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Political Analysis: Proposed California Budget Reform

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Aired 7/8/09

If the California legislature can't fix the state's budget shortfall, some people say we must resort to drastic measures. We'll discuss calls for a constitutional convention and a federal bailout.

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.
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Above: Council of Community Clinics Health Policy Director Gary Rotto goes on the record about how the state-issued IOUs will impact the services of local health clinics.

MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh. You're listening to These Days on KPBS. California is in one of the worst fiscal situations it has ever faced. There's a $25 billion budget shortfall that has to be fixed, and the state has such limited cash reserves that it's issuing IOUs. But even though the state is in serious hot water, the legislature and the governor can't seem to agree on a solution. Many people blame California's constitution for that. California is the only state that requires a two-thirds majority of the legislature to approve tax increases and approve a state budget, so some are calling for a constitutional convention to fix that problem. And others say the federal government should come up with some bailout money for the world's eighth largest economy here in California. With me to explore these two unusual suggestions is my guest, KPBS Political Correspondent Gloria Penner. Welcome, Gloria.

GLORIA PENNER (KPBS Political Correspondent): Good morning, Maureen.

CAVANAUGH: Well, Gloria, how do we come up with this two-thirds vote requirement in the first place?

PENNER: Well, as with many, it occurred during a crisis and it was the Great Depression. It happened in 1933. The voters actually passed something called the Riley-Stewart Amendment to overhaul the state's fiscal system. And at that point, the centerpiece of the amendment dealt with taxation but it also impacted the budget. It required a two-thirds majority vote for budget passage when the budget grew by more than five percent from the previous year. Now, keep that in mind. Well, the economy returned to long periods of expansion and that threshold became the status quo so voters dropped the five percent growth formula in 1962 and that's where we now are.

CAVANAUGH: Ahh…

PENNER: Also, by the way, Proposition 13 came in in 1978 and that added the two-thirds requirement for the passage of any tax increase. So our legislators have to agree, two-thirds of them have to agree either to pass a budget and any taxes.

CAVANAUGH: So there are lots of arguments right now, I know, against maintaining that two-thirds majority requirement. Tell us about some of those arguments.

PENNER: Well, against is obvious; it's gridlock. I mean, it's just what's happening right now. That's the major argument. Although this super majority requirement often results in kind of a kitchen sink approach to budget writing; a little of everything gets thrown in in the final deal so that they can grab the votes that are needed. And, for example, in February, when our lawmakers were cutting programs for the public and they were raising taxes on individuals, we suddenly saw this array of corporate tax breaks that were also included in the mix…

CAVANAUGH: Oh, wow.

PENNER: …in order to bring in the votes.

CAVANAUGH: Interesting. Now there are several bipartisan efforts underway to get the two-thirds majority rule changed in California. One of them is by the Bay Area Council.

PENNER: Yeah, the Bay Area Council's interesting. It's a business-oriented public policy organization. And it comes out of, as it says, the Bay Area. There are about 275 members, top companies, which, of course, means that they have particular interests on the business side, and they are promoting a constitutional convention to fundamentally rewrite the document that governs California. At this point, they would like to see a convention where the delegates to the convention are actually paid to participate for eight months, starting with an intensive two month education process in which they would hear from many experts about the problems and the potential solutions for California. So it's kind of an entrepreneurial approach. You actually pay people to be delegates to a constitutional convention.

CAVANAUGH: That's interesting. Now has California ever had a constitutional convention before? How do you call a constitutional convention?

PENNER: Well, the constitution actually says you can call for it.

CAVANAUGH: Uh-huh.

PENNER: Again, it would be two-thirds vote of the legislature, that's right, and there have been two previous conventions in 1849 and 1878. Now that was quite a bit ago and, actually, by 1962, with all of the amendments, the constitution had grown to 75,000 words which, at that time, was longer than any other state constitution except Louisiana. That year, the electorate, again, the voters, approved the creation of a California—not a constitutional convention, but a Constitution Revision Commission and that worked on the constitution for about 12 years and they put all of those revisions on the ballots and they were – it was ratified by the voters in '66, 1970, 1972, 1974. And what they really accomplished was to reduce that 75,000 words by 40,000 words. So now at least we have a California constitution that you could, theoretically, sit down and read in one sitting.

CAVANAUGH: Now don't people say that there are actually dangers involved in opening up the constitution in a convention for kind of a wholesale change?

PENNER: Yeah. A constitutional convention is based on the notion that citizen participation is needed to move the state but actually it is citizen participation, through all those flawed ballot initiatives that have come on our ballot, that have been hung up in courts that has actually contributed to the gridlock in Sacramento. The other concern is that the special interest groups could sort of grab the ball and move with it. That Bay Area Council, for example, that could be considered a special interest group because it represents the largest employers in the Bay Area. There's another group, it's called the William C. Velasquez Institute, it's a Los Angeles-based organization, and it works on voting and other rights for Hispanics, which might be considered another special interest group. But here's a practical consideration, and that is that only people who can actually afford—unless they get paid for it, which would be unusual—only people who could afford to take off from their jobs or leave their families for a period of several months, presumably the people who are not raising children or who are retired and affluent, sort of an older, richer group, will be realistically able to participate. So there's another special interest group.

CAVANAUGH: Right.

PENNER: And whatever, the discussion can be skewed and a final outcome could be the result of that skewed discussion.

CAVANAUGH: Now there's another group called California Forward, and they basically say there's an easier way to change that two-thirds majority requirement. What are they working on?

PENNER: Well, actually it's led by former Democratic Assembly Speaker Bob Hertzberg, and it says that a conventional – a constitutional convention process would take too long and that the state's structural problems should be aggressively attacked with a package of initiatives.

CAVANAUGH: Initiatives.

