Standing before a podium in the Ronald Reagan Cabinet Room of the state capitol, with a bust of the former president peering over his left shoulder, Gov. Arnold Schwarzenegger announced on June 13 that he was calling a special election for November to vote on initiatives that would give him control over spending, take redistricting out of the Democratic-controlled Legislature’s hands, and weed out incompetent public school teachers. He brushed aside complaints that this special election would cost up to $50 million. “People ask about the cost of the election. Well, do the math: For a buck and a quarter per citizen, you can fix a broken system and save the state billions of dollars. Now remember, this is your money. That is a fantastic bargain!” Schwarzenegger savored each syllable of the word “fantastic.” “With the people’s help,” he said, “there will be action this year.”
In November the peopled did act, but not how Schwarzenegger had hoped or anticipated. The Los Angeles Times headlined the results, “No, no, no, no” as all of Schwarzenegger’s initiatives went down to defeat. At a press conference in Sacramento two days later, he expressed his remorse. “I learned from the movies,” he said. “If one of the movies goes in the toilet, that’s not the kind of movie you want to do.” And he added, “If I were to do another Terminator movie, I would have the Terminator travel back in time to tell Arnold not to have a special election.”
It was quite a turnaround. Just a year earlier, Schwarzenegger had an approval rating of over 65 percent. In Washington, Sen. Orrin Hatch had been advocating a constitutional amendment that would have allowed the Austrian-born governor to run for president. But on the eve of the special election, he had become so unpopular that his media advisors pulled commercials he appeared in off the air. He had become the issue—to the detriment of his own initiatives.
Schwarzenegger’s precipitous decline was largely due to gross political miscalculations. After a promising start in which he attempted to bring the state’s parties and interests together, he embraced the agenda of Sacramento’s business lobbies and eventually even the Republican right wing. His inexperience as a politician finally showed through. But while Schwarzenegger might have avoided political disaster this year, he probably would have eventually lost his clout in any event. One need only look at what happened to Schwarzenegger’s predecessors.
Republican Pete Wilson and Democrat Gray Davis were far more politically experienced than Schwarzenegger, but in their governorships they rode a similar roller coaster. Each of them had been wildly popular during their first years—and each, like Schwarzenegger, had begun to harbor national ambitions. But they, too, eventually earned the ire of voters. Wilson left the California Republican Party in a shambles in 1999, and Davis was recalled by voters in 2003, a year after winning a second term. Each was a victim not only of their own mistakes but also of a toxic political culture in Sacramento that seems to guarantee failure.
Californians want, but California lacks, the underlying basis for a viable centrist politics. While the bulk of the state’s voters yearn for nonpartisan officials who can unite Republicans and Democrats, conservatives and liberals, and business and labor, the state’s underlying political structure has encouraged polarization. California governors like Wilson, Davis, and Schwarzenegger were elected as centrists, but they have been unable to govern from the center. They have had to choose between left and right, labor and business, and Democrat and Republican. And when they have finally made their choice, the voters have invariably rebuked them.
For almost a century, California voters have been, in the main, nonpartisan and centrist. Early in the last century, California progressives made it permissible for candidates to cross-file in party primaries. After World War II, Earl Warren won both the Democratic and Republican nominations for governor. And partisan registration has not been a reliable gauge of election outcomes. Despite registered Republicans being in the majority, California voted for Franklin Roosevelt in the 1930s; with Democrats enjoying a plurality since World War II, six of its nine governors have been Republicans.
Cross-filing was abolished in 1959, but California has retained its legacy of nonpartisanship. Since 1996, when the election laws were changed to allow registered independents to vote in either primary, independents have become the fastest-growing part of the California electorate. They now make up 18 percent of voters, and they fit somewhere between the political extremes of the two parties: concerned about the environment and women’s rights but leery of big government; supportive of business and unions but hostile to corporate or labor dominance of state government. They back moderate Democrats in national elections, but are perfectly willing to vote for a moderate Republican gubernatorial candidate.
