Following California off the cliff

States that love the citizen initiative are most in danger of fiscal insolvency, a study says, and Oregon may be next to tank.
California Gov. Arnold Schwarzenegger

California Gov. Arnold Schwarzenegger Wikipedia Commons

Heavy use of citizen initiatives is one of the clearest predictions of states that are in danger of following California "to the brink of insolvency," according to an extensive survey of state financial problems by the nonpartisan Pew Center on the States. Oregon, looking toward a critical vote in January, is perhaps the next state in danger of insolvency; if voters reject a $733 million tax increase on upper incomes and corporations, the state will face a huge budget deficit even after cutting state spending by $2 billion in the 2009 legislative session.

Among the states with the most serious financial problems, the top seven all have a super-majority requirement for their legislatures to pass taxes without a popular vote, allowing a minority to deadlock revenue measures; and six of the seven endangered states make use of citizen initiatives and referendums. Across the country, the two work hand in hand; nearly every state with a super-majority got there via citizen initiative.

Washington falls into that category. A stronger economy and sounder state financial management keep it from the "endangered" list, although it still ranks 14th among the 50 states in terms of fiscal trouble.

Citizen legislation can create a combination of costly voter-initiated laws such as education mandates, maximum prison sentences, and health-care programs. If the state also requires a legislative super-majority, a minority of legislators (Republicans, in the case of California) can block revenue measures and force referral to the voters. In most cases, as in California earlier this year, voters have rejected the taxes to maintain the programs; yet the programs remain in the law. That has been the problem in Oregon, beginning with a 1990 initiative that capped local property taxes, forcing the state to pick up two-thirds of the cost of K-12 education, without an additional revenue source. Initiatives also stiffened prison sentences, again without additional revenue. Attempts over the years to balance the state's reliance on personal and corporate income taxes with a sales tax have failed nine times, by substantial margins.

Adding to the state's fiscal bind is voter enchantment with the "2-percent kicker," a unique law dating to the 1970s when several legislators became angry with lowball revenue estimates by the state's economist and enacted a law sending tax collections above the estimates back to the taxpayers. While the economy remained strong, the plan was popular, with families looking forward to checks; it was so popular that in 2000 voters wrote it into the state Constitution.

But with no way to sequester windfall revenues (PDF), Oregon lacks any type of "rainy day" fund like Washington's to help cushion the fiscal storm that took place in 2008 and 2009. Oregon's state revenue plunged 19 percent from first-quarter 2008 to 2009, one of the worst drops in the nation and even higher than in California. The Legislature responded by cutting $2 billion in state programs and passing $1 billion in tax increases. But the largest tax increase, $733 million, largely on high-income families and corporations, was referred by petition; its defeat in January would throw the state $733 million into the red. The Legislature meets every other year in normal times, but a special session to deal with that type of emergency is virtually certain.

The states ranked most in danger of fiscal collapse are generally progressive in social services; states with more conservative fiscal and social policies, resulting in lower spending, have weathered the financial storm in better circumstances. After California, states the Pew Center believes are most endangered are, in order of danger: Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin. At the opposite end of the scale are (in order of fiscal health): Wyoming, Iowa, Nebraska, Montana, North Dakota, Texas, Pennsylvania, Utah, West Virginia and South Dakota.

Washington stays out of the "endangered 10" list primarily because of a relatively low rate of home foreclosures, and a drop in revenue of only 9 percent. The state's financial management is also graded A-plus by Pew, one of only five states with such high marks for managing its finances. But the state faces serious budget deficits and a loss of thousands of high-paid Boeing jobs as the next legislative session convenes.


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Comments:

Posted Wed, Nov 18, 7:45 a.m. Inappropriate

The underfunding of the PERS retirement fund is the crisis you should be concerned about.

Posted Wed, Nov 18, 8:07 a.m. Inappropriate

Nice article, but the truth is high taxes and out of control legistors that believe tax increase and throwing money at problems solve them.
You want to increase tax revenue; create a business friendly state that attracts business and people not one that forces businesses to look for less expensive place to do business!
The states that have the highest budget deficet also have the highest business and personal tax rates. Logic says there must be a connection.

cbrett

Posted Wed, Nov 18, 8:08 a.m. Inappropriate

"States that love the citizen initiative are most in danger of fiscal insolvency, a study says..."

