The Comeback—or the Reprieve
The easiest question to answer is how California has pulled its way out of its budgetary disaster. Three things have happened since Jerry Brown replaced Arnold Schwarzenegger: the overall economy got better, so more people paid more taxes; state spending went down, largely at Brown’s insistence; and California’s voters approved a significant tax increase, mostly on annual incomes higher than $1 million.
Each of these has its fine points. California depends more on income tax, especially from rich taxpayers (even before the new increase) than it used to. This makes its revenues notoriously volatile. They fall very fast when the state economy is contracting—Brown had 10 percent less money to work with in his first year than Schwarzenegger had had in his last—but also rise quickly when conditions improve, as they have begun to do. One other aspect of the state’s tax structure compounds its problems. The fastest-growing parts of its economy are those classified as “services,” from entertainment and health care to infotech and finance. But most of these are untaxed. In the words of a recent report on the state’s finances, “California’s tax code is so outdated that nearly $1 trillion—that is, roughly half—of the state’s economic output is not taxed.” And this despite the state’s image as being overtaxed.
The budget cuts have been substantial, and came at Brown’s insistence to an often skeptical Democratic-dominated legislature. This may be the place to note a difference between state and national budgets. During economic slowdowns, national governments do and should run budget deficits, to keep unemployment from getting worse. Otherwise public-sector layoffs intensify, rather than offset, what is already happening in the private economy. It is different for state governments. Many, though not California’s, have constitutions forbidding deficit spending. And not even California can view deficits as a state-level stimulus program, since so much of the spending sloshes out beyond state borders.
During Brown’s first stretch as governor, details of his austere personal life—unglamorous Plymouth, sparsely furnished apartment, mattress on the floor instead of a bed—seemed merely part of his oddball ex-seminarian image. (Brown entered a Jesuit seminary at age 18 and spent several years there. He frequently quotes lines from his Jesuit training about learning to limit one’s demands and thus be happy with less.) His main working office is in a third-story loft in an old Sears, Roebuck building in the “uptown” area of Oakland, the revival of which was one of his projects during his years as mayor. (Many modern governors have maintained only a token presence in Sacramento; through most of his eight years in office, Arnold Schwarzenegger commuted from his home in Los Angeles rather than spend the night in what is still an out-of-the-way town.) The most luxurious aspect of Brown’s current life is the house he and his wife bought six years ago in the Oakland Hills, which is valued at about $1.8 million.
Brown has also inherited a share of what was once his great-grandfather’s 2,700‑acre ranch in Colusa County, in the foothills of the Sierra Nevada. This forebear, his father’s maternal grandfather, August Schuckman, was born in Westphalia but left after the revolutions of 1848 and made his way across North America by wagon train during the California Gold Rush. “He’d lend money to people, and when they couldn’t pay, he’d get their land instead,” Brown told me. “That’s how he put together this big spread.” Brown said that when he was a boy, his father, then an aspiring politician headed toward the governorship, would take the family up to see the property. “I never cared about it then. It was too hot. Too many rattlesnakes. Now, as I get older, I go more and more and think about what it took my great-grandfather to get there.”
“By the time he returned as governor, he still had an image as an ascetic person,” Bruce Cain told me. “That image was consistent with his message that he would be careful with your money.” Brown’s current role as the Democrat who is cutting budgets brings up the inevitable “Nixon goes to China” analogy, but I think the more important comparison is to an earlier Republican president, Dwight Eisenhower. The most admirable part of Eisenhower’s policy, in retrospect, was his effort to push big infrastructure and national-greatness efforts—the interstate highway system, more money for schools and basic research, much of it of course with a Cold War rationale—while holding the line on other spending, including the Pentagon’s. I’m oversimplifying the story of the ’50s to make the point that the Jerry Brown of 2010 comes closer to that part of Ike’s balance than anyone else I’m aware of.
“For me to get the budget cuts these past two years, I had to go to the legislature and say ‘Please, please, please!’ ” he told me. “The Democrats”—who control the legislature—“didn’t like it, but they agreed as part of getting the tax increase.” In California, the governor has line-item-veto authority—one more indication of the legislature’s feebleness—and Brown says he will use his veto power to resist spending increases. “The budget is more or less balanced,” he told me. “To unbalance things now, they have to come through me. That is a real shift in power.” Meanwhile, Brown’s reduced and balanced budget includes more spending for what he considers the big challenges of the future: clean-energy initiatives, an expensive (and controversial) north-to-south high-speed-rail project, new canals and aqueducts, even California-based medical-research projects beyond those sponsored by the National Institutes of Health.
For students of California politics, Brown’s most surprising achievement was persuading the legislature to eliminate urban “redevelopment agencies” against the bitter opposition of nearly every big-city mayor in the state, most of them Democrats. “Redevelopment agencies” were a stratagem that one San Francisco analyst has described as “the California equivalent of the national military-industrial complex.” Without getting into the details, their effect was to channel a certain share of tax money into a special fund that mayors and local officials could use to finance housing projects, malls, and similar efforts. In theory this was a step toward wholesome decentralization, but in practice the agencies were often wasteful and occasionally corrupt. “This was Brown’s really interesting move,” Joe Mathews, of the Los Angeles–based civic group Zócalo Public Square, told me. “These had turned into a racket, and he understood that and was able to unplug it.” Most state legislators had no idea why these agencies mattered, or how much money was involved. Brown, a two-term mayor, knew just what was at stake.
“I think the root of his transformation was his being mayor of Oakland,” Lou Cannon, a longtime reporter for The Washington Post and the author of several books about Ronald Reagan, told me in Los Angeles. During the 1970s and ’80s, Cannon had often criticized Brown’s performance as governor. “He did a very good job as mayor, and obviously has learned a lot about the realities of government.” Brown has tried to cut spending so much that the main complaints about him are from the left, and budget-related—especially about his resistance to federal court orders to spend more on California’s enormous and overcrowded prison system. “Fiscal discipline is not the enemy of our good intentions but the basis for realizing them,” he said in this year’s State of the State speech, justifying a hard line against letting spending increases sop up new revenues. “It is cruel to lead people on by expanding good programs, only to cut them back when the funding disappears.”
“This time Brown has been on the sensible side of every fiscal issue,” Lou Cannon told me. “There are people who will want to spend like crazy, and Brown will use his line-item-veto power to resist.”
The third and most publicized part of the California budget turnaround was Brown’s success last fall in winning passage of Proposition 30, which (among other things) raised high-end tax rates for several years, with a commitment to use the money to avoid cuts in school funding and to pay down the state debt. Everyone I asked said that Brown’s personal stumping for the measure made the difference in its relatively easy win (by a 55–45 margin), and that the extra money it is expected to bring in—$6 billion or more a year—will make a difference in the budget. The higher rates will last for seven years, and Brown in his speeches told the biblical story of Joseph, Pharaoh, and the seven fat years and seven lean years. “The people have given us seven years of extra taxes,” he said in his State of the State speech. “Let us follow the wisdom of Joseph, pay down our debts, and store up reserves against the leaner times that will surely come.” I cannot think of another prominent Democrat who would put it just that way, especially the final few words.