California has had a dysfunctional budget process for years. In the Seventies ballot initiatives passed that limited the ability of the state government to raise taxes by capping property tax and making it necessary for two thirds of the legislature to vote to raise income taxes. On top of all that in the last twenty years the state's spending has spiraled ever upwards as government has grown and personnel costs began to make up the biggest portion of it.
Facing a forty-two billion dollar deficit and with enough Republicans in the legislature to prevent a direct increase in tax rates Governor Schwarzenegger came up with the idea, again, to pass a group of ballot initiatives to restructure state spending. These one would cap state spending, establish a rainy day fund and move money from designated spending areas to cover the general deficit.
So far in 2009 California has been the biggest recipient of Federal funds with over sixteen billion in contracts, grants and assistance. This money certainly helps with the state's needs but cannot make up for the ballooning budget deficit. Interestingly, so far only thirty-five million of Stimulus funds have flowed to the state which means that there must be much more of those coming as this year and next pass.
California reached this point by adding lots of social programs and spending to its budget much of this driven by the large population growth while suffering economic loss of businesses and people to neighboring states with a lower tax burden. Efforts to fix the problems over the last ten years have only increased the outflow of those who would pay the new taxes. Like the Federal and other state governments California is also seeing an erosion of tax receipts due to the economic downturn. The State Controller in their monthly statement said that "The State's revenues continued to deteriorate in April. Total General Fund revenues were down $1.89 billion (-16%) from the latest estimates found in the 2009-10 Budget Act." This just exacerbates the problems and indicates that raising taxes won't solve the revenue problems.
Unfortunately for the politicians when you give people a chance to vote on raising their own taxes they usually vote it down. This is what happened yesterday in California. This will now force the legislature and Governor to work to solve the latest budget crisis. Based on past experience there will be band aid attempts and borrowing to try and close the budget gap with no real effort made to align the budget with reality.
Photo from Ambidanze's Flickr photostream.