Dylan Ratigan Show   |  May 15, 2012

California in crisis as Gov. Brown faces huge budget deficit

Former California governor Gray Davis and LA Times’ Chris Megerian discuss the growing crisis in California’s state budget deficit and the massive cuts Gov. Jerry Brown plans to propose that will affect the state’s economy, and could foreshadow trouble for the whole country.

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This content comes from Closed Captioning that was broadcast along with this program.

>>> good afternoon. i'm matt miller in for dylan ratigan . he and i have switched coasts for the day. he's on assignment in california working with veterans and start-ups to put them back to work, and i'm coming to you live from new york , but you see, i'm actually from california . which brings us to the big story today, and it's fiscal. out west governor jerry brown is proposing harsh cuts to close the exploding $15 billion deficit. cuts to school, health care , welfare, the disabled and child care .

>> the biggest source of our spending without question is to schools. so when we have to have a massive cut, the schools take that mass si cive cut and that's what will happen if we don't get this in control.

>> he's also proposing a tax hike and a tax hike for those who make more than $250,000 a year. he's even trying to slash a day off the government work week. and helping those struggling homeowners from the bank settlements? $292 million are being pickpocketed in red ink . take years of contradictory demands from voters, toss in a crazy process that requires super majorities to get any deal with even a penny of new taxes, then add a ballot measure industrial complex . we used to be the world's beacon on schools, gleaming freeways and more. the scary part is that california may be a glimpse of america's future. these years of living beyond our means now have washington and the state capitals in shambles. it's already being felt across europe. in greece, liberal talks shut down and the markets are tanking. meanwhile, france is swearing in a socialist president have voters said they were desperate for anything that could spark a change. joining us now to talk about the golden state 's woes and what they may mean for all of us, joe davis and chris garion from the "new york times." governor, let me start with you. it seems like california is in this budget mess year after year after year. there is a patch put on it, the can is kicked down the road and we're in this mess again. what should americans who don't just live in california take from this latest episode.

>> well, clearly you have to try to live within your means, particularly over the long haul. and to governor brown's credit, matt, when he came in, the deficit was 26 billion. even with today's bad news it's down to 16 billion, so that's 10 billion that's sdamdisappeared. he has a workout plan to fiscalship. that's his number one, two and three priority, to get the budget back in order.

>> chris , you covered this in sacramento for the l.a. times . let's talk about the dynamics in the capital. i know speaking for someone who is from los angeles have the same view of the capital as a lot of folks have for washington , and that is that it's a cesspool for special interests and can't get things done partly because of these majority comments. what's your take?

>> a lot of people feel like sacramento like they do about washington . there is a lot of partisanship, a lot of gridlock in the capital, and californians had very high expectations for the government, and now in this area of austerity, government had to cut back a lot and california was left with choices on whether to support new taxes or see government shrink even further.

>> if you talk about the school situation, i understand governor brown is trying to fend off cuts that would be triggered if he can't get voters to approve a certain set of tax hikes this fall. how did it happen? california went from near the top of the nation, reputed everywhere around the world for its terrific schools in the '60s and '70s, and now california is near the bottom for per pupil spending. the achievement gap is enormous, all of this over the course of a generation. it's hard to blame the leadership involved, or do you think it's something deeper as well as the citizenry is failing to grapple these issues?

>> i don't agree with your analysis completely, but california is the tenth largest economy in the world and represents 12% of the american population. if you look at the electoral votes today, california 's electoral votes for president are more than texas and new york combined. so it's still an economic powerhouse notwithstanding its current woes. and with all the problems in sacramento , within about a 45-minute distance in northern california having google, apple, twitter, facebook, cisco, intel, hewlett-packard, oracle, it's still the largest technological impact in the world. do we have fiscal problems? yes. is jerry brown trying to work them out? yes. it requires a lot of cuts and billions of dollars in taxes, most of which will fall on people making more than $250,000.

>> obviously what gray davis says is true, but you're talking about a private sector of health and innovation, but just massive public sector dysfunction. as somebody who is in sacramento on the ground, what do legislators say behind closed doors on this? they know the system can't be working. what's the way forward?

>> a lot of people say california is just built for dysfunction. it's almost impossible to raise taxes because you need a two-thirds vote and republicans won't go along with that. up until about a year ago, you needed 2/3 vote just to pass the budget at all, then you have amendments, legal red tape and you're left with a situation where there is very little wiggle room, and voters who don't always have an appetite for either big budget cuts or opening their pockets wider to pay more taxes.

>> so gray, isn't one of the big lessons coming out of california is we need filibuster reform at the national level? the idea you need super majorities in california , my home state, your home state, is the best evidence you need that you can't govern a modern, 21st century society when you need 2/3 in the case of california or you need 60 votes in the senate and be able to get anything done.

>> you really need 99 votes in the senate, matt, because any one senator could put a hold on any confirmation or piece of legislation. he or she may catch a lot of flak but they have the power to do that. on the plus side, let me just say this. i think the voters have gotten the message and there are now three reforms taking place as i speak. our primary comes up in a couple weeks. we don't have a primary anymore. we have an open primary meaning the top two vote getters, regardless of party, run off one another. the hope there is more pragmatic people will get elected. california needs to actually solve the problem. we also have the voters draw the legislative and congressional lines. that was a reform. and as chris alluded to, we had a change in the budget, a budget without a tax increase. it used to need 2/3 vote to pass, and now it needs a majority. it won't happen overnight, but my hope is over the course of four years, you'll see some improvement.

>> chris , it's not just that tax increases are needed, although they may be part of any deal, because they still have the tremendous sweetheart deals where they can retire at age 50 or in their early 50s with 90% salary, not something most people can do, yet they're very powerful in terms of their ability to shape whether there is going to be any reforms to that. are there any other promising options froor reform that you think need to be high on the list.

>> washington is filled with very powerful special interests . unions usually have a lot of sway in the capital. right now governor brown is relying on them heavily to promote his tax campaign, but he's also negotiating with them to try to find reductions in state payroll. so it's a tricky situation and one they have to balance a lot of competing interests.

>> so gray davis , just a last question for you, then. you're freed from -- you're not running for higher office again, i assume. you're free of all these political constraints. if you were a benevolent dictator , what are the top three things we need to do to get california 's fiscal house in order so it doesn't just become about are we solvent, but can we renew california , improve teacher quality, improve schools, a whole agenda beyond just being able to balance the books?

>> i would go with -- the first thing i would do is support governor brown's plan, both the reductions and the temporary tax increase. i say temporary because some of them will last for seven years. but when that process is over, we have to rethink how we finance government in california . research universities got built, generations had the chance to go to school virtually for free in those days and they've made huge contribution to see our economy, providing opportunities for people to live well and changes, i mentioned apple, google, twitter, facebook, those changes have reverb rated around the world. so we have to understand that after these temporary taxes come off, we have to figure out what permanent financial fix we're going to put in place because we have to do our part to match what previous generations did to make this state great.

>> all right, gray davis , we'll be watching this in california . former governor gray davis , thank you for taking the time.