By Chris Reed

In covering California’s endless budget woes, the media are always quick to trot out tired clichés about the Golden State’s being ungovernable because its clueless residents want costly programs but balk at paying the taxes needed to cover them. Over the past month, writers for the New York Times have weighed in five times with veiled or direct condemnations of California’s constitutional requirement that tax increases be approved by two-thirds of state legislators. In a May 25 column, Paul Krugman endorsed this conventional wisdom and added a pot shot at the landmark 1978 California ballot initiative that capped the rate at which property taxes could increase: “The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state’s budget in a straitjacket.”

The major network-news shows have offered a similarly simplistic framing. On June 2, ABC News reporter Laura Marquez said that the Golden State’s schools and social services were in dire straits because of laws that make raising taxes a “virtual impossibility.” This was in keeping with ABC’s party line, spelled out on the May 24 edition of This Week with George Stephanopoulos. The host — to the earnest agreement ofWashington Post columnist E. J. Dionne — said that more federal help for California should come with conditions. Just as the federal government attached strings to its aid for New York City in 1975, said Stephanopoulos, Washington should force California to abandon its two-thirds rule on tax hikes and to “do away with Proposition 13.”

Despite its superficial appeal, this narrative is unconvincing. For instance, the claim that California voters balk at paying for what they want is easily refuted. There is no evidence that the public wanted the state and public-schools work force to explode by 24 percent — from 719,000 to 895,000 — between 1997 and 2007. There is no evidence that the public wanted never-ending pay and benefit increases for these public employees, in particular an obscene 37 percent raise given to prison guards. There is no evidence of public support for a 1999 law that allows many of these workers to retire in their 50s with pensions of up to 90 percent of their last annual salary.

Meanwhile, the argument that the two-thirds requirement to raise taxes has subverted sound governance implies that this obstacle has kept taxes unrealistically low. Hardly. California has the nation’s highest sales and gasoline taxes, the first- or second-highest income tax (depending on how it’s measured), and the highest business taxes in the West.

The claim that Proposition 13 crippled California’s revenue stream also doesn’t hold up. Because assessments can be raised to current values when property changes hands, property-tax revenue went from $6.4 billion in 1980–81 to $43 billion in 2006–07. That’s a nearly 600 percent increase, which is far higher than the combined rate of population growth and inflation over the same period. In fact, property-tax revenue went up at a slightly higher rate than overall state revenue. Krugman’s assertion that Proposition 13 amounts to a budgetary “straitjacket” is further undercut by the latest Tax Foundation data, which rank California 19th (out of all 50 states) in property taxes as a percentage of total state taxes.

Given this backdrop, it’s simply daffy to blame California’s budget process, its voters, or Proposition 13 for the state’s inability to live within its means. Blame the majority Democrats in the state legislature who have done unions’ bidding for the past decade — spiking public employees’ pay and benefits, expanding government programs to offer ever more taxpayer-subsidized services, using borrowing and other gimmicks when revenue was weak and spending every last dime when it was strong, and constantly adding new burdens to business that hurt tax collections and drove employers (and jobs) elsewhere.

Once merely a powerful special interest, these public-sector unions now have a chokehold on the state. Here’s how extreme it is: For years, two of California Democrats’ top priorities have been enrolling more poor children in state health programs and encouraging individual homeowners and businesses to install solar panels to generate their own power. But at the behest of unions, Democratic legislative leaders killed a measure to allow parents to enroll their kids online because it might have led to layoffs of clerks at county social-services offices. They also killed a bill touted by Gov. Arnold Schwarzenegger to create incentives for solar-panel installation because it didn’t mandate the use of union labor.

Such immense union power is the central reality of California politics. That is why Schwarzenegger spent his first two years as governor trying to rein it in. Unfortunately, he gave up in late 2005 after his reform initiatives were defeated in a special election. Since then, he has focused on becoming a Teutonic Green Giant on climate-change issues.

