California's Budget Crunch: The Universities Protest

Faculty and students protest state budget cuts, tuition fee increases and the University of California administration's handling of the California budget crises during a rally at the University of California Berkeley. (Robert Galbraith)

In the September 25, 2009 TIME magazine article "California's Budget Crunch: The Universities Protest," Kevin O'Leary reports that significant spending cuts to California's university system are prompting objections from citizens. This suggests that many people do not understand the concepts of tradeoffs. Californians pay less in taxes as a result of popular propositions, yet object to reductions in government services than are necessitated by reduced revenues.

Thousands of students, faculty and staff boycotted classes and staged rallies across the 10-campus University of California on Thursday to protest dramatic cuts to the system's budget and proposed additional hikes in undergraduate fees. At UC Berkeley, the flagship campus and home to famous student protests during the turbulent 1960s, an estimated 5,000 students, professors and university staff attended a noon rally at Sproul Plaza during the system-wide "Day of Action." At UCLA, about 700 people gathered at Bruin Plaza and at normally placid U.C. Irvine approximately 500 people attended the noon rally. One protester held a sign that read: "If I wanted to go to a private school, I would have been born into a rich family."

The University of California Regents, stung by a 20% cutback in state support due to the state budget crisis, are planning to increase student fees another 32%. The U.C. system must chop $637 million out of its budget this year following the agreement between Gov. Arnold Schwarzenegger and the legislature on how to close California's massive $26 billion shortfall in July. Many of the protesters believe the constant increase in fees over the past decade is endangering the university's mission as a public university that offers students an outstanding education at a cost that middle- and working-class families can afford.

U.C. Irvine Humanities Lecturer Keith Danner gave an idea of the cuts in his division alone. "On July 1, 2008 we had 80 full time support staff. On July 1, 2009, we had 67 full time staff and with another 26 layoffs coming we will have 41 staff or a 50% cut. These are the people that make departments run." There are rumblings among faculty and staff that the university is top heavy with administrators often paid more than $100,000. Yet while critical of the U.C. administration for not being more transparent in its approach to budgeting and for paying football coaches more than Nobel Prize winners, the protesters know the real problem lies in Sacramento.

"It's not just an economic crisis," says Shannon Steen, a U.C. Berkeley professor who helped form Save the University to protest cuts to the budget, "it's really a political crisis around the two-thirds rule in the legislature that holds the state hostage to a minority of legislators who are not doing what the people of California want." California is the only state in the nation that has a two-thirds requirement for the passage of tax increases and to pass a budget. These two rules are at the root of the state's chronic budget woes.

U.C. Irvine Anthropology Professor Victoria Bernal spoke passionately to about 125 students in the Social Science quad, saying "the beauty of the University of California is that that it is an elite intellectual institution, but it is not elitist. If there were huge problems with the University of California, that would be one thing. Instead, we are taking something that by all measures is a great success and tearing it down." Student leader Isaac Miller says the university community came together to "protest the de-funding of public education by the State of California and the crisis of priorities of the university administration." "It was stunning," says Steen. "In the 20 years since I was an undergraduate here, I have never seen anything like this."

"This is not about money. It is about values," said Bernal "Anything we do costs money. The question is: what are our priorities? Public education is a fundamental cornerstone of democracy in America. Without it only the well-to-do will receive the education and skills you need to take leadership positions in society." When Washington Monthly's annual college rankings, released this month, rated 258 universities according to contributions to the public good, U.C. Berkeley came in first, U.C. San Diego ranked second and UCLA ranked third. The rankings are on three broad categories: social mobility (recruiting and graduating low-income students), research (producing cutting-edge scholarship and PhDs), and service (encouraging students to give back to their country.)

The demonstrations did not disrupt schoolwork. A spokesman for UC President Mark Yudof said most classes were held and that "most of the action was at the rallies." But there will be more rallies. Protest organizers at Berkeley said that discussions are under way for a march on Sacramento that would include participants from the UCs, the 23-campus Cal State University system and the states' junior colleges. "This is just the beginning," says Miller. "It's a wake up call to students about what is happening to their education."

Is Marijuana the Answer to California's Budget Woes?

