Predictably, California voters have emphatically turned town the compromise crafted between the governor, the Democratic legislative leadership, and a few pragmatic Republican legislators. So now what?
Well, to begin with, what lessons have been learned? The big one is — don’t compromise. The voters don’t want compromise. They prefer ideological purity. Republicans voters went along with the Republican leadership that rejected the governor’s compromises because they involved new taxes as well as budget cuts. Democratic voters voted down the measures because they weren’t willing to accept a budget cap or temporarily shift revenue from specially approved taxes to the general fund.
When the legislature goes back to trying to solve the budget deficit, there’s little doubt it’ll keep these lessons in mind. That means there will be no compromises — and no budget. That will put the ball squarely in the governor’s court, and his only option will be to make the kind of draconian cuts he’s been threatening — lay-offs, furloughs, and slashed programs. Essentially anything that isn’t required by a federal mandate will be slashed. In addition, the governor will as he has warned, attempt to “borrow” money from local governments. (It’s not clear to me whether this part of his strategy would require legislative cooperation. If so, I’d be willing to bet he won’t get it.)
Given that the governor will get little if any help from the legislature on these matters, there are limits to what he can do. The question is it’ll be enough to forestall defaults on state bonds and lawsuits from state vendors over non-payment of their bills. I wouldn’t bet on it. [Maybe the state can’t go bankrupt, but lawsuits from angry vendors and bondholders could result in courts taking almost as much power over state finances as a bankruptcy court would have.] I think we can look forward to a year in which few businesses will want to do business with the state, and nobody will want to buy state bonds.
Without bond funding, even more programs will have to be cut. Between that and lay-offs, look for unemployment to rise even more — maybe to levels not seen since the great depression. This summer doesn’t look to be a good time for the Golden State.