Fox focuses on unions in attributing blame for CA budget problems

Morris calls “municipal union contracts” “the cause of your bankruptcy.” On the November 8 edition of Fox News' Hannity (accessed via Nexis), Fox News correspondent Dick Morris claimed that states like California “are going to be the next Greece. They are going to come to Washington begging for bailouts because their budgets are so out of whack and they need the same massive stimulus money they got last year.” Morris claimed that a “Republican congress could set up a procedure where you can go bankrupt, abrogate your municipal union contracts, deal with the cause of your bankruptcy, like any private corporation does. That reform will put you back on a track to solvency.”

Morris: “Abrogat[ing] your union contracts” is how “you can solve your own problem.” On the November 10 edition of Fox News' Fox & Friends, Morris repeated his claim that states like California “are the new Greece” and said: “What I hope that the Republicans do -- and I'm pushing this concept -- is that they should go to these states and say, look, the reason you're in trouble is because of your union contracts -- the pensions, the wages, the fringe benefits. We'll let you go bankrupt just like Delta did or Chrysler did - GM -- if you abrogate your union contracts just like the corporations do. And that way you can solve your own problem you, and don't need a bailout.”

Varney: California will have to “cut government services so that they can pay the lavish pensions that are in the Constitution.” On the October 20 edition of Fox News' Fox & Friends, Fox Business host Stuart Varney, reporting on the rioting in France, claimed that “huge service cuts are coming at the state level to a big city and a big state near you.” Varney continued: “So to pay those pensions, they've got to cut elsewhere. In California, in Illinois, in New York ... they are going to cut government services so that they can pay the lavish pensions that are in the Constitution that we've got to pay.”

Coulter: “California is completely bankrupt. Mostly thanks to” state employees unionizing. On the November 10 edition of Hannity (accessed via Nexis), Fox News contributor Ann Coulter claimed: "[F]or Americans who don't know, California is completely bankrupt. Mostly thanks to the policies of Jerry Brown when he was governor 30 years ago when he passed the Dill Act which allowed state employees to unionize." Later, Coulter said that Gov. Chris Christie (R-NJ) is “sticking it to the public sector unions -- which Jerry Brown did not and thus California is bankrupt.”

Experts, news reports trace CA fiscal crisis to state's tax structure, economic downturn

Schwarzenegger said that “economic meltdown and the state's unbalanced tax system are largely responsible” for current fiscal crisis. The Sacramento Bee reported in a June 2009 article that "[f]acing a $24.3 billion deficit after signing a $92 billion spending plan in February, [Schwarzenegger] accepted some blame for what has transpired since he was elected on the promise of fiscal rescue. But he said the world's economic meltdown and the state's unbalanced tax system are largely responsible." The Bee further reported that "[t]he governor said the state's tax structure, which depends on income and capital gains taxes, is too volatile."

NY Times explains "[o]rigins of the [c]risis" stem from state's “disastrously imbalanced” tax structure, which in part comes from Proposition 13, a 1978 “voter-led initiative that artificially depressed property taxes and shifted school financing burdens to the state.” The New York Times reported on the "[o]rigins" of California's fiscal crisis, stating that "[w]hile the state's property taxes are below average, its personal income tax rate and levies on capital gains are among the highest; so unlike states that pass the tax burden around, California can become disastrously imbalanced." The Times further reported that “the protracted national recession delivered a big hit on the state's greatest source of revenue, income taxes on rich people”:

All of this did not creep up overnight. Expansive growth in the first half of the 20th century led to rising housing prices and infrastructure growth, which came with higher taxes to pay for it all.

Those increases created an anti-tax rebellion that begot Proposition 13 in the 1970s, a voter-led initiative that artificially depressed property taxes and shifted school financing burdens to the state. It also led to the onset of a culture of ballot initiatives that have hamstrung state budgeters by earmarking money for programs with one vote and taking away the ability to pay for them with others.

The state's population -- over 38 million today from 23.6 million in 1980 -- has also meant a growing need for costly services for the poor, especially when revenues are declining.

While the state's property taxes are below average, its personal income tax rate and levies on capital gains are among the highest; so unlike states that pass the tax burden around, California can become disastrously imbalanced.