Successful candidates for state office have most often reflected this nonpartisan centrism. Republicans Earl Warren and Goodwin Knight and Democrat Pat Brown each enjoyed the support of labor and business. Jerry Brown and Gray Davis (who was Brown’s chief of staff) ran as centrists, incurring the wrath of their party’s left wing. Republicans Wilson and Schwarzenegger initially faced opposition from their party’s right wing. Only one governor clearly appears to defy this pattern, but his administration turns out to be the exception that proves the rule.
In 1966 Ronald Reagan ran as a conservative Republican and won on the strength of the backlash against the civil rights movement and campus protestors, but he governed as a centrist. His conservatism was held in check by the state’s political establishment, which was generally led by moderate Republicans such as William Hewlett and David Packard of Hewlett-Packard and the Chandler family, whose newspaper, the Los Angeles Times, had endorsed Nelson Rockefeller over Barry Goldwater in the 1964 presidential primary.
When Reagan wanted to punish campus protestors by cutting state funding for the university system, these leaders, summoning the support of other prominent Californians, stopped him. During Reagan’s two terms, state spending for higher education increased 136 percent compared to a 100 percent increase in overall spending. “His bark was worse than his bite,” quipped Dean McHenry, former chancellor of the University of California, Santa Cruz.
Reagan’s conservatism was also held in check by the state Legislature. Reagan favored across-the-board tax cuts but reached agreement with Democratic Assembly Speaker Jesse Unruh on a measure that increased the tax burden on business and the wealthy. Reagan railed against “welfare queens,” but under pressure from Unruh’s successor, Bob Moretti, signed a measure that tightened eligibility and generously increased benefits. Republicans in the Legislature went along.
But during Jerry Brown’s two terms from 1974 to 1982, these foundations of the state’s political centrism began to crumble. By the mid-1990s, the California Legislature was as polarized as the U.S. Congress. And the California political establishment had virtually ceased to play a countervailing role. Many factors contributed to this change, but the most important single event, as Sacramento Bee columnist Peter Schrag recounted in his book Paradise Lost, was the passage of Proposition 13 in 1978.
In 1978 California enjoyed a huge budget surplus, the result partly of a dramatic rise in property tax rates. Average home values had risen from $34,000 in 1974 to $85,000 in 1978, and California’s property tax bills were 50 percent higher than the national average. When Jerry Brown, preoccupied with national politics, proved unresponsive, conservative Republicans Howard Jarvis and Paul Gann put Prop. 13 on the ballot. Brown, backed by major business organizations and unions, belatedly fought it, but to no avail. The voters, angered by their tax bills, adopted it by almost a two-to-one margin.
Prop. 13 drastically scaled back property taxes by revaluing residential and commercial property at their 1975 values, allowing assessments to rise from that point a maximum of 2 percent a year, and to be taxed at a maximum of 1 percent. That immediately produced a 53 percent, or $6.1 billion, reduction in property taxes, primarily from taxes on commercial property. The loss in revenue could have been made up through other tax increases, but Prop. 13 included a provision requiring a prohibitive two-thirds vote to adopt tax increases. And even if the revenue could be raised, governors and the Legislature were soon limited in the amount they could spend by a Gann-sponsored initiative, Proposition 4, that was adopted the next year.
As a result of these two initiatives, California spending on public services failed to keep up with the state’s rapidly growing population. California had been a national leader in spending on transportation and education, but by 1998 it was 48th among states in per capita spending on highways, 41st on higher education, and 38th in spending on elementary and high school education. In 1969–70, California’s per-pupil expenditure was $400 above the national average; by 1999–2000, with the impact of Prop. 13, it was $600 below. And as the state’s spending on education fell in comparison with other states, so too did the scores of California students on nationwide achievement tests. On the 2003 National Assessment of Educational Progress (NAEP) tests, California students scored the lowest of any states except for Louisiana and Mississippi.
Prop. 13 also skewed economic development in the state. It benefited existing homeowners and the owners of offices, plants, and apartment buildings, but by taxing newly purchased homes and commercial property at disproportionately higher levels, it discouraged new home construction and business investment. As counties tried to make up their lost property taxes through developer fees, the costs of homes and other new buildings skyrocketed.
