Reforming California: Can We Save Ourselves From Financial Ruin?

Oh, California, how the mighty have fallen! The Golden State has long been the subject of many wistful anthems, like the Mamas and the Papas’ California Dreaming and the Beach Boys’ California Girls.  And why not? This state of ours is blessed with nearly constant sunshine, beautiful beaches and, of course, Isla Vista. Unfortunately, California is now privy to another claim: a $26.3 billion budget deficit. In the past week, the state has issued $354 million in IOUs, and will continue to do so until our legislators in Sacramento manage to find a solution to the budget crisis. To be honest, it’s not looking good; two weeks into the fiscal year, and lawmakers continue to squabble as they search for a solution to the shambles in which our finances lie.

Unbridled—and often frivolous—spending, coupled with exorbitant taxes and an economic recession, are the culprits of this financial quagmire. The people of California shoulder the highest personal income tax, as well as the highest sales and gas taxes, in the nation. High taxes combined with odious regulations make California the worst place to do business. Amazingly enough, our representatives in the capitol see it fit to saddle us with even more taxes. In February of this year, they passed a tax package which created new sales taxes, increased vehicle taxes, and slashed the child credit by $200. Despite the fact that our progressive tax system typically tends to punish the well-off, this package affected low and middle-class Californians the most. Then, in the form of Proposition 1A, which graced the ballot in the May 19 special election, our legislators attempted to extend these tax increases for two more years; had this measure passed, taxpayers would have been asked to provide the state government with an additional $16 billion (as if this economic recession isn’t a big enough drain on the taxpayers’ wallets). To top it off, when the hard-working people of California had the gall to deny the legislators their request for more money, they were berated by journalists and politicians for their unwillingness to bail the government out of its fiscal mess.

While most Californians struggle to make ends meet during this time of economic recession, state employees are the highest paid in the country, and receive extraordinarily generous pension payments: approximately 5,000 state employees receive pension payments in excess of $100,000 per year. Even though many state employees are fortunate enough to retire while still in their prime, and thus able to pursue a second career (should they choose to do so), Californians working in the private sector face a daunting unemployment rate of 11.5 percent. Additionally, because the Sunbelt states —like California, Florida, Arizona, and Nevada—were hit the hardest when the real estate bubble burst, six out of the ten cities with the highest foreclosure rates are located in the Golden State. In the face of such glaring inequality between public and private sector employees, why is nothing being done to lessen the gap? Frankly, it is because our Democratic legislature receives the majority of its political clout from the unions, who continue to push for higher wages, even as the average Californian wades through a swamp of debt.

California’s government has not only imposed heavy taxes on its citizens while overpaying its employees, it has failed to set aside money for use in a financial emergency. While individuals are urged to set up 401-Ks and Roth IRAs in order to prepare for the darker days of retirement, the government seems unable to follow suit. I would even argue that the state has squandered some of the money with which taxpayers have entrusted them. Each year, illegal immigrants cost the State of California upwards of $9 billion. I understand that many will cite the economic benefit that is derived from having a population of immigrant workers, but $9 billion is a massive sum of money. As a result of its myopia, the state has had no choice but to issue IOUs in lieu of tax refunds and other outstanding debts; it is likely that an additional $3 million in interest-bearing IOUs will be distributed this month.

I can only imagine how disconcerting it must be to receive promissory notes from your government; to make matters worse, most major banks declared that July 10 was the last day they would accept government IOUs. Mounting discontent and unrest among Californians is driving the call for reform and, if necessary, a complete revamping of the California constitution.

In an op-ed piece in the July 3 edition of the Los Angeles Times, Governor Schwarzenegger promised his constituency that he would work to reduce fraudulence in state-sponsored programs, like CalWorks and Medicaid, in order to pare down government expenditures. While the governor is well intentioned with this proposal, it is too little, too late. Various organizations are snarling for reform: some call for more local control or public involvement; others wish to do away with the two-thirds majority vote needed to approve budgets and increase taxes; still others promote a part-time legislature; and, as mentioned before, there are those who call for a complete overhaul of the state constitution. Although I certainly agree that California is desperately in need of reform, I fear a re-working of state government will only result in additional hardship. If the constitution were to be modified, it is very likely that the convention amending the document would be overrun by special interest groups and become a platform for the debate of hot-button issues like gay rights and abortion. Don’t get me wrong; I do not intend to criticize the discussion of controversial issues, but it would be a shame for California’s budget deficit to get lost in the fray.

Additionally, if the current Constitution were scrapped, lawmakers would be given the opportunity to eradicate the frustrating Proposition 13, a statute passed in 1978 that protects California homeowners from erratic hikes in property taxes. Despite the bad press it receives, Prop 13 is beneficial not only to property holders, but to the government as well, for it provides the state with a source of stable income. As pointed out by Jon Coupal of the Howard Jarvis Taxpayers’ Association, had this law not been in place at the time the housing market plunged, California would have seen a significant decrease in the revenue generated by property taxes.

The bottom line is simple: California needs to drastically reduce its spending in order to balance the budget and save the state from financial demise. Admittedly, this is easier said than done. However, if our legislators are not able to find a solution soon, I fear California residents will grow even more disgruntled and continue to flee from this beautiful state in search of lower taxes and a greater sense of security. I sincerely hope that meaningful reform will take place and that, in seeking to reduce fraud, the state will not defraud its people.

One Response to “Reforming California: Can We Save Ourselves From Financial Ruin?”

1. Blaise says:

   July 23, 2009 at 11:57 pm

   Bravo, Audrey. You took the words right out of my mouth, and arranged them beautifully. I could not agree more.