California's Next Governor Won't Have It Easy

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Step inside California these days, and it’s hard not to get spattered in the political food fight. As Gov. Arnold Schwarzenegger prepares to head for the door, the race to succeed him has turned ugly—and petty. Tawdry name calling and a scandalous revelation of an undocumented nanny have commanded many column inches in state newspapers. On TV, Democrat Jerry Brown and Republican Meg Whitman have each spent millions (in Whitman’s case, $140 million from her own pocket) on spots blasting each other’s records—Brown as a former governor and Whitman as eBay’s CEO. And both have hammered their disingenuous and erratic personalities. It’s a uniquely nasty race in a year when nasty races are the norm. But the stakes are high, especially for the Golden State and its economy, which is often noted for being somewhere between the sixth and eighth largest in the world, depending on the year.

Not that it’s going to make much of a difference who wins, at least not right away. Sweep aside each candidate’s expansive vision for running California—either as a shipshape business (Whitman) or by returning to the basics of its heyday (Brown)—and what’s left is a state severely crippled by institutional ailments, which neither candidate will be able to fix soon.

If you thought President Obama had it rough when he came into office, what’s facing the next governor of the Golden State could be a close second: a perennially unbalanced budget with overextended spending, the inability of the state to alter tax rates, a broken initiative process that puts high-stakes questions to an uncompromising electorate, and partisan gridlock so seismic it could eclipse any event on the state’s jittery Richter scale. Earlier this year the radio program Intelligence Squared hosted a debate in which several lawmakers and policy analysts were asked whether California was America’s first failed state. “Our opponents may argue that other states have problems,” said Andreas Kluth, an editor at The Economist, “but only one state has all problems simultaneously.”

The list of those troubles usually starts with a rather arcane budgeting system that requires two thirds of the state’s legislature to approve major fiscal decisions. California is the only state that requires what one lawmaker once called a “superduper majority” to approve both budgeting and tax increases. Back when voters approved the idea in 1978, balancing the state’s expenses was little more than a formality that, in some instances, was hardly even debated. Taxes were low and budgets usually balanced, recalls state historian Kevin Starr. But now, intense distrust between the state’s parties has led to frequent stalemate. “Almost any lawmaker can hold the budget hostage, and they usually do,” says Richard Stapler, a spokesman for Citizens for an On-Time Budget, a group working to pass a ballot measure to repeal the budget policy. (Opponents of the initiative, who did not respond to a request for comment, argue that a simple-majority requirement would grant too much power to state Democrats to sneak tax hikes into the budget.) As a result, California’s budget has arrived punctually only three times over the past three decades, forcing the state to issue IOUs to service vendors such as health-care facilities and transportation providers. This year the budget was 100 days late.

Budget deadlines, of course, are peanuts compared with budget deficits. And for the past decade, California’s deficit has hovered around $20 billion. “Taking a look at the tax structure is something no politician wants to touch with a 10-foot pole,” says Bruce Cain, a political scientist with the University of California’s Washington, D.C. Center. The resulting financial instability has sent ripples through the state’s education system, transport sector, and the creative hotspots of Hollywood and Silicon Valley. Fiscal uncertainty from oscillating state interest rates and capital-gains taxes, plus the rising cost of the nation’s most aggressive environmental regulations, have pushed some big industries like technology and manufacturing to set up shop elsewhere.

From there, the problems are compounded. Public employees in recent years have faced furloughs and layoffs. Several political consultants note that laying off even more state workers, as both Whitman and Brown have suggested, won’t help the state maintain equilibrium in the long term. A stretched public pension system is also expected to be depleted within 15 years. For now, the more pressing concern is the job base, which has been shrinking, taking tax revenue, and fuel for growth industries like construction and agriculture, down with it. The state’s prison system is among the most expansive and expensive in the world. Schwarzenegger, the state’s moderate Republican leader, likes to note that the state spends more on housing inmates than on its system of public colleges and universities. But his efforts to ameliorate the disparity have, on several occasions, been stymied by an uncompromising legislature and the enormous difficulty of substantively changing state fiscal policy.

In most states these kinds of problems could be fixed by a new governor willing to barnstorm the capitol, twist arms, and make lots of enemies. But not in California. “The truth is, the governor really can’t change any of these things,” says Mark Baldasarre, president of the Public Policy Institute of California. That’s because of the state’s initiative process, which puts really tough questions—from marijuana legalization to gay marriage—in the hands of voters, not representatives. In some ways it’s the rawest form of democracy. But the electorate can sometimes be too shortsighted for its own good. In 1988 voters required that 40 percent of all state funding go to education, a policy that’s constrained the state from strategic investment elsewhere and that’s been nearly impossible to change. Partisans on both sides also point to Senate and Assembly districts drawn by politicians themselves, which has meant increasing polarity in Sacramento and few races that are ever contested.

There are several initiatives on this year’s ballot designed to address some of the kinks. One would move the power to draw districts to an independent panel. Another would scale back the state’s environmental policies until it returns to solid footing. But the underlying problem might be the state’s expanding demographics. A 2009 study from the University of Southern California found that over the past two decades California has become more racially and politically diverse than any other state in American history. The liberal hotbed of the Bay Area is unlikely ever to play nice with the fiercely conservative Central Valley. Growing immigrant communities have pushed the boundaries of immigration law. And a growing population has stretched educational facilities, health care at emergency rooms, and other social services.

“The truth is, this election probably won’t matter all that much,” says Tom Hogen-Esch, a political scientist at California State University, Northridge. “Whoever is elected is going to face the same institutional constraints that have been problematic for the past several decades.” Both candidates’ campaigns center on their promises to lead the state to a brighter day, filled with prosperity, growth, and innovation. California, after all, is an excellent place for dreaming.