Are you sure that shouldn't read, "States that love liberal governmental policies..."?

BlueLight

Posted Wed, Nov 18, 8:17 a.m. Inappropriate

Citizen initiatives are the last resort when the elected representatives don't listen, and do what the sheeples want.

Far from bad (unless you are part of the ultra-lib, "I'm from the gub'mint, and I know what is best for you").

The Geezer has spaketh

Geezer

Posted Wed, Nov 18, 8:49 a.m. Inappropriate

If voters use the initiative process to reduce revenues, the only responsible course of action for lawmakers is to reduce spending. But instead lawmakers act as if government spending is like the weather--it just happens and there's nothing they can do about it. So then a big deficit comes because revenue growth doesn't keep pace with how fast they want to spend, and they say "oh, we didn't see this coming and there was nothing we could have done about it. Looks like we have to raise taxes or go bankrupt."

Is it any wonder people are so cynical about government these days??

bthornton

Posted Wed, Nov 18, 9:48 a.m. Inappropriate

California’s governance and fiscal problems stem from causes that include passage of some citizen initiatives. But that just scratches the surface. Washington State is headed down the fiscal-meltdown path California is on, and for many of the same reasons.

For a good article on the series of problems California faces and their causes, I recommend:

http://nationalaffairs.com/publications/detail/who-killed-california

Here’s an excerpt from it that shows the reasons for some of our shared financial problems: “The public has also authorized endless bond measures to support various public projects — amounting to $85 billion since just 2000. And the state's lavish defined-benefit plan for public pensions will cost taxpayers $3.3 billion in fiscal year 2009-2010 alone.”

Add a lavish, underfunded defined benefit pension plan for government employees whose ranks have swelled despite more moderate population growth, and the similarities keep on comin'. Our situation in this state is worse for people though (the state and local taxing structure is far more regressive).

crossrip

Posted Wed, Nov 18, 9:59 a.m. Inappropriate

WA's problem doesn't have anything to do with a regressive tax structure. Shopworn taking points about how WA needs an income tax to avoid revenue shortfalls don't stand up against the evidence--just look around the country at states with a more diverse revenue stream or "progressive" tax structure, and they're having budget troubles too. It's a spending problem!

Lawmakers are caught between citizens who don't want to pay more taxes on one side, and public sector unions and special interest groups jockeying for a seat at the public trough on the other side.

Thank the Ds in power for Washington's grossly underfunded pension system. When the cash was rolling in they were too busy paying off supporters with new and expanded government programs to bother adequately funding the pensions. Just like their overspending, that too will bite them in the rear.

bthornton

Posted Wed, Nov 18, 10:26 a.m. Inappropriate

"WA's problem doesn't have anything to do with a regressive tax structure."

I wasn't referring to "WA's problem". You might try reading what is written there a bit more closely. What I wrote is that the fiscal burden caused by governments is worse in Washington FOR PEOPLE.

Of course, if you are in the top quintile of the wealthy, it's far better for you here than in CA.

crossrip

Posted Wed, Nov 18, 3:45 p.m. Inappropriate

Right, the State by State destruction of America is the Citzen's fault....

Which is ultimately true, but then again if there is a media perpetrated fraud they've got an excuse.

What's yours?

Posted Thu, Nov 19, 9:37 p.m. Inappropriate

Who are these mythical "out of control" legislators?

This state has not raised general taxes since John Spellman was Governor. They have made cuts after cuts. Unfortunately the public tells them to cut taxes and at the same time increase services.

The people voted in 3 strikes laws, minimum wage increases, teacher class sizes, performance audits, teacher salary increases, alternative energy mandates and training for home health-care aides without an inkling of how to pay for any of it. In fact it is hard to discover many initiatives that withstood the test of time.

I agree that the Legislature and the Governor should have been more responsible in 2004. But, what outrageous things did they do? They gave modest increases to public employees which Governor Locke had basically deferred. They fully funded the two voter approved teacher initiatives. They funded a basic health plan for Washington citizens as we now approach one million Washingtonians without healthcare.

The two-thirds majority requirement must go. The Republicans cannot defy the majority of the Legislators if they cannot even get a majority to vote their candidates at the polls. The Democrats need to stop worrying about Eyman and getting reelected. The people deserve Legislators who will do right for the state and not be swayed by the latest TV polls.

