Can California Fix Its Budget Problems?

Changes in its political system may point the way for it to meet financial challenges.
by | November 2012

One in every five Americans lives in California or Texas. These, of course, are states with enormous budgets. The California budget for 2012-13 appropriates $143 billion; Texas’ budget is $172 billion. How these two state governments manage their money matters a lot, even to those of us who do not live in them. And they could not be more different.

California is in the middle of a rebound, with significant job growth. However, the state government remains in bad financial shape. Texas, on the other hand, is in the middle of an oil and gas boom and is heading toward a record budget surplus. A comparison of bond ratings for state governments shows California with the lowest rating of any state and Texas with a solid AA rating. A comparison of state governments’ net assets as of June 30, 2010, shows California with a deficit of $4.2 billion and Texas with the largest positive balance of any state, $94.9 billion.

To understand how California got where it is, you have to look at the underlying political structures that drive fiscal policies. Sherri Greenberg, director of the Center for Politics and Governance at the University of Texas at Austin, has been comparing the finances of these two states for 20 years. Like other experts, she lays the blame for California’s problems on the heavy use of citizen initiatives and on the longstanding requirement for a two-thirds legislative majority to adopt a budget.

Three recent changes to the rules governing the political game in California could have a positive impact on the state’s financial picture. First, the state has adopted a “top two” open primary system. Second, voting districts are no longer gerrymandered to ensure victory for one party. Instead, they are drawn by a citizens’ commission. And third, the two-thirds rule for the Legislature is gone -- ironically, as a result of one of those pesky citizen initiatives. Now, the budget can to be adopted by a simple majority vote.

Shaudi Falamaki Fulp, political adviser to the advocacy group Govern for California, sees the recent changes to the state’s political system as significant. She thinks that increasing and diversifying voter turnout are key to helping bring about the moderating effects needed for better fiscal policymaking. Voter turnout in California’s primaries was abysmal this year, which translated into the most partisan voters selecting the primary winners in many legislative districts.

In Texas, as in many states, redistricting is set up to protect incumbents and nearly always is accompanied by a court fight. As a result, Greenberg says, the Texas Legislature continues to become more and more partisan. Will that produce California-style gridlock in the Lone Star State? There are likely to be lessons for us all in whether California, which has long been on the cutting edge of cultural and social trends, has found a way to cut through the gridlock and allow smart financial decisions to be made.

Mark Funkhouser  |  Director, GOVERNING Institute
mfunkhouser@governing.com

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