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For California, Yet Another Year of Decision

The Golden State's political crisis has reawakened its reformist instinct.

This is shaping up to be the year when Californians finally get around to addressing their political impasse by "blowing up the boxes" of state government.

Walk through a vineyard in Sonoma County or stroll through the farmers market in Santa Monica, and it's hard sensing a state in crisis. For most Californians, Sacramento's intermittent crisis has been as distant as a dispute in La Paz.

But in early 2009, the cat left the bag: The Golden State has little gold or silver, or any other marker of wealth, to get itself out of its financial mess. Once described by veteran journalist Peter Schrag as "America's America," the place where the rest of the country looks for inspiration and the next big thing, California is now a cautionary tale of what happens when ballooning spending meets vanishing tax revenues.

The state experienced a series of sharp, painful shocks to its political psyche. This reckoning includes several consecutive years of high unemployment, the collapse of real estate prices, overdue budgets and precipitous downgrading of state bond ratings. Legislative brinksmanship delayed the 2009 budget so long that the state was forced to spend weeks paying some public workers with IOUs instead of cash.

This year the situation promises more of the same: Another drawn-out budget Kabuki dance will create more uncertainty for investors and citizens looking for terra firma. Policymakers are desperate for a rebounding economy and renewed tax revenue to replenish the state's coffers and permit Sacramento to muddle through without unpopular spending cuts or tax increases.

But even if tax revenues rebound and the state enters 2011 with a less alarming budget shortfall, the deficiencies in the Sacramento policymaking apparatus have once again been exposed for all to see. Californians prefer to ignore their state government until roused by a moment of political crisis. The fiscal paralysis in state government is a humiliating spectacle that's inspiring a surge in California's "good government" reform movement.

Direct democracy by the ballot proposition system allows reformers to bypass the statehouse and take matters into their own hands by placing measures on the ballot for approval by the electorate. These initiatives will not be limited to fiscal reforms as in recent decades. Everywhere, voters are frustrated with elected officials "who just don't listen."

Outside of supermarkets, shopping malls, Botox centers and tattoo shops across the state, professional signature gatherers are out in force trying to qualify their reforms for the ballot. The result of all this frantic activity is that California will vote on some bold changes to the way its government works. In 2010, the national headlines will focus on the election to succeed Gov. Arnold Schwarzenegger. Far-reaching political reforms now under consideration could make that race look like small potatoes.

A Slow Motion (Computer) Crash
The litany of problems facing the state is well known, but they bear repeating.

California's unemployment rate has been higher than the U.S. average since the early 1990s, and the gap has widened during this recession. Statewide unemployment stands at 12.4 percent of the labor force as of December 2009. In the sprawling Inland Empire east of Los Angeles, unemployment is at more than 14 percent, and in most Central Valley counties it ranges from 14 percent to 17 percent.

The budget conundrum is worsened by a volatile tax structure, which relies heavily on income and sales tax. A small amount of very wealthy residents are taxed at a very high level: In 2006, the top 1 percent of filers paid 48 percent of the tax. When the incomes of the wealthiest Californians fell, the state experienced a steep and sudden decline in revenue.

California is tied with Louisiana for the lowest bond ratings under the three major ratings agencies. In the worst possible scenario, the state could be unable to sell enough general obligation bonds to meet basic financing needs, leading to a calamitous default or an unprecedented federal bailout. Total fiscal Armageddon remains only a very remote possibility, but for the first time it is being discussed in whispers by nervous observers.

California is given poor marks in business-climate rankings. In a recent economic analysis, the Public Policy Institute of California gave it an average grade of 38 out of 50. The unfavorable scores are a result of high marginal personal and corporate income tax rates, a high level of progressivity in income tax, exposure to broad tort liability, the high minimum wage and worker's compensation costs.

Of course, many of these tax and regulatory policies are defensible on their merits and reflect the state's left-of-center political tilt. And to be fair, these indices do not account for many of the state's key strengths, including its world-class innovation culture and daring venture capital markets.

But taken together, these policies create significant costs for Californian businesses, which put them at a disadvantage when competing with rivals located in more hospitable regulatory and tax environments. It also helps explain the pattern of high-profile companies relocating to greener pastures in recent years, taking jobs and tax revenue with them.

