State of Deadlock: A Case Study of the California Budget War California is in the midst of an unprecedented and ongoing fiscal crisis. Three straight years of budget shortfalls have led to massvie cuts--in public schools, public health care, aid to the poor and other key social and human services. Budget advocacy, as it has been practiced in the past, no longer works. What was once a series of "insider" discussions about specific programs has been drowned out by one central question--what are the responsibilities of state government and how shall they be financed? This paper examines how human and social service advocates have responded to that question. The Evolution of Fights Over Spending In the past, when the state budget pie was growing reliably from year to year, the budget process was primarily about tinkering with the nuts and bolts of programs, not a large schale debate about overall spending. Throughout the 1980s, Governor George Duekmejian had one consistent theme to his budgets--nothing new, except prisons. The Democrats would push in the opposite direction, adding money to schools, welfare and health programs and witholding money from prisons. The result was a limited expansion of services in addition to prisons--prenatal care, transportation, the GAIN workfare program, and other areas that attracted bipartisan support--as well as cost of living adjustments for poor families, the elderly, and state employees. In the 1980s, revenues grew steadily and program growth was modest. Generally the legislature and governor were able to reach a compromise without enormous delay. On the surface it appeared that the state could continue modest spending increases without having to bit the bullet of a major tax increase. However, budget analysts now say that the state had set in motion a dangerous pattern. Those modest increases in spending were dependent on a tax base that was really in decline. In 1990, these fiscal chickens came home to roost with a state budget shortfall of $3.6 billion. At the time, most people believed that this shortfall, like previous ones, was a cycilcal one-year problem due to the recession. With a lame duck governor and a legislature up for reelection, all sides agreed, in the words of one aide, "to paper over" the budget gap by underestimating state costs and over-estimating state revenues. 1991: The First Major Fiscal Quake Even before voters went to the polls in November, 1990, it was becoming clear that the new governor would be welcomed to Sacramento with a second major budget shortfall. Early estimates placed the fiscal year 91/92 gap at $2-3 billion. As Pete Wilson took office at the start of 1991, those estimates quickly ballooned to $12-13 billion, a revenue gap unprecedented in the state's history. Program advocates and legislative Democrats prepared for an all out battle with the new governor, to prevent him from making up the shortfall exclusively through massive cuts in state services. Legislative leaders vowed that program cuts should make up no more than half the shortfall, with tax increases to make up the other half. To their surprise, the governor quickly agreed and the debate turned to what type of new taxes the state would impose. "It was a gamble," said Roberti aide David Panush. "Wilson wanted to take care of it [the fiscal crisis] inthe first year." According to Punsh and others, Wilson wanted an early and significant boost in the state's revenue base at the start of his term so he would be spared governing at fiscal edge for the following three years. Wilson's main challlenge was winning sufficient votes from anti-tax Republicans in the Assembly. On the revenue side, the governor proposed to raise the bulk of the new funds from a hike inthe state sales tax. "The Wilson team was the business team," said Kealey. She and many others aruged that the governer's sales tax push was a preemptive strike against more progressive taxes on the state's businesses and corporations. On the spending side, the governor adopted a new mantra--downsizing. The governor's plan was to blend a boost inthe tax base with some long-term policy changes that would slow the growth in state spending. Even with new taxes, state programs faced $3 billion in cuts. Advocates responded with a mix of new unity and traditional friction. Forty organizations concerned with children issued a joint call against cuts in AFDC and for new top brackets in the state personal income tax. However, some children's advocates complained that the most powerful voice among them, the California Teacher's Association, fought for its own interests even at the direct expense of programs such as child development. "They were cannibalizing other children's programs," said one advocate. In the end the shortfall was bridged with $9 billion in new taxes and $3 billion in spending cuts. The state employees lost on the pension issue but were successful in fighting off the 5% pay cut. The state also suspended the automatic cost of living increase for AFDC and welfare recipients. "If Diane Feinstein had been governor in 1991 we wouldn't have gotten as large a tax increase," said Assemblyman Phil Isenberg. In fact, there is a broad agreemetn that the bulk of the 1991 shortfall was made up for in new revenues only because Wilson spent significant political capital to win GOP support. Wilson did so, betting that he had put the state's fiscal crisis behind him. Governor