ECONOMICS JANUARY 28, 2013
Earlier this month, California Governor Jerry Brown strode to a podium in Sacramento and said something that, a few years ago, seemed as unlikely as a UFO landing atop the state Capitol: The initial projection for the state budget showed a balance. In fact, for the 2013-2014 fiscal year, there’s a surplus of $851 million. The nonpartisan Legislative Analyst’s Office, which just a couple months earlier estimated a deficit of $1.9 billion, concurred with the governor: Revenues matched expenditures in the initial outlook for the first time since before the Great Recession.
This was a surprise, to say the least. After all, in 2009, California carried a deficit as high as $42 billion. Marathon all-nighters in the legislature and unsatisfying 11th hour deals were commonplace. At one point the state paid obligations with IOUs because it ran out of money. How could this bastion of dysfunctional governance deliver a balanced budget?
Actually the answer is quite simple. Progressive Democratic activists identified the straitjacket of rules that had the state tied up in knots, and devised a systematic plan to change them. Through massive organizing, they transformed the electorate and sidelined Republican obstructionists. Now, with surplus money on hand, they’re getting ready to fight a new battle over the next few years: whether to focus on budget balancing and debt reduction, or to continue to boldly invest in California’s future. National Democrats, mired in a series of endless fiscal showdowns in Washington, ought to pay attention: California suggests a way to overcome continual hostage-taking and government-by-crisis.
California’s recent budget problems resulted from the deepest economic downturn since the Great Depression. But the state’s difficulty in addressing them was as much a political crisis as a budget crisis. Since the passage of the notorious anti-tax Prop 13 in 1978, which capped property tax rates and made it nearly impossible to raise revenue through the legislature, California has been locked into a revenue structure that, outside of boom times, proves too small to finance the public services that residents desire. Several tax cuts during the late 1990s dot-com boom, and a huge $5.5 billion annual cut to the vehicle license fee passed by Arnold Schwarzenegger in 2003, only exacerbated this imbalance.
The state also had to contend with multiple veto points that allowed the minority party to control the fiscal debate. Until 2010, the legislature needed a two-thirds vote to both pass a budget and raise taxes, leading to several incidents of brinksmanship with Republicans, who gerrymandered the state just enough (in a corrupt bargain with the majority Democrats) to hold on to a bit over one-third of the legislative seats. Robbed of the tools of budget-balancing, majority Democrats had to make painful concessions in order to get Republicans to pass a budget.
Piece by piece, reformers started to dismantle these obstacles, using the state’s ballot initiative process. In 2008, voters approved an independent redistricting commission to break the incumbency protection racket and make the legislature look more like the electorate. In 2010, a Republican year, increased turnout and voter mobilization helped elect Democrats to all statewide offices, including the Governor’s mansion. Voters also passed Prop 25, a critical measure for reformers, allowing for a simple majority vote to pass the budget. Majority vote budget initiatives had been on the ballot before, but after years of chaos and minority hostage-taking, it was a far easier sell for reformers. Adding a "no budget, no pay" rider that would withhold payment to legislators if they failed to pass a budget helped provide accountability and broaden support.
As a result, the subsequent two budget agreements were significantly less volatile. However, because of the structural revenue gap and the super-majority requirement to increase taxes, both budgets still entailed crippling cuts. Governor Brown campaigned on a balanced solution that included raising taxes, but he could never pick off the Republicans needed to pass that through the legislature. So in 2012, Brown resolved to go directly to the ballot.
His initial package included higher sales taxes, as well as income tax hikes that dipped down to those making $250,000 a year. A coalition of progressive groups and the California Federation of Teachers didn’t feel the package could succeed at the ballot box. They organized an ad hoc coalition, and armed themselves with polling data showing a more plausible path to get voters to agree to revenue increases and break the long-standing tax revolt.
The coalition, now known as Reclaiming California’s Future, gathered signatures for an income tax increase solely on millionaires, which would raise more revenue than Brown's measure, and according to their polling garner more popular support. Using a $2.5 million investment from CFT, they built grassroots support for the millionaire’s tax, and eventually, they moved a famously stubborn governor into negotiation. A compromise package reduced the sales tax hike to just one quarter of one percent, raised the threshold for income tax increases to $500,000, and dedicated new revenue to education and public safety. The measure, now known as Prop 30, polled better and broadened the base of support across the Democratic coalition. "I don’t think it would have passed otherwise," said Rick Jacobs, founder of the California Courage Campaign and a key member of the coalition.
