California Journal

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Economic Growth — Fri, 22 Jun 2007 13:21:00 -0400

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Building Assets: What Should California Do Now?

Cecille Isidro — Sun, 02 Jan 2005 00:00:00 -0500

Even in this era of dwindling public resources, California can take significant steps to encourage its residents to save and invest in themselves. The following are a sampling of cost-effective, asset-building policies. Most are from other states, which are ahead of California in this emerging policy area. These recommendations would bolster the economic security of the state and its 35 million residents.

Create a system of voluntary retirement accounts for businesses and individuals. Only 39 percent of California workers participate in an employment-sponsored retirement plan. Social Security payments alone -- which average $901 per month in California -- will not sustain individuals in their retirement. Many companies do not offer retirement plans because they are too complex and costly. To help companies overcome these barriers, a group of Republican and Democratic Washington state legislators propose to offer Voluntary Retirement Accounts, state-sponsored, universal, 401(k)-style retirement accounts that workers can take job to job. If a company chooses, it could opt into a system that will be administered by the state's retirement system. The Washington group estimates its start-up costs would be $5 to $10 million but the program would eventually be self-sustaining. For relatively small start-up costs, California could create a similar system of accounts that would help millions of Californians save for their futures. Over 80 percent of Washington residents support the Voluntary Retirement Account idea.
Launch a campaign to encourage all eligible Californians to claim the Earned Income Tax Credit (EITC). The EITC is a federal tax benefit to reward work for Americans earning less than $33,500. Last year, 2.4 million Californians received $4.2 billion in tax credits. The IRS estimates that more than 750,000 Californians who are eligible for the benefit neglected to claim $1.3 billion in EITC refunds last tax season. This money, left in Washington, D.C., instead could be used by Californians to buy homes, go back to school, or spend as consumers. The number of Californians dependent on public services would also be reduced. Other states have launched effective EITC awareness campaigns to bring more of these dollars into their states. In 1999, Washington state spent $316,000 on an EITC awareness campaign that spurred 3,667 additional households to apply for the credit. California should do the same.
Build the financial literacy of all Californians. Every Californian needs the knowledge and skills to navigate the changing financial services industry to make good choices for themselves and their families. Banks, schools, churches and community groups throughout California conduct ad-hoc financial literacy programs. These disparate efforts should be catalogued, coordinated and strengthened. Financial literacy skills should be integrated into the kindergarten through 12th-grade curriculum. The No Child Left Behind Act calls for innovation in this area, but it has not been funded. Welfare recipients should be able to enroll in financial literacy classes that count toward their work requirements, as they can in Illinois. The state's caseworkers should also be trained to build the financial literacy of their clients, as they do in Illinois. Lastly, a tax incentive could be given to employers to provide financial literacy training to their employees.
Bring all Californians into the mainstream financial system. At least 10 million U.S. families -- most of them earning less than $25,000 per year -- are "unbanked," meaning they lack checking or savings accounts. Twenty-eight percent of Californians lack a basic transactional account. Without these basic accounts, too many Californians lack the first tool they need to save and build assets. California can change that. The 1.2 million California residents who receive welfare should have their benefits directly deposited into bank accounts. Benefits are currently delivered via smart cards. An electronic account could be added to the card. The state should also encourage banks to accept the Matricula Consular Card, the identification card issued by the Mexican government. An effort in the Midwest to encourage banks to accept the card spurred 50,000 unbanked individuals to open accounts in the past 18 months, with average balances of $2,000. Finally, employers should get a tax credit to provide their employees direct deposit, access to inexpensive accounts and financial literacy training.
Build a privately funded task force that will study the problem of asset poverty and how it can be remedied. California needs more information about the dimensions of this problem in order to craft effective solutions. The Asset Policy Initiative of California has begun to convene nonprofit, business and government leaders to explore effective politics and build concensus around a comprehensive policy endeavor. State leaders should learn about and engage in this effort.

The Crumbling California Dream

Cecille Isidro — Sat, 01 Jan 2005 08:00:00 -0500

California is a Garden of Eden, a paradise to live in or see;

But believe it or not, you won't find is so hot

If you ain't got the do re mi

--Woody Guthrie (1937)

Almost 70 years ago, the American troubadour Woody Guthrie figured out the paradox of the California Dream. The state has long been a victim of its own success. Attracting those in search of a better life, California doesn't always deliver the goods. But despite their initial struggles, the Dust Bowl migrants and their kin subsequently provided the workforce that propelled an impressive economic expansion.

Today the state is experiencing another round of growing pains, and the most debilitating affliction may be its housing market. California is presently a land of high home prices, rising rents and low homeownership rates. If left unchecked and untreated, these trends will certainly jeopardize the state's fiscal, economic and social health for years to come.

The undeniable reality is that California continues to grow and attract new residents. Although the rate of growth slowed in the 1990s, it still outpaced the rest of the nation. The recent and unprecedented out-migration was more than offset by an influx of immigrants and natural increases. Since the 2000 U.S. Census, more than 2 million new residents now call California home, and experts predict an additional 500,000 people a year for the foreseeable future.

