The Larger Context

California's troubles have been well-documented. But as I've said on multiple occasions, while we may be an acute example of the problems with state budgets in an economic downturn, we are not alone. And the decisions, some forced, some unforced, of the nation's governors in responding to these challenges are unquestionably threatening economic recovery.

It’s easy enough, of course, to mock state governments nowadays, what with California issuing I.O.U.s to pay its bills and New York’s statehouse becoming the site of palace coups and senatorial sit-ins. But the real problem isn’t the fecklessness of local politicians. It’s the ordinary way in which state governments go about their business. Think about the $787-billion federal stimulus package. It’s built on the idea that during serious economic downturns the government can use spending increases and tax cuts to counteract the effects of consumers who are cutting back on spending and businesses that are cutting back on investment. So fiscal policy at the national level is countercyclical: as the economy shrinks, government expands. At the state level, though, the opposite is happening. Nearly every state government is required to balance its budget. When times are bad, jobs vanish, sales plummet, investment declines, and tax revenues fall precipitously—in New York, for instance, state revenues in April and May were down thirty-six per cent from a year earlier. So states have to raise taxes or cut spending, or both, and that’s precisely what they’re doing: states from New Jersey to Oregon have raised taxes in the past year, while significant budget cuts have become routine and are likely to get only deeper in the year ahead. The states’ fiscal policy, then, is procyclical: it’s amplifying the effects of the downturn, instead of mitigating them. Even as the federal government is pouring money into the economy, state governments are effectively taking it out. It’s a push-me, pull-you approach to fighting the recession.

The stimulus package provided some money for state fiscal stabilization, but that turned a package designed to create jobs and circulate money into the economy into simply a life raft. The states have both sucked up some of that money and directly counteracted it through their actions, so that an already too-small stimulus shrinks even further. State and local governments are 1/8 of our total GDP, and their fiscal austerirty in the midst of crisis has a very damaging economic effect.

In this article, James Surowiecki argues that federalism is starting to crack in the face of extreme economic calamity. Some of the elements of the stimulus that are national priorities - high speed rail, a smart national power grid - must be funneled through an inefficient and often dysfunctional state and local process. It simply makes things difficult to have so much decentralization in projects designed to move across state lines. So what can be done? We can move big items like Medicaid under federal control with local administration. Or we can set up a permanent federal fiscal stabilization fund, maybe kicked off in a second stimulus, to massage the states through tough times. It's almost a rainy day fund at the federal level.

But something must be done. We are destroying ourselves from within by leaving things as they are.

Reviving State Regulatory Laws

This is a bit in the weeds, but President Obama reversed a major Bush policy which pre-empted state regulations with federal guidelines that were often threadbare and protected corporate interests over the public. This has implications for consumer product safety, environmental law and all sorts of other regulations. I'd like to see the states-rights conservative argue that it makes more sense for the federal government to pre-empt all kinds of local regulations rather than having those closest to the local issue, and closest to the people, make the decision. While this won't get much attention, it really is the kind of major reversal that leads to something like you saw yesterday, where the federal government adopted California emission standards for cars, instead of fighting them in court.

When Obama does something good, I reward. When he doesn't I beat with a stick. That's how I roll.

State Legislature Attempts to Eliminate All Local Campaign Funding Limits

Even though Loni Hancock's Clean Money bill, allowing for a pilot program to attempt public financing for state elections, was turned into a two-year bill, meaning it won't be eligible for passage until 2008, I was under the impression that campaign finance reform was making some progress in the state legislature. And while this shocker legislation is more about the state exerting control on local municipalities more than anything else, it certainly puts a damper on public financing efforts, as it would virtually eliminate any local limits on contributions.

Legislation that opponents said would eviscerate local governments' ability to limit the size of campaign contributions was approved Tuesday by a state Senate committee.

The bill, backed by a powerful coalition that includes the Democratic and Republican parties, labor unions and the National Rifle Association, cleared the Elections, Reapportionment and Constitutional Amendments Committee on a 3-0 vote.

Special interests and the state parties want to dictate what they can spend on campaigns at the local level, and they want to disallow any reasonable attempts by the local governments to limit their influence. This is really a blow against federalism in the context of the state vs. the local governments, and I find it distasteful. If Santa Monica wants to experiment with Clean Money, or limit campaign contributions, why should the state disallow it? Assemblyman Martin Garrick, the Republican sponsor of the legislation, is using truly devious logic to push this forward:

Garrick said the measure was merely an attempt to clarify current law and avoid a "patchwork of laws" preventing political parties and other statewide organizations from communicating with their members about which candidates the groups support and oppose.

"What I am assuring is that members of a membership organization like the California Teachers Association or the League of Conservation Voters can afford to freely communicate . . . with their members," he said.

But Ned Wigglesworth, a lobbyist for California Common Cause, said the bill would open up an "enormous loophole" by preventing cities and counties from capping campaign donations that are arranged by candidates and used to pay for mailers sent by political parties to their members.

"It's about local control over local elections," he said. "Without such safeguards, local contribution limits would be rendered worthless."

This would be devastating. It may even allow organizations to avoid reporting requirements. What the hell are we doing here?

Ron Calderon, Mod Squad member in good standing, chaired the committee that passed the bill. Your state senator ought to hear from you on this one. It would be a major step backward in the goal to remove the influence of big money in state politics.