Wilson hoped he had put the fiscal crisis behind him when he supported the 1991 tax increases. However, within just a few months it became clear that his budget headaches were just beginning. First, California's economy, led by a collapse in the defense and housing industries, was getting worse. State unemployment was headed for the 8% mark, and state revenue forecasts were more pessimistic by the day. Second, GOP conservatives were still bristling over Wilson's tax hike. As Pat Buchanan began to taunt President Bush with images of "read my lips," Wilson began to see ominous previews of coming attractions for himself. Finally, the sales tax increase that Wilson had hoped would be relatively invisible, particularly the new tax on snack foods and newspapers, began to draw strong attention and opposition from the public. Wilson's popularity with voters began to nose-dive along the same curve as the state's finances. In November and December Wilson signaled a dramatic change in his budget strategy. First came a report, "California's Growing Taxpayer Squeeze." It warned that the number of "tax receivers" (children, seniors, and the poor) was increasing faster than a shrinking proportion of taxpayers could support. Wilson proclaimed that the state's fiscal crisis was severe and long- term. Wilson then translated that warning into a political broadside that surprised even his severest critics--Proposition 165. The proposal combined a 25% cut in AFDC benefits wrapped around sweeping new budget-making authority for the governor. Wislon had chosen his political target for 1992--welfare repients. "What the governor proposed went so far beyond what we expected, it definitely shifted the debate to the right," said Casey McKeever of the Western Center on Law and Poverty. The Budget Fight and the Limits of "Inside" Advocacy In past years, when the budget pie was growing, budget advocacy was an insiders' game. Advocates relied on strong direct relations with legislators to work their agenda. However, 1992 showed pressures broght to bear from outside the Capitol were becoming increasingly important. "A lot of people relied on those connections, and they weren't enough," said Lynn Kersey fo the Children's Advocacy Institute. Educating and moving the public has become as important as convincing legislators. "Part of what has to happen is a change at the grassroots," said Beth Capell of the CNA. One of the most lasting lessons of the 1992 budget war was the need to link inside advocacy with effective work on the outside, aimed at the public and the media. The most concerted organizing effort against state budget cuts cmae from those conerned with Wilson's welfare cuts. Anti- poverty advocates, facing the deepest cuts while lacking financial and political clout, began to mobilize the only resource they had- -the people who would be most directly affected by the cuts. In November 1991, the Coalition called a meeting of groups concerned about the welfare cuts. Fifty people from both ends of the state--lobbyists and grassroots organizations--met and gave brith to a "Campaign for a Fair Share." The next month Governor Wilson unveilved Prop 165 and proposed cuts of 25% in AFCD grants. "The initiative made people bonkers," said Hutchinson. Los Angeles organizers said that their organizing lists quickly swelled from thirty five names to more than seven hundred. "Little groups were springing up everywhere," remembered Hutchinson. A New Strategy The Fair Share Campaign began with three clear goals: restore the previous year's welfare cuts; block any new cuts; and close tax loopholes to provide the needed revenue. The campaign set its primary sights on the legislature. "We were able to stay focused on the budget because labor was taking care of polling and fundraising against Proposition 165," said Fair Share coordinator Beth Steckler. Fair Share focused its pressure on legislators who they thought should have been allies but who had "caved in" on the previous year's budget cuts. The strategy was, "let's make it an issue for them in their districts," explained Steckler. "We had to making closing loopholes a part of the political conversation," added Hutchinson. Tactics Lobbying and Media: The campaign published a weekly "Campaign Update," distributed broadly by both mail and fax. It included information on developments in Sacramento and instructions about the most important legislators and committees to contact. Local activists visited with legislators, staged press events and sponsored a "child of the week" campaign through which profiles of children on AFDC were sent to legislators' offices. Protest: Some communities took more direct action. In Santa Cruz a picket was held outside the district office of Senator Henry Mello. In Los Angeles a major demonstration and otehr organizing efforts were disrupted by the uprisings following the Rodney King verdict. On the morning of the rally Los Angeles police withdrew the permit and arrested several organizers. Outreach and Public Education: An effort was made to have local officials speak out against the welfare cuts. Activists in Santa Cruz developed an "alternative budget." In San Francisco advocates successfully lobbied the local Chamber of Commerce to remain netural on Proposition 165. In July, still in the midst of the budget effort, Fair Shre's limited funding ran out. Many of its formal operations ceased, but participants