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California: Too Big to Fail?
Gov. Arnold Schwarzenegger gestures as he discusses this revised state budget proposal for the coming fiscal year during a Capitol news conference in Sacramento, Calif., Thursday, May 14, 2009. Schwarzenegger called for laying off thousands of state employees and slashing billions from education to deal with a projected budget deficit that could go as high as $21.3 billion if voters reject the budget-related measures on next weeks special election ballot.(AP)

Gov. Arnold Schwarzenegger discusses the revised state budget proposal for the coming fiscal year during a news conference in Sacramento, Calif., Thursday, May 14, 2009. (AP)

When it comes to American states, California has long been number one on many fronts. Now, it’s number one in fiscal crisis.

Like many states in the economic bust, California’s spending has drastically outstripped its income. It has the highest sales tax in the nation and some of the country’s highest state income taxes: 10.5 percent at a million dollars.

But it’s also staring at a $21 billion deficit, and its voters just said no to higher taxes. It may have to empty prisons. Close schools. And it’s lining up for a federal bailout.

This hour, On Point: California, virtually bankrupt — and what comes next.

You can join the conversation. Tell us what you think — here on this page, on Twitter, and on Facebook.

Guests:

Joining us from Culver City, Calif., is Joe Matthews, senior fellow at the New America Foundation, for which he writes the Blockbuster Democracy blog. A fourth-generation Californian, he’s a contributing writer for the Opinion pages of the Los Angeles Times and a former reporter at the paper. He’s the author of “The People’s Machine: Arnold Schwarzenegger and the Rise of Blockbuster Democracy.”

From Northridge, Calif., we’re joined by Sandy Banks, longtime reporter, editor, and now columnist for the Los Angeles Times.

And from Sacramento we’re joined by Bill Lockyer, California state treasurer. A Democrat, he served as attorney general of California from 1999 to 2006, and prior to that served 25 years in the state legislature.

More links:

The Los Angeles Times today reports that California is bracing for “brutal budget cuts.”  In an analysis piece yesterday, the Times’ Michael Finnegan wrote that voters share the blame for the state’s dysfunction.

In today’s Washington Post, columnist George Will writes of “the coming California bailout,” and notes approvingly that the Orange County Register editorialized against all six of the ballot measures voted upon this week.

In his latest LA Times opinion piece, “A vote for more votes in California,” our guest Joe Matthews argues for electoral reform in the state.

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  • Mike

    ha, my father works for the Arnold, helped arnold do some of the gimmicks to get the California’s house and senate to vote for the first cuts and that lovely one repub that was the deal maker with the calendar type deal.

    I have not talked to him about the current events and real reasons behind it but thoses cuts are deep very deep least what i hear from my friends out there.

    Can your guess talk about what else is on the table? or why cali debt has grown and grown through the years? being aware arnold got in cause the prior governor couldn’t fix it, could it be time for a new one? and explain what arnold has done to curve it in a reasonable way?

  • James in Providence

    As goes California, so goes the nation. I wonder if California is ungovernable?

    Where I’m from, Humboldt County (up north), there’s a real feeling that the south is another state. We’re taught the reason past initiatives to split the state have failed is, while we have the water, they have the votes.

    Is the profit driven nature of the California/American dream party to blame? I lived in Sacramento in the 1980s and recall Greg Lukenbill, a major land developer. He made some over the top, money driven, decisions. He thought that by bringing a pro basketball team, and building the stadium, as well as all the surrounding infrastructure, he would make a pretty penny. From my prospective at the time, a major problem with that was that he was paving over some of the best farmland IN THE WORLD.

    My questions/comments are: IS California, with such diverging interests, ungovernable? Is it possible for any governor to address everything; should the state be split? Governor Grey Davis was popular enough– until the Enron driven deficit gave Schwarzenegger an angle. Is the history of the State, generations of profit driven politics and development, too much to overcome. I know there’s a movement to bring about real economic stability and sustainability, at least up north. By keeping the food local, and the money in the neighborhood, might we take on the issues in a more down to Earth way?

  • Udo

    Remember Proposition 13? Californians painted themselves into a corner when they passed the Jarvis Property Tax Limitation in 1978. It has been downhill for California ever since. How can Californians be so naive to expect all the services they want without paying for them?