The subsequent increase in demand for housing will place ongoing pressure on local housing markets throughout the state. California is already home to nine of the 10 least affordable communities in the country. While housing costs in California have historically exceeded those in other parts of the country, reflecting amenity value and growth pressures, the recent rise is impressive nonetheless. In 1997, the median home price was about 50 percent higher than the national figure. Yet last year, California's median home price hit $388,000, more than twice the national median, and up almost 20 percent from the previous year. Double-digit, year-to-year percent increases in the median home price have become common. This phenomenon is not isolated to a few select regions but is apparent in both high cost (up 30 percent in Orange County) and low cost (up 27 percent in Fresno County) areas of the state. The result is a homeownership rate that is second lowest in the country (58.9 percent), a full 10 points below the national rate that recently topped 69 percent. And unless prices come down, it is not going to get any better. According to the California Association of Realtors, the percentage of households able to afford a median-priced home stood at 18 percent this past August, down 5 points from the previous year.

Housing costs in the rental market pose similar affordability challenges. In the last three years, the state's median monthly rent has increased more than 19 percent, rising from $747 in 2000 to $890 in 2003. Unfortunately, incomes have not kept up. In other parts of the country, lower-and middle-income families opt for homeownership to better manage their housing costs and begin the process of building up equity. But California's high and rising home prices often preclude this alternative and endanger both family well-being and the state's long-term economic development.

When housing costs eat away large portions of household resources, there is less to save, invest and consume. This is true for both renters and homeowners alike. The barriers to home ownership serve as a particularly onerous obstacle for many families as they strive to achieve economic stability. Clearly, success in America today requires not just a job and growing income, but increasingly hinges on the ability to accumulate a wide range of assets. Purchasing a home is often one of the first steps a family takes on the road to building up wealth, and, even then, housing equity remains for many the largest asset in their financial portfolio.

From an economic policy perspective, the state's housing market has the potential to undermine the ability of businesses to attract a competitive workforce. Since 1994, the state has added three jobs for each new unit of housing; at the same time the construction of multi-family housing has plummeted. According to the state's Department of Housing and Community Development, California added only 1.1 million housing units during the 1990s, about half the number that was added during the 1980s. California has not built enough homes to match the demands of its growing workforce and is in danger of exacerbating the situation by falling further behind. It is no surprise that vacancy rates are near historic lows, making it harder for many to live near their places of work. Besides creating additional problems of congestion, long commutes and environmental degradation, the geographic mismatch of housing and jobs is a serious threat to the state's business climate and economic development prospects.

California's housing troubles have been percolating for years and have been the subject of protracted policy debates. The latest response, a $2.1 billion infusion of state funds through Proposition 46, is a start. But given demographic and market trends, this stimulus may be insufficient. Looking forward, experts cite the need to augment the supply of housing by 220,000 units each year for at least the next 10 years. In the current environment, characterized by high prices, a complicated regulatory process, expensive permitting and high land and construction costs, achieving this output will be a difficult task.

Given the local nature of housing markets, the greatest supply and affordability problems are concentrated in regions of the state with the highest growth pressures. That means there isn't one generic policy elixir. What is necessary across the board is for lawmakers to acknowledge that while housing is built and maintained at the local level, it is done so within a regulatory, fiscal and policy environment of their making. And it is this environment, defined by the relationship between the state and local governments, which must be revisited if California is to address its housing woes.

Perhaps most worthy of reform is the state's fiscal policy framework as guided by Proposition 13. Under the current tax system, local property taxes are capped at 1 percent of market values, assessments can increase only 2 percent per year, and 85 percent of property tax revenues are sent to the state. This means that when a locality allows construction of new housing, the incoming residents don't generate enough local resources to cover the service costs required, such as schools, police and sewers. In short, housing creates more costs than it does revenue. Accordingly, municipalities have prioritized attracting commercial development, often in the guise of strip malls, which provides revenue through sales taxes but doesn't burden services. In a state that needs to encourage the production of more housing, the fiscal incentives are all wrong and need to be fixed.

Furthermore, the state is responsible for maintaining a fair distribution of affordable housing, but it depends upon local governments for action. Through its Housing Element Law, California requires localities to make "adequate provision" of housing, which includes identifying housing needs, development constraints, and a set of housing goals. But many municipalities have adopted a range of growth limits. The problem is that the state lacks the authority to force cash-strapped local officials to build the type of housing needed, which is often costly and politically undesirable. Currently, noncompliance with the law must be established in court; historically, this has proven to be a weak deterrent. And even when a path to build housing is cleared, private developers may be wary of making the effort. Not only do they face high regulatory costs, but often they must confront local opposition in the form of anti-sprawl or NIMBY activism. The increased uncertainty lowers the developer's incentive to participate in affordable housing projects that have built-in low margins.

Any viable policy response must focus on reforms that remove the structural barriers to production. Solutions should be market-oriented, but promoted alongside the right mix of incentives and support for both the producers and consumers of housing. In general, cities cannot be expected to keep up with the state's housing construction demand if they are not better supported financially. State and local leadership must come to agreement on a fair means for distribution of affordable housing and enforcement. Developers should be given incentives to build more housing and buyers should be provided assistance to become homeowners.