A July 22, 2009 article by Tom McNichol in TIME magazine asks "Is Marijuana the Answer to California's Budget Woes?":

Proponents of marijuana legalization have advanced plenty of arguments in support of their drug of choice — that marijuana is less dangerous than legal substances like cigarettes and alcohol; that pot has legitimate medical uses; that the money spent prosecuting marijuana offenses would be better used on more pressing public concerns.

While 13 states permit the limited sale of marijuana for medical use, and polls show a steady increase in the number of Americans who favor legalization, federal law still bans the cultivation, sale, or possession of marijuana. In fact, the feds still classify marijuana as a Schedule I drug, one that has no "currently accepted medical use" in the United States.

(See a TIME video on Medical Marijiuana Home Delivery)

But supporters of legalization may have been handed their most convincing argument yet: the bummer economy. Advocates argue that if state or local governments could collect a tax on even a fraction of pot sales, it would help rescue cash-strapped communities. Not surprisingly, the idea is getting traction in California, home to both the nation"s largest supply of domestically grown marijuana (worth a estimated $14 billion a year) and to the country"s biggest state budget deficit (more than $26 billion).

On Monday, Gov. Arnold Schwarzenegger and the California legislative leaders a tentative budget agreement to plug the state's deficit, but it would involve making sweeping cuts in education and health services, as well as taking billions from county governments. Democratic state assemblyman Tom Ammiano has introduced legislation that would let California regulate and tax the sale of marijuana. The state's proposed $50 an ounce pot tax would bring in about $1.3 billion a year in additional revenue. Ammiano's bill was shelved this session but he expects to introduce a revised bill early next year.

(Read "Can Marijuana Help Rescue California's Economy?")

If the state legislature doesn"t act, perhaps California voters will. One group is preparing to place a statewide initiative for the November 2010 ballot that would regulate and tax the sale of marijuana for Californians 21 years of age and older. Tellingly, the group spearheading the measure calls itself TaxCannabis2010.org, stressing the revenue advantages of marijuana legalization. The group hopes to collect the required 650,000 voter signatures by January to place the measure on the November 2010 ballot.

"There"s no doubt that the ground is shifting on marijuana," says Ethan Nadelmann, executive director of the Drug Policy Alliance, which promotes alternatives to the war on drugs. "The discussion about regulating and taxing marijuana now has an air of legitimacy to it that it didn"t quite have before. And the economy has given the issue a real turbo charge."

(Read "Can Marijuana Help Rescue California's Economy?")

The legalization effort is getting serious consideration from surprising quarters. In May, Gov. Arnold Schwarzenegger publicly called for a large-scale study to determine whether to legalize and tax marijuana.

"I think it"s time for a debate," the governor said at a news conference. "I think we ought to study very carefully what other countries are doing that have legalized marijuana and other drugs."

(See a TIME photoessay on Cannabis Culture)

In California, medical marijuana sales are already taxed, and some communities are looking for ways to get a bigger slice of the pot pie. Residents Oakland are currently voting in a mail-in special election that includes a measure which would make the city the first in the country to establish a new tax rate for medical marijuana businesses. If the measure passes, Oakland marijuana dispensaries, which are now charged at the general tax rate of $1.20 per $1,000 in receipts, would see that rate raised to $18 per $1,000.

A Field Poll conducted in California this spring showed 56% of the state"s registered voters in support of legalizing and taxing marijuana as a way of offsetting some of the budget deficit. Several national polls have shown that more than 45% of American adults are open to legalizing pot, about double the support a decade ago.

Even the most ardent marijuana advocates aren"t expecting nationwide legalization anytime soon. Instead, any action is likely to come on the state and local level. For now, all eyes are on cash-strapped California, where high taxes could take on an entirely new meaning.

California's Fiscal Crisis: The Legacy of Proposition 13

In his June 27, 2009 TIME magazine article California's Fiscal Crisis: The Legacy of Proposition 13, Kevin O'Leary argues California's current fiscal crisis is directly attributable to the June 6, 1978 passage of the "People's Initiative to Limit Property Taxation," better known as Proposition 13, which was a ballot initiative to amend California´s state constitution:

The financial crisis in California grew worse this week as State Controller John Chiang warned that if legislators and Governor Arnold Schwarzenegger fail to come up with a budget-balancing package, he would begin paying California's bills with IOUs on July 2. The last time the state did this was during the Great Depression.

