Federal Receivership of California Is Already Here, In Slow Motion

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

The harder I look for a way out of California’s current predicament, the more paths I see that seem to end at the same destination: federal receivership.

Slowly but surely, we’re already getting there. The federal courts have been in control of our prison system (or at least have the legal authority—control is elusive in a world that includes the California Correctional Peace Officers Assn.) for years. And on Monday, in this story, the Los Angeles Times reports that as many as six state parks that include U.S. lands could revert to federal control as a consequence of the governor’s plan to close them.

State parks spokesman Roy Stearns is quoted as saying: "It’s important to note that nobody is proposing to close these parks permanently. This is a temporary suspension until budget times are better. We have no intention of giving them away or selling them. There’s an interest in finding a way to preserve and protect them. It could be temporary federal control. We would hope they can come back to state parks. We are all wondering what’s next." (italics mine).

“Temporary federal control” is receivership, and there’s a good case for it. As we’re now seeing, California’s elected leaders – for reasons I would argue are more systemic than personal – simply can’t agree on a budget plan that would resolve the state’s fiscal crisis. In the weeks ahead, we’re likely to see one of two outcomes. 1. Gridlock and continued cash crisis. 2. A state budget agreement that includes some reforms the governor wants but doesn’t actually resolve the estimated $26 billion budget shortfall. (There will be gimmicks). Legislators may be balking now, but they’ll find long-term reforms in things like pensions more palatable than cuts. The political calculus? That there will be time later, perhaps under a new Democratic governor, to undo such changes.

In either case, with the economy still in trouble, the crisis will continue. The only real solution is federal intervention. This should include short-term assistance (loan guarantees, some additional support on federally funded programs in social services) with serious strings attached. The model ought to be the federal intervention of New York in the 1970s. Those strings should include adoption of a budget plan that brings the state to balance by the end of Schwarzenegger’s term (no kicking the problem to the next governor) by imposing serious financial penalties if budget targets aren’t hit.

State’s finances should be overseen by a control board. I’d suggest Janet Yellen, president of the Federal Reserve Bank of San Francisco (who served as chair of the Council of Economic Advisors in Clinton’s second term), would be the perfect person to head such a board.

State elected officials would be certain to object to such an arrangement. But that’s exactly why receivership needs to be on the table. First, the very threat of losing power may force more responsible budgeting. And second, state leaders should be reminded that they’ve already taken us into federal receivership, in slow motion, in prisons and perhaps now in parks.

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