The Great Debate

It is not a national election year, but the “red state versus blue state” wars continue. Texas Governor Rick Perry’s recent foray into California, to lure away businesses and jobs, signals more than a rivalry between these two mega-states. The Texas-California competition represents the political, economic and cultural differences driving American politics today – and for the foreseeable future.

Texas and California are robust political and economic competitors. We don’t know which will be the template for the future. As California emerges from its economic and fiscal doldrums and some of Texas’ vulnerabilities become evident, it is now far from certain that Texas will emerge the victor.

California is a global hub for trade, tourism, culture and the manufacture of ideas and intellectual property. From high tech and biotech to entertainment, travel and logistics, the state’s brand transcends national boundaries. The Golden State tops the nation in agriculture. It also sets the pace on green energy development, which could lead to a dramatic increase in the state’s energy production.

The Texas economy has always been based on energy and agriculture. But the Lone Star State has been building a manufacturing and service base, attracting businesses with lower wage rates, weak unions, a friendly regulatory climate and large fiscal incentives. It remains to be seen whether it can maintain its economic momentum and overcome the inevitable obstacles to growth, such as a popping of the latest energy bubble.

California and Texas are political mirror images. Once-Democratic Texas has  voted solidly Republican for three decades. Once-Republican California is solidly blue. Texan George W. Bush was trounced in California, home of Ronald Reagan and Richard M. Nixon, in the 2000 and 2004 presidential elections. Barack Obama ran up big numbers in California in both 2008 and 2012 – the opposite of his Texas results. This lopsided pattern of support continues: Obama’s approval rating is more than 60 percent in California, just 40 percent in Texas.

Valentine’s Day is a time when couples go out for romantic dinners and exchange gifts, while singles meet up in bars, hoping to make some bad decisions. Valentine’s Day is also a day when people with crazy ex-boyfriends or -girlfriends are reminded of how thankful they are for anti-stalking laws.

Every state has made stalking a crime. These laws help protect people who might otherwise live in fear. Yet labor unions have successfully, and disconcertingly, lobbied to be exempt from anti-stalking laws in at least four states – California, Pennsylvania, Illinois and Nevada.

“The most glaring examples of union favoritism under state laws,” notes a 2012 U.S. Chamber of Commerce report, “tend to occur in criminal statutes and allow individuals who engage in truly objectionable behavior to avoid prosecution solely because they are participating in some form of labor activity.”

The Internal Revenue Service created a bit of a kerfuffle last week when it announced that it would no longer publish data on interstate taxpayer migration and the income they take with them. This would be a huge disservice not just to economists and policy analysts but to all Americans.

This IRS migration data provides the best evidence that low-tax, limited-government states attract employers, families and individuals, while states pursuing the same policies as the White House – higher taxes, bigger government and more onerous regulations – drive businesses and taxpayers away. It’s not hard to fathom why the Obama administration, despite its promise to be the most transparent in history, would want the IRS to stop publishing this damning evidence.

California, Illinois and Maryland, which have some of the highest tax burdens and biggest state governments in the country, may have finally realized the deleterious economic effects that come with following President Barack Obama’s approach to governance.

The changing face of the American electorate is etched all over the map of California. The Golden State may no longer be a partisan battleground, but it continues to be a reliable bellwether for the evolving national political landscape.

Even as President Barack Obama won a second term with an electorate that mirrored the demographic trends that have made California deep blue, Golden State voters chose to raise taxes to fund education and gave Democrats a two-thirds “supermajority” in both houses of the state legislature—meaning Democratic lawmakers will have the ability to raise taxes without a single Republican vote.

This willingness to increase taxes to pay for schools and other long-underfunded public services, coupled with California voters’ rejection of the GOP’s “no new taxes” mantra—up and down the ballot—could well echo across the nation, just as the passage of the state’s Proposition 13 ignited the anti-tax movement more than three decades ago.

California is on the verge of becoming a one-party state — but policy gridlock isn’t going anywhere soon.

Democrats now hold all the statewide offices and have a shot Tuesday at achieving two-thirds majorities in the Legislature. Yet they are far from being able to unilaterally resolve California’s fiscal logjam.