continued their local pressure on the budget and in the fall shifted their efforts to the campaign against Proposition 165. Lessons Hindsight offers some useful lessons for Fair Share and others interested in mobilizing public pressure on budget issues. Strategy: Even if Fair Share had moved everyone on its target list of legislators, it would still not have reached the Republicans needed to win the 2/3 vote for new taxes. Campaign leaders said they were relying on the Democratic leadership to get those votes. As with advocacy at the Capital, organizers continued to struggle with the tension between short-term and long-term strategy. Tactics: Organizers are also struggling to find tactics that can apply pressure at the Capitol and motivate participation at the grassroots level. As one activist noted, "We're not going to organize people by inviting them to a meeting." In 1992 it became clear that traditional communication with legislators was losing its power. "We just turned off our fax machine," said Joe Caves of Senator Hart's office. Outreach: In its efforts to develop a grassroots continuency for welfare programs, Fair Share tapped into a critical reservoir of new advocacy talent--direct service workers who witnessed the impact of cuts first hand. However, social workers and otehrs on the front line were already overburdened, precisely because of the cuts. One social work student told of how she and her classmates persuaded their professors to incorporate the students' anti- Proposition 165 work into the semester's curricula. This merging of advocacy into the other demands on people's time is a model for organizers to replicate. The Road From Here: Emerging Long-Term Strategies Even the most optimistic scenarios for the new budget, with agreement on some new taxes and rollover, still leave the state with a shortfall of $5 to $6 billion. That gap will need to be made up in cuts in programs. Legislative insiders are urging advocates to "face reality" and offer guidance on how to set priorities. "Everyone's first answer is 'not me,'" says Assemglyman Phil Isenberg. With almost all programs under attaack, advocatees' first impulse is to shift to a full scale defense. Nevertheless, the cuts are coming, at least in the short-term. "The advocates who will be influential will be the ones that can provide us with real solutions," said Joe Caves of Senator Hart's office. More partisan players argue that the only real way to alter state buget and revenue politics is through unseating Pete Wilson and passing of a constitutional amendment allowing the state budget to be approved by a simple majority. The formula for this attack, proponents argue, is to continue to isolate the governor on educatin and other popular spending issues and to lay the blame on Wilson for the state's faltering economy. That strategy also means an effort to capture the mantle of "economic prosperity" for the Democrats. Critics charge, however, that the Democratic economic development plan doesn't look significantly different from Wilson's agenda for new corporate tax breaks and regulatory concessions. The major Democratic document calls California business "our customer, whose satisfaction is our business." Other advocates point to a different strategy--that if a 2/3 or public vote for new taxes is going to be won, supporters must pursue a combination of outreach to the business community and program reform. Peter Schilla of the WEstern Center on Law and Poverty points to Proposition 111 in 1986, when business, labor and others joined to win a relaxation of the state spending limit. In that case, business watned a gasoline tax increase to finance transportation projects. Schillla says there are otehr issues that can be used now to enlist business support for new revenes. "There are some loopholes less important to them than an educated workfore." "Nobody is going to support new revenues without reform," said Peter Schaafsma of the Legislative Analyst's office. However, the reform impulse is driven by more than just a desire for public support. Many key supporters of public programs also believe that it is time to take a fresh look at how these services are really working. "With the way programs are now it is a miracle that people do get off welfare," noted Sandy Weiner, a Fair Share organizer who has worked for many years helping families recieving public assistance. Other advocates note that reform can also be used to strengthen the political constituency for programs. The point out that when MediCal spending comes under attack recipients have critical allies in both the hospitals and the doctors who serve Medi-Cal patients. However, when AFDC is under attack, beneficiaries are politically alone. Program restructuring could secure the interest of the state holders in welfare and other programs by incorporating landlords and otehrs into the structure of how assistance is provided (such as through rent subsidies). Neither bridge building nor reform is without politicial risk. Advocates need to develop their own political strength before entering into any negotiation with business. Many also fear that public honesty about program effectiveness might be used by opponents to undercut programs instead of improving them. Nevertheless, the traditioal constituency for public services can't win the tax battle alone. Says Tim Gage of the Ways and Means Committee, "None of the old strategies are going to work." Unity--Tensions in the Way "Is there a strategy that would allow everybody to come out better?" asked nurses lobbyist Beth Capwell. There can be a unified progressive strategy on taxes and spending cuts. Along the way, however, policy-makers and constituency leaders will need to deal with some specific tension points. 