Other states have endured similar tax revolts over the past two decades. But most of them, such as Virginia, were eventually able to escape the grip of antitax fever and respond constructively to fiscal crises with higher taxes. Through Prop. 13, however, California institutionalized its tax revolt and set in motion a chain of measures that created political paralysis and fragmentation.
In the absence of a strong party system, California’s lobbies have played an important role in the legislative process. They represent distinct interests, but in the past, they could also come together to compromise. Prop. 13, however, bitterly divided them. A new group of antitax organizations, led by the Howard Jarvis Taxpayers Association and based primarily in the Republican Party, were determined to resist any tax increases. Faced with large budget deficits, they called for spending cuts. They were represented in the Legislature by “Jarvis Republicans,” who took it upon themselves to block any tax increases. And even though they were a minority, they needed only one-third of the votes to prevent such increases.
On the other side were California’s growing public employee unions, including the California Teachers Association (CTA) and the Service Employees International Union (SEIU), as well as various liberal public interest groups. Over the past two decades, the public employee unions have doubled their membership to 1.25 million. The unions and their allies, working primarily through the Democratic Party, have called for growing expenditures on education and social services and modification of Propositions 13 and 4. But like their conservative counterparts, they have been far more successful in blocking measures they opposed than in enacting measures they supported.
California’s voters have straddled the conflict between these lobbies. Many Californians continue to benefit from Prop. 13, and even if they don’t do so directly, they are averse to raising taxes. Prop. 13, says former Senate President Pro Tem John Burton, “has become a sacred cow” in California politics. Any attempt to address it head-on, except on a purely local level, has failed—most recently, a labor-backed initiative in 2004. At the same time, many Californians, including those who support Prop. 13, complain bitterly about the state’s declining schools and public services. They want something done, and when nothing has happened, they have blamed the Legislature and the governor. Becoming disillusioned with government itself, they have opted for shallow schemes that have promised to make government more responsive but have actually made it less so.
With the Legislature stalemated, politicians and interest groups have increasingly resorted to expensive initiative campaigns. From the 1970s to the 1990s, the number of initiatives on the California ballot tripled. Sometimes these initiatives have achieved useful results, but they often have locked the state into rigid formulas that have made it more difficult to escape the stalemate. In 1990 conservative activists, frustrated with Democratic control of the Legislature, helped pass Proposition 140, drastically limiting legislative terms and cutting the Legislature’s staff. Instead of reinvigorating the Legislature, Prop. 140 made it even more dependent on lobbies for money and analysis—Republicans relying on business and Democrats on the public employee unions. The state Legislature lost its power to deliberate and to mediate conflicts between these groups. Instead, it merely echoed those conflicts.
In the wake of the passage of Prop. 13, California’s political establishment, bringing the lobbies together, attempted to repair some of the damage the initiative had caused. In 1990, during the last year of Gov. George Deukmejian’s administration, an alliance of business and labor leaders backed an initiative that raised the gasoline tax to fund the state’s deteriorating highway system and that modified Prop. 4’s limits on state spending. In 1991 a similar group of leaders urged Governor Wilson to raise income tax rates on the wealthiest Californians to defray a $14 billion deficit that he had inherited from Deukmejian. Pressed by Kirk West, the president of the California Chamber of Commerce, Wilson finally complied, although the increase was limited to five years.
In the late 1990s a group of business, environmental, consumer, and labor leaders met in Sacramento to draw up a plan for fiscal reform, but the business leaders, buoyed by the revenues from the dot-com boom, abandoned the talks. Some local business-labor coalitions continued to function, such as the Silicon Valley Leadership Group, but for the most part what had once been a unified political establishment disappeared from California politics. It would devolve into separate competing interests.
