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William Bradley

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California's Wild Ride: Of Arnold, Jerry, And Various Vanities Fair (And Otherwise)

Posted: 10/04/11 02:43 PM ET

It's nine months since Jerry Brown's inauguration as governor. After a big early flurry of activity around big state budget cuts, Brown has proceeded more slowly, his new/renewed tenure as California's second three-term governor beset by the same forces of dysfunctionality that marked the governorship of predecessor Arnold Schwarzenegger.

Now Brown is working his way through hundreds of bills he must decide on by the end of this coming weekend, having already vetoed one bill that would have altered the automatically triggered spending cuts looming more likely late this year with state budget revenues unsurprisingly coming in below the optimistic scenario.

Brown, oddly, isn't mentioned at all in a rambling 12,000-word feature in the new Vanity Fair which is seemingly about the challenges he faces and, ostensibly (given the title, "California and Bust"), the state he governs.

Aside from the hard slogging in the lengthy opening sequence about a financial analyst (who makes a point of denigrating municipal bonds as boring even as her work shows them to be very important), it's a terrific if ramshackle read nonetheless in the November Vanity Fair from best-selling author Michael Lewis (Liar's Poker, Moneyball) on the crisis in public finance, California's seeming ungovernability, Arnold Schwarzenegger, and the selfish, er, lizard brains shared by all Americans.

The former governor, who was not accompanied by his blue oxen Babe, takes Lewis, a past chronicler of Wall Street follies, for a scarifying bike ride through the streets of Santa Monica on which they encounter a pedestrian who thought Schwarzenegger was Bill Clinton ("another sex scandal guy"). Schwarzenegger offers up a humorous rendition of events before getting down to cases on the state's chronic budget crisis and his own time as governor which he actually did (mostly) enjoy.

But, while the piece in many respects is about Schwarzenegger, and a positive take on him as governor, it's really about deeper crises in America. Naturally, since Vanity Fair is a New York magazine, it picks California as the exemplar of all such woes.

From 2002 to 2008, the states had piled up debts right alongside their citizens': their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion. In response, perhaps, the pension money that they had set aside was invested in ever riskier assets. In 1980 only 23 percent of state pension money had been invested in the stock market; by 2008 the number had risen to 60 percent. To top it off, these pension funds were pretty much all assuming they could earn 8 percent on the money they had to invest, at a time when the Federal Reserve was promising to keep interest rates at zero. Toss in underfunded health-care plans, a reduction in federal dollars available to the states, and the depression in tax revenues caused by a soft economy, and you were looking at multi-trillion-dollar holes that could be dealt with in only one of two ways: massive cutbacks in public services or a default--or both. Whitney thought default unlikely, at least at the state level, because the state could bleed the cities of money to pay off its bonds.

Lewis discusses Schwarzenegger's various efforts to deal with all this, including his 2005 special election on initiatives to limit state spending, stop the gerrymandering of legislative districts, sharply limit public employee union spending on elections, and lengthen the time it takes public school teachers to gain tenure. All of which lost.

There was plenty to criticize in those initiatives, and the approach. For one thing, it was too much for one ballot and the connections were not obvious. For another, it came off as too one-sided. Why just curb public employee union contributions and not corporate contributions?

Not that public employee unions are likely to support any spending limits, mind you, no matter how well-conceived. They always want to spend more. Nor are corporations eager to have the efficacy of billions in tax breaks examined. They always want to pay less. (Much if not most of what passes for political debate in California's capital consists of extremely well-funded lobbying and PR fights putting a higher gloss on just those points.)

Lewis cites a 2010 book, California Crackup, by governmental reform advocates Joe Mathews and Mark Paul, which discusses California's crisis of governance. He doesn't mention that Paul, a former Sacramento Bee editor, was policy director for Schwarzenegger's 2006 Democratic opponent, then state Treasurer Phil Angelides. (He also misstates Schwarzenegger's job approval at the end of his term, which was not what Gray Davis's was when he was recalled, but had actually semi-recovered to 32% in the December Public Policy Institute of California (PPIC) poll.)

