State of confusion

John Laird, left, and Tim Morgan (photo by Jim MacKenzie)

Can California's fiscal quagmire be solved? If so, how? Review asked two politically connected alums--one on the left, and one on the right--for answers to our state's problems.

Whether you're left, right, center, or anywhere in between, all sides can agree on one thing: Calilfornia's political and budget process is a mess, with profound effects on all of us.

Just look around: a $21 billion deficit on top of a $42 billion deficit last year. State programs have been slashed; education funding has suffered; people have lost jobs, homes, and dreams. At the University of California, the pain has translated into budget cuts, fee hikes, furloughs, and protests. How did we get into this crisis and how will we get out?

Two UC Santa Cruz graduates from opposite ends of the continuum examine

the Golden State's tarnished political and fiscal systems and offer prescriptions for the future.

You may be surprised by their insights--despite divergent political viewpoints and

different paths on this assignment, they arrive at a similar conclusion.

John Laird is a 1972 Stevenson College graduate with honors in politics. He served as budget chair during his six years in the California State Assembly. Earlier, he was a city councilman and mayor in the City of Santa Cruz. On May 3, Laird announced his bid for the state Senate. He lives in Santa Cruz.

Tim Morgan, a 1970 graduate of Cowell College in politics, was treasurer of the Republican National Committee from 2007 to 2009. From 1996 to 2008, he was California's Republican National Committeeman, and for 15 years chaired the Rules Committee of the California Republican Party. He was chief Republican consultant for the California Senate Elections and Reapportionment Committee in 1987-1988. Born and raised in Santa Cruz, Morgan maintains a Santa Cruz-based law practice.

Tim Morgan: Voters need to take California back from special interests

The Golden State is hurtling at warp speed toward the black hole known as sovereign default, the same financial crisis menacing Greece. No state in the Union has ever been in this position before, and no one is completely sure what it would mean for a state to default on its obligations. But we know it isn't good.

The chronic imbalance in the state's budget, producing the current $21 billion deficit for 2010-11, and approximately $500 billion (and growing) in unfunded public pension obligations, reflects decades in which the state has bent to the will of special interests and continued to promise more than it could ever deliver. As enormous as the unprecedented spending has been, it is a mere down payment on all the promises made to date.

Voters made two strong efforts to alter course and put the state on a sound financial footing at the height of the taxpayer revolt in the 1970s. The first was Proposition 13, which strictly limited increases in property taxes except on sale or transfer. State voters passed it soundly in 1978.

Proposition 13 has survived all attacks against it, both electoral and judicial. As a result, homeowners are protected against local officials' predatory raids on home equity and can know, with certainty, what it will cost to remain in their homes when they buy them. This has also had the benefit of limiting increases in local government spending.

The second was the Gann Initiative, which voters approved by nearly 75 percent in 1979. It limited increases in annual state spending to a base limit, adjusted for increases in population and inflation.

The school worker lobby severely weakened the Gann spending limit in 1988, persuading 50.9 percent of the voters to approve Proposition 98, ostensibly to benefit local schools. Then in 1990, Proposition 111 was sold to the voters as a way to eliminate freeway congestion. It finished the job and rendered the spending limit essentially meaningless.

Over the last two decades without the spending limit, state spending has increased much more rapidly than personal income. And notwithstanding increasing taxes to one of the highest levels in the country, the state has incurred a structural deficit requiring even higher levels of debt. California has created one of the worst business environments in the country, resulting in loss of business investment and jobs to states with lower tax and regulatory burdens.

Shortly after California abandoned the spending limit, Colorado voters passed the Taxpayer's Bill of Rights, which operates very much like the Gann limit was intended to. In contrast to California, state spending in Colorado has grown at roughly the same rate as the private economy. From 1993 to 2007, real per capita state spending grew 28 percent, while per capita GDP grew 30 percent. So a spending limit can work, even in a state regarded as open and progressive as Colorado.

