we thought we were listening to a speech about a menagerie, a set of anthropomorphised animals running amok in the family household. The pony and pig, Governor Arnold Schwarzenegger told his terrestrial audience, would gaze at him while he was busy “working on the Budget or something”. All had to contribute, to do their part. The same went for law makers. Was this the nervous, unhinged response of a lame-duck governor?
Reading more closely, the proposed Budget seeks to address a $19.9 billion gap that should end 2010-11 with a $1 billion reserve. That will prove a challenge. Balancing the Californian Budget is a nightmare at the best of times, a legacy of a skewed tax system that has burdened the state for decades. The tax system has struggled to come to terms with the complexities of the Californian economy. The few, claims the Governor, support the many. Constitutional reform has been mooted constantly, and little headway has been made on that front.
The mess itself can be attributed to the constitutional quirks of the system, which reflect a mixture of errant banditry and fiscal irresponsibility. For one thing, tax rises and the passing of Budgets can only be initiated with a two-thirds majority in each house of the legislature. This particular addition was made in 1933. Then came the shift away from the lucrative property-based tax in 1978 with the passage of Proposition 13. The state came to rely more heavily on income tax and volatile capital gains. When the state did well, surpluses were plenty. When the economy contracted, the Budget went rapidly into the red. In 1991 and 2003, governors Pete Wilson and Gary Davis respectively faced that problem.
The relationship with Washington DC has also been tense. Schwarzenegger is unhappy with the return California gets on its state taxes. The state, he insists, only receives 78 cents in federal funds for every $1 it sends out in taxes. “We are not looking for a federal bail-out, just federal fairness. We need to work with the feds so that we can fix the flawed formula that demands that states spend money they do not have.”
The Governor did come up with a few other proposals. He suggested it was inappropriate that a state should spend more on prisons than education. But in the nihilistic policy framework that seems to affect this state, surely this can hardly be surprising. All he suggests is greater use of private prisons so that funds can be ploughed back into education. Rather than reducing prison populations, we are subjecting them to the good laws of capitalism and the private sector. The unions will be displeased. (Prison guards have cherished economic rights, too.)
Last year, California was starting to resemble a failed state at the government level. America’s richest state, with one of the world’s largest economies, became a specialist in trading near junk bonds. The state’s creditworthiness was reduced to nothing. Its pension fund was shown to be dangerously insufficient. It will take a feat of termination far greater than any celluloid achievement to overcome the fiscal problems of America’s Golden State. And it remains to be seen whether this “draconian” Budget, as it has been called, will do the trick.
Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne, and is currently in San Francisco. Email: [email protected]