The next time the usual suspects spout the usual clichés about why the Golden State is ungovernable, turn down the sound or turn the page. When it comes to California, the Stephanopouluses and Krugmans of the world don’t know what they’re talking about.

Oppose the criminal enterprise of organized labor unions.

In a Chapter 11 bankruptcy filing, bondholders stand first in line to receive payment on the debt they are owed. This is not because they are greedy, or uncaring, or more deserving, or possessed of more compelling personal histories than other stakeholders. It is because the primacy of their claim was explicit in the terms by which they agreed to lend the money they are now owed. It is a matter of contract law. Civilized, free societies respect contracts. Civilized, free societies respect the rule of law. By this simple, irreducible definition, the United States, under the rule of Barack Obama and his “Democratic” Party, has ceased to be a civilized, free society. Under pressure from the Obama Treasury Department, federal courts negated the legal rights of bondholders and shareholders by illegitimately applying a segment of the Chapter 11 code known as section 363.

To be clear, used as intended by its authors, section 363 is a perfectly honorable legal option for firms in bankruptcy, and is sometimes crucial in protecting the rights of stakeholders. It allows managers to negotiate in good faith with other firms interested in acquiring some or all of the bankrupt firm’s assets, and can produce outcomes more favorable than those obtainable through open auction liquidation. The terms of any such agreement must be approved by the presiding judge in the bankruptcy proceeding. Under section 363, the judge’s sole legitimate responsibility in approving the transaction is to ensure that the bankrupt firm’s stakeholders would be better served by the sale of the assets in question than they would be by liquidation of those assets and dissolution of the firm. By “stakeholders”, we are referring to bondholders and shareholders, in that order.

It seems sad to have to stop here and offer a civics lesson on corporate bankruptcy, but since recent studies have shown the average American unable to place even a major historical event, such as the Civil War, within the right century, let us invest a few words. The only stakeholders who have a legitimate legal interest in the outcome of a corporate bankruptcy are the creditors, the bondholders and the shareholders (i.e. the people to whom the company owes money, and the people who will own whatever is left over after all of those debts are paid). Under the system of capital finance and corporate governance that has served the United States well for over 200 years, there are no other organizations or individuals who can claim consideration in this process. Not the customers who purchase the company’s products or services; not the employees who look to the company for future compensation; not the unions who rely on the dues from those employees to purchase political power and influence; and not the politicians whose own personal status and wealth is built on such union largesse. U.S. bankruptcy laws adhere to the same basic premise that animates and sustains all modern liberal democracies: the premise that individuals who voluntarily place their personal property at risk in the furtherance of a commercial enterprise, have a right to expect their claims to supersede all others, should that enterprise fail. This is not arcane legal minutia, but a bedrock moral principle, recognized and supported by federal law. Consider the following passage from the SEC’s own web site:

How Does Chapter 11 Work?

The U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt. The plan must be accepted by the creditors, bondholders, and stockholders, and confirmed by the court. However, even if creditors or stockholders vote to reject the plan, the court can disregard the vote and still confirm the plan if it finds that the plan treats creditors and stockholders fairly. Once the plan is confirmed, another more detailed report must be filed with the SEC on Form 8-K. This report must contain a summary of the plan, but sometimes a copy of the complete plan is attached.

Pay special attention to the following phrase in the above excerpt “The court can disregard the vote [of the creditors, bondholders, and stockholders] and still confirm the plan if it finds that the plan treats creditors and stockholders fairly.” So how well was that principle applied in the section 363 sale of Chrysler Motors to Italian auto manufacturer Fiat? The Chrysler sale to Fiat was approved, over the objection of bondholders, after the President of the United States openly berated those bondholders as greedy “speculators”, who were “refusing to sacrifice like everyone else”. Not content to publicly attack these fund managers for fulfilling an ethical obligation to defend their investors’ property, the Obama White House privately assured them that any further resistance to the administration’s wishes would invite an all out propaganda assault from the White House press office, intent on destroying their public reputations and crippling their professional credibility. Had this threat originated from any other source, “main stream” media personalities would have clamored for an FBI blackmail investigation (given the prima facie criminality of the threats). Since they emanated from the Obama White House, they were not considered particularly newsworthy.

