Does California Lead the Nation Once Again?

There is a saying that goes around on the Internet, and that I've seen in some popular politics books (i.e., polemics and apologetics), that a democracy will endure only until its citizens discover that they can vote themselves benefits. The first time I saw this saying, it was attributed to a 19th Scots legislator. I have since seen it attributed to Benjamin Franklin, an attribution I find doubtful because "democracy" was not a word Franklin would have used in such a context. In any event, the saying is a favorite of "small government" and "low tax" conservatives, and there may even be some truth to it.

California has often led the nation in the adoption of fads and fashions; is it going to be the leader in fiscal disaster? Thanks to the populist devices of the initiative and referendum, the people of California have tied their government in knots. They have adopted a number of measures, starting with the infamous Proposition 13 in 1978, that have limited taxes, which is to say, that have limited the revenue available to the state government. They have also adopted a number of measures requiring that the government do this or that, thereby driving increases in the costs of state goverment. Further, they have placed a straitjacket on the budget by requiring that some activities, such as education, receive certain percentages of the state's budget. Thus, if circumstances lead the state to increase funding for highways, prisons, or parks, the legislature must also increase the funding for education by the prescribed proportion.

They have capped this incoherent system with a provision that budget measures must gain a two-thirds majority to pass the state legislature, thereby guaranteeing that no coherent, sensible budget can become law.

In addition, I might note, while California's constitution seems to require a balanced budget, it also seems to allow the legislature to count large amounts of borrowed money as revenue.

Now California faces an enormous deficit, and the voters recently rejected a number of measures designed to relieve the problem. (One article asserts that these measures would only have reduced the deficit to about $15.4 billion dollars.)

There are only two ways to balance a budget, since, by definition, a balanced budget is one in which expenditures are equal to revenues. First, you can raise taxes, fees, or other sources of revenue. Second, you can cut programs, reduce staff, eliminate grants, and otherwise reduce costs. Usually, a successful effort to balance the budget requires some of both forms of remedy. At some point, somebody must be responsible to defining the relationship between revenue and expenditure and bringing them into balance.

Unfortunately, the California system limits revenues without any reference to the expenditures that those revenues will be required to fund. Proposition 13, for example, limits ad valorem taxes to 1% of the cash value of real property. In other words, the tax will produce revenue of no more than 1% of the value of the real property in the state; when real estate values decrease, revenue decreases without an obvious means of making up the shortfall.

Unless California's leaders can persuade the voters that they cannot have both low taxes and a specified range of government services, the state appears headed for complete financial collapse. Given some of the attitudes evident in the U.S. Congress, can the rest of the country be far behind?