And the protracted national recession delivered a big hit on the state's greatest source of revenue, income taxes on rich people. Further, the state's structural deficit has become exceedingly pronounced after years of accounting tricks and borrowing.

Cohen and Dreier: CA has “three overlapping budget problems” -- “declining revenues,” “irresponsible fiscal policies,” and “most important[ly] ... the fiscal straitjacket created by Proposition 13.” In a February 1 American Prospect article, Donald Cohen, president of the Center on Policy Initiatives, and Peter Dreier, professor of politics and director of the Urban & Environmental Policy program at Occidental College, wrote that "[p]olitics, not plummeting prosperity, are at the root of California's dysfunction." They further wrote that California has “three overlapping budget problems,” including “declining revenues resulting from a long, deep recession”; “irresponsible fiscal policies”; and “the fiscal straitjacket created by Proposition 13.” From the article:

California actually has three overlapping budget problems. The first -- declining revenues resulting from a long, deep recession -- is shared with every other state.

The second is the result of its own irresponsible fiscal policies, which Steve Levy, head of the Center for the Continuing Study of the California Economy, calls “our special hell.” In the late 1990s when the dot-com boom boosted California's economy, state lawmakers increased spending by about $10 billion, mostly to play catch-up on K-12 education and to expand health and social services. But they also foolishly cut taxes by about $10 billion. When the boom busted, revenues fell, but Sacramento neither rolled back the tax cuts nor repealed the spending increases. Desperate for revenues, Gov. Gray Davis, a Democrat, in 2003 tripled the vehicle license fee, which generated $4 billion a year by boosting fees by $130 on a typical car. Schwarzenegger, a Republican, swept into office that same year in part by promising to roll back the unpopular increase in the “car tax.” He kept his pledge and plunged the state into an even deeper budget crisis.

Prop. 13 “capped property taxes” and “created a constitutional requirement that all tax increases pass the [state] Legislature by a two-thirds majority,” which “made California virtually ungovernable.” Cohen and Dreier further explained that the “most important budget problem is the fiscal straitjacket created by Proposition 13, the original tax-revolt ballot proposition that voters approved in 1978, which capped property taxes and made it extremely difficult to raise revenues.” They explain that the law “did more than simply limit property taxes. It created a constitutional requirement that all tax increases pass the Legislature by a two-thirds majority,” which Cohen and Dreier argue “has made California virtually ungovernable.” From their February 1 American Prospect article:

The third and most important budget problem is the fiscal straitjacket created by Proposition 13, the original tax-revolt ballot proposition that voters approved in 1978, which capped property taxes and made it extremely difficult to raise revenues. As a result, even before the recession, California had steadily disinvested in its once world-class education system and physical infrastructure.

[...]

Politics, not plummeting prosperity, are at the root of California's dysfunction. And there is plenty of blame to go around.

Proposition 13, crafted by right-wing political operatives Howard Jarvis and Paul Gann, did more than simply limit property taxes. It created a constitutional requirement that all tax increases pass the Legislature by a two-thirds majority. (The state already had a two-thirds requirement to pass the annual budget, dating back to 1933.)

Jarvis and Gann meant to put the state in a fiscal straitjacket. They succeeded. Now, three decades later, this change has made California virtually ungovernable.

Though the Democrats now have a 51-to-28 majority in the Assembly and a 25-to-14 majority in the Senate, it isn't enough to raise taxes and pass a budget. They need three Republicans in the Assembly and two in the Senate to cooperate. Unfortunately, the GOP has lost virtually all of its moderates and is dominated by rabidly anti-tax, anti-government conservatives -- giving a small minority veto power over the budget.

California fiscal crisis “30 years in the making” because Prop. 13 made it “far more difficult to raise taxes or pass a budget in California than in other states,” and CA “didn't resolve how to pay for the services that people want.” A July 1, 2009, Time article, titled, “How California's Fiscal Woes Began: A Crisis 30 Years in the Making,” reported that “the Golden State's budget problems are hardly new. The seeds of them were planted more than 30 years ago. They begin with the 1978 property tax revolt and the victory of Proposition 13.” The article quoted former California Assembly speaker Bob Hertzberg saying of Proposition 13: “One side was to protect the people from the government suddenly and wildly raising property taxes. ... That was done. But we didn't resolve how to pay for the services that people want. So we have created this crazy government structure in Sacramento held together by duct tape and bailing wire. It's not coherent and needs to be changed.” From the article:

[T]he Golden State's budget problems are hardly new. The seeds of them were planted more than 30 years ago.