And just exactly who are these greedy speculators, who refuse to share the sacrifice our president insists we all experience in equal measure? According to the the Governor, Treasurer and legislators from the State of Indiana, they are retired police officers, school teachers and their families. These retirees, and the honest fund managers who invested responsibly on their behalf, placed their trust in a very simple idea. They trusted that any man or woman elected to be President of the United States – who ascended to that office by swearing an oath to support and defend the Constitution of the United States – would fulfill that oath by actively supporting, rather than subverting, laws written to protect their constitutionally affirmed rights to life and property. They trusted that, should they find themselves challenged by forces and circumstances beyond their control, their ability to assert their own legal rights would be bolstered and championed by judicial and executive servants of the people, still committed to the ageless American principle of equal protection under the law. Instead, they found themselves subject to a new and radically different judicial and political philosophy – the philosophy of empathetic justice. Sadly for these retirees and their families, despite the validity of their legal claims, their own personal stories just weren’t compelling enough to win the hearts and minds of those who have determined their fate. Forgive these families for finding no consolation in the fact that they did not lose a legal argument on its merits – that they were simply voted off the island. Still, we must all acquaint ourselves with this reality TV philosophy of justice, since adherence to its tenets has become the new litmus test for Supreme Court nominees.

So if these families from Indiana, and millions more like them in communities all over America, were tested and found unworthy of the empathy with which the Obama Justice Department swept aside the legal principle of equal protection, who was the target of all this newfound judicial affection? The answer is nauseatingly simple. One almost hates to have to say it out loud, because the analysis is not a complex exercise.

• A pre-bankruptcy equity stake in Chrysler is essentially worthless today, so we can put to rest the question of what shareholders get – the answer is nothing.
• Under threats and intimidation from Obama’s Treasury Department, most bondholders accepted $0.29 for every dollar they were owed – not exactly a winning proposition for retirees on fixed incomes.
• Contrary to these financially catastrophic outcomes for the only two groups with legitimate claims against Chrysler assets, the United Auto Workers union will be handed a controlling 55% equity stake in the newly restructured company. Why?

At the risk of reaching a cynical conclusion, consider the following facts submitted by the Washington Examiner:

UAW’s political action committee spent $13.1 million last election cycle, a slow year for the union’s political arm. Of the PAC’s $2.3 million in direct contributions to candidates and candidate PACs, more than 99 percent went to Democrats. Of 42 Senate candidates to get UAW money, only one was Republican, and that was Arlen Specter.

The union’s PAC also reported $4.5 million in independent expenditures supporting Obama, plus an additional $423,000 opposing John McCain.

The truth the Democrats and their lapdogs in the media refuse to trumpet is that the United Auto Workers, their political puppets in the Democratic Party and decades of politically timid corporate managers actively destroyed the American automobile industry and squandered the personal retirement assets of millions of Americans in the process. The only sensible response a consumer can offer to such monumentally pathological conduct is to boycott union made automobiles. Honda, Toyota and Nissan all employ American workers to produce better products than Ford, Chrysler or General Motors. They do this not in spite of their refusal to bend over for labor unions, but because of it. Labor unions in America have systematically destroyed the quality and competitiveness of American industries, service organizations and educational institutions. Continuing to support these criminally irresponsible labor gangs is not patriotic. It is idiotic.

