Why Obama Should Say No to Aid for California

The inaugural festivities are over and the new Obama administration is in place, but California’s Republican Governor Arnold Schwarzenegger and the state’s Democratic legislative leadership are sticking around Washington to lobby for federal aid for the financially starved and politically stalemated Golden State.

Last week, Schwarzenegger pitched for billions in federal financial aid in a letter to Barack Obama, in which he urged the new president to support a New Deal style “substantial federal stimulus program” for California.  According to Schwarzenegger, California is ready to undertake nearly $44 billion in infrastructure projects that are capable of creating nearly 800,000 jobs.

Specifically, Schwarzenegger told Obama that California is prepared to launch $11.8 billion in energy and energy efficiency projects; $11 billion in investment in road, transit and rail construction;  $4 billion in health care investment, including $1.4 billion in health care information technology; $8.5 billion in water and sewer projects; $1.1 billion in school construction, including broad band access and career technical education projects; and more than $5 billion in airport, park, public safety and other public works.

In addition, Schwarzenegger asked Obama for financial help to cover rising public health caseloads, tax credits for renewable energy projects, and federal funds to pay for the $1.6 billion estimated cost of retrofitting trucks in California so that they comply with state legislation to cut greenhouse gas emissions.

I doubt that Schwarzenegger reminded the president — who has economic worries of his own — that he had just vetoed the plan passed by the California legislature to raise revenue from the state itself to deal with California’s budget crisis.

Along with Schwarzenegger, California’s Democratic legislative leaders are also looking to President Obama and the federal government for financial aid.

In a letter sent to Senators Barbara Boxer and Dianne Feinstein and Speaker of the House Nancy Pelosi, California Senate President Pro Tem Darrell Steinberg (D-Sacramento) wrote “During this challenging time, the states — especially California — need the federal government’s help.”  Among the projects and programs that Steinberg wants federal help to fund are school construction and repair, job training, state park and wetland maintenance, new energy and green technology projects, highway and rail improvements, and affordable housing construction.

Steinberg and Assembly Speaker Karen Bass (D-Los Angeles) also held a conference call today with reporters to talk about how California can increase its share of the billions of dollars that President Obama wants to invest in public works projects as part of his economic stimulus package.

As a progressive Californian, I support these programs and projects, and I applaud the Democratic leadership for their advocacy of them in the face of rigid Republican opposition.

But I am not sure that the federal government should pay the tab – even for needed and necessary government services — that California refuses to pay for itself.

Senate President Pro Tem Steinberg has said that this is “no time for finger-pointing.”

I strongly disagree.

The confluence of the nation’s economic meltdown, California’s crushing financial crisis and $41 billion budget deficit, and the state’s political gridlock is precisely the time to point the finger – and squarely place the blame for the mess we’re in on Prop 13  and the state’s Republican Party.

Because of Prop 13 (which is now Article 13A of the California Constitution), California’s property tax is both regressive (that is, the same tax rate applies regardless of the value of the property or the income of the property owner) and severely limited (the property tax cannot exceed 1 percent of the property’s appraised value).

In addition, the property tax is unclassified — that is, the same tax rate applies to residential and commercial property, and to owner-occupied (homestead) and investor property.  This means that the state legislature cannot apportion the burden of taxation among classes of property based on their function in the economy or among property owners based on their ability to pay.

It also creates a political alliance, based on supposedly shared economic interests, among property owners of whatever size — uniting the perceived interests of middle class homeowners, such as someone who owns and lives in a $500,000 house in Fullerton or Modesto, with the state’s largest corporate, commercial and investment property owners.

Prop 13 also severely restricts – and in practice all but eliminates – the state’s ability to increase revenue and pay its own way.

Under Prop 13 (Art. 13A, section 3), the California legislature cannot increase the state’s revenue except by a two-third super-majority vote.  This means that a minority in the legislature – such as the current onstructionist Republicans – can prevent the state from obtaining the funds it needs to pay its bills.

In practice, it now means a $41 billion state budget deficit, as well as the disintegration of the state’s highways and infrastructure, and the elimination or drastic reduction of necessary government functions such as aid to schools, the poor, and the elderly.

Since it’s passage in 1978, Prop 13 has become the “third rail” (as in touch it and die) of California politics.

It has also become a rallying point for the state’s Republicans and their ideological opposition to government social programs of any kind.

It has allowed the Republican Party to pose as the protector and defender of middle class economic interests.

And it has pushed California to the brink – and now perhaps past the brink – of complete political dysfunction and economic collapse.

So while I applaud California’s Democratic leadership for looking for a way out of our political and economic crisis and in funding the state’s essential government projects and programs, it also seems to me that we must finally confront the $41 billion elephant in the room – Prop 13.

Until we do so, and until the governor and the legislature elected by the people of California can raise the revenue necessary for California to function, we should not expect the taxes raised by the federal government – paid for by the people of other states – to bail us out.

Perhaps, then, the best thing that President Obama and the Democratic Congress could do for California is to say no and insist that we first take care of Prop 13 and its crippling effect on our state’s ability to govern and pay for itself.

UPDATE

Yahoo has an article that calls California’s budget crisis a “golden opportunity” to eliminate Prop 13.

The article points out that “at the heart of California’s problems, economists say, is the government’s heavy reliance on personal income taxes, which produces wild swings in revenue as its coffers overflow in good years and dry up in leaner times.”

“A big reason for the state’s reliance on income taxes is Proposition 13, a voter-approved change to the state Constitution that limits property tax increases and requires any plan to boost taxes to receive the approval of at least two-thirds of the legislature.” ”

“The 1978 measure was credited with sparking anti-tax sentiment in other states and assisting Ronald Reagan’s election as U.S. president two years later.”

“Legislators have responded by burdening state residents with some of the highest income and sales taxes in the country.”

“Economists say the state has long needed to fix that revenue roller-coaster ride and are hopeful that this crisis will force leaders to face the music.”

Amen.