Jerry Brown to the Rescue

The future of the United States may be seen in microcosm in California.  Like California, the US is in deep debt, having engaged in unsustainable economic practices.   But California, like the US, cannot be written off.  The resources, economic capacity and technological infrastructure is strong, and the state is not going to collapse into bankruptcy and chaos.

In this time of crisis Californians turned to a former Governor and one time Presidential hopeful, Jerry Brown.   Brown was last governor of California from 1975 to 1983, an era with a deep recession and an oil crisis.   He’s had experience in this kind of situation.     When he came into office Brown quickly got the reputation as a fiscal conservative, cleaning up excesses left by his predecessor, Republican Ronald Reagan.    For all his rhetoric, neither as Governor nor President was Reagan a fiscal conservative!

Brown opposed proposition 13, which cut taxes and dramatically reduced California’s state revenues.  But when it passed he implemented budget cuts and used the surplus he had garnered in his early years ($5 billion) to keep California viable.    He was respected by California fiscal conservatives, but not so much by social conservatives.  Seeing where the culture was headed before others, he appointed openly gay judges and officials, and pushed ahead on environmental issues, arguing that damaging the planet could have long term unintended consequences.  He also pushed for alternative energy, realizing that going from oil crisis to oil crisis would ultimately not be a healthy way to run California or the country.

Brown would run for President in the Democratic primaries a number of times, focusing on balancing the budget (he wanted a balanced budget amendment), exploring alternative energy sources, and repositioning the economy for a more high tech future.   In hindsight, it’s clear Brown had foresight.  Perhaps if he had been elected in 1980 the budget would not have spiraled out of control as it did in that decade.

So now Brown returns to California, no longer the balanced budget state he left when he moved out of the Governor’s mansion.   (Oh wait, he choose not to live there, and had a modest residence instead).   Now, he faces daunting challenges.

If California were a country, it would have the 8th largest economy in the world.  Yet it is heavily in debt, and its bonds are rated as just above junk (a distinction shared by Illinois).    California’s debt is about $100 billion ($80 billion in bonds issued, but another $40 billion of bonds have been authorized).    This year alone there is an expected short fall of $25 billion.  To cover that through borrowing would be very expensive due to the low rating of California’s bonds, meaning that they have to pay a high interest rate to borrowers.

Many are comparing California to Greece, saying that the state will default, and the collapse of California could have ripple effects throughout the US economy.   And, to be sure, that all could happen.    Arnold Schwarzenegger, elected to clean things up in California, tripled the debt during his tenure, setting up this crisis.   Yes, the housing boom hid the inherent weaknesses in the economy; Schwarzenegger was caught up in economic bubble like so many others, and he didn’t get much cooperation in trying to address budgetary problems.  Still, this leaves Brown with a herculean task — to save California, and perhaps by extension, keep the US economy from entering an even deeper crisis.

This solution is painful.  First, temporary tax increases are to be kept in place another five years.   Brown is smart enough to know the simplistic logic that “cutting taxes increases revenue” is wrong.   It can under certain conditions, but most of the time if you cut taxes, you cut revenue.  Second, Brown is proposing extensive budget cuts.   State workers, usually protected in such times, will be asked to take cuts of 8 to 10% of pay.   That is significant, but the state workers’ unions recognize its necessary.    He will also force workers to take furlough days — unpaid time off — to help cut costs.  A third of California’s budget is for state worker salaries.

Another $3 billion will be cut from state health care ($1.7 billion) and and the state’s “welfare to work” program ($1.3 billion).    The University system will also see $1 billion cut.   Despite this, Brown wants to start a rainy day fund, and significantly shift authority and money to local governments.   This is potentially the most important and dramatic of Brown’s moves.  Not only will the tax increases mentioned above go directly to local governments, but more and more Brown wants to decrease the scope of state government.   Local governments can better decide how to spend money, and perhaps what can be cut.

If Brown can get California’s democratic legislature to swallow these cuts (and at this point they’re in no mood to do so), California will show investors that it has its budget under control.   Not having to sell bonds this year to finance a budget shortfall will itself save billions, meaning that as painful as these cuts are, not making them only creates more pain down the line.  Brown also doesn’t want a federal government bail out.  He knows that the feds would be reluctant, given what this would signal to other states (and the jealous distaste many Americans have for California), but he also knows it would be the wrong thing to do.   California has to develop a sustainable economy on its own.

