California's bleeding.

In case you've been hiding away for a year or so, let me break it to you gently: the economy is hitting some turbulence. Naturally, we can all feel the pangs and repercussions effecting us. Jobs are drying up, credit agencies are running for cover as banks take hit after hit from defaulting mortgages. There's no way to deny that the American family has been sucker-punched by a sudden and deep economic downturn that seems to have come from nowhere. The signs of the recession seem to get more and more severe as one travels up the ladder. Companies are being squeezed out of business as consumers become more and more thrifty and unwilling to purchase anything that may be conceived as a luxury, especially a new car. [This is a topic for a later article.] Bear Stearns, one of the largest and most influential banks in the entire sector went tumbling down only a few days after economist Jim Cramer attempted to reassure his viewers on Mad Money, saying "Invest in Bear Stearns! Nothing is wrong with Bear Stearns!" As it turns out, even the best economic forecasting is, at the base of it all, still forecasting, and subject to the same uncertainties that make it rain even when the meteorologist promised your picnic would go off without a hitch. At the public level, government-funded programs are on the chopping block as disastrously low levels of public income (taxes and the like) are predicted. Obama, in a stunning Keynesian maneuver, injected billions directly into the consumers' pockets, hoping to give the economy the figurative adrenaline shot. Not long-term care, by any means, but something to make sure that we don't completely black out, or red out, as the case may be. The federal government was able to do this because they U.S. government is able to run with a deficit budget without any severe problems. States, however, cannot.

California, at the start of the year, had the largest budget deficit in the country, at a staggering 26 billion dollars. In comparison, Kansas's deficit is a trifle, at $1 billion. California, the state of Prop. N, has a wealth of public programs to spend money on. For one, the massive University of California system covers the entire state with institutions of higher education such as CalState, UCLA, and the MIT of the West Coast, CalTech. California's Proposition 98 requires that 40 percent of the state's budget be spent on education, meaning that public schooling takes up a sizable amount of that deficit. The Golden State also has many social programs, including welfare programs for the disabled, in-home workers, as well as disadvantaged children. California also features MediCal, the state Medicaid program, ensuring that low-income families have access to health care. For families that are above the maximum income bracket for MediCal qualification, the state also has the Healthy Families program, which guarantees medical coverage for 930,000 children. However, despite these programs, California is still relatively out of the ordinary as far as social services, and spends exorbitant amounts on average benefits.

Now that the state is faced with the largest state budget crisis in U.S. history, it's time to evaluate those programs. In July, the state managed to, under heated negotiations, stumble back into the black. In a true sense of conservative glory, legislators managed to accomplish this monumental feat without raising taxes. At all. Rather than impose a tax hike on the Californian public, legislators as well as Gov. Schwarzenegger cut the state expenses to the bone, trimming 16 billion dollars worth of 'fat'. This money comes from early every sort of public program you can imagine, including deep cuts for all of the education services, K-12, community colleges, state universities, the works. Speaking of works, CalWorks, the state welfare system is being sliced up as well. The in-home aides previously mentioned are also suffering cuts, as well as Healthy Families. State workers are also being cut in the form of pay cuts, furloughs, and layoffs. Public transportation takes a hit, as well as redevelopment agencies. In what will probably turn out to be the most controversial and vehemently opposed part of the new budget, over 25,000 inmates will be prematurely released from prison.

To add some numbers to all this, the state university system is posed to increase tuition by roughly 9% as well as decrease enrollment by over 30,000 students as state funding drops by one-fifth. K-12 schools will not be getting new textbooks for another five years, and the school year is losing a week, dropping to 175 days. About 2,000 teachers are also being laid off to combat the new cuts. The Healthy Families program is losing $124 million worth of state funding, but since the federal government puts in double the state's contribution, the program is losing slightly less that half of its budget. Redevelopment projects are going to be forced to cut 2,300 jobs, potentially putting millions of dollars in private investment at risk. Deep as they are, these cuts only account for $16 billion out of the deficit. Where is the rest coming from? Complicated accounting maneuvers to shift money around, including a payment deferral, as well as dipping into some of the local governments' income.

The severity of these budget cuts may seem harsh to many, and are surprising coming from a Democratic state. The classic left-wing position is one of increased taxes as well as increased social services. Certainly a more Democratic resolution would be to increase taxes, in an effort to keep more public programs intact. Why did the Democrats allow a budget free of any tax hikes to pass through legislation? Well, they tried. Although California is decidedly blue, the Republicans still hold 37% of the seats in the state legislature. Usually, this would be a death knell for the GOP in the state, as nothing short of a full-scale tax revolt would return them to power. Ironically enough, the GOP's 37% allows them to stop the policies that would lead to this tax revolt, so that they are just strong enough to preclude ever becoming stronger. Perhaps a better question would be why the Republicans would ever want more power? Their minority, though it is small, is decidedly unified, and can present a brick wall to Democratic legislators. They are able to gun down Democratic budget proposals with impunity, due to the required two-thirds majority.

So, why do the Democrats back down? With their huge majority, they would be able to obliterate any Republican budget proposals, and there's no way that this group of liberals respects the Republican budget on its merit, so why don't they just vote against it? The simple answer: they just can't. It's like the Republicans are holding the state hostage, claiming that they'll shoot unless the Democrats give in. And, of course, the Democrats give in. For them, it's really a 'lesser of two evils' scenario. Either they pass the Republican budget, with all its sweeping cuts, or they allow the state to enter a state of gridlock, preventing anything from being done at all. (Except the issuing of state IOUs.) This scenario isn't exactly favorable to the Republicans either, but it's like mud-wrestling a pig; you'll both be getting muddy, but he'll be having a bit of fun. If the Democrats take a stand on budget negotiations, they get slammed into gridlock, and the Republicans are okay with that. In this manner, Republicans are able to pressure the Democrats into concessions that wouldn't be made otherwise, due to the added force from outside, as banks are starting to refuse to honor the state IOUs, giving the Republicans added clout.

Although it may not be as well publicized as Gates-gate, we can use this, too, as a "learning moment". From this entire debacle, we can see that it would be simply better if states were allowed to run deficits, just like the federal government. If we are to continue to treasure the foundations of federalism and state sovereignty, states must be allowed to perform the countercyclical actions of economic policy creation. If this incredible cascade of budget crises sparks up every time the economy takes a dip, then why have states in the first place? In order to keep states functioning as they should under a deficit, the federal government could infuse them with funds to balance their budgets at a hit to the Federal deficit. In this way, states would be able to use their own policy to effect the nation's economic state. And isn't that what federalism is all about?

The Californian budget crisis also shines a light on one of the buzzwords of the Obama administration, bipartisanship. The supermajority clause in the state Constitution was created to ensure bipartisanship, that is, that neither party would have the ability to completely control monetary policy, without regard to the other. However, this is exactly what the Republicans are doing. Bipartisanship and camaraderie among politicians will not be created as a result of protocol and procedure. It must be created by a genuine desire from both parties to put aside their ideological differences and work together. Attempting to 'force' bipartisanship in the Californian manner is akin to placing two kids who dislike each other in a sandbox and telling them to play. They may stay in there, but you can bet that someone's going to end up with sand in their eye.

-Tom

N.B. As of July 24, there are calls for a constitutional convention to eliminate the supermajority clause.