LOS ANGELES, July 5 (Xinhua) -- As California has to
operate on IOUs after failing to solve the budget crisis, Californians are
asking who is to blame on all those problems facing this Golden State, a leader
in the U.S. economy.
Governor Arnold Schwarzenegger, himself a Republican,
blamed Democratic state legislators on failing to make necessary spending cuts.
But Democrats attacked Republicans and Governor
Schwarzenegger for their refusal to raise taxes as a way to get new revenues.
They also criticized Republicans for cutting services to the poor and needy,
such as social services, health care and welfare for the poor, senior and
If the governor had the money, he would certainly not
ask for any spending cuts. But the problem is, the state government can get no
new revenue if raising tax is not an option.
It seems that the governor, both Republicans and
Democrats in the state legislature are to blame. But some analysts say that
voters in California are to blame too.
Schwarzenegger was elected governor in 2003 after
former Governor Gray David, a Democrat, was ousted in a recall campaign
following a state budget crisis. Schwarzenegger promised voters he would fix the
state's broken finances.
Schwarzenegger knew why Davis was ousted because
voters in California did not want more taxes. So he took the easy way out by
cutting taxes by billions of dollars, backing off a tough spending limit,
unilaterally adding spending to placate Democrats and blowing through a one-time
surge in revenues.
After he took office, Schwarzenegger sought and
voters approved a 19 billion dollar bond issue that allowed the state to borrow
heavily just to meet its annual operating expenses. Now the state has to pay the
principal and interest of the bond.
He also put a vehicle license fee cut of 6 billion
dollars to make the voters happy. But soon in February this year he had to
partly restore the revenue by temporarily raising the vehicle license rate from
0.65 percent of a vehicle's value to 1.15 percent.
About 55 percent of California's general fund revenue
comes form the personal income tax. The state depends heavily on the very rich
to pay taxes. The top 5 percent of all income earners combine to pay 68 percent
of income taxes.
But the very rich are largely dependent on capital
gains for incomes, which are most commonly realized through the sale of real
estate and stocks. Tax revenues from capital gains have virtually disappeared
following the crash of both the real estate and stock markets.
Another reason is the failure of the governor and the
legislature to cope with the dramatic drop of revenue after the bubble in
Silicon Valley burst.
During the late 1990s, revenues soared as California
benefited more than any other states from the tech-stock boom that was centered
in the Silicon Valley. But the state spent billions expanding and creating state
programs and passing out billions more in permanent tax cuts.
When such revenues dried, the state still refused to
raise tax or cut spending as most of the U.S. states did during the 2002
recession. Instead, California relied heavily on borrowing and accounting
maneuvers to balance its budget.
Traditionally, Democrats are supported by unions and
other civil rights organizations. Schwarzenegger accused Democratic lawmakers of
ignoring "waste, fraud and abuses" and said that Democrats are "just beholden to
the unions and the special interests."
The governor also tried to shift the blame on the
Democrats alone by saying that "the legislators' failure to act on those
proposals sent a message to the California voters and to the taxpayers that says
we want you to make the sacrifices but we in Sacramento don't want to make any
"Protecting the special interests who benefit from
our dysfunctional system was more important to the Legislature than protecting
the taxpayers and dealing with the entire 24 billion-dollar deficit," he added.
Democrats are the majority in the California
legislature. In normal conditions, it is easy for the Democratic controlled
legislature to pass their version of budget. But California is one of the three
U.S. states which require that the state budget should be passed with two thirds
of majority, not simple majority. Republicans make use of the situation to kill
any budget they disagree with.
While saying the state legislature is to blame, some
Californians also blame the voters. In 1978, Californian voters passed
Proposition 13 to cap property taxes at 1 percent of assessed value and mandated
that increases would require a two-thirds majority at both the state and local
level. That proposition greatly limited the state's ability to get more
That can explain why the Golden State has no money to
support its welfare and social services.
The California education system has deteriorated to
the point where it is now ranked 47th in the United States. For the past 30
years, governors and legislators have tried to keep California's financial house
together by a series of tricks, most often borrowing in anticipation of future
revenues. That worked as long as the California economy was strong, but the
recession drove California to the verge of bankruptcy.
It seems that the California budget crisis is mixed
with impacts of the recession, the struggle between legislators from different
parties, structural problems of the state legislature, decisions from the voters
and ability of the governor to lead.