If it works, then not only is California poised to rebound, but Brown will have given the country a model of how to get out of this mess.   Not only can California demonstrate that deep budget cuts can be digested, but the idea of decentralizing power as a means to do so more effectively could alter the way this country is covered.   Brown always had a talent for paradox — he could demonstrate that in an era of globalization, the key to reviving the economy and becoming sustainable is to decentralize governmental power.

Another paradox:  Republicans talk a good game of decentralizing power and “states rights,” but while governing they do the opposite.  If a Democratic governor could convince a Democratic legislature to go along with this, that would show the Democrats capable of fiscal conservatism and of decreasing centralized power.

California is worth watching.  If Jerry Brown can pull this off, he may be able to do more for his country than he could have done as President.    A politician once consigned to trivia questions and jokes may emerge as a true leader, helping blaze a trail into the new world of 21st century politics.

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  1. #1 by Jeff Lees on January 11, 2011 - 16:57

    Even if the measures are passed by the state legislature, his tax increases, which account for half of his proposed savings, will still go to a public vote. The real danger in my mind is the possibility of the budget cuts passing, but the tax increases failing to pass a public vote. I think the best way for Brown to prevent this would be to make it very clear that if the tax increases do not pass, there will be even worse budget cuts. Hopefully the public will see the truism in that, and opt for tax increases instead of another $12 billion in budget cuts. I just have a feeling the Republicans will be doing everything they can in the state to see the tax increases fail, and see the state budget cut even more.

    • #2 by Scott Erb on January 11, 2011 - 17:00

      That’s right, you were out there this summer. Did you get much of a feel for what Californians were thinking about all of this?

      • #3 by Jeff Lees on January 11, 2011 - 17:07

        I didn’t unfortunately. Even though I was in California, there were very few student in the program from California (a full 1/3rd of the program was comprised of international students). Although I did get a horrified look when I asked “how much are tolls” on the high way. My friend responded with “they’re called freeways for a reason.”
        What I did hear a lot about what the fear of budget cuts to the University of California system. And from what I’ve read, Brown’s proposed budget includes $1 billion in cuts to the university system. I do have some friends going to UC Davis…I wonder what they think about it…

  2. #4 by Scott Erb on January 11, 2011 - 17:13

    I was 21 when I encountered my first toll road. I was driving with a friend from South Dakota out to the East Coast — my first trip out east! We took the freeway up through Canada, and then crossed over to New York State. We got on the New York Thruway and found out we had to pay tolls. I’d heard about toll roads before, and was fascinated by the “rest areas” that had restaurants and gas stations (out west a rest area was a bathroom, maybe some travel info and a map, and that’s it.) California has an extensive university system, but $1 billion is a huge cut!

    • #5 by Jeff Lees on January 11, 2011 - 17:24

      Yea, I was in New York last week, and crossing over to Long Island cost $6.50!

      And while I understand the need to cut money from every area of government, I’ve applied to two UC schools, so I would hate for those cuts to affect any program I’m in!

  3. #6 by Jeff Lees on January 11, 2011 - 17:49

    Here’s some information about the cuts to the UC system

    http://chronicle.com/article/Californias-Public-Colleges/125910/

    • #7 by Scott Erb on January 11, 2011 - 17:52

      Interesting — it says the new cuts will cause the University of California system to rely on tuition more than state funds for the first time. We’re already there in Maine — UMF only gets a bit over 40% from the state, tuition covers the rest. Still, I doubt that gives California universities (or out of staters applying to them!) any comfort.

      • #8 by pino on January 13, 2011 - 05:32

        We’re already there in Maine — UMF only gets a bit over 40% from the state, tuition covers the rest.

        Any thoughts on the idea that higher education might be our next bubble?

  4. #9 by henitsirk on January 18, 2011 - 03:58

    Hmmm… Jerry Brown sounds like my kinda guy: fiscal conservative, socially liberal.

    I recall from my time in California that the usual MO to fund anything was bonds. I never quite understood how it could be bad for individuals to go into high amounts of debt, but not the government.

    I graduated from UC Irvine. While I hate to think that the mighty and wonderful UC system might lose much of its luster through budget cuts (although I wonder how much of that will be restored through private investment/corporate donations), it’s obviously necessary.

    California has a truly wonderful system of state higher education, with abundant community colleges, the Cal State system, and UC. I compare it to Idaho where I live now, where Idaho State, for example, seems to merge all three: the vocational/certificate level, the associate’s/professional degree level, and the bachelor’s/master’s/doctorate level. Smaller state, granted, but how much less choice and opportunity we have here compared with California. Unfortunately California seemingly has no choice but to decrease services at this point.

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