What has brought California to such a perilous state? How did its government become so wildly dysfunctional? One obvious cause is the deep recession that has caused tax revenues to plunge for all states. But California's woes have a set of deeper reasons: direct democracy run amok, timid governors, partisan gridlock and a flawed constitution all contribute to budget chaos and people in pain. And at the root of California's misery lies Proposition 13, the antitax measure that ignited the Reagan Revolution and the conservative era. In Washington, the Reagan-Bush era is over. But in California, the conservative legacy lives on. (Read TIME's report: Can the U.S. Afford to Let California Fail?)

Before Prop 13, in the 1950s and '60s, California was a liberal showcase. Governors Earl Warren and Pat Brown responded to the population growth of the postwar boom with a massive program of public infrastructure — the nation's finest public college system, the freeway system and the state aqueduct that carries water from the well-watered north to the parched south. When Ronald Reagan was governor he actually raised taxes. Then Proposition 13 shot the tires out of Pat Brown's liberal state. Liberal legislative leaders such as Willie Brown and John Burton jerry-rigged repairs and kept the damaged vehicle running for 30 years. Now Republican Arnold Schwarzenegger says there is no choice but to complete the demolition by slashing essential services. (TIME's Joel Stein weighs in on California's state of insanity)

Proposition 13 was the brainchild of the late Howard Jarvis. The antitax crusader was a policy genius not unlike Franklin D. Roosevelt. Both shared an affinity for designing deep structural change that, once embedded in the political system, is nearly impossible to alter without a massive change of heart by voters. Social Security is the lasting legacy of the New Deal era because F.D.R. understood that workers who contribute payroll-tax deductions from their paychecks would not want politicians tinkering with their retirement dollars. Conservatives have mounted assaults on Social Security through the years but to no avail.

Jarvis created a similarly impregnable institution. When he rode the wave of anger over skyrocketing property-tax assessments to pass Proposition 13 in 1978, he included a two-thirds vote requirement for the passage of any new taxes in California — an insurmountable obstacle built on populist allergy to any kind of new levy. Beholden to a tax-averse electorate, the state's liberals and moderates have attempted to live with Proposition 13 while continuing to provide the state services Californians expect — freeways, higher education, locking up felons, assisting needy families and, very importantly, essential funding to local government and school districts that vanished after the antitax measure passed.

Now, however, that balancing act no longer seems possible. In the state's current fiscal crisis, California's public schools stand to lose $5.3 billion on top of $7.4 billion in cuts last year. Superintendents and school boards foresee teacher layoffs, increased class sizes, the loss of computer labs and libraries and, in some districts, insolvency. Superintendent Ramon Cortines says the Los Angeles Unified School District will lay off more than 2,500 teachers.

"If not for the county [welfare program], lots of people would be out on the streets and I'd be one of them with my two kids," says Cinnamon McDaniel. Petite and well dressed, McDaniel is hardly the Reagan-stereotype welfare mom of yore. The 26-year-old African American mother of two was employed until a year ago when her doctor ordered her to stop working because of complications with her second pregnancy. A high school graduate and a preschool teacher's aide for six years, she is working toward a nursing degree. Following a divorce, she now receives a welfare check for $623 as well as food stamps and the state's health coverage for low-income families. "Last year I was able to work and pay my own bills. I'd like to see if Gov. Schwarzenegger could cut it on $600 a month."

South of Los Angeles at California State University, Fullerton, Nicole Muth, 22, has just finished her junior year with straight A's. Muth grew up in Modesto with "lots of love but no money." Raised by her aunt and uncle, she receives a Cal Grant of $4,500 a year. "It definitely helps," says Muth, who credits the grant with allowing her to focus on her studies. As part of his proposed budget cuts, however, Schwarzenegger says Cal Grants should be phased out and that money promised to the incoming college class eliminated. "I appreciate the grant very much and I'm concerned about students coming after me not having the opportunities I've had," says Muth. "I'm really sad to see our state in this economic crisis. It's bewildering." Muth is not alone.