Libertarians rightly believe that each consumer should make purchase decisions primarily on the price, quality and perceived net benefits of the product or service in question. In a perfectly free society, governed by justly enforced laws, designed and implemented to secure the rights and responsibilities of free labor and free capital (i.e. a society of the kind the framers of our Constitution envisioned), this sort of contextually agnostic consumerism would not only be practical, it would comprise the most moral form of commerce. Sadly, we do not live in such a society. While we each may wish to act with enlightened self-interest in the commercial sphere, rarely scrutinizing the provenance of the products or services we buy, few of us would knowingly use our economic freedoms to secure the product of slave labor or the proceeds of theft. For better or worse, we each find ourselves examining the purchases we make from both economic and moral perspectives.

From this point forward, an American who purchases an automobile manufactured under a UAW contract is materially supporting that organization in its theft of billions of dollars rightfully belonging to their fellow citizens. Anyone who traffics in the purchase and sale of stolen goods actively, knowingly and morally participates in the theft itself. This message is not intended to appeal to those Americans who cannot correctly identify the century in which the Civil War was waged. Nor is there any hope that it will resonate with those whose conception of political enlightenment involves a tingly feeling in the extremities. But in this vast sea of expanding idiocracy, there remains hope that some Americans still possess both an active mind and a moral compass. The federal government will spend millions of taxpayer dollars to convince American car buyers that purchasing a union-made automobile is both prudent and patriotic. Given the likelihood that these products will benefit from tax incentives, regulatory imbalances and incessant propaganda, all designed to tilt the playing field in their favor, many Americans will convince themselves to move with the herd, give in to short-term self-interest and soothe their troubled consciences with the balm of Big Brother’s absolution. But for those in whom a free mind and an honest soul remain, the path could not be more clear…

…Save America’s future! Boycott America’s labor unions.

In last month’s low-turnout special election, California voters decisively rejected most of a package of ballot referendums that would have helped ease—but not solve—the Golden State’s $21 billion budget deficit. Voters approved just one of the ballot measures: a pay freeze for legislators. Californians had reason to be cynical about the Sacramento-sponsored ballot measures, which came just three months after the state legislature passed a $40 billion budget compromise of spending cuts and tax hikes. Given the unsustainable nature of California’s spending—combined with dramatically reduced tax revenue in a recession—the legislature is now being forced to reduce spending even further.

California’s problems stem from a dysfunctional, Democratic-dominated state legislature that has increased spending steadily while lacking the two-thirds majority necessary to pass commensurate tax increases. But California voters themselves also bear responsibility for the spending. Over the years, they have voted themselves billions of dollars in unfunded state mandates. Over the past several decades, these have ranged from conservative measures that boosted the prison population to liberal requirements that the state spend 40 percent of its general fund on public education. Other ill-considered giveaways—from sweetheart union deals for corrections officers to more money for public health care—have totaled $10.2 billion in spending over the rate of inflation during the past five years. Some have taken to calling California “ungovernable,” a characterization that will resonate with New Yorkers of a certain age.

A fresh round of spending cuts will be necessary, but not sufficient. The Golden State will spend $27 billion in state and local retiree healthcare costs in one decade’s time. Half the state’s personal income-tax receipts come from its top 1 percent of resident earners, some of whom have begun an exodus to Arizona, Nevada, or Colorado. California’s bond rating is the nation’s worst, severely restricting its ability to borrow. Unfortunately, state’s powerful unions will make long-term belt-tightening unlikely, if not impossible, without dramatic political reforms.

A key reform concerns the state legislature’s structure. Self-serving district gerrymandering has made most seats in the legislature “safe,” thereby ensuring that both parties’ most extreme members are elected in partisan primaries without the moderating influence of competitive general elections. Far-left Democrats from Berkeley, philosophically opposed to any spending cuts, are paired with far-right Republicans from Orange County, philosophically opposed to any tax increases. This becomes a recipe for legislative gridlock, as seen in diametrically opposed votes on taxation and budgets. Fiscal responsibility becomes a casualty of party politics.

In 2008, however, citizens passed a redistricting-reform ballot initiative, which will go into effect after the 2010 census. This measure will help ensure a more representative legislature, giving rise to more pragmatic elected officials from both parties who might be able to rein in spending and pursue balanced budgets.