  • EIO Boston

    We are creating a dangerous dependency culture. The state should be able to take care of there own problems. We pay more property taxes in Mass. and that is not enough to solve our problems. The philosophy that swept through many states to limit property taxes and expand services, created this notion (faux) properity that was never there. It is time that citizens of californaia pay for what they get and if it means fewer people owning homes let them rent. We cannot continue to prop up a lifestyle that will bankrupt this nation by bailing every one out. bail out for Paul means higher taxes for Peter. Same goes for the banks.

  • Mike

    also can u ask your guess the crazy amount of money thats spent for the prison systems and the 3 stikes rule if this could be a cause as well?

  • Joe B.

    California has some of the highest gas/energy taxes and costs in the country. California has an unemployment rate of nearly 10%. President Obama wants to make California the model that the rest of the nation follows. Obama and his administration are driven by radical “green” ideology that will hurt the economy, cost millions of Americans their jobs, lower our standard of living, and create significant fuel/energy increases.

  • Putney Swope

    Joe B, if that’s so then I guess Michigan would be a good model, it’s been anything but green, with a 13 to 15% unemployment rate and in some areas it is approaching 20%.

    Your so off base it’s not even funny.

  • EIO Boston

    Tom,

    Can you ask your guests, how California can pay for any funds raised through bond issues if they refuse to tax themselves?

    Kind regards

  • Putney Swope

    Hers why TARP and all the bank bailouts have failed.
    Obama and the legislators should have put money into the states. Of course the problem with state governments and corruption would an is an issue, but it seems we the tax payers have put billions into the banks with no returns.

    What gives?

  • robin

    Is Gov. Schwarzenegger’s plea real or just an excuse for California to get some of the bailout money? Life for many Californians is not very different now than before the economic downturn.

  • Andrew

    What does the panel think about the proposal to legalize the recreational use of marijuana in California, at least in part proposed to increase state revenue?

  • Sally

    Is California going to be the poster child for the end of the American dream? …. the end of the frontier? We are as west as you can go in the US,.. there is no more “go west young man..” are we now having to face with the loss of the open prairies and vast deserts? Was California built on land developers’ greed?

    Pasadena, CA

  • Sandy

    I don’t understand why the entertainment industry is not tapped in some way to help out the entertainment capital, while the actors (and others in the entertainment industry) who are so insanely paid for their “work” seem to have idealistic answers for all of the world’s woes, while they live comfortably from the need of people to escape from their difficult lives?

  • Putney Swope

    Sandy Banks is spot on. In my state Massachusetts the state legislators just voted themselves a pay raise.
    They also just raised the state sales tax.

    A few weeks ago on a Saturday I watched this cop stand on the side walk while window cleaners worked using a cherry picker. I noticed him standing next to his car, a 40k or 50k BMW sports car.

    When I was working as freelance web designer, on of the other freelancers was on line to get a job with the state as a programmer. He was bragging how he would only have to work 3 to 4 hours a day and get paid for 8. The salary was in the 6 figures with a nice fat state pension.

    Give me break, most state systems are so corrupt and full of dead weight. We need sweeping reforms here.
    Get rid of the dead weight, no more free rides.
    You work for 4 hours, that’s all your going to be paid for. In fact your a part time employee.

  • Alex

    If I remember correctly, Gray Davis (D) was ousted by the voters because of his inability to deal with a fiscal crisis. Arnold (R) was elected because of his what? business prowess, underlying fiscal conservatism? What? And five years later where is CA? Just goes to show how much good it does to listen to the Republican BS about their small government fiscally conservative ideology. What is the benefit of having Republicans in positions of power, as opposed to Dems, anyways? MA has had the whole series of R governors and to what avail?

    P.S. I am a big fan of and respect Arnold as a person very much.

  • Richard

    Hi Tom. Normally I find your program wonderful, but today’s program on
    California’s mess generated more heat than enlightenment — most of the
    heat from uninformed out of staters and a mediocre panelist. I tried to
    call in, but couldn’t get past the busy signal.