Corporate mergers and global pressures eliminated many of those businesses and business leaders who felt a special responsibility toward the state that went beyond their own enterprise. In the early 1980s, for instance, Bank of America was still the archetypical California business. In 1983, when the state faced a $6 billion budget deficit, its CEO, Sam Armacost, went to Sacramento to offer Governor Deukmejian an $850 million loan. But Bank of America sold its San Francisco headquarters and transferred its loan department to Chicago, and in 1998 it was purchased by NationsBank of Charlotte, North Carolina. What happened to Bank of America happened to many other prominent California companies, including ARCO, Security Pacific, and even the Los Angeles Times, which was acquired by the Chicago Tribune.
Statewide business leadership is now exercised primarily through the California Business Roundtable, the Chamber of Commerce, and the corporate-based California Taxpayers’ Association. These groups, which at one time worked regularly with labor and consumer organizations, have now become mere interest groups. Instead of attempting to unify Californians, they have chosen sides in the conflict between business and labor over the state’s fiscal policy, sometimes even adopting the narrow antigovernment outlook of the Jarvis Republicans. They blame the state’s budget deficits on the cost of public employees, and the decline in public education on the high salaries and incompetence of teachers. They reject any increase in taxes that might affect business or the wealthy. They favor solving California’s perennial budget crises through spending cuts.
In 1978 all of these groups and their leaders adamantly opposed Prop. 13, but they now deny that it has had any ill effects. Bill Hauck, the head of the Business Roundtable, dismisses as a “myth” the claim that Prop. 13 hurts state revenues. “California will always have scarce revenues,” says Hauck. “You could raise taxes and lower spending, and you’d still have scarce resources.” Hauck also rejects the connection between state spending and education. “If there were a direct correlation between money and achievement, then D.C. schools would be giving the best education.”
Larry McCarthy, who heads the California Taxpayers’ Association, says that his members think Prop. 13 helps business. “Our members believe the property tax is one source of stability. Our members don’t complain about it at all. When we make an investment, we know what the property tax is going to be.” McCarthy blames the decline of the older establishment on the power of the public employee unions that “dominate the state capital and no longer have a sense of ‘we’re all in it for California.’”
In one respect, McCarthy is right. Public employee unions have sometimes put their members’ interests above those of the state. The CTA’s insistence on increasing education spending can’t be separated from their interest in increasing teachers’ salaries—the one line of the California school budget that has not significantly trailed other states. But what McCarthy fails to acknowledge is that the business leaders and their organizations have also put themselves first, and with a vengeance. They haven’t sustained the political center but consistently undermined it.
Wilson, Davis, and Schwarzenegger all campaigned initially as centrists, but once in office, they found themselves faced with three equally unpalatable choices: embrace business and the Jarvis Republicans’ conservative agenda, which means cutting spending and stigmatizing labor; cast their lot with liberals and labor Democrats who want to increase spending, which means modifying or repealing Prop. 13; or simply equivocate in the hope that an economic downturn won’t force a choice between the business organizations and the public employee unions. Whichever alternative they’ve chosen, they have eventually incurred the voters’ wrath.
Wilson, who as mayor of San Diego bitterly opposed Prop. 13, raised taxes during his first year in office, but with the economy still in the doldrums and Republican legislators in revolt, he tacked sharply to the right. Trailing his weak opponent in the polls in 1994, he tried to blame the state’s fiscal woes on illegal immigrants and backed the punitive Proposition 187. But while this strategy got Wilson reelected, it didn’t restore his popularity and it crippled the Republican Party, making way for Davis’s easy victory in 1998.
Davis, like Wilson, promised a centrist government, pledging in his inaugural address to “bring down the curtain on the politics of division.” Davis initially benefited from the high-tech boom of the late 1990s. Armed with revenues from capital gains, he cut taxes and increased spending, but when the high-tech bubble burst in 2000, state revenue fell by 12 percent. Davis then equivocated, but he finally agreed to revoke his earlier tax cuts, including one on the so-called car tax. Davis was hurt by his failure to respond quickly to the electricity blackouts, but what really precipitated the recall election was his willingness to reinstate the car tax.