2cents

Posted Thu, Nov 19, 9:47 p.m. Inappropriate

PERS 1 was closed over 30 years ago. The majority of those employees have retired. Reneging on those pensions will bring an expensive lawsuit the state will ultimately lose. The die has been cast.

The choice now is between investing hundreds of millions now to fund PERS 1 for the twenty year pay out or to spend $2 billion dollars a year to pay as we go.

The only logical thing to do is to invest now to meet the coming crisis. Unfortunately taxes will need to be raised to save the taxpayers from a worse fiscal crisis. Raising taxes in this state will certainly bring the knee jerk anti tax initiative.

2cents

Posted Fri, Nov 20, 9:18 p.m. Inappropriate

Looking at the information presented in the Pew Research study, it's hard to reach the conclusions that many of the commenters on this site have reached - that "out of control state legislatures" or "liberals" have caused states to be hit hard by the current economic downturn. It's also hard to support the idea that citizen initiatives are the sole cause of the hardest hit state's problems.

The fact is, the hardest hit states were the ones with the biggest housing bubbles, or with the largest connection to the auto industry. Arizona and Nevada and Florida, as far as I know, are not full of liberals, and don't have out of control state legislatures. That's an assumption on my part, and if anyone has data proving otherwise I would love to see it.

Oregon seems to be the anomaly in the list of the hardest hit states. It would be interesting to understand why Oregon has been hit so hard.

sdstarr

Posted Sun, Nov 22, 12:05 a.m. Inappropriate

The WA has gone from $15.02 billion in 1985, to 34.1 billion in 1995, to $69.18 in 2007. Even after adjusting for inflation and population, that is sharp growth.

We see example after example of ridiculous waste such as the 8 troopers on paid leave for a year after submitting fake diplomas to get raises. Obviously the housing bubble & economic crisis generally make things worse, but it is tough to argue that we don't have a spending problem.

Remember that the concern about WA's budget problems were present long before the meltdown hit in late summer '08.

rasul

Posted Sun, Nov 22, 12:07 a.m. Inappropriate

note first sentence above should have been 'The WA budget has gone from $15.02 billion...'

rasul

Posted Mon, Nov 23, 4:15 p.m. Inappropriate

Arrrgh! It's so easy to blame initiatives for the problems of state governments nationwide -- and then to say, well, Washington allows initiatives, too -- that must be our problem. But it's wrong, just plain wrong.

The problem occurs with initiatives THAT AMEND THE STATE CONSTITUTION. Take a look at the states where initiatives have caused problems and you'll see that every one of them has an initiative process that allows voters to amend the constitution without the participation of the Legislature. This allows initiatives to go around the state's elected representatives, and puts the voters on a higher level.

Washington doesn't allow this. In Washington state, voters have the same power as the Legislature. They don't have additional power. To amend the constitution in this state, you need a vote of the Legislature AND a vote of the people.

In Washington, an initiative that passes goes on the books as a state law. For the first two years, it takes a "supermajority" vote of the Legislature to alter an initiative; after that a simple majority vote. So if an initiative cramps state government, don't worry, eventually it'll be repealed or altered (as happened with Initiative 601). It's been this way since the initiative process was adopted in this state, almost a hundred years ago.

Name me one initiative that has caused a serious uncorrectable long-term financial problem for this state. I challenge you. Go ahead, name one. You can't. The Washington Legislature has had a chance to alter every tax-cutting initiative that is currently on the books. In most cases it has decided to let them stand.

I guess that what bothers me is that so often I see the "California argument" raised in this state, as it is in this piece. Every new tax revolt surely means we'll follow California over the cliff. But thanks to the genius of the people who created the initiative process all those years ago, it just can't happen in Washington state. In Washington, at least, initiatives aren't the problem.

Hmm. What else could it be?

My guess is that it's quite a bit simpler. When times are good, it's awfully hard for the Legislature to say no. Everyone thinks good times will last forever. When the economy tanks, all those new long-term obligations prove difficult to sustain. But every program has a constituency, and people will complain and file lawsuits if their program is cut, and so it becomes a thousand times harder to cut spending than it is to not spend in the first place. I have to think this is probably the fairest, least-partisan way to explain the problem that Washington faced this year, and will face again in 2010.

--Erik Smith
Olympia, Wash.

ErikSmith

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