    The budget/deficit discussion was largely beside the point because it
    ignored the two large elephants in the room:

    Elephant 1. The requirement that it takes a 2/3 majority of both houses of
    the Legislature to pass a budget. This allows The Minority Party Of No! to
    hold the entire state hostage to its unwavering hatred of government in
    any way, shape or form aside from things that subsidize their privileged
    flock. For the past 20+ years, it has been impossible to pass a budget on
    time because of this. This past year, the process dragged on for more than
    6 months, in total stalemate, because one more vote was needed, and that
    one vote could not be found. Until finally one TMPON! state Senator, mine
    by the way, agreed to jump ship provided he got everything in his
    self-serving agenda included one way or another — including future ballot
    measures to be put before statewide voters! One of his measures explains
    it all: a measure allowing open-party primaries for statewide offices,
    something we approved several years ago, but which TMPON! went to court to
    successfully block. Why is this issue so important to our Senator? Because
    he’s about to be termed out (having already been termed out as an Assembly
    member), and wants to stay in politics; he wants to be able to be a budget
    hero and attract votes from non-TMPON! people, like Democrats! Which
    brings us to:

    Elephant 2. Term limits. This initiative was sold to a naive public by
    TMPON! as a “fix the bastards” measure. As a result, a legislator is
    limited to 6 years in the Assembly, and 8 in the Senate. It is said (and I
    believe it from my own experience on lesser public boards) that it takes
    about 5 years to learn the process of legislating. But by 5 years, one is
    about ready to be termed out. So our legislative “leadership” is both
    inexperienced and constantly changing, and the bulk of legislators don’t
    have a clue how to legislate. This is tragic. Think of all the outstanding
    national legislators who would not be serving if Congress worked this way!
    When term limits were passed, TMPON! used it’s Willy Hortonesque posterboy
    Willy Brown to get the point across — his bald black head was plastered
    in almost every term limits ad as illustrative of “the problem.” This was
    disgraceful, but it worked.

    These are the key structural reasons why California is in such bad shape.
    TMPON! has turned on its own governor and my senator as traitors to their
    obstructionist cause. It’s sick. But none of this got discussed in your
    show. Joe Mathews seemed to know his stuff, but Sandy Banks was way off
    track, a fact made obvious when she said Bill Lockyer’s milquetoast
    comments had explained things she didn’t understand before! (And she’s a reporter! His comments sure weren’t news to me, and I’m not a reporter.)

    The vote on
    Tuesday had next to nothing to do with taxes, as she alleged. The Jarvis
    people, who are still regularly quoted by the media, aren’t even
    players anymore.

    Taxes weren’t the issue in this vote. All the propositions were gimmicks
    that purported to solve problems, but most actually created worse
    problems. People saw through the sham. The California Teachers Association (K-12) got their skin
    covered by proposing to divert funds from mental health, childhood health
    initiatives, food for the poor, university funding, etc., into K-12, but
    their largest chapters (in northern AND southern California) jumped ship
    when they realized the implications. UC and state university faculty
    unions opposed those same measures, as did most of the labor movement.
    Indicative of the gimmicky nature of the measures: the lottery
    “modernization” measure would allow the state to sell bonds, to be paid
    back over up to 30 years, to realize the proceeds of the next several
    years of lottery receipts today, to plug into two years of state budgets.
    That leaves a future generation to finish paying off these bonds, at some
    multiple cost of the proceeds realized, from which they had no benefit. Can you seriously blame the voters for saying no to this scheme? Seems to me their judgment is improving. A
    couple of years ago we passed at the ballot box a huge 30-year bond to
    finance road repairs today — another example of deferring payment for
    today’s needs that makes no fiscal sense. Long before the bonds are paid
    off, those roads will have to be rebuilt again!

    My take on the election outcome was that people are becoming aware of and
    dismayed by this sort of nonsensical deficit spending to finance current
    needs TMPON! refuses to let the legislature find in more sensible ways.
    People are even saying we need to tax ourselves now to pay for what we want today –
    and that’s a really big change in attitude totally lost in the platitudes
    of your show’s unfortunately heated but off-track discussion of the
    election. The election’s real story simply isn’t the one presented on air.

  • http://animal-farm.us Foxwood

    Obaminamics is failure, but by design. He’s done so much so fast, it can’t be stupidity, but design. The list is so long for just 100+ days. California would be something else Obama could add to his design.

