Wednesday, February 18, 2009

California Blues and Pinks

The budgetary troubles of California are not just about the general recession:

The roots of California's inability to address its budget woes are statutory and political. The state, unlike most others, requires a two-thirds majority vote in the Legislature to pass budgets and tax increases. And its process for creating voter initiatives hamstrings the budget process by directing money for some programs while depriving others of cash.

In a Legislature dominated by Democrats, some of whom lean far to the left, leaders have been unable to gather enough support from Republican lawmakers, who tend on average to be more conservative than the majority of California's Republican voters and have unequivocally opposed all tax increases.

And then there is Governor Schwarzenegger, whose budget woes far outweigh those of his predecessor, Gray Davis, whom he drummed from office in a 2003 recall that stemmed from the state's fiscal problems at the time. The governor has failed to muster votes among lawmakers in his own party, whom he often opposes on ideological grounds, resulting in more scorn from Democrats.

Furthermore, Republican leaders in the Senate and the Assembly who have agreed to get on board with a plan have been unable to persuade a few key lawmakers to join them. The package needs at least three Republican votes in each house, to join with the 51 Democrats in the Assembly and the 24 Democrats in the Senate.

Wasn't Schwarzenegger elected partly because of the budget woes of his predecessor? That, and him being a manly-man actor.

All this reminds me of the famous Proposition 13. Many argue that it alone destroyed California's educational system.

I guess the moral of that old story is that rules and recommendations do matter, that what people may regard as their privately optimal outcome (low property taxes) might ultimately lower the value of their houses by more than the savings in the taxes, because a house in a bad school district is not desirable for many buyers. More generally, if you create rules which make raising taxes difficult you are not going to raise them very often. Now, that could be nice. Until the day the street light falls on your car and your old auntie trips on a pothole and so on. And when you need to hand out pink slips to 10,000 state workers.