A primer for reclaiming California

Al Checchi Contributor
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California is America’s bellwether state. While once the nation’s leader in all indices of civic health, it is now insolvent— incapable under any reasonable assumptions to fund its operating budget, provide for necessary infrastructure investment, and meet its long term debt and public employee benefit commitments.

The state’s government is dysfunctional—hijacked by two extreme political parties dedicated to the interests of a cadre of self-perpetuating political careerists and their institutional sponsors. California needs something beyond the Hobbesian choice offered by these two parties:

Republicans seek an unregulated society largely indifferent to the less fortunate. Solutions to problems are limited to cutting taxes, shrinking government, and opposing virtually all public sector endeavors.

Democrats counter with a collective welfare state inimical to the requirements for economic growth, where income redistribution, government expansion, and absolution from personal responsibility are the operative solutions.

Both are intolerant in matters of conscience—advocating government action to impose their social agendas. Neither is willing to address the critical issue of a government that has overpromised and underperformed while pursing policies that discourage private investment and employment growth.

If California’s civic health is to be restored and sovereignty returned to the people, citizens must cease the illusion that pursuit of bipartisanship between two corrupt regimes can accomplish anything but compound political dysfunction. Californians must elect political representation that is independent of the parties; independent of the interests they represent, and dedicated to promoting the general welfare.

Empowered to make over two thousand executive appointments, the Governor is the fulcrum of political power in California, the starting point of any reform movement. The next governor of California must have the independence, courage, and skill to take the state through a major political and economic restructuring.

The California Condition
California is home to one in eight Americans. More than our largest state; it is the country’s bell-weather. Forty years ago California was truly the Golden State. In addition to its matchless physical beauty and abundance, it was the nation’s leader in almost every category of civic health. Per capita income was the nation’s highest; K-12 schools were among the best; the quality of universities and colleges was legendary. California led the nation in capital investment—public infrastructure as well as private investment. Unsurprisingly California also led the nation economically. It was home to the world’s largest banks, the quintessential American industry—aerospace, and incubator of the world’s technology sector. These unmatched levels of public and private investment enabled California to provide the resources and opportunity to support a great in-migration of people seeking a better life.

Today California is a place of precipitous and accelerating decline. The standard of living no longer ranks in the top quarter. The schools are among the country’s worst. The once heralded universities and colleges no longer have room for all those qualified. Recent economic surveys place the California business environment dead last for attracting private investment. The state also ranks last in new investment in public infrastructure. State employee pension and health benefits are massively underfunded. The current budget deficit is larger than the entire budget of any other state but one, and larger than the total GDP of 100 nations. And today the once Golden state of California has the worst credit rating in the nation. The promise that once drew a floodtide of new individuals and enterprises now sees its businesses openly raided by other states and hundreds of thousands of its people packing up and leaving in search of opportunity in other places.

The Political System
The foundation of California’s unique dynamism rests on the bedrock of the progressive revolution of the early 20th century that introduced broad citizen participation in and control of state and local government. However, during the past half century representative democracy in California has eroded. Californians are now governed by an aristocracy—those who control and are employed by the government and to a lesser extent those who purchase favor from it. Justice is auctioned to the highest bidder; collective interests are disregarded; and posterity is held hostage.

The two major political parties have abdicated principle and stand as sentinels defending a broken system against reform. Despite their pretensions, whether Orange County Republicans or San Francisco Democrats, they are codependent serving as financial conduits channeling money from a disparate collection of interest groups to a newly emerged class of political careerists. No real leader could survive the vetting process of the interests that control them; no real change agent would subordinate personal principle to collaborate with groups so wedded to preserving their prerogatives and the status quo.

The consequences are not just a dysfunctional political system. They are measured in the deterioration in the life of every Californian.. It is etched in crumbling bridges and gridlocked highways. It is shuttered in prisons that further crime and drug addiction. It is registered in the out-migration of investment and well paying jobs and the consequent shredding of middle class opportunity.

Yet, despite persistent failure the political class endures and perpetuates itself by manipulating the very instruments of protection instituted by the progressive movement. The result is a government that is dysfunctional—captive to the interests of a few, unconcerned with the needs of the many, and incapable of solving the problems of an increasingly complex society.

Independent Leadership
The fulcrum of political power in California is the Governor’s office with executive responsibilities involving the lives and livelihood of over thirty-eight million people constituting the eighth largest economy in the world, and directing annual state and federal spending exceeding $150 billion. If California politics are to change, Californians must elect as Governor an individual capable of defying party orthodoxy and speaking for the broad non partisan majority of the state’s residents. .

An independent non-ideological governor can:

• Make government truly a servant of the people by directing the executive functions honestly, efficiently, and effectively giving fair value to taxpayers and equal representation to all citizens.

• Repurpose the resources of government toward those essential functions – those that the private sector can’t do, won’t do or we wouldn’t trust it to do.

