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California is now issuing IOU's to meet it's financial responsibilities. The state has debt to the tune of $24 billion and referendums to remedy the problem have all gone down to defeat. The state is bankrupt on paper.....you know, like most of those Big Wall Street Banks that are too big to fail. But California? No, not too big to fail.
As California goes...so goes the nation. Does the saying apply to the economic future of the U.S.? Will every state follow suit and crash and burn under heavy loads of debt during this nasty and lengthy recession?
How did California get into the situation they're in? And what can we learn from California's mistakes?
"....begin with the 1978 property tax revolt and the victory of Proposition 13. As California experienced a dramatic escalation in home values, property tax assessments skyrocketed. Especially vulnerable were seniors on fixed incomes. When then Gov. Jerry Brown and the legislature dithered, conservative activists led by Howard Jarvis put a seductively simple sounding proposition on the ballot. Under Proposition 13, the annual real estate tax on a parcel of property would be limited to 1% of its assessed value and this assessed value would only increase by a maximum of 2% per year, until a change in ownership. Voters responded and Proposition 13 scored a dramatic victory with 65% of the vote. Property tax rates dropped an average of 57%."
California's problems began with a pouting proposition initiated by conservatives. A proposition based on selfishness and greed, a proposition declaring "we're mad as hell about rising real estate taxes (but not those higher real estate values) and we're not going to take it anymore."
Be careful what you wish for....
Proposition 13 further altered California politics by requiring a two-thirds majority for tax increases either at the state or local level. This requirement along with a constitutional provision requiring a two-thirds majority to pass a budget - the result of a proposition passed in 1933 - means it is far more difficult to raise taxes or pass a budget in California than in other states. For more than 30 years California has been living with a system of minority rule in which 34% of the legislature or a local community can stonewall the majority. Facing this post-Proposition 13 system, California's various interest groups have increasingly used the ballot box to protect themselves - but by so doing have mandated budgetary havoc.
The point of interest for today's blog post is the 2/3rd's majority to raise taxes. A super-majority of California's legislature had to vote for higher taxes...or taxes could not be raised. Virtually an impossible task. That's why today, California is issuing IOU's......the state Democratically-controlled legislature doesn't have a 2/3rd's majority. The debt amasses.
The same dynamic is at work currently in the federal Congress. Has the Senate handcuffed any chances for real change in America by insisting on a 60 Senatorial vote minimum to move legislation forward? Will health care costs eventually bankrupt the nation because minority conservatives will not allow reform?
Nothing in the Constitution calls for 60 Senate votes to move legislation forward. Throughout history a simple majority in the Senate was all that was necessary to pass bills.
But as in California, so in Washington D.C. ....conservatives demanded that the federal government couldn't borrow money unless a 60-40% majority threshold is met. And so nothing gets done.....no progress is made, serious longstanding problems (like health care) can't be successfully addressed. The country languishes.
40+1% of the Senate can "stonewall" the majority of American people, just like 34% of California representatives can, and did, "stonewall" the state to the place where, now, it's issuing IOU's.
This is a serious problem. When 40 Republican Senators representing less than 40% of America's population can dictate the terms under which the majority must live....then the democratic process isn't working, and as we see in California, the results are disastrous.
How can our nation break the stranglehold that the minority conservative party uses against the American people?