California: A Recipe for Financial Disaster? (part 2)

Victor Hanson’s article on the fiscal woes of the State of California starts out well, but soon degrades into stereotyping California society, pointing to our attitudes as a source of our problem. That’s not particularly helpful, but I do think that California society is in part to blame. But it’s not our SUVs – it’s our democracy.

At first glance, California’s ballot initiatives seem like a higher form of democratic government. When you open your first California Voter’s Guide and see all the initiatives, with their pros and cons and rebuttals and financial analyses and legal language, there’s a great sense of empowerment. We The People can participate in governing our state. We can make laws. We can even change our Constitution! Well, yes, but are we the best people for the job? Do we have the big-picture, long-term perspective to prevent financial meltdowns down the road? I don’t think so.

  1. The most well-known ballot initiative is Proposition 13. Led by the Howard Jarvis Taxpayers Association, we amended our constitution in 1978 so that the government cannot reassess a home unless it changes title.  Prop 13 is great for retirees and others on fixed incomes — they’re not going to lose their homes because they can’t pay the taxes.  Rising property taxes in my native state of South Carolina are real menace in the best locations, so I immediately understood the benefit when I immigrated. But after awhile, I became aware that Prop 13 has a dark side: prices for labor and raw materials and energy all go up, but the funding for infrastructure cannot go up in parallel. Unlike sales taxes and fuel taxes, which generate revenue in proportion to the population, property tax revenue is held back.
  2. Another famous ballot initiative is our more recent “Three Strikes and You’re Out” law, Proposition 184. If you’re convicted of three felonies, you go to jail — forever.  Good idea, right? Keep us all safer from the hard-core criminals. And it’s working, right? Since 1994 our crime rate has dropped quite nicely. But it comes at a cost. We have to pay for all those prisoners. And here we are, fifteen years later, and the prison system has gotten very expensive — $9.7 billion just for the adults. The economic effects of the rising costs of labor, healthcare, and real estate needed to handle our ever-increasing prison population, do take their toll over time.
  3. Propositions don’t have to be famous to contribute to California’s fiscal woes.   Nearly every election I’ve seen in my 20+ years in California has had bond initiatives.  Some are put on the ballot by the legislature.  Some are put there by petition, led by some special interest or other.  They all propose selling bonds to pay for some really wonderful project.  Let’s do this great thing and improve our state!  It doesn’t raise taxes – we’ll sell bonds to raise the money! Vote Yes! 

    But wait…when those bonds are sold, the state has to pay the interest on those bonds.  That’s what bonds are.  Someone is loaning you money, and you pay them back with interest. Who’s going to pay for this “free” money? Even worse, the pros and cons in the election booklet typically debate the merits of the way the money will be spent and tracked, but hardly ever argue whether the money should be spent in the first place, or how we’ll pay for it later. And lots of the bond initiatives pass, handing the problem of funding that bond interest over to our future legislators. (Mind you, I’ve voted yes on a few of these, so I’m guilty as the next person, but most elections I vote against them. Free money isn’t.)

Now it’s important to note that these are all ballot initiatives. If they fail — if they have disastrous financial consequences — there is NO ONE to hold accountable.  You can’t vote the people of California out of office, like we can the governor and the legislature. Once you’ve given We The People power, it very hard to take it back.

So is California’s budget a lost cause? Between democracy and geology and meteorology are we truly doomed? Perhaps, but there’s one more thing at play here. I’ll tell you in the next installment.

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