California’s Identity Crisis

Californians never tire of pointing out that if their state were a separate country, it would rank among the 10 largest economies of the world. True, but it would also vie with the likes of Argentina to sit atop the ranks of the fiscally reckless. The Golden State can't seem to stay in the black, and in the latest of its perennial financial crises, the state government had to issue IOUs in the first days of July because the cash drawer was empty. Gov. Arnold Schwarzenegger and lawmakers in Sacramento weren't able to close a $26 billion shortfall in the state budget on schedule, since Republicans are as allergic to raising taxes as Democrats are to cutting spending. Times are tough all over, especially for state and local governments that can't print money as Washington does, but why does California always seem to fare the worst when the going gets tough?

The answer has more to do with politics than economics. If you think California is a remarkably wealthy place that should be more resilient over time than most other states, you are right. Don't be fooled by all those headlines of a poor state in need of a federal bailout—the most populous state's money woes are a manufactured crisis, a failure of governance more than anything else. Even this year's drama-inducing shortfall of $26 billion amounts to a fairly nominal amount for an economy the size of California, whose gross domestic product is $1.543 trillion.

But it is sufficient to cripple the state, given its governing architecture. The specific reasons California flirts with fiscal disaster at least once a decade (the last time was in the aftermath of the dot-com bubble bust) are no mystery: Proposition 13 passed by voters in 1978 famously capped property taxes, preventing local governments from being able to finance their own operations. Too many other resources are locked down by other ballot measures passed over the years, such as Prop. 98 that earmarks 40 cents of every dollar the state takes in for education. It takes a two-third vote to pass any tax increase, or spending measure, in a complacent legislature whose members represent gerrymandered districts that never change hands between the parties.

These are all symptoms of a larger ailment, an identity crisis really. Because what the author Gertrude Stein once said of Oakland—about there being "no there there"—has become true of the state as a whole. There is a lot to California, and, in fact, lots of Californias. But there is no single overriding California anymore, no single shared notion of the place that all its residents tap into, as was the case when the Golden State moniker was adopted, and when the state invested heavily in the 1950s to create a public infrastructure—the University of California system included—that was the envy of other states.

"If you are from Texas, you definitely identify as Texan, no matter where in the state you come from," says Joe Mathews, a California fellow at the New America Foundation and author of The People's Machine: Arnold Schwarzenegger and the Rise of Blockbuster Democracy. "But if you are from L.A., you don't really feel like you have anything in common with someone who lives in Fresno."

Mathews argues that the state's cultural and geographic fragmentation hinders its politics, and accounts for a political system that favors paralysis. Only a handful of states require a two-thirds majority to pass a budget, and in California it is pretty much guaranteed that you won't get two-thirds of people to agree on anything. The lack of political communion, of a sense that people are in this together, means that California politics are even more parochial, more driven by special interests than almost anywhere else. The progressive-era ideal of California's direct democracy, the view that a citizenry with a bigger say in their own governance will be more engaged, and perhaps more responsible, has been corrupted. The typical ballot measure in California nowadays entails a well-funded special interest (stem cell researchers, mental health advocates, often a public employees' union) aiming to hijack tax dollars for their agendas, with little regard for the fiscal health of the state. There is little discretion left to govern for the common good, given how much of the state's revenue has already been claimed by such ballot-box budgeting.

And because of Prop. 13, the state is too dependent on income taxes to pay its bills. A highly progressive income tax accounts for 55 percent of the state's receipts, and this flow of revenue is quite volatile—down 34 percent over the past year—reflecting the vagaries of Californians' capital gains. Prop. 13 set the tone for all subsequent California politics in an era when a common sense of purpose had been lost. Homeowners at the time essentially grandfathered lower taxes for themselves at the expense of other residents and of future homeowners who would not inherit the lower taxes when they purchased a reappraised property.

The Latino Factor

California is increasingly governed by a set of people that is whiter, older and more Midwestern in origin than the broader population of the state, and part of the political dysfunction in Sacramento reflects the gap between a previous wave of immigrants into the state (largely from other parts of the United States) and the more recent wave of immigrants (largely from points south). The state's Latino population has made tremendous strides in politics, but its participation still lags that of the more established, more Anglo Californians. As New America's Mathews points out, in November 2006, 30,000 votes were cast in the east Los Angeles district of the State Assembly speaker at the time, Democrat Fabian Nuñez. In the same election, more than 100,000 votes were cast in every Republican assembly district.

In 1970, 8.5 percent of California's population was foreign-born; today that percentage hovers around 30 percent. In 2005, the five most common surnames in official transactions in the state were all Latino—Garcia, Lopez, Hernandez, Martinez and Rodriguez—compared to only two out of five in 1997. Dowell Myers, the author of Immigrants and Boomers and a professor at the University of South California, has called for an "intergenerational social contract" between the two distinct California populations, and the rediscovery of a shared sense of purpose. His research makes clear that for all the wrenching change of recent decades, immigration has leveled off in California, and the state's aging population will likely face a labor shortage in the next 10 to 15 years. Even worse for the Baby Boomers who benefited from Prop. 13, Myers estimates that the number of home sellers could outnumber buyers after 2020. Older, more prosperous, native-born Californians need to realize it is in their long-term self-interest to make common cause with the state's foreign-born immigrant population. If they did, the state could go back to the glory days of governors Earl Warren and Pat Brown, when Californians invested proudly in their shared patrimony, instead of ensuring the state's public institutions could do little more than skirt bankruptcy every few years.

The idea of such an intergenerational social compact would certainly change the tone of the debate over immigration reform. In California, immigration is a far more toxic issue, a pitched cultural battle, than it is in Texas, an ostensibly more conservative state. This is self-defeating to those who want to deprive undocumented workers of driver licenses, access to education and a legal status. As an economic matter, Myers points out, the state needs these more recent arrivals to enjoy rapid social mobility, to become educated, to join the middle class, to buy all those homes the Baby Boomers will put on the market. Moreover, to the extent that anti-immigration forces delay comprehensive reform in Washington, they only add to the state's financial burdens. Illegal immigration is in many ways an unfunded federal mandate, with the states having to pick up the tab for the overcrowding of emergency rooms, schools and prisons by people who supposedly aren't there.

The man charged in recent years with trying to resurrect a shared concept of California and arbitrate between the state's dueling demographic camps is an Austrian-born movie star. Schwarzenegger was in many ways ideally cast for the role. He could claim some independence from the incestuous politics of Sacramento; he still talks about "Kahlifornia" with the enthusiasm of earlier arrivals to the state and he felt he shouldn't deign to be governor unless he could do big things—reform the state's broken political architecture and invest mightily in the future. He has failed miserably, and the state is once again caught in a quagmire similar to the one that led to his election back in 2003. The message is clear: no single leader can fix this mess within the present rules of the game.

It's up to the people of California to decide whether there is indeed "a there there" that binds them together as a state, and start acting accordingly.