A New Governor Won't Fix What Ails California


By Laura D'Andrea Tyson Note: This column originally appeared in the September 22, 2003 issue of BusinessWeek.

In the weeks remaining before California's historic gubernatorial recall vote, the media are focusing more on personalities than on issues. Voters are learning about Arnold Schwarzenegger's youthful escapades with sex, drugs, and body modification, about Arianna Huffington's revolving political principles, about Lieutenant Governor Cruz Bustamante's flirtation with Hispanic separatism, about Governor Davis' high school sports career.

The focus on personalities is not surprising. California is the heart of the entertainment industry and America's celebrity-dominated political culture, and the characters in the recall are certainly colorful. Except perhaps for the one known as Gray.

But the recall election is about much more than personalities. It's about how the sixth-largest economy in the world addresses a massive budget crisis. And it's about whether California can be governed by anyone, regardless of personality. As a result of several progressive measures added to California's constitution nearly 100 years ago to protect citizens from manipulation by "moneyed interests," Californians can enact laws through voter initiatives, repeal laws through voter referendums, and recall their governor.

WHERE THE MONEY GOES. Ironically, during the past 20 years, an exploding number of initiatives and referendums financed by private fortunes and serving special interests has usurped the intent of California's direct-democracy provisions. The campaign for a recall election, initially funded by a single wealthy conservative who aspired to be governor himself, is just the most recent manifestation.

So why have a large number of Californians expressed support for the recall? The state's budget crisis has fueled their discontent. State Republicans have blamed the crisis on the governor's out-of-control spending. But the facts reveal a far different picture.

After adjusting for inflation, state per capita spending grew at an average annual rate of only 1% from fiscal 1989-90 to fiscal 2002-03, a much slower pace than during previous decades. Spending on K-12 education accounted for the largest share of the increase, reflecting two earlier voter initiatives -- Proposition 13, passed in 1979, which halved local property taxes, the traditional source of K-12 funding, and Proposition 98, passed in 1988, requiring the state to dedicate 40% of its general funds to primary and secondary education to fill the gap.

K-12 funding also grew in the 1990s in response to rapid growth in the size of the student population. Like other states, California also increased spending on health and prisons. Together, education, health, and security constitute 90% of total state spending.

NO CHOICE. But California's budget crisis, like similar crises that have engulfed the other states, stems primarily from a steep drop in tax revenues resulting from the stock market collapse of 2000-02 and the national recession and jobless recovery of the past three years. Since California was the hub of the '90s technology bubble, its revenue base was hit especially hard. State revenues declined by about 17% in 2001-02 -- the largest slump in more than a half-century.

Like most other states, California has a balanced-budget amendment that precludes borrowing to cover unanticipated revenue gaps. This left Governor Davis with no choice but politically unpopular spending cuts and tax increases to maintain budgetary balance.

Four out of five U.S. governors responded to this year's unprecedented budget crises by reducing spending and raising revenues. Over half of the governors proposed actual tax increases. Davis recommended a balanced combination of temporary spending cuts and tax increases. But after a long budget stalemate, Davis was unable to win legislative support for a single revenue-augmenting measure. And he alone among the 50 governors became the target of a vicious recall effort. Is the recall simply the result of the particulars of his budget proposal, his less-than-charismatic personality, or his lack of political courage? Of course not.

VETO POWER. The recall demonstrates that the toxic brew of money's influence in politics and the direct-democracy provisions of California's constitution have rendered the state ungovernable. As a result of several voter initiatives, about 70% of state spending is earmarked in advance, limiting the discretion necessary to make trade-offs in a crisis. In addition, California is one of only two states mandating a two-thirds supermajority of both legislative bodies to pass a budget. Even in normal times in a state as vast and diverse as California, the supermajority constraint gives an ideological minority effective veto power.

Finally, compulsory six-to-eight-year term limits for California legislators -- the result of another voter initiative -- further undermine the budgetary process. Many legislators simply do not understand budgetary trade-offs and can easily fall prey to lobbyists.

California doesn't need a recall election. It doesn't need a celebrity governor. It needs an economic rebound and a new constitution. Laura D'Andrea Tyson is dean of London Business School. She served as dean of the Haas School of Business at the University of California at Berkeley from 1998-2001, where she has been a faculty member since 1978.


Steve Ballmer, Power Forward
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