  • Phil

    Tom,

    When you hear a Democratic comptroller claim that teachers “pay” is only 60,000 and therefore quite reasonable, doesnt an alarm go off in your head, or in the head of one of the other panelists, that the word “pay” is ambiguous, and a way for him to fudge…ie. lie.

    Teachers average statewide total compensation (including their health care benefits, and retirement benefits)is MUCH higher than 60k. More like 90K most of which (of the benefits) is unfunded due to democratic (lets be real here) politicians caving in to the whims of the teachers union (same with prison guards) in order to get reelected (with the support of their union conspirators) than in fiscal responsibility.

    But he got in his word, and it is now planted in your listeners heads…so too late…maybe the evil forces at Fox news will actually point this out to him if he pulls that on them.

  • Ralph

    California has a basic problem – it spends more than it can generate in tax revenues and it can’t increase taxes. It already has some of the highest corporate and individual income taxes in the country. It can’t raise real estate taxes because of Prop A. Real estate prices went through the roof long before anyone heard of subprime loans, which was strangling many homeowners. However still Californians wanted more government services than it could afford. California needs to go bankrupt. Only after their ability to borrow it stopped will they “get it”. Unfortunately I think California is the prelude to what is coming for the entire country.

  • RJ

    The US seems to be the only “developed” country in the world whose citizens prefer to bring down the living conditions of their neighbors rather than improve their own.

    Members of unions have good wages and benefits because their predecessors looked at their wretched, unsafe working conditions and 14-hour+/7-day workweeks and lack of health care and discrimination and their individual powerlessness and decided that their children shouldn’t live that way. They got together with other powerless people and formed a union.

    And now (like everyone else) they have weekends and 8-hour days and insurance when you’re sick and vacations.

    I wish people would spend as much time trying to figure out effective routes to improving *everyone’s* lives *up* to these standards as they spend complaining about those who have them.

  • Joe B.

    Putney Swope, one of the reasons unemployment in Michigan is so high is because the UAW has become excessively powerful, demanding, and greedy. The UAW broke Chrysler, Ford, and G.M.. Foreign car companies aren’t building factories in Michigan, they’re building factories in Ga., S.C., Tenn., and Al.. Why you ask? To get away from the UAW (one of Obama’s biggest supporters). Once again Putney Swope, your total ignorance shines through.

  • TM

    So, if we fired every worker in the state it wouldn’t fix the budget. Tom, please challenge statements like that because they are ridiculous. Sure it wouldn’t fix the budget, but increasing efficiency would help. I have a relative who teaches in the community college system. Works a good 15 to 20 hours a week, for his full time job. Makes a lot more than the 60K mentioned. Maybe he’s an isolated case. But I doubt it.

    You have a huge costly prison system with a high percentage of illegal aliens. And now you have high unemployment costs with millions of illegals taking your jobs. And they’re not just farm work. I know a contractor who says he hires illegals to stay price competitive with other contractors who do the same.

    There are many sources of california problems. And there will need to be many solutions. But I doubt the legislatures will make politically incorrect decisions or take on unions who vote them in office.

  • david

    It is so sad to see how difficult it has become to live in CA. The Democrates and radical liberals have destroyed this state with their policies.

  • AD Schleifer

    What was the name of the book referenced as the “best book on California”? The comments suggested it was written awhile ago, but that it was still the best description of the State.

  • Tim

    I’m a lifelong Northeaster who has always admired California’s beauty but been surprised and confused by its problems. In my opinion, a few things need to be done for this, the richest and loveliest state in so meany ways, to get it together.

    They need to rewrite their budget process. They need to stop being held hostage by all these statewide ballot measures. They need to do something to stem the flow of illegal immigration. Easier said than done, I’m sure! But I think that is what needs to happen.

    The U.S. government should not be in the business of bailing out large state governments, except in extraordinary circumstances, for the simple reason that eventually there will be a cascading effect, and the federal government could be tottering on the brink of financial failure. Then we will become like Germany in the 1920s, hyperinflation, nationwide economic depression – don’t laugh, it could still happen.

    The California Dream of 1880-1970 is over, has been for a while. It is a little sad – it was a nice dream. Now Californians need to find some more sensible ways of governing.

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