They begin with the 1978 property tax revolt and the victory of Proposition 13. As California experienced a dramatic escalation in home values, property tax assessments skyrocketed. Especially vulnerable were seniors on fixed incomes. When then Gov. Jerry Brown and the legislature dithered, conservative activists led by Howard Jarvis put a seductively simple sounding proposition on the ballot. Under Proposition 13, the annual real estate tax on a parcel of property would be limited to 1% of its assessed value and this assessed value would only increase by a maximum of 2% per year, until a change in ownership. Voters responded and Proposition 13 scored a dramatic victory with 65% of the vote. Property tax rates dropped an average of 57%.

[...]

Proposition 13 has proved to be a two-sided sword. “One side was to protect the people from the government suddenly and wildly raising property taxes,” says Bob Hertzberg, a former Assembly Speaker and co- chair of California Forward, a bipartisan reform group. “That was done. But we didn't resolve how to pay for the services that people want. So we have created this crazy government structure in Sacramento held together by duct tape and bailing wire. It's not coherent and needs to be changed.”

Proposition 13 further altered California politics by requiring a two-thirds majority for tax increases either at the state or local level. This requirement along with a constitutional provision requiring a two-thirds majority to pass a budget -- the result of a proposition passed in 1933 -- means it is far more difficult to raise taxes or pass a budget in California than in other states. For more than 30 years California has been living with a system of minority rule in which 34% of the legislature or a local community can stonewall the majority. Facing this post-Proposition 13 system, California's various interest groups have increasingly used the ballot box to protect themselves -- but by so doing have mandated budgetary havoc.

Former CA Assembly budget consultant: “The state got off track in general after Prop. 13 in terms of balancing spending with revenues.” In a September 21, 2009, Sacramento Bee article, Dave Doerr, senior tax consultant for the California Taxpayers Association and a former California Assembly budget consultant, said that "[t]he state got off track in general after Prop. 13 in terms of balancing spending with revenues ... and once they did, it wasn't long before they were way off track." From the article:

From its beginning, California has had a kinetic economy. Gold propelled it into statehood. When the Gold Rush waned, there was wheat, fruit, real estate, movies, oil, defense, aerospace, computers -- and peaks and valleys with each.

That economy occasionally was reflected in state budgets. From 1945 to 1978, according to Department of Finance statistics, state government spent more general fund revenues than it collected in 11 of 34 years.

The relative kiddie carousel of budgetary ups and downs became a white-knuckle roller coaster in 1978, with the passage of Proposition 13, which cut property taxes and required a two-thirds vote of the Legislature to pass statewide taxes.

Of the 32 budgets passed since then, 19 have spent more than the state took in from tax revenues.

“The state got off track in general after Prop. 13 in terms of balancing spending with revenues,” said Doerr, “and once they did, it wasn't long before they were way off track.”

Time: “California's crisis winds all the way back to 1978's Proposition 13” and it's “system of governance [that] seems designed to thwart any solution its lawmakers propose.” In a July 27, 2009 article, Time detailed California's past and present budget woes and noted:

California's crisis winds all the way back to 1978's Proposition 13, which cut property-tax rates 57% and forced the state to rely more heavily on income tax revenue. When Californians were wealthy, the tactic generated a surplus, enabling politicians to cut taxes, pad budgets and bask in their popularity. But when times were lean, the state struggled to pay its bills. Governor Pete Wilson encountered this dilemma in 1991, as did Gray Davis in 2003. Now it's Arnold Schwarzenegger's turn to try to wrestle a highly partisan legislature into slashing enough programs to eliminate a towering deficit. Having raised taxes by $12.8 billion in February, the governor balked at a second hike.

California's system of governance seems designed to thwart any solution its lawmakers propose. With a two-thirds majority required to raise taxes or pass a budget, 40% of public funds earmarked for public schools and no method of overriding voter initiatives, California seems stymied by a complex puzzle that no one can solve.