California: Not quite Greek, but still weak FOR a decade now California, the world's ninth-largest economy, has run budget deficits. Its constitution says it must technically balance its books every year, but it has done so with accounting tricks that have only pushed the underlying problem into the next accounting period. It may do the same again this year. The hole to be plugged amounts to $15.7 billion if the governor, Jerry Brown, is to be believed; about a billion more if the non-partisan legislative analyst is right. State lawmakers have until June 15th to come up with a solution before the new fiscal year starts on July 1st. If they miss this deadline, as they have often done in previous years, their pay will be suspended until they can get their act together. The familiarity of the drama may explain why Californians who worry about their state preferred to contemplate last week's other event, their primary election on June 5th. The Republican presidential nomination was a non-event, since Mitt Romney is already chosen, and voter turnout was abysmal, at about 25%. But Californians savoured two things about this primary. It was the first in which state and congressional candidates ran in districts drawn by an independent commission instead of incumbent politicians; and it was also the first for many years in which all voters - Republican, Democratic or other - received the same ballot papers, and the top two vote-getters advanced to the general election, even if they were from the same party. The links between these two knotty subjects - the recurrent fiscal crises and the arcana of electoral reform - are complex. But they explain what has gone wrong with California in the past generation, and whether it has a chance of saving itself. California's problems are not like, say, those of Greece. It is not nearly as indebted and not at risk of getting booted out of its currency area. Instead, California is in a slow relative decline because it allocates its public resources badly. And the ultimate reason is the poor performance of its political institutions. California's budget problems begin with a tax system that is out of date. For most of the last century, sales taxes, which are relatively stable, were the state's main source of revenue, while more volatile income taxes were less important. But that was when California's economy was still based on making things. Today it is a service economy, and services are exempt from sales tax. So, over the past generation, income taxes, and especially capital-gains taxes, have grown in importance. This makes California's revenues unusually jumpy, with peaks during booms (in dotcoms or housing, say) and big falls during busts (again, in dotcoms or housing). Spending, meanwhile, is much less flexible. It tends to go up in good times, as legislators discover new programmes to pay for, and then go up again in bad times, as safety-net spending (on welfare, say) kicks in automatically. And California has an additional reason for overspending. Many of its programmes are the result of decisions made directly by voters, as opposed to the legislature. For example, the largest item in the state budget, school funding, is largely determined by a horrendously complex set of formulae that stem from past ballot measures. This year, even under the budget cuts Mr Brown has proposed, those formulae would counter-intuitively cause school spending to rise. As this "direct democracy" and its consequence, "ballet-box budgeting," have grown, representative democracy (ie, the legislature) has become dysfunctional. For the biggest subjects, such as taxes, voters have forced legislators to pass with a super-majority laws that voters themselves may pass with a simple majority. Because California suffers from the same hyper-partisan and acrimonious deadlock between Republicans and Democrats as Washington does, super-majorities on important matters have become impossible to muster in practice. This means that big issues sooner or later go to the ballot box for resolution, not to hated politicians. One man's maze Such is the story of Mr Brown's current term as governor (he previously held that office in 1975-83). Last year he proposed to cure half of California's budget deficit with higher taxes and half with lower spending. The Democratic majority in the legislature said yes to the spending cuts, but the Republican minority said no to the higher taxes. Mr Brown then asked the legislature to put the question of tax increases before voters. But that also requires a super-majority, and Republicans balked again. So the governor was reduced to collecting signatures on the streets to put his extra-tax proposal on the ballot this November. And there it will be, though not - and this, too, is vintage California - without competition from another ballot measure that also seeks to raise taxes for much the same motive (ie, mainly to save public schools). Many voters, as usual, will be confused. Mr Brown has thus wagered his legacy on a yes vote for the temporary tax increases he proposes - a small rise in the sales tax and larger ones in income taxes for the wealthy. If voters say no, he has threatened "trigger cuts" that would mainly hit public schools and universities. But even if voters say yes, the temporary tax increases are expected to bring in only about $8.5 billion in the current and coming fiscal years. They will not solve California's problems. What, then, is the net effect of this bewildering system, in which budgeting arises from the interplay of an atrophied legislature and a patchwork of voter decisions? If you look at California's spending priorities since Mr Brown's first term, you see primarily a shift away from education and towards incarceration. The state's public universities, long considered among the world's finest, have been struggling. Some professors speak of quasi-privatisation - this year, public universities will get less from the state than from tuition fees for the first time since Mr Brown's father, Pat, devised the system as governor in 1960. For years now, California has been (as one popular metaphor has it) eating its "seed corn." It does not support its poor children in proper schools and colleges (and, as an indirect consequence, often ends by locking them up). And it does not send out nearly enough young men and women with the sorts of degrees needed by the industries of the future. Can this change? Some people think it would take a constitutional convention to start fresh. Others think that voters might be able to fix the state in many discrete decisions at the ballot box. Others yet hope for a better, saner legislature. And this is why the innovations of the primary election matter. Both redistricting (ie, apolitically drawn districts) and non-partisan primaries are intended to benefit more moderate politicians, who may pride themselves on finding compromises and reaching out to foes. The optimists point out that it takes only a few moderate legislators to make super-majorities possible. The pessimists counter that California's party politics remain largely a mirror of America's, and a rapprochement between Republicans and Democrats is not in the offing anywhere.