• Reclaim government from the legions of political camp followers who feed off the “spoils” of victory and instead draw broadly and attract people with the requisite character, professional skills, and experience to analyze our complex problems, and design and implement pragmatic non-partisan solutions.

• Seek and inspire broad participation from citizens not directly employed in formal public service by creating transparency and renewing the shared sense of opportunity, privilege and responsibility underlying citizen participation in a democratic society.

Citizens Movement
Some may question that a popular movement supporting independent candidates or any significant reform can succeed against the vast array of forces of the current establishment. But nowhere in America is a tradition of civic activism more in evidence than in California:

In response to the control exerted by special interests and corrupt politicians in the early twentieth century, California citizens banded together in the Progressive movement, seized control of the political process and elected as governor Hiram Johnson who had never before held elected public office.

When California politicians again lost connection with the people, the Jarvis/Gann tax payer revolt re-activated the public initiative process to pass Proposition 13 and impose property tax restraint on California politicians.

In 2003, the people of California succeeded by an overwhelming majority in recalling a sitting governor for only the second time in all of American history.

Within the last year, despite overwhelming political, institutional, and editorial support, Californians soundly defeated five public ballot propositions designed to further the status quo operation of California government.

Reform Agenda
The citizens of California will not trust the political process until and unless their leaders acknowledge reality and show the courage to address the fundamental structural problems of the state:

California is insolvent. It is running annual operating deficits of $15 to $20 billion and has been deferring vital public investment for years despite collecting among the country’s highest taxes. State debt including that approved but not yet funded exceeds $150 billion. Unfunded state and local public employee benefits exceed $250 billion. High income earners and employers are fleeing the state and per capita private investment is among the lowest in the country. There is no reasonable basis for projecting California able to meet its long term financial obligations. To be effective and put the state on the path of economic recovery, a new Governor will have to declare the state “insolvent” and with court assistance restructure the state’s financial obligations and contractual relationships.

To regain control of future spending, all state budget mandates will have to be repealed and the scope of state government activities reduced to providing a basic safety net and those necessary services that the private sector can’t do, won’t do, or we wouldn’t trust it to do. However laudable, California simply does not have the resources to engage in pursuits like unilaterally combating global warming, funding stem cell research, or providing unlimited health services.

The state must further limit the way in which it delivers services to those that provide acceptable quality at the lowest achievable cost. This means an end to the prevailing wage requirement and other restrictions that artificially inflate the cost of public investment. Likewise the salaries and benefits of public service employee will have to be brought in line to conform to their private sector counterparts.

The state government is dysfunctional due to the composition of the legislature as well as the workings of the initiative process. The state constitution should be amended:

• First, remove elected officials and appointed individuals from the redistricting process. Voters should choose representation; office holders should not pick voters. Redistricting California state and federal voting districts should be based on unbiased computer algorithms aimed solely at approximating standardized district shapes and equalizing population.

• Second, legislators should represent individuals not institutions. End institutional participation in campaign financing. Restrict campaign contributions to individuals by eliminating direct contributions and bundling of individual contributions by corporations, PACs, associations, partnerships, unions, and all other organizations, public and private, for profit and non-profit.

• Third, reform the initiative process. As presently constituted, it is at best anarchy and more often simony – the purchase of indulgences. While the principal vehicle for advocacy is unregulated paid media, no mechanism governs the sufficiency or accuracy of information. Only competing interests with available financial resources can even provide dissenting views. The initiative should be restricted to recall of public officials. As a continuing mechanism for constitutional amendment or direct public legislation, it should require a two-thirds vote.

• Lastly, it is essential to reverse California’s economic slide and restore its employment base. The next governor must lead an effort to re-evaluate California’s competitive position and revamp a regulatory and tax regime that consistently ranks as the country’s most unfriendly to business.

California is at a tipping point. Extremist, unrepresentative, unresponsive political parties, self perpetuating career politicians, and special interests have bled the state dry.

A business-as-usual gubernatorial election in 2010 offers no prospect for a turnaround:

If a Republican ideologue is elected, there is no hope for restructuring government or reducing costs through a Democratic controlled legislature and traditional collective bargaining process. If a traditional Democrat is elected, there is no more money to “feed the beast.” Bipartisanship is a mirage since cooperation between two corrupt regimes would only reinforce the status quo.

Someone has to step forward (even one of the current leading candidates), declare their independence of party orthodoxy and have the courage to acknowledge the seriousness of California’s situation. He or she must signal the need to press the reset button—recognize the financial situation and fix it; restructure the government, amend the constitution, and promote new political leadership that is independent, competent, responsible, and representative.

Al Checchi is a principal with Checchi Capital Advisers, a financial advisory firm that constructs globally indexed separate investment portfolios for individuals, trusts, and institutions.