Radical Reform Is Needed in California

Looking at the budget crisis, Governor Schwarzenegger ordered a temporary reduction of the salaries of 200,000 state employees to the minimum wage. This gesture is largely symbolic. Indeed, the pay system is so antiquated in California that it could take six months just to make the salary change.

Meanwhile, the governor has proposed a horrible one percent hike in the state sales tax—a regressive move that will slow down the economy and hurt the poor and middle class the most. It’s possible this would not even bring in that much more revenue, as people will buy a little less. The governor has also proposed to borrow $9.3 billion more in the form of a water bond.

Some commentators have pointed out this disconnect, but Schwarzenegger has consistently championed bonds while claiming fiscal discipline. He campaigned in 2003 on a platform including large bonds, and within a month of election he was campaigning around the state for a $15 billion bond.

He’s supported bonds since, most notably in 2006 when he backed a bipartisan $42.7 billion bond package for transportation and education infrastructure, housing programs and flood control.

California needs dramatic reforms. The budget crisis is very real, and with the recession kicking in nationwide, the reforms will have to be much more than a temporary cut in state employee pay.

For the last several years, the federal government through the Federal Reserve has been prompting an artificial, inflationary boom in the American economy, particularly among real estate. As the economic laws of gravity reassert themselves, as savings and investment, and supply and demand, fall back into balance with one another, an economic “bust”—recession, depression, downturn, whatever you want to call it—is inevitable. Prices must fall, as they have been in housing. Businesses will have to cut back on production costs. Americans will have to spend less. This is painful but it cannot be stopped through government spending. Delaying it will make it worse.

The government too, at all levels, must cut spending, in fact. It is only fitting that the public sector, which brought on this mess, should have to take a hit as well as the private sector and the millions of families and businesses throughout America.

State governments have no wealth of their own—only what they forcibly confiscate through taxation, forfeiture, and eminent domain; or borrow on behalf of future generations, without their consent, through bond schemes, but that can’t persist forever. Unlike the feds, state governments can’t just print more money—a blessing, because that is the cause of inflation.

So something has to give. Libertarians have always argued that the government should do virtually none of what it does today—that the best solutions to society’s problems and needs come from private enterprise, community, family, and individuals cooperating voluntarily, without a politician’s gun to their head. Deep cuts in education and infrastructure would go a long way toward bringing us to fiscal balance in California—and the deeper the better, since taxes are way too high, especially given the economic trouble we face.

This agenda might seem quite radical. Well, so will a much more modest vision of slashing government, at least compared to the budget-busters currently running the state. But we need relatively radical reforms for this severe budget crunch.

The state should sell off its extraneous assets. According to our own William Shughart, “California is sitting on a gold mine of surplus property that could be sold for ready cash. According to the real estate division of the Department of General Services, the state government’s landlord, on Jan. 2, taxpayers owned 22,727 buildings and more than 6.7 million acres of land at 2,313 sites.”

At last count, the state had 55 “surplus” properties. It should have none. And, as Shughart continues, this “is just a starting point. State and local governments nationwide own and often operate professional sports venues, convention centers and other public facilities that could produce billions in revenue if sold or leased to the private sector.”

Another way to save billions: End the war on drugs and the other wars on victimless crime. In the early 1930s, partly to deal with the Depression, the United States ended alcohol prohibition, which resulted in more tax revenue and, despite the economic hardships, lower crime. An economic slump is not the time for costly self-righteous crusades against vice.

The governor initially considered the early release of 22,000 minor offenders from the overcrowded prison system, but then backed off. Instead, he should immediately release all persons in the state criminal justice system who were convicted solely of drugs or other victimless crimes. He should cut police spending dramatically and stop wasting resources going after peaceful people. This would save billions of dollars. Even better, the freed prisoners and discharged officers would then enter the private, productive sector, where they could help build the economy rather than living off the taxpayer.

Yes, even these proposals will seem drastic to many Californians. But we can’t afford such luxurious public enterprises and a war on drugs. Even if you think government has a right to finance sports arenas and jail potsmokers, the state is going broke and will have to cut—and cut much—and soon, if we want to weather the recession.