Budget Mess Marks Turn for Worse -- or Better

It’s easy to scoff at the current budget impasse in Sacramento as little more than a sordid political circus.

But, in fact, the mess in the capital could well signal something of historic significance: a turning point that will mark either the decline of California’s $1.4-trillion economy or a new era of reform comparable to the launch of the Progressive era in 1911 or the post-World War II building of the modern state.

In those times, California’s leaders found the strength and wisdom to determine a new future for the Golden State’s economy and society. The question upon us is whether they can do it again.

“We have something more than a budgetary impasse,” says Kevin Starr, historian, USC professor and the state’s librarian. “We have a void in need of a new Big Bang.”

In practical terms, unless lawmakers figure out how to close California’s $38-billion budget shortfall, the state faces further downgrades to its credit rating -- perhaps all the way to junk-bond status. In turn, that would ratchet up borrowing costs.

But even more important would be the message that such fecklessness would send to the wider world.

“California is in danger of becoming the state that can’t -- or won’t -- govern itself,” says Stephen Levy, who heads the Center for the Continuing Study of the California Economy in Palo Alto.

Indeed, a state whose leaders lack the will to make hard choices stands to lose its competitive position. Business investment is bound to dry up. Human capital -- the brainpower and talent that made Hollywood and Silicon Valley and the richest agricultural belt in America -- surely would become more scarce.

“Few people are eager to invest in Argentina,” notes economist Daniel J.B. Mitchell of UCLA’s Anderson School, invoking the country that has become a metaphor for economic and political instability.

To be sure, California’s economy has shown its resilience before.

Many wrote off the state in the early 1990s, when it faced a passel of problems, including a deep downturn in the aerospace industry that triggered a painful recession.

But that time, “we had more political will to deal with” the situation, says economist Kim Rueben of the Public Policy Institute of California, a San Francisco-based research organization.

What is called for now is nothing short of an agenda that not only will break the current budget stalemate, but also will ensure the state’s future is as robust as its past. The situation calls for making tough choices, including overhauling the tax system and raising revenue that can be channeled into smart, productive, long-term public investments.

Such watershed moments come along only every so often.

In 1911, for example, growers and shippers in the emerging agricultural economy decided that the Southern Pacific Railroad had too much power. So they organized a movement that elected Hiram Johnson governor and reformed the state’s politics and its economy.

Then again after World War II, when the state’s population swelled rapidly to 10 million, a bipartisan effort led by Gov. Earl Warren began building the highways and schools and university systems that would become the model for the United States in succeeding decades.

Now, once again, the state needs to find some way to invest in airports and roads, schools and affordable housing, to accommodate an ever-ballooning population.

So, is there any hope of intelligent compromise at this late hour?

Unfortunately, a long, hot summer of partisan quarreling is assured by the battle to recall Gov. Gray Davis. Intransigence and ignorance seem the order of the day.

Historian Starr, who is calling for a “refounding” of the way Californians organize and pay for state government, recalls the earlier turning point in the late 1940s. The making of modern California was achieved by bipartisan effort at that time, but Gov. Warren “had a budget,” Starr points out. “He faced nothing like a $38-billion shortfall.

“Today,” Starr adds, “the creativity and will to succeed are still here in abundance and we are capable of getting our household in order. But with the state facing Chapter 11, it can be hard to be creative.”

Of course, things will be a lot harder if we’re not.

James Flanigan can be reached at jim.flanigan@latimes.com.