Still, the immediate future isn’t promising. Much of the next round of spending cuts will come from what citizens rightly recognize as the essential role of government: roads, firefighters, police, and prisons. Meanwhile, entitlements and unfunded mandates, officially classified as “non-discretionary spending,” will prove legally more difficult to curtail without something like a constitutional convention, calls for which are gaining momentum.

California is a cautionary tale for other states that have declined to make hard choices. Federal stimulus spending offers states and localities a brief respite, but it will only delay the inevitable need for fiscal discipline. States face $2.73 trillion in pension, health, and other liabilities for public-sector workers over the next 30 years. Continuing the unsustainable status quo of spending, borrowing, and taxing will only guarantee future budget crises, escalating debt, and generational theft.

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Big Labor’s top legislative priority, “card check,” might be stalled in the Senate, but that doesn’t mean the unions are rolling over. While talk of compromise is in the air, we hope business leaders and Senators stay alert.

To wit, the problem with the Employee Free Choice Act isn’t merely the provision that would allow unions to organize a work site after collecting the signatures of a majority of workers. This has gathered most of the publicity because it would make it easier for unions to intimidate workers to endorse the union without a secret ballot. Equally as damaging, however, is a separate provision known as “binding arbitration.” The more accurate term would be federal wage setting.

Under current labor law, unions and employers are obliged to bargain in good faith over labor contracts, a process that is often contentious but usually works. Employers have an incentive to offer fair terms, or risk a strike. Union officials have an incentive to keep their demands within reason, lest management conclude a strike is preferable and workers lose their livelihoods.

Binding arbitration under card check would turn these incentives upside down. The bill says that if management and a newly created union can’t agree to a first contract within 90 days, either side can demand that the dispute go a federal arbitrator, who would have the power to impose a contract on both sides. Knowing that contracts are destined for arbitration, both sides would have every incentive to make maximum demands. Unions in particular will be inclined to ask for the moon, knowing they will do well even if an arbitrator merely splits the difference.

At least when the Detroit auto makers signed too-rich contracts, they did it of their free will. Under binding arbitration, the process would land with the Federal Mediation and Conciliation Service, an agency whose director is appointed by the President. This would typically mean the appointment of a government arbitrator, who naturally would be subject to political, er, incentives. This would put a government employee, with no real stake in a company’s future, in charge of divining the perfect wage and work rules for that company.

“It may not be blatant, it may not be overt . . . but the political outlook of that arbitrator will matter. And that someone will be empowered by the government,” says Paul Kersey, director of labor policy as the Mackinac Center for Public Policy. What the bill doesn’t explain is what happens when the government imposes a contract that a company can’t afford. Ask for a bailout?

Binding arbitration has its uses in dispute resolution, though it’s best suited to resolve arguments over existing contracts — that is, in tort law. Its track record in labor negotiations is less impressive. Michigan has used binding arbitration for 40 years with police officers and firefighters, and by statute a Michigan arbitration case should finish in under two months. In reality, fewer than one out of four cases are resolved within 300 days. Local governments must delay decisions, as they wait to see if they will be hit with huge back-pay awards.

The binding arbitration rule would also strip workers of valuable rights. They would no longer be able to vote on a contract that their unions negotiated with management and submitted back for rank-and-file approval. This will make union leaders less accountable.

Arbitration would also make the difficult job of getting rid of a union harder. Federal law limits the time periods when workers can petition to decertify a union. For new unions, workers can petition if the union has gone a year without securing a contract. Under arbitration, workers could only boot their union at the end of the government-imposed contract. So the bill also provides a form of job protection — for unions, not workers.

The Senate’s newest Democrat, Arlen Specter, has stated his opposition to ditching the secret ballot, but is now said to be working on a “compromise” with Iowa’s Tom Harkin to “reform” labor laws. Some Democrats have stepped back from the “secret ballot” provision, but think they might be able to get away with new arbitration rules. They should understand that both are unacceptable job killers.