1) Tension Between Policy Areas In the face of deep spending cuts, it is not surprising that the first impulse of each program and policy area has been to protect its own slice of the pie. Programs find themselves stuck in a "zero sum" competition pitting them against one another. Now state red ink is engulfing even the strongest constituencies. Long-term protection is possible only with a unified strategy to increase state and local revenues. It is also true that boundaries between areas of state spending evaporate once programs touch the lives of individual Clifornians. Welfre rights advocate Beth STeckler notes, "The way I look at it is that it's the people, not the progams. The same people who get welfare send their kids to public schools, go to community colleges and state universities and drive on county roads." 2) Tension Between "Insiders" and "Outsiders" There is also a tension between legislative "insiders" and "outsiders." In the eyes of progressive legislators and staff, activists don't have a clue what it means to beat the actual responsibility of passing a balanced budget in the face of the GOP blockade on taxes. Conversely, in the eyes of activsts, legislators and their aides are obsessed with their own political suvival and are oblivious to the pain being endured by people forced to sleep on the street. Even between advocates and community organizers there is a tension, between "people who work on the phone" and "people who work on the street." Yet, the insiders and the outsiders need one another if there is to be any movement forward on a new revenues agenda. Outsiders need insider guidance about the political forces controlling the tax issue. Insiders need the outsiders to help mobilize public education and pressure. "I don't know how to create the shift in public opinion, that's not my job," said CNA lobbyist Beth Capell. 3) Tension Between Providers and Recipients Historically, the strongest and most politically potent advocates for new renveues have been the major public employee unions. Unlike other advocates concerned with budget cuts and new reveneues, the unions come armed with a political war chest. This makes them players both in terms of legislative politics and ballot politics. On revenue questions, public employee unios and human service advocates are strong allies, both having an interest in improving the state's cash flow. "The easiest thing that unifies us real fast is taxes," says the CSEA's Steve Smith. However, that alliance is more difficult on the spending side. "We have a narrowly defined self-interest," says Smith. The unions are interested in more public services, which means more jobs for union members and a common agenda with service advocates. The other public employee priority is steady salary increases. In tight budget years, that could create a direct conflict with other progressive agendas, like AFDC payments. In 1992 that conflict was avoided, because state employees negotiated the salary issue outside the budget process at the bargaining table. The provider/recipient connection also faces tension over the issue of reform. Education advocate Peter Birdsall observes, "It's easy to move to the first priority--population growth plus an inflation adjustment." Assembly Phil Isenberg says that almost every policy constituency uses the same formula nad warms that it puts innovation at a very low priority. Says Isenberg, "It's a formula that is 97% for the status quo." Reform, says Birdsall, is much more difficult. Another source noted that unio members tend to look at the issue of reform this way," Under the current system I have a job, with reform I may not." The challenge will be for employee and recipient groups to stay together on revenues without coming apart over spending priorities and reform. 4) Tension Between Long-term and Short-term Goals Social and human service advocates need two agendas on the budget. One is a short-term agenda that directly addresses what is achievable in the current budget year. The other is a long- term agenda that seeks to change those short-term realities and open up new possibilities for revenue and program support. Advocates can't afford to ignore either the reality of cuts, nor the long-term need to change the political equation. Conclusion The challenge, when faced with a crisis as complicated and politically charged as the state's fiscal disaster, is to be able to see the forest for the trees. This report has sought to give its readers a glimpse of that forest. A friend of mine asked if it was depressing to put together a study about California's fiscal nightmare. I told her no, that actually the project had given me great hope. it is almost always true that in the midst of crisis we are able to catch a glimpse of opportunity. There is an extraordinary opportunity here, to build a new vision of what government should be and to rebuild a California in which economic prosperity and social justice are tended together. From Jim Shultz, "State of Deadlock: A Case Study of the California Budget War" (Advocacy Institute West: 1992).