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How the Golden State became the benchmark for budget meltdowns

California, once the envy of the nation for its great public schools and gleaming highways, now sets the pace when it comes to budget meltdowns. The state faces a $38-billion hole over two years in a general fund that will spend about $160-billion over the same period. That means California is short about one out of every four dollars, a record of fiscal mismanagement only the Bush White House is on track to match.

How did this happen? In one sense, California Republicans are right to say that it's a spending problem _ except that it's spending Republicans happily voted for when times were good. Spending rose 44 percent in the last four years. State payrolls increased by 11 percent from 1997 to 2001, while compensation swelled by 37 percent.

Those numbers mean public employee unions had a field day. The public safety unions' new pension deal, for example, lets a prison guard with 30 years of service retire near age 50 with 90 percent of his salary.

Any taxpayer out there who wouldn't take that deal?

But you need a longer-term look to have the right perspective because even after its "spending spree," California scores around the middle in state rankings that compare spending and taxes to personal income. In the early 1990s, California had hit near bottom in such areas as per pupil spending on schools. Both parties, beginning under Republican Gov. Pete Wilson, vowed to take California back toward its golden age of public services.

After years of education hikes, the state is now closer to the national average, but it's nowhere near the top. On health care, California was also generous during the good times.

But every big-ticket item in California's supposed spending spree was approved by bipartisan votes. And why not? Smaller classes and higher per pupil spending were seen as good for California kids. When the state said it would pay tuition for high school graduates who got into state college but couldn't afford it, it seemed a way to assure the American dream.

Sacramento also cut taxes as if there were no tomorrow, including a two-thirds cut in the vehicle license fee that cost $4-billion a year, cash the state now wishes it had back.

Politicians were grossly irresponsible in one overriding respect: Everyone knew the revenue bulge that underwrote the good times wouldn't last.

That's because, thanks to Proposition 13's famous cap on property taxes, California depends disproportionately on a highly progressive income tax. A one-time burst of capital gains from the Internet and stock market bubbles fueled the late 1990s' binge.

"You have huge peaks and troughs that other states don't have," state Controller Steve Westly, a Democrat, told me, "which means you have to manage your situation more carefully." Instead, both parties approved levels of spending that the volatile revenue base couldn't sustain.

Finding a way out is hard because of the epic political dysfunction in which California has also become a national leader. Gerrymandered districts have left virtually every state legislator in a safe seat, encouraging the election of ideologues who have no incentive to compromise.

General loathing of Gray Davis, meanwhile _ the one emotion that seems to unite Californians _ has fueled a bizarre recall campaign whose shadow hangs over the crisis. It's hard to imagine a larger failure of leadership, or a more potent modern argument for benevolent dictatorship.

The shame is that this crisis could be an opportunity to have an overdue debate on what services Californians want and how they are prepared to pay for them. In the old days, as budget expert Fred Silva of the Public Policy Institute of California explains, Gov. Ronald Reagan insisted that new programs be matched with revenue sources to fund them; contrary to his tax-hating image, Reagan prudently helped craft such tax hikes to make good ideas sustainable.

That kind of common sense went out decades ago. It would be nice if California seized on today's crisis to review its tax system, its spending desires, and how to reconcile them over the long run.

Of course, it would also be nice to have a cure for cancer and peace in the Middle East.

So, unless Arnold Schwarzenegger suddenly shows interest in leading such a statewide conversation, the betting is that Sacramento will soon paper over the mess with a "fix" that puts off most of the hard choices. Look for a depressing sequel in 2004 and 2005.

Matthew Miller is a syndicated columnist based in Los Angeles. His e-mail address is

Matthew Miller; distributed by Los Angeles Times Syndicate