PENNER: Right. But the interesting thing is that they went ahead, and they put forth six initiatives that were on the May ballot. You may remember those, Propositions 1-A through -F or whatever it was.

CAVANAUGH: Yeah.

PENNER: They were all defeated. So that took care of their work. But there are some initiatives that are being prepared for the ballot now. One has already qualified. It's the Open Primary where you can get to vote in the primary without having to declare what your party is for any candidate who is on the ballot, no matter what the party. Right now, you have to vote with your party.

CAVANAUGH: Now San Diego State Senator Denise Ducheny is introducing the idea of changing that two-thirds requirement to just a super majority, just 55 votes in order to pass a budget. How is that – is that going anywhere in the state legislature?

PENNER: Well, that is on the ballot. I mean, that will be.

CAVANAUGH: Uh-huh.

PENNER: It's an initiative that is being prepared. And that would lower the legislative voting requirement down to 55%...

CAVANAUGH: Right.

PENNER: …instead of two-thirds.

CAVANAUGH: Yeah.

PENNER: But there's another one that would lower it to three-fifths, which I think is 60%.

CAVANAUGH: Uh-huh.

PENNER: So, you know, there is some movement there to try to keep a super majority that's more than 50% but not as high as two-thirds. And Ducheny said that she knows a lot of people argue now that given where we are, we ought to have a majority but according to her, it always seemed to her that a super majority's important for something as important as the budget in a state the size of California.

CAVANAUGH: And what did polling say about the public? What is the public's idea of changing this two-thirds majority? Are they for it or against it?

PENNER: Well, interestingly enough, there was a statewide poll by the Public Policy Institute of California in January, this past January, and it found that for the first time a majority of voters, 53%, favored lowering the threshold to 55%. But then they took the poll again two months later and they asked the same question and this time the interest in lowering it declined by ten percentage points. So you wonder why. And the field poll director said that voters apparently expect the political parties to be able to work together to solve the problems. The voting public likes compromise as the best way to create public policy. Well, maybe. But here we have, in California, we have something called political extremism…

CAVANAUGH: Yeah.

PENNER: …because California's divided by an etiological fault line that separates conservative inland areas from the more liberal areas along the coast. And in addition to that, legislative district lines are purposely drawn to create non-competitive districts dominated either by Democrats or Republicans, so that means that the biggest political challenge happens during the primary election. Unfortunately, the primaries tend to favor the most conservative Republicans and the most liberal Democrats, hence you have the problem with finding two-thirds who are willing to support a budget or taxation.

CAVANAUGH: I don't want to let this conversation go by without talking about this idea that perhaps the federal government should bail out California in some way. And I'm wondering, what are the – if you could, tell us where that stands. What are – what is actually being discussed and is any of this serious?

PENNER: Yeah. What is being discussed is not so much as a giveaway, a bailout, it would be a federal loan guarantee because California's huge annual economy is so important to the entire world, actually, that some kind of guarantee that would allow California to take out short term loans at lower interest rates. Basically, a federal guarantee would cut the interest rate on the state's borrowing by as much as half, and that would be terrific, especially since Fitch Ratings just lowered California's credit rating to a triple-B on Tuesday morning, and that is really tough. That means that every time the state has to borrow, it has to pay bigger and bigger interest payments. It was somewhere above five percent on intermediate term general obligation bonds and then over six percent on long term bonds, and now that it's triple-B, it's going to cost even more money to borrow.

CAVANAUGH: My last question to you, Gloria, does the federal government – are they going to start guaranteeing the loans or do they have to think about that?

PENNER: The last I heard, Tim Geithner said that, you know, he has to think about it. He hasn't really done it. But I'll tell you, a bailout will probably arrive if the budget is in danger of a chaotic collapse, which it may already be, because we're going to have some kind of a loan in order to allow California to quickly pay back the money that it has owed. You know, all states have been suffering but none worse than…

PENNER/CAVANAUGH: ....California…

CAVANAUGH: …right. Gloria Penner, thank you so much.

PENNER: You're welcome, Maureen.

CAVANAUGH: Gloria Penner is KPBS political correspondent. She's host of the Editors Roundtable Friday mornings on KPBS-FM, and host of the new KPBS TV show "San Diego Week," Friday nights at seven. You can read her weekly blog, "Political Fix," on our website, KPBS.org. And I want to let you know in the coming weeks These Days will look at the debate over healthcare in America but first we want to hear what you think. Are you satisfied with the medical care you receive? Do you avoid going to the doctor because you can't afford it? What do you think about the current ideas in congress about changing the healthcare system? Write to us with your stories and your ideas at TheseDays@kpbs.org. "The High Cost of Healthcare," coming soon to These Days.

Comments

Avatar for user 'dom'

dom | July 8, 2009 at 9:53 a.m. ― 5 years, 3 months ago

I find it curious that you describe CA as an economy, and not a state. You have an economy, as all states do. Yours is just in a terrible mess and you want the rest of the states to "bail" not the economy out, but the state.
I have read that you are afraid of losing your credit rating, which would make it harder for you to borrow more money...so that you can fall further into debt and divert more essential funds to paying debtors instead of putting it towards living. Why not just declare bancruptcy and stop the borrowing altogether? Start over. By cutting out all of the debt payments owed to bond holders and lenders, you could afford to breathe.
It would mean that you would not be able to borrow in the future. But is paying for something with cash that you actually have such a bad outcome? Think about it.
You need a new jail and instead of issuing bonds, you reach into the bank and pull out the money instead of an IOU.

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Avatar for user 'dom'

dom | July 8, 2009 at 10:27 a.m. ― 5 years, 3 months ago

No other comments. I guess "apathy" is at the heart of your problems. You don't really believe that Titanic is sinking fast.

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