In Paul's view, Arnold Schwarzenegger had been the best test to date of the notion that the problem with California politics was personal, that all the system needed to fix itself was an independent-minded leader willing to rise above petty politics and exert the will of the people. "The recall was, in and of itself, an effort by the people to say that a new governor--a different person--could solve the problem," says Paul. "He tried every different way of dealing with the crisis in services. He tried to act like a Republican. He tried to act like a Democrat. He tried making nice with the legislature. When that didn't work he called them girlie men. When that didn't work he went directly to the people. And the people voted against his proposals."

Knowing how difficult the job is in the best of times, and how complex the current challenges are, Brown denied this summer that Schwarzenegger is "a failed governor," instead praising him in several areas.

Lewis's article focuses on the public spending side of things. Which, given what Brown is dealing with -- the difficulty in California's convoluted system of raising any taxes or closing any loopholes -- is a useful exercise. Especially since the spending increases were based not on the ability to raise more revenue but on revenue from bubble economies. First the dot-com boom. Then the housing boom and the financial gizmos built atop it. Which of course went bust.

Brown, who blew away billionaire Meg Whitman and her budget-busting fiscal plans last November, is finding that some liberal panaceas on the revenue side of things don't, well, pan out in public opinion. Actually, it might be safe to assume he knew this.

Repeal Prop 13? Split the property tax roll and raise rates on commercial property? Hike the car tax in a big way? (Which then Governor Gray Davis told me in early 2003 would be a radioactive move.) Do away with the two-thirds legislative vote requirement on tax hikes? Most voters, according to the Field Poll and a number of private polls, are opposed.

Raising taxes on high-income folks polls well. But even if that's economically feasible and fiscally relevant, which is another conversation, from a political standpoint it's not something that happens any time soon.

Lewis does tend to conflate state budget problems with local problems, and current crises with future crises. There are crosscuts between them, but they also have different jurisdictions and different time frames.

Brown, like Schwarzenegger before him, is dealing with a chronic crisis greatly exacerbated by the global financial meltdown into a front burner crisis. Even as he follows Schwarzenegger's policy in reducing some future state public pension costs, he's trying to get state government through the here and now in some semblance of decent shape. For that, he's several billion dollars short in a $2 trillion economy.

Which in California's dysfunctional state governmental system is proving to be difficult enough.

But there are problems beyond Brown's jurisdiction as governor yet within his purview as California's leader. There is, for example, the crisis of San Jose and its Democratic mayor, Chuck Reed.

He's got a problem so big that it overwhelms ordinary politics: the city owes so much more money to its employees than it can afford to pay that it could cut its debts in half and still wind up broke...


The city's pension costs when he first became interested in the subject were projected to run $73 million a year. This year they would be $245 million: pension and health-care costs of retired workers now are more than half the budget. In three years' time pension costs alone would come to $400 million, though "if you were to adjust for real life expectancy it is more like $650 million." Legally obliged to meet these costs, the city can respond only by cutting elsewhere. As a result, San Jose, once run by 7,450 city workers, was now being run by 5,400 city workers. The city was back to staffing levels of 1988, when it had a quarter of a million fewer residents. The remaining workers had taken a 10 percent pay cut; yet even that was not enough to offset the increase in the city's pension liability. The city had closed its libraries three days a week. It had cut back servicing its parks. It had refrained from opening a brand-new community center, built before the housing bust, because it couldn't pay to staff the place. For the first time in history it had laid off police officers and firefighters.

By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. "There is no way to run a city with that level of staffing," he said. "You start to ask: What is a city? Why do we bother to live together? But that's just the start." The problem was going to grow worse until, as he put it, "you get to one." A single employee to service the entire city, presumably with a focus on paying pensions. "I don't know how far out you have to go until you get to one," said Reed, "but it isn't all that far."

Right about now is where I come up with a glib close. If only I had one.


You can check things during the day on my site, New West Notes ... www.newwestnotes.com.

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