At the end of his Rose Garden explanation Tuesday of the new U.S. fuel-efficiency standards, President Obama remarked on the good that can be accomplished when we are “working together.” The President may be getting ahead of himself. Watching the unlikely coalition arrayed behind him as Mr. Obama committed the U.S. to an astonishing passenger-car mileage average of 39 miles per gallon by 2016, it looks truer to say we are merely standing together in this adventure, for better or worse.

Mr. Obama’s fleet-mileage partners Tuesday included the two auto companies that have fallen into his arms, Chrysler and GM, still-independent Ford, the major foreign manufacturers, United Auto Workers chief Ron Gettelfinger, and beaming representatives from the Sierra Club, Environmental Defense Fund and the Union of Concerned Scientists.

All that’s left to arrive at the President’s new destination for the American way of driving are huge, unanswered questions about technology, financing and the marketability of cars that will be small and expensive.

Start with technology. The President’s proposed standards would raise fuel economy goals higher and faster than even the National Highway Transportation Safety Administration believes is practical. Last year, NHTSA issued a proposed rule making that would have raised fuel economy to 32.2 mpg by 2015 for cars and light trucks combined. Its 376-page report notes that “the resources used to meet overly stringent CAFE standards . . . would better be allocated to other uses such as technology research and development, or improvements in vehicle safety.”

The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?

Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM’s Bob Lutz put it not long ago, “Very few people will want to change what has been their ‘nationality given’ right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers.”

All solutions to this problem flow from Washington. One would be to give substantial tax subsidies to buyers. Another would be to impose a federal gas tax to jack up the price of gasoline to $4 per gallon and keep it there. This is the solution that keeps Europeans driving small cars with tiny engines. High gasoline prices have become a political third rail in U.S. politics, and the Obama Administration insists it isn’t interested in subsidies or taxes.

That puts the burden back on the beleaguered auto makers. The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit.

Mr. Obama said a lot Tuesday about the promised benefits of all this for the environment but not much about return on investment for the auto sellers. These public goals notwithstanding, it still looks as if Ford, Chrysler and GM will be making cars they can’t sell, or can’t sell profitably. That might not be a problem if you’re now Gettelfinger Motors. But still-independent Ford has private shareholders and creditors to answer. While GM and Chrysler attempt to meet the new standards with taxpayer money, Ford will have to do so on its own.

The real carrot the Administration offered the industry Tuesday was a detour from the nightmare of state-mandated standards. California has been seeking a waiver from the Administration to impose its own higher mileage standards, and a number of other states have followed suit. The Obama national proposal indeed offers the industry what he called “consistency.”

So yes, it is possible to see why this disparate group came together Tuesday. The UAW may soon be the government’s partner in ownership of GM and Chrysler, and it has a strong incentive not to bite the hand feeding it a huge equity stake in the car makers. Ford and the other foreign-owned auto makers, which will have to raise private capital to make changes that U.S. taxpayers will fund at Chrysler and GM, no doubt want to maintain their political viability by not standing athwart this regulatory steamroller.

We wish these folks luck “working together” with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don’t want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy. Even the French must think we’re nuts.

Californians head to the polls Tuesday to decide the fate of six ballot initiatives, all of which are ostensibly designed to combat the Golden State’s budget crisis. If the polls are right, all but one of these measures will crash and burn — and by wide margins. A reckoning for liberal tax and spend governance may finally be arriving.

AP

We have some sympathy for Governor Arnold Schwarzenegger, who was elected to fix this mess six years ago. His original mistake was to accept a token bipartisan fix when he was most popular, and once the unions crushed his reform initiatives in 2005 he had little leverage over the Democrats who run the legislature. So he’s now decided to settle for the lowest common denominator reform that both parties can agree to, which isn’t nearly enough considering the magnitude of the state’s fiscal and economic problems.

