After the Recall

Immediate action needed to revive state

It is vital that the governor, whoever that is on Wednesday, take immediate action to improve California’s poor credit rating and restructure the recently passed state budget, which is based on more than $20 billion of borrowing and an $8 billion deficit carried over into next year.

Our “Roadmap to Reform” is a bipartisan plan that offers short-term solutions to quickly end the fiscal hemorrhaging and long-term reforms to ensure we never have to suffer through a similar budget crisis again. It is based on simple yet powerful principles that our state leaders need to accept, adopt and apply-or we’ll face our bond ratings dropping to junk bond status and even worse fiscal times ahead.

Immediately after the recall, the newly elected or reaffirmed governor and the Legislature should create a Commission on Budget Reform and Government Restructuring. Composed of respected business, academic and former political leaders, the commission should be action-oriented and limited to 10 people. Members of the independent, bipartisan commission would be chosen by the Senate and Assembly Republican and Democratic leaders and the governor.

Once appointed, the commission—s task would be clear—draw a new map for reform. Our plan recommends the following reforms:

  • Adopt a biennial budget with a bankruptcy-like restructuring plan. Currently, 23 states use a two-year budget because it improves oversight and limits the accounting gimmicks that have plagued California.
  • Adopt a constitutional spending limit and revenue limit. A spending limit similar to the Gann Spending Limit combined with a revenue limit on tax collection largely would have prevented the present fiscal crisis. The plan also recommends a reserve, or rainy day fund, to offset dips in the economy.
  • Overhaul the California tax system. The state’s tax system forces some localities to rely on the car tax for up to three-fourths of their revenues. Others are dependent upon sales taxes. Re-examining sales taxes, personal income taxes and car and property taxes in order to construct a less volatile system is vital for economic investment and long-term growth.
  • Create the most job-friendly state in the nation, starting with workers’ compensation reforms.
  • Enact performance-based reforms in state programs. The state has multiple agencies providing duplicate services. These departments should be consolidated and work such as information technology, facility maintenance, purchasing, personnel management, financial management and administrative support should be centralized, with single offices serving all state programs.
  • Control personnel costs and empower state employees to improve performance. California will spend more than $22 billion in salaries, wages and benefits this year. A 10% savings can be achieved by eliminating vacant positions, renegotiating egregious raises and reassigning personnel.
  • Evaluate and improve efficiency through competition and procurement reforms.

To be sure, creating a reform commission and enacting these reforms will require tremendous political leadership to overcome the status quo and embedded special interests. But the costs of inaction are simply too high at this point not to pursue them. And the cost increases every day.

George Passantino is director of government affairs at Reason Foundation. He served as a director on Gov. Arnold Schwarzenegger’s California Performance Review.

This article is excerpted from a white paper, available at, by think-tank budget experts George Passantino, of the Los Angeles-based Reason Foundation , and Carl DeMaio, of the San Diego-based Performance Institute. Joining as co-authors were former state Controller Kathleen Connell (D), former state Treasurer Matt Fong (R), former California Secretary of State Bill Jones (R), former U.S. Rep. Bill Baker (R) and state legislator Lucy Killea (I).