The only course open to California voters now is a form of electoral self-defense, to be exercised through the initiative process.

Voters should reinstate a spending limit and adopt a California version of the federal Hatch Act, to prohibit state and local government employees from engaging in partisan political activity. Such a limitation on electioneering, first implemented by Thomas Jefferson, would do much to restore fairness to our politics, by ending the dominance of public employee groups whose interests are manifestly self-serving.

We should also return to a part-time legislature as we had until 1966. This alone would save billions-some in salaries, but more in the cost of new legislation that would never see the light of day. A permanently sitting legislature is an invitation to plunder by special interests, just as an open henhouse is to foxes. We need to limit the time available for mischief making.

Unions should be prohibited from spending member dues on political causes without specific written permission from their members.

Each one of these recommended changes is designed to protect Californians against selfish special interests, which have sapped this state of its vitality and are propelling it to certain destruction.

John Laird: Time for leadership and reform

California State government is dysfunctional and suffers from an absence of the leadership necessary to fix it. This year's continuing state budget crisis makes the case.

Faced with a $21 billion budget gap for 2010-11, Governor Schwarzenegger has proposed protecting public education from the brunt of cuts along with a ballot measure to ensure that California spends less on prisons than for higher education. On its face, a good direction.

In reality the governor balanced his proposed budget with almost $7 billion

of new federal assistance (the chance of which the nonpartisan legislative analyst termed "almost nonexistent"), proving this to be just meaningless posturing.

Instead of proposing a real budget, and using the six months before approval to have a real conversation about the tough choices, the governor has set up a situation in which severe cuts will be made at the last minute over a matter of weeks later this summer, and he is positioned to say it's someone else's fault.

Faced with an even larger budget gap last year, a Field Poll showed voters wanted no cuts to the biggest parts of the budget and supported tax increases only if they were on someone else.

The fact is that over the last decade Californians have been receiving a service level that's higher than they have been paying for, with the reality that the state must either cut services, increase revenues, or do some combination. The current situation can't continue.

We need real leadership, yet the governor is not providing an honest budget discussion, and efforts to reform California's broken government are stalling. The general agreement that reform is needed is matched only by wide disagreement on what it should be.

My own view is that we need some basic reforms to California's political and budgetary process. Last year the voters took the first step by approving a new way for state legislative districts to be drawn, but there are many other necessary fixes.

The budget gap is in large part due to voter-passed state initiatives that earmark budget dollars for a new purpose without bringing new money to the table. Every time such a measure is passed, it squeezes whatever else is in the budget.

Almost 85 percent of the state's general fund revenue comes from two sources--sales tax and personal income tax--that swing wildly with the economy. It is hard to make a five-year projection on the budget when the revenue system magnifies fluctuations in the economy and makes it almost impossible to predict even next year's situation.

In 1990, California voters approved one of the strictest term-limits laws in the nation. As a result, we have a legislature with no institutional memory. After being elected to my third Assembly term, there were 37 new Assembly members in an 80-member body. The largest economic meltdown since the Great Depression is no way to provide on-the-job-training for almost one-half the State Assembly.

And the two-thirds budget approval--a system shared only with Rhode Island and Arkansas--has been a major cause of legislative gridlock. In budget matters, California should respect majority rule.

Put these with hundreds of millions of dollars in special interest spending on elections and campaigns--and the view that you have to be wealthy to serve at the top--and you see the fix California is in.

If we are going to meet the challenges of a diverse state that is a giant economic engine fueled by public investment, we need to amend the initiative process to pay-as-you-go, bring stability to the revenue system to adequately project future budgets, tweak term limits for longer service in each house, allow for majority rule, and design a campaign finance system that puts people before special interests.

This will be very difficult, as there are interests that will lose something from each proposed change. All of this will require voter approval, but it's time to trust the voters with an honest conversation and get to work on fixing California. There's too much at stake to fail.