[R-G] Prop. 13 and California's insolvency

[Sid Shniad]

Washington Post May. 29, 2009 - | Page 15A 

Prop. 13 opened state's road to 
insolvency 

By Harold Meyerson 

To understand why the woes of California's economy threaten the 
nation's economy, we must understand the state's road to insolvency. 
The Age of Reagan did not commence with the Great Communicator's 
inauguration in 1981. For its real beginning, we need to go back to 
June 1978, when Californians went to the polls and enacted Proposition 
13. 

By passing Howard Jarvis' malign initiative,California voters reduced 
the Golden State to baser metal. Under Republican Gov. Earl Warren and 
Democratic Gov. Pat Brown,California epitomized the postwar American 
dream. Its public schools, from kindergarten through Berkeley and 
UCLA, were the nation's finest; its roads and aqueducts the most 
efficient at moving cars and water ­ the state's lifeblood ­ to their 
destinations. All this was funded by some of the nation's highest 
taxes, which fell in good measure on the state's flourishing banks and 
corporations. 

Amid the inflation of the late 1970s, however, the California model 
began to crumple. As incomes and property values rose, Sacramento's 
tax revenue soared ­ but the parsimonious Democratic governor, Jerry 
Brown, neither spent those funds nor rebated them. With the state 
sitting on a $5 billion surplus, frustrated Californians grumped to 
the polls and passed Proposition 13, which rolled back and limited 
property taxes ­ effectively destroying the funding base of local 
governments and school districts, which thereafter depended largely on 
Sacramento for their revenue. Ranked fifth among the states in 
per-pupil spending during the 1950s and '60s,California sank to 
Mississippi-like levels ­ the mid-40s in rank ­ by the 1990s. 

Since 1978, state and local government in California has been funded 
more by taxes on personal income and sales. Bank and corporation taxes 
have been steadily reduced. In the current recession, with state 
unemployment at 11 percent, tax revenue has fallen off a cliff. 

But the problem with Proposition 13 wasn't merely that it reduced 
revenue. It also made it very difficult to increase revenue. 

Raising taxes now requires a two-thirds vote of the Legislature, 
though in 47 other states, a simple majority suffices. California has 
become overwhelmingly Democratic in the past two decades, but 
Republicans have managed to retain footholds ­ representing just over 
one-third of the districts ­ in both houses of the Legislature. 

The conservative backlash of 1978 also swept into the Legislature a 
proto-Reaganistic generation of Republicans, later dubbed "the 
Cavemen." Compared with today's GOP state legislators, though, the 
Cavemen look like Diderot's Encyclopedists. The current Republican 
crop has refused in good times as well as bad to raise business or 
other taxes. (Increasing the tobacco tax, for instance, has failed 
each of the past 14 times it has come up for a vote.) 

Abetted by little local Limbaughs who inflame Republican brains, they 
protest that the state already has the nation's highest taxes. In 
fact, California ranks 18th among the states in percentage of personal 
income paid to state government, and its presumably beleaguered 
wealthiest 1 percent, according to Citizens for Tax Justice, pay just 
7.4 percent of their income to the state while the poorest pay 10.2 
percent. 

But the myth of soak-the-rich high taxation persists among Republicans 
­so much so that the GOP front-runner to succeed Arnold 
Schwarzenegger in next year's gubernatorial election, former eBay CEO 
Meg Whitman, is calling for cuts in business tax rates, even though 
the state is staring at a $24.3 billion deficit that it somehow has to 
close. In short order, unless the federal government steps in with a 
bridge loan, the state will throw 940,000 poor children off its 
health-care rolls and lay off tens of thousands of teachers. 

Because California is so much larger than any other state, and its 
unemployment rate is among the nation's highest, the collapse of its 
capacity to spend will counteract some of the effect of the federal 
stimulus and retard the nation's recovery ­ much as its aerospace 
slump retarded the recovery of the mid-1990s. The Obama administration 
ignores California's plight at its own ­ and the nation's ­ peril. 

The nation's banks are stuck with so much bad paper from California 
mortgages gone awry that a huge contraction in state spending would 
make their assets even more toxic. In the short term, the only way to 
avoid a further downturn may be a federal loan to the state. 

A more permanent, homegrown solution to California's woes (and it may 
take a state constitutional convention to get it) would require the 
state to eliminate the two-thirds threshold for enacting taxes, to 
repeal Proposition 13's freeze on the value of commercial properties 
(some of which are still assessed at their 1978 levels) and to end the 
process of ballot-box budgeting through the initiative process, which 
is now more dominated by monied interests than the Legislature ever 
was. 

In Washington, the Age of Reagan may have shuddered to an inglorious 
end, but we also need action from state governments ­ and Sacramento 
in particular ­ to move us toward a more sustainable economic future. 

Harold Meyerson is editor-at-large of American Prospect and the L.A. 
Weekly. This article originally appeared in the Washington Post.