The real key to passing the tax measure, however, was a massive increase in political participation, ignited by a change to voting laws. For the first time ever, voters could register online in California in 2012. The new program was only implemented in the last month of the election cycle. However, despite the short window, over one million new voters, the vast majority of them Democrats, registered online, completely changing the makeup of the electorate. And these online registrants turned out in much higher numbers than typical new voters.
This combined with a comprehensive mobilization of infrequent voting communities, particularly low-income voters, students and communities of color. The outreach to immigrant and youth voters, through groups like California Calls and the Alliance of Californians for Community Empowerment (ACCE), also made a huge difference. "It became clear that winning Prop 30 and saving schools was key to low-income and student communities," said the Courage Campaign’s Jacobs. "So our coalition partners went out and found them. (Voters) turned up under rocks all of a sudden."
And it worked. Not only did Prop 30 pass by double digits, 55-45, but voters also passed Prop 39, which rolled back a large corporate tax break forced through by Republicans when they held a veto over the budget process. And because of the increased voter engagement, Democrats picked up four seats in Congress, and for the first time in over a century, acquired a two-thirds majority in both the state Senate and the state Assembly—an outcome one Democratic campaign operative had once assessed as being as likely as President Obama winning Alabama. "If you give people a reason to show up, they’ll not only show up but they’ll vote the way you prefer down ticket," said Jacobs.
None of this means that California’s fiscal and political problems have been solved, of course. First of all, the state economy is not fully healed, with unemployment still well above the national average at 9.8 percent. Analysts predict moderate growth over the next several years, but any national economic downturn would have serious consequences for the state. In addition, Prop 30’s tax increases expire completely by 2018, so the structural revenue gap will reappear if nothing else is done. There are several areas where revenue could be raised, like repealing other corporate incentives of dubious merit, or finally charging oil companies a severance tax for energy production, or taking on Prop 13 and bringing property taxes, particularly for commercial properties, back in line with the rest of the nation. Democrats have the two-thirds majority needed to pass those tax changes, but so far they’ve shown little appetite for it.
But while progressives put the coalition in place to move past austerity politics, Governor Brown largely kept in place the austerity budgets of previous years. The exception is education, where in many respects the state’s hand is forced: because of a formula set years earlier by Proposition 98, education spending must rise proportionally with increases in the overall budget. But much of the rest of the budget remains flat, particularly for social programs like welfare-to-work, healthcare for the poor and elderly, and child care, where the state has cut $1 billion over the past four years, enough to accommodate 110,000 families. At one point during the darkest days, legislative Democrats, quick to prove wrong taunts about overspending, unfurled a 150 foot-long scroll listing $19 billion in cuts they adopted from 2003 to 2008. Most of that scroll has not been rolled back.
Governor Brown has no interest in restoring the cuts, at least not in the next budget year. In his budget announcement, Brown said that "we have to live within the means we have," and he sees much of the fiscal retrenchment as permanent. He is focused on aggressively paying down what he calls a "wall of debt" by $23 billion of over the next four years, and critics have questioned the necessity of that timetable while needs for vulnerable populations go unmet. "If the budget plays out as continued cuts," said Courage Campaign’s Jacobs, "then people will say, great, you paid down debt, but what about in-home support services for my family members? What about the axle on my car still breaking on our broken highways?"
Will legislative Democrats and progressives outside the system challenge Governor Brown on his spending, revenue and debt priorities? "That is going to be the key debate between the Governor and members of his own party," says Scott Graves of the left-leaning California Budget Project. A major focus of the next couple years of budgets, according to Graves, is "going to be finding a way of restoring balance while also investing in California’s future."
This is a much better debate to have, of course, than whether or not the state can pay its bills, or what it will take to get a budget passed. And you can see in California’s experience a path for dealing with the current woes in Washington. California was held hostage by a conservative minority demanding unpopular concessions to end manufactured crises. Progressives fought their way out of this box by taking away the tools of minority obstruction, and empowering marginalized communities to use their vote, expanding the progressive base. National Democrats reducing minority obstruction through actions like filibuster reform, and increasing engagement among infrequent voters (particularly in non-Presidential election cycles), could accomplish similar goals.
"Our job on the left," Jacobs said, "is to make sure people in Sacramento understand what happened. And in order to continue to build power, we have to show results."
David Dayen is a freelance writer based in Los Angeles.