The governor has addressed the need for shrinking the state, saying, "We have to go and make certain cuts in health care. We have to make certain cuts in education, in higher education, in all these various different programs, in prisons, law enforcement and so on." But Anthony Wright, executive director of Health Access California, a nonprofit advocacy group, says, "These are no longer cuts. These are amputations, and the question is, Which limb are we cutting off today?"

California government nears collapse?

A June 10, 2009 article suggests the State of California´s financial situation is dire:

California nears financial "meltdown" as revs tumble
By Jim Christie
Wed Jun 10, 7:31 pm ET

SAN FRANCISCO (Reuters) – California's government risks a financial "meltdown" within 50 days in light of its weakening May revenues unless Governor Arnold Schwarzenegger and lawmakers quickly plug a $24.3 billion budget gap, the state's controller said on Wednesday.

Underscoring the severity of California's cash crisis, Controller John Chiang, who has previously warned the state's government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier.

Additionally, the revenues of the government of the most populous U.S. state fell short of estimates in Schwarzenegger's budget plan by $827 million, Chiang said.

He warned California's state government is speeding toward a financial disaster unless officials act urgently to balance its books.

"Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government," Chiang said in a statement.

California's revenues have been on a dramatic slide as a result of recession, rising unemployment and its lengthy housing downturn.

The state's revenues from personal income taxes tumbled by 39.3 percent in May from a year earlier while revenues from corporate taxes fell by 52.1 percent and revenues from sales taxes sagged by 7.6 percent, according to a report released by Chiang's office.

"A truly balanced budget is the only responsible way out of the worst cash crisis since the Great Depression," Chiang, a Democrat, said.

DUELING BUDGET CONCEPTS

Schwarzenegger, a Republican, has proposed filling the state's budget gap with deep spending cuts, borrowing from local governments and by scrapping some state programs, including its welfare program.

Democrats who control the legislature are crafting a rival budget plan that includes spending cuts and saves programs Schwarzenegger has proposed eliminating. They instead would use reserves estimated in his budget to narrow the budget gap.

State Senate President Pro Tem Darrell Steinberg said on Tuesday he wants a budget agreement by the end of this month.

California's new fiscal year begins on July 1. The sooner the state has a budget the better poised it will be to raise short-term cash to fund its operations by selling revenue anticipation notes, or RANs, on the municipal debt market.

If pressed, California could sell revenue anticipation warrants, or RAWs, an idea floated by Schwarzenegger when he unveiled his budget plan last month. But he quickly shelved it amid opposition from lawmakers.

"No one wants to issue RAWs for our cash-flow borrowing," said Tom Dresslar, a spokesman for State Treasurer Bill Lockyer. "Everyone would prefer to issue RANs for the obvious reason: It costs less."

Lockyer, a Democrat, supports a budget with the reserve Schwarzenegger has proposed. That would increase confidence among investors that California has cash to pay the $7 billion to $9 billion in short-term debt notes that Lockyer's office assumes the state will need to sell, Dresslar said.

(Editing by Carol Bishopric)

Interpreting the California Vote

In their May 27, 2009 column in Business Week entitled "The Power of Pushback," Jack and Suzy Welch praise the benefits of divided government. Included in their argument is an interpretation of California voters recently rejecting all of the proposed increases in state revenues in order to fund the government services provided:

Californians voted overwhelmingly to block further tax-and-spend mayhem....Finally, people are saying, "Enough!" to financial irresponsibility. In fact, if the 2-1 margin means anything, it suggests that California residents are shouting to make their voices heard.

The Welches imply the California vote was a mandate for less government. We will see how Californians respond to the upcoming deep spending cuts that will affect education, police, and firefighting services. I think a more reasonable interpretation is that many people are unrealistic, selfish, and short-sighted. They do not want fewer government services, but rather just do not want to pay for them. Others are reluctant to pay for services they do not benefit from directly. Yet, someone benefits from every type of government spending. And it is difficult to reach a consensus on what qualifies as wasteful government spending. This explains why the federal government accumulated about $10 trillion in debt between 1981 and 2009. Politicians are reluctant to reduce government services, because they are widely popular. Yet, tax cuts are popular, too.