In the recall election of 2003 and in his first months in office, Schwarzenegger trumpeted his nonpartisanship. In his first State of the State speech in January 2004, he praised bipartisanship and compromise and promised to “stop the politicians from fighting.”
And he worked to build a centrist coalition in Sacramento. To close the $38 billion budget deficit he inherited, he crafted two winning initiatives, Propositions 57 and 58, with support from U.S. Sen. Dianne Feinstein and Controller Steve Westley, both Democrats. He appointed Democratic as well as Republican judges. He negotiated his budget plans with business and labor, including the CTA.
But Schwarzenegger’s centrism, like that of Davis, skirted the core issue of spending and taxes. In his campaign, he rebuffed adviser Warren Buffett when the Omaha billionaire remarked that the cap on property taxes “makes no sense.” Prop. 57 merely deferred the state’s fiscal crisis by borrowing $15 billion in bonds, while the loophole-ridden Prop. 58 committed the state government to offering, but not necessarily achieving, balanced budgets. Facing continued deficits after his first year, Schwarzenegger turned sharply to the right, embracing the approach of the business and antitax forces.
Schwarzenegger blamed the state’s deficits on the public employee unions and their “labor bosses.” The initiatives he championed reflected this outlook. Proposition 76, drafted by Hauck and his counterpart at the Chamber of Commerce, allowed the governor to cut spending on his own, including spending on education, which an older initiative had protected. Schwarzenegger also endorsed Prop. 75, drafted by former John Birch Society member Lewis Uhler, which would have forced public employee unions to obtain their members’ written permission before making political contributions.
Schwarzenegger, a devotee of conservative economist Milton Friedman, probably would have moved rightward eventually, but he didn’t have to do so in his second year. According to his director of finance, Tom Campbell (now back as dean of the Haas Business School), Schwarzenegger reacted emotionally to attacks against him by unions representing nurses, teachers, firefighters, and police. Says Campbell, “When one side goes to war, the other side either girds for war or tries to reach a compromise.” Schwarzenegger went to war. But that can’t be the entire explanation. Schwarzenegger or his appointees incited these attacks. In December 2004, for instance, his state health director infuriated nurses by refusing to implement legislation passed under Davis reducing nurse-patient staffing ratios.
More important, Schwarzenegger believed that after the successes in his first year, he could do anything he wanted. At a meeting with his advisers after the November election, he brushed aside their fears that he would provoke a pitched battle by attempting to impose his business agenda. He thought that if the Legislature balked, he could use his popularity to put forward this agenda as initiatives. Burton, who worked closely with Schwarzenegger during his first year but was forced to leave office because of term limits, says, “It didn’t make sense to take on everybody in the world, but he started believing his own bullshit. I used to tell him, this is a different deal [from being in the movies]. He thought he could deal with everything.”
Once Schwarzenegger started campaigning for his initiatives, he only made things worse for himself. Forced to raise money to compete with the unions, he assiduously courted business and repaid the business lobbies for their contributions with legislative vetoes of bills they opposed. Says former Republican staffer Tony Quinn, “He began looking like another money-grubbing politician with a partisan agenda.” As his popularity plummeted further with Democrats and independents, he tried to deepen his support within the Republican right by attacking illegal immigration and endorsing an initiative requiring teenage girls who wanted an abortion to notify their parents. By the special election’s end, he had abandoned the political center. And in California, that is a sure recipe for defeat.
After his defeat, Schwarzenegger promised a return to nonpartisanship. “I am going to work hard to convince people I am not of the right or the left,” Schwarzenegger said at his press conference. He also pledged to “get together with union leaders and let them know I want to work with them.” And he said, “I am going to reach out. I am going to listen to what the other side wants.” If Schwarzenegger does listen, he could certainly win a second term, especially against a colorless Democratic opponent. California has had a habit of reelecting its governors. But being reelected won’t necessarily bring Schwarzenegger any closer to fixing California’s broken system. Doing that would require the Terminator not simply to go back and redo the special election, but to go back to 1978 and repair the structural damage that Prop. 13 and its successors have inflicted on the state’s political institutions.