For the past decade, California’s fiscal picture has been awash in red ink, legislative stalemates, borrowing and a lot of budgetary gimmickry.  Three governors in a row, Gray Davis, Arnold Schwarzenegger and Jerry Brown, hit a stone wall in trying to resolve the state’s structural deficit—the  imbalance between ongoing spending and available tax revenues — that has persisted in the $10-billion plus range.

From America’s mid-term elections, two noteworthy comparative results. A modestly funded ballot initiative to legalize marijuana in California drew 300,000 more votes than a billionaire businesswoman who spent well over $140 million of her own money to try to become the state’s governor. Both lost.

The hotly debated marijuana ballot measure attracted 3.4 million yes votes. Meg Whitman drew 3.1 million voters. It’s not clear whether she will run again but proponents of the marijuana measure, Proposition 19, are already planning to make another attempt in 2012. They think the California vote shows legalization is a matter of when, not if, never mind that this time they fell more than half a million votes short of success.

Proposition 19 would have allowed Californians over 21 to grow up to 25 square feet (2.3 sq metres) of marijuana and possess up to an ounce for personal consumption. It would have turned California, America’s most populous state, into the world’s first jurisdiction to formally legalize marijuana. (Not even the Netherlands, which has a system best described as schizophrenic pragmatism, has gone that far).

-The opinions are the author’s own-

California voters on Tuesday rejected a measure to suspend the state’s innovative climate change law. But the state’s emission trading scheme has been substantially diluted to buy off opposition from energy-intensive industries and allay fears about job losses.

If it is true that “as California goes, so goes the nation”, the past 10 days have confirmed the lack of political support for tough emissions curbs.

The survival of California’s cap-and-trade scheme has kept alive hopes for enacting a patchwork of state and regional schemes in the absence of a federal program. Supporters hope establishing even a diluted system will lay the groundwork for a program that can be toughened as the economy improves.

What would legalizing marijuana in California, America’s most populous state, mean to the drug cartels whose fight for access to American markets have turned parts of Mexico into war zones? Shrinking profits? Certainly. Less violence? Maybe.

These topics are being raised as the U.S. heads towards Nov. 2 mid-term elections which in California include a ballot initiative, Proposition 19, providing for marijuana to be treated like alcohol and tobacco for Californians over 21. A vote in favour would end 73 years of prohibition and have enormous political impact not only on the rest of America but also on the long-running global war on drugs.

Experts on the issue have been working overtime and the latest of a string of academic studies, out this week, came from the RAND Corporation, a California-based think tank. The voluminous paper is entitled: Reducing Drug Trafficking and Violence in Mexico – Would Legalizing Marijuana in California Help? The study’s four authors, all prominent authorities on the illegal drug business, hedged their answer.

– Agnes T. Crane is a Reuters columnist. The views expressed are her own –

Let the trading begin.

California will be mailing out its first batch of IOUs today after the state’s stalemate over how to close the more than $24 billion hole in the budget leaves it with insufficient funds.

The IOU market could swell to $3.36 billion by the end of the month if lawmakers and the governor still can’t find a middle ground.

Big banks, which stepped into the breach 17 years ago when the state last issued IOUs, appear to be reluctant to do the same this time around. Wells Fargo & Co, Chase and Bank of America have so far said they will accept the IOUs from their customers as they would any other check, but only for a very limited period of time. All three banks say they’ll stop accepting them after a week.

The California budget impasse comes to a head one way or the other this week, with state lawmakers needing to make nice by June 30 to close a $24 billion budget gap. If they don't, rating agencies have threatened to downgrade the state's credit ratings.

California's Comptroller said he would begin handing out IOUs on July 2 and the Treasurer said the state will draw on reserves to service the debt of all economic recovery bonds on July 1. (These bonds were created in 2004, when voters gave the state government the authority to raise $15 billion through bond issuance to plug another budget deficit.)

While a slump in real estate and tax revenue are very real factors behind California's disastrous finances, the San Francisco Chronicle also bullet-points more entrenched problems that have made it difficult if not impossible for the state to surmount extreme dysfunction.