The Political Hysteria That Keeps Our State Crumbling

With the elan of a political reformer, state Treasurer Phil Angelides has issued a provocative report calling for “smart investments” in California’s infrastructure, “the public fabric that will sustain both economic growth and favorable living conditions.” Angelides envisions a procedure that ranks public-works projects according to objective needs before doling out any dollars. That takes nerve. By tampering with traditional pork barrel, Angelides risks being branded a traitor to his political class.

But the state treasurer is responding to what we’re told are different times. The state has a budget surplus and a solid credit rating. The public wants action to reduce traffic congestion and to repair or replace long-neglected facilities. Even the most conservative of politicians wax nostalgic over the fabled achievements of former Gov. Edmund G. “Pat” Brown, California’s master builder.

Yet, there’s a nagging sense of deja vu in this bold new rhetoric. Term limits and failing memories may have dimmed our collective grasp of history, but we’ve been here before.

The late 1980s saw a similarly broad consensus that the time had come to tackle the state’s infrastructure deficiencies. Leading business groups backed a major gasoline-tax increase to pay for vital transportation projects. The CEOs of more than 50 of the state’s largest corporations produced a set of far-reaching infrastructure-policy recommendations in a 1988 report titled “Vision: California 2010.”

So what happened?

What leapt in the way of progress was not so much the recession into which California, along with the rest of the nation, slid during the latter half of 1990. Rather, it was the frenzied manner in which the state’s political leaders responded to the economic crisis.

The recession’s causes were manifestly evident and not at all idiosyncratic to California. Federal spending was being slashed, dampening overall demand in every corner of the U.S. economy. The nation’s financial system was still reeling from the savings-and-loan crisis. The real estate industry, having overbuilt, was suffering a predictable glut, and oil prices soared after Iraq invaded Kuwait in August 1990. Overseas, our chief trading partners were weighed down by their own woes. Japan’s bubble economy had just popped. If the economic consequences proved especially sour in California, it was because post-Cold War cuts in Pentagon spending were taking the heaviest toll in those states with large numbers of defense contractors and military installations.

But at the state Capitol, the recession’s real causes mattered little. Instead, political leaders convinced themselves that unemployment was rising and tax revenues falling because something had gone singularly wrong with the Golden State’s business climate. According to Gov. Pete Wilson and Republican business paladin Peter V. Ueberroth, California’s economic wounds were mostly “self-inflicted.” This was quite remarkable. Even as Wilson and Ueberroth, chairman of the governor’s Council on California Competitiveness, were disparaging the state’s reputation as a place to do business, the Capitol still echoed of boasts that California was not merely the country’s premier industrial state, it was the world’s seventh-largest economy. Under George Deukmejian, Wilson’s Republican predecessor, California’s job rolls had increased, on average, 430,000 jobs a year. Public officials and editorial pundits had routinely proclaimed the state an international powerhouse able to compete against the best Europe and Asia could offer.

By early 1991, though, many of these same officials were cowering before an unlikely new challenge to California’s economy: Industrial juggernauts like Nevada, Arizona and Utah were trying to lure California companies with promises of lower costs and more accommodating attitudes toward private enterprise.

In response, state leaders behaved like the panicked burghers of a medieval city beset with the plague. Casting aside sound advice, they embraced dubious bromides and nostrums that promised instant relief. No one explained what particular demons had possessed the business climate that Deukmejian bequeathed to Wilson. Nor was there much tolerance for what most economists were saying: that the Golden State’s economy was sent reeling by forces over which the state’s political leaders had no control.

Politicians, purposeful by nature, could hardly admit to being powerless. If economists balked at giving politically useful answers, business organizations happily rose to the occasion. First, they redefined the situation in terms everyone could easily grasp. Private industry’s plight was no longer the fault of distant macroeconomic factors or of a free market gone momentarily awry. In their new script, the role of the villain was played by government. To redeem itself, the Legislature was admonished to adopt an economic-recovery agenda heavy with business tax cuts and regulatory relief. Otherwise, business lobbyists warned, legions of companies would flee California in an exodus that would cost the state hundreds of thousands of jobs. Abruptly forgotten in the lobbying melee was the once-earnest talk about forging genuine public-private partnerships to address California’s long-term infrastructure needs.

The new political priorities in Sacramento also translated into deep spending cuts and fewer bonded commitments. Meanwhile, to balance its books, the state engineered a huge transfer of property-tax dollars from cities, counties and special districts to schools, estimated at $3.6 billion annually. As a result, local government, where bad roads and dilapidated buildings are everyday issues, was effectively handcuffed.

The recession ultimately passed, but not before myopic policymaking derailed efforts to deal constructively with the state’s infrastructure requirements. Even worse, additional years would be needed to rebuild a fragile political consensus that trusted public officials with the tens of billions of dollars needed for rebuilding and expanding the state’s infrastructure.

With his call to action, Angelides shrewdly advanced a new plan for coping with the challenges posed by growth and decay. What history shows he also must do is find ways to ensure that today’s commitments to restore and extend the state’s infrastructure are insulated from the policymaking hysteria that recessions can produce. Another decade of dithering we don’t need.*