Budget Aftermath: It’s Not All California’s Fault : Blame the governor? Or the Legislature? What about Uncle Sam?

Two months into the current fiscal year, California has, at last, a budget. But that sigh you hear in the background is not relief but regret. The California that was the envy of an American nation that was itself the envy of the world seems to be slipping from our collective grip. What has gone wrong?

Without denying that the budget process can be improved or that the state’s regulatory and tax climate is sometimes onerous, we suggest that what went wrong did not go wrong exclusively within the borders of this state. Sacramento has been struggling with at least three problems that, by rights, should be handled in Washington.

The first is the post-Cold War conversion of the aerospace industry. The Cold War, though rarely a shooting war, required 40 years of unbroken mobilization. Demobilization ought to be no less a national responsibility than mobilization was. A more creative--and carefully crafted--federal policy for the transformation of the weapons industry would have helped California disproportionately, just as the absence of such a policy has hurt California disproportionately. The challenge here is not to Pete Wilson or Willie Brown but to California’s congressional delegation and to George Bush and Bill Clinton.

If the lack of a demobilization policy has hurt California on the revenue side, the folly of federal immigration policy has hurt it on the expense side. In part, this too is a Cold War problem: War refugees from Vietnam, Cambodia and Central America--all theaters of Cold War confrontation--are concentrated in California. But California’s size, prosperity and location have conspired to make it a magnet for far larger, economically motivated immigration.

After the Immigration Reform and Control Act of 1986, California, like other states left with millions of illegal immigrants soon to be legalized by a generous amnesty, was promised federal money to meet their needs. Little of that money has arrived.

Meanwhile, the Border Patrol is as under-funded and understaffed as ever, and illegal immigration continues apace. Illegal immigrants claim less in public service than citizens do, but they also contribute much less in tax revenue since so much of what they earn is illegally off the books. Most notable, perhaps, in view of the fact that no portion of the state’s budget has been more bitterly contested than the education budget, the U.S.-born children of illegal immigrants are not barred from attending school at taxpayer expense. Nor should they be. But, again, Washington should help educate them.

Washington has also contributed to the state’s economic woes by responding to the savings-and-loan crisis with new lending regulations that have chilled the current local-bank lending atmosphere. Intimidated by these new regulations, local banks too often have been unable to make small-business loans to customers they know to be credit-worthy. Thus much potential business activity has been frozen up.

In the short run, the state’s poverty budget, as now approved, will make everything worse. Cutbacks in community college and library funding will hinder the economic re-entry of demobilized aerospace employees (and other currently unemployed but employable workers). Cutbacks in welfare threaten thousands. Cutbacks in health care will worsen public health. Cutbacks in elementary and high school education may well trigger teacher strikes, not to speak of school system defaults. The people who can afford private options in schools and health care will increasingly feel compelled to take up those options. Those without the financial options will continue to rely on a public sector with less and less service to provide the beleaguered taxpayer.

Businesses considering a move to or from California will consider not just the impact of California taxation on their bottom line but the impact of the general deterioration of California on their ability to do business and to live safely and well. In the short run, was it a mistake for both parties to the budget fight to rule out a tax increase? Theoretically, perhaps, but in the long run, it would be both unwise and unfair for California to wreck its business climate by paying national bills with state money.

We are the most populous state in the union, one-ninth of the American nation. California remains a mirror of the nation’s worst fears, and its best hopes. No “lesson” from the budget crisis is more important than that one.