Coping with California's Budget Nightmare

NEAL R. PEIRCE

September 14, 1992|By NEAL R. PEIRCE

Some are saying the new California budget is ''an obituary'' for the ''sense of community'' that bound rich and poor Californians in a compact to assure a better future for everyone in America's perpetually growing state.

People are talking of the budget -- agreed on by Gov. Pete Wilson and the Legislature after 64 acrimonious days of no budget, $3.4 billion of IOUs and denigration of the state's credit rating -- as curtains for the California dream.

Almost wistfully, they ask if California will ever again invest heavily and enthusiastically in highways and great water systems, in schools and universities, the process that made it a world-respected ''nation-state.''

Some talk of traumatized cities and counties, still hamstrung by property-tax limits set by 1978's Proposition 13, now hit with a massive loss of $1.3 billion in state assistance. The budget cuts will throw tens of thousands of government employees out of work, deepening the recession's impact -- a problem the Sacramento budget cutters appear to have not discussed.

And there's fear of what all this may mean some years down the road -- the message telegraphed nationally, and in world markets, of a California that no longer has the means or will to make critical long-term investments.

The California budget disaster will not, automatically, spread to other states. Few states now face shortfalls anywhere close, even proportionately, to the scale of what California has had to face -- a $14 billion deficit to paper over for fiscal year 1992, $11 billion for 1993. The new budget represents California's first year-to-year general fund decrease in 50 years.

What's more, there are special factors that have made California's recession, and collapse of government revenues, more cataclysmic than the experience of other states on the budget rack, such as New Jersey, Connecticut, Michigan, Florida and New York.

California, one has to remember, profited from a generation and more of relentless economic growth. Millions of Americans from other states poured in with their savings, ready to invest. Then California became America's top defense and aerospace state, with vast billions of national taxpayers' wealth flooding into its factories. California could then spend freely without an onerous tax burden.

Then came 1978 and Proposition 13, limiting property taxes (a burden the state government picked up in significant measure). Other voter-passed initiatives limited state spending and guaranteed set amounts for the schools.

In the meantime, the focus of immigration into California switched radically. No longer were most newcomers Iowans, Michiganders, Missourians and New Yorkers. Now they were Mexicans, Central Americans, Filipinos, Koreans, Vietnamese.

Still receiving 60,000 foreign immigrants a month, California is on its way to becoming America's first state with a majority of minorities. Many of the immigrants are immensely industrious, but few have brought dollars with them. They represent a demand on the public purse for health, welfare, education and social services on a scale practically no other state faces.

Now with a fierce and deep recession that has cost the state close to one million jobs, with the end of the Cold War and drastic defense-industry cutbacks, with the foreign immigration unrelenting, California sees its house of cards is collapsing.

California politicians made things even worse by embarking on one of the grandest prison-building binges in history. Prisons, symbols of societal failure, were one of the few areas largely spared in the budget cuts.

The reason all this carries such deep and dark implications for America is that California is now close to one-eighth our national population and national economy. As it loses its economic competitiveness, its capacity to draw jobs and global investment, the future prospects of the entire United States are darkened.

If there ever were a moment for basic restructuring of how a state does business, from remedying social ills to preventing them, from neglect to prompt and strategic investment, looking for more economical ways to serve legitimate needs, this ought to be it.

But ''the whole reform-in-government movement hasn't hit California,'' notes Jane Pisano, dean of the University of Southern California's School of Public Administration. Government ought to be reacting like savvy businesses under ** pressure -- refocusing their missions, trying to do things better instead of simply slashing budgets. But instead it's stuck with expensive, overstaffed special districts and agencies and a Sacramento establishment in thrall to multiple special interests.

And there's pitifully little forward-looking action. The new budget, for example, doubles community-college fees, an action that could well block the way to technical education, and a promise of good careers and self-sufficiency for hundreds of thousands of Californians.

Admittedly, says Ms. Pisano, savvy restructuring is tough when government employees are holding on by their fingernails and a good portion of the legislature fears political annihilation.

But California is on very limited time: The cash reserve it budgeted is paper thin; the summer of '92 budget imbroglio could be replayed next year, under even grimmer conditions. Eventually, the Golden State had better start thinking and strategizing a lot better -- for its sake, and ours.

Neal R. Peirce writes a column on state and urban affairs.

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