By far the most consequential initiative is Proposition 1A, which is favored by most of the Sacramento political class. Prop 1A creates a rainy day fund of up to 12.5% of the budget and imposes a new annual spending cap. It would divert 3% of revenues during economic boom years into the rainy day fund that can only be spent during recessions. Mr. Schwarzenegger is correct that this is a sensible reform, because for 40 years the state has endured revenue booms and busts.

Alas, the cap is far weaker than the Gann Amendment that passed with 74% of the vote in 1979, as the sister initiative to Proposition 13, and helped usher in a decade of budget surpluses. The Gann Amendment — until public unions neutered it in the early 1990s — imposed a ceiling on spending at the level of population growth plus inflation; when revenues exceeded that limit, the money was returned to taxpayers.

By contrast, Prop 1A allows revenues and thus spending to grow each year at the average rate of growth of tax receipts over the previous decade, or at the rate of population growth plus inflation, whichever is greater. Revenues above that amount are pushed into the reserve fund to be spent at a later date. This gives incentives to legislators to raise taxes whenever possible, because the spending cap rises along with revenues. Prop 1A also allows the legislature to raid the rainy day fund to pay for “capital outlay purposes” — roads, bridges, schools and even pork projects.

Even to get this minimal spending cap, voters must also approve a two-year $16 billion extension of this year’s tax hikes. The 0.25% income-tax surcharge (to 10.55%) and the near doubling of the car tax would be extended through 2013, and the one percentage point sales tax hike (to 9%) would be extended through 2012.

Even worse is Prop 1B, which would divert $9.3 billion from the rainy day fund to the education spenders in Sacramento and thus exempt half the general fund budget from any belt tightening. This would refortify the teachers unions, which have spent $2.7 million to pass the measure and are the very group most responsible for California’s fiscal mess. Teacher pay and benefits are already 35% above the national average.

Then there are the gimmick Propositions 1C, 1D and 1E, which would raid trust funds and use any surpluses to pay current general fund bills. The preposterous 1C would raise $5 billion today by securitizing future lottery revenues. That would add more than $350 million of new debt payments annually for at least the next 20 years. What’s next, selling the silverware in the Governor’s mansion?

Given all of this trickery, it is no wonder polls show Props 1A-E are likely to lose. The only initiative ahead in the polls, Prop 1F, would block pay raises for lawmakers if they fail to balance the budget. One recent poll found that 72% of Californians agreed that “if the measures on the special election ballot are defeated, it would send a message to the governor and the legislature that voters are tired of more government spending and higher taxes.”

That’s a good message to send. California politicians have operated for years as if the purpose of government is not to provide reliable public services at low cost, but to feed public employee unions. Sacramento also needs to rethink its highly progressive antigrowth tax code, where the tax rates are the highest outside of New York City. The Golden State now ranks worst or second worst on most ratings of state business climate. This drives away entrepreneurs and high-income taxpayers, which in turn leads to lower revenues.

If the voters do reject these false fixes, there will be wails of despair in Sacramento. Assembly Speaker Karen Bass, who never saw a spending or tax increase she didn’t like, says “California, frankly, is going to be in a world of hurt.” Mr. Schwarzenegger says he will be forced to release 30,000 criminals from jail, and to lay off teachers, troopers and firefighters. Look for the state to ask Washington for another bailout “stimulus.”

But voter rejection may be precisely the jolt of reality that California needs to inspire real reform. Start with a new Gann Amendment to cap total spending, and add a flat-rate income and sales tax of 5% or 6%, which is roughly the national average and will stop driving business from the state. A flat tax would help to stabilize revenues over time, avoiding boom and bust. Drilling for oil offshore would also bring in billions of dollars of revenues.

This kind of reform will only come from Golden State voters who aren’t yet on the public dole or the public payrolls. Howard Jarvis led such a charge 30 years ago. It needs to happen again for California to break out of its tax and spend death spiral.