Tiptoeing toward Reform
Many of these problems originate in the dysfunction of state government. Understandably, reformers have turned their attention toward changing the rules of the Sacramento game.
Nowhere is the state's political dysfunction more evident than in its legislative politics. The statehouse is ultra-partisan, dominated by sectional interest groups and preoccupied by parochial concerns.

During the boom years, the legislature lived high on the hog and enthusiastically increased spending, but gridlock ensued after the crash of 2008 and caused revenue to dive. How can this languid body be set straight?

Voters have already acted to reform the way legislative districts are created. In the last redistricting, incumbent politicians in both parties joined to draw safe districts for their own benefit. For most legislators, the only competitive election they ever face is their party primary, so they are forced to play to their partisan base, to the exclusion of general-election voters.

Gerrymandered districts contributed to an ultra-polarized statehouse, in which both parties are represented by their ideologically extreme fringe, leaving the moderate majority virtually unrepresented.

In 2008, voters approved an initiative aimed at reforming the redistricting process. This established a "Citizen's Redistricting Commission" to redraw the lines for State Assembly, Senate and Board of Equalization (the authority that collects taxes other than on income) districts.

The commission has run into problems, including difficulty finding a diverse field of candidates, and the process is still untried and uncertain. Nonetheless, the next redistricting will be managed by the commission and not the legislature and may lead to more competitive districts, more closely fought races, and a greater incentive for politicians to represent the ideological middle ground.

Radical Options on the Ballot
Having passed redistricting reform, Californians are poised to vote on more far-reaching changes to the political system.

The first proposal under consideration is Proposition 14, which will be put to the voters on the June primary ballot. The idea behind this reform is to improve the ideological balance of the legislature by moving to a so-called open primary system. This remedy has long been offered by reformers as a way of moderating the extremes of major party candidates.

Under the current system, the Republican and Democrat candidates receiving the most votes in their respective primaries advance to the general election. If Prop. 14 is approved, the top two vote-getters regardless of party will square off in general election.

Supporters argue this will increase the incentive for candidates to play to the political middle ground, since moderates would have an advantage over ideologues. Opponents retort that the voters would not have a meaningful choice if both general election candidates hail from the same party.

For some, this approach amounts to tinkering around the edges of the problem. There are several political organizations currently gathering signatures to abolish the full-time legislature and replace it with a part-time, "citizen" legislature that would meet for only a few months out of the year. This was the California system until the 1960s and many large states still limit their legislators to part-time work.

Advocates claim this will force legislators to focus on the core needs of the state, such as speedily passing a budget, and reduce their opportunity for influence peddling, unnecessary regulation and other shenanigans. Skeptics doubt whether a state that already verges on the ungovernable would be well served by even less government, particularly since Sacramento's army of lobbyists and full-time committee staff would hardly agree to take a holiday.

The most radical proposal on the table was the constitutional convention proposed and promoted by several Bay Area-based reform groups. They planned on putting two initiatives on the November ballot: one to amend the constitution to allow voters to call a constitutional convention with a majority vote, the other to call the convention.

Many states automatically vote on whether to call a constitutional convention to statewide vote every 10 years, so calling a do-over on the California constitution is not as eccentric as it seems.

But if convention delegates start from scratch they will have to re-litigate every divisive debate and political sacred cow in California's long history of amendment by ballot box. Erwin Chemerinsky, dean of the law school at the University of California, Irvine, told the Los Angeles Times such a convention would take too long and lead to a dead end. "There are countless controversial issues that could doom it" even if the debate is limited to the state's structural fiscal problems.

Ultimately, donors were unwilling to place a big bet on a process whose outcome was so uncertain, and the convention-backers reluctantly put their movement on hold.

Not All Gloom and Doom
After recounting California's many problems, it is easy to forget how unique and lucky the place truly is. Many states would love to have California's problems: It is so attractive to immigrants, the state has a hard time educating and employing them all; so many high-tech start-ups have emerged, it has a hard time keeping all of them in the state; and there is so much natural beauty, environmental regulators often overreach to protect it. There are certainly worse situations to be in, and the state's problems are fixable with the right policies and political will.

Californians are jaded and cynical about their government, but the reformers are pressing ahead. Current opinion polls give many of their initiatives a solid chance at success.

Acknowledge and address our political bankruptcy, they urge, or prepare for a far more painful financial bankruptcy on the horizon.

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