Here are several specific proposals for the state to consider:

While the outright repeal of Proposition 13 is unlikely, the formula should be revised so that municipalities keep a larger share of their property tax revenue if they commit these resources for affordable housing efforts. The state should authorize a housing bonus, one that could be awarded competitively or contingent upon performance, which would provide an incentive for local government to help fill the state's housing gap. Just as local governments across the country successfully relaxed zoning restrictions in exchange for a high percentage of affordable housing, the state could reward local governments that meet ambitious housing goals. These housing goals don't have to be hard unit counts but can include a range of inclusionary techniques such as lowering development fees, simplifying the permitting process, establishing income targets and creating local housing trust funds. The state can encourage these actions by sanctioning a menu of techniques and actions that would qualify localities for a housing bonus.

Another way to help cities break away from the "fiscalization of land use," one already proposed in legislation (AB 1221), is a revenue swap. This would allow cities to exchange half of their sales tax dollars collected for an equal amount of property tax revenue from the state. Enabling cities to access this funding stream would remove any fiscal bias against housing development, opening up the path for sensible planning deliberations. This swap has the advantage of having a net zero budget impact in the first year, which is good for the state's coffers, but it benefits local governments in the out-years by allowing them to keep the subsequent growth in property tax.

Relieving some of the fiscal pressure on municipalities will only go so far. There must be an expectation that local governments do more. Current law requires that all cities shoulder a share of each region's affordable housing burden. Yet in practice, they fall short. There is a need for fair share fines. Legislation should be supported that puts more teeth into the state law by increasing penalties for noncompliance, such as administrative fines that would involve the payout or withholding of real money. The housing bonus should be the carrot and these penalties the stick.

California voters themselves have also erected barriers to housing production by supporting growth restrictions. The Public Policy Institute of California has documented 389 slowgrowth ballot measures across the state from 1986 to 2000, 60 percent of which passed. Yet opposition to construction is often rooted in unease over its effects on infrastructure and public services rather than hostility to housing per se. Longer commute times make people less amenable to new development. In this sense, California's housing dilemma cannot be separated from the shortfalls in the state's other infrastructural systems. Since growth is a regional issue, the state needs to promote jurisdictional collaboration to devise responsive planning strategies. Local governments that cooperate to meet regional needs should be rewarded for their efforts, through extra bond money or property tax rebates. The Sacramento Area Council of Governments made such a commitment to focus on affordable housing goals, yet legislation that earmarked $1 million in state funds was recently vetoed by the governor. The objection was because it singled out one region. Nevertheless, it's a good idea that should be available to regions throughout the state, and has the potential to save the state money in the long run.

In addition to solving the supply problem, California needs to help augment demand and should implement a vigorous strategy aimed at increasing first-time homeownership. This could be done through the creation of a California home buyers' tax credit, available to qualifying households for the three years after purchasing their first home. This kind of temporary tax relief targets Californians who could raise the state's homeownership rate, families that are capable of buying a home but deterred by the increased financial commitment in succeeding years. Alternatively, California could implement a statewide sweetener to federally-sanctioned Individual Retirement Accounts (IRAs), which can be used for first-time homeownership. These accounts use federal tax incentives to encourage savings but are of little value to lower-income families that don't have a tax liability. The state could create a refundable tax credit, modeled on an extension of the federal Savers' Credit, which would go to qualified taxpayers who contribute to these accounts. Although this would cost money in the short run, benefits will eventually be realized through an expanded tax base. Rounding out the strategy, the state can help facilitate demand by increasing access to housing counseling and financial planning services.

To accommodate its growing population and avoid a revival of the Dust Bowl malaise, California must address the imbalances and inequities of its housing market. There is no doubt that an unprecedented amount of new housing will need to be built in the coming years. Accordingly, the state's economic development strategy must recognize the twin challenges of creating more affordable rental housing located near job centers and providing greater homeownership opportunities. These objectives are not just good for business; they will help seed asset building opportunities for millions of Californians in the decades ahead.

Building Assets: Creating a Culture of Savers and Investors

Cecille Isidro — Sat, 01 Jan 2005 08:00:00 -0500

California's leaders need to cut a new deal with struggling families: If you're willing to work and save, we'll help you own a private investment account, accumulate wealth and control your own economic future. And to California's kids, leaders should say: We'll get you started on a path of saving and investment from the day you are born, make sure your school teaches you how this economy works, but it's up to you to make smart investments in your future when you turn 18.

Is that a deal worth making? If so, what holds the deal together is a new citizen-state contract to broaden the ownership of assets, to foster an "ownership society" in California. If California and its 35 million citizens agree to this new social contract, we'll see economic opportunity unleashed, the middle class expanded and happier, more productive citizens.

The need for spurring widespread asset ownership in California is immense. Some 7.8 million California households, or 29 percent, would only last three months at the poverty level if they were forced to deplete all of their assets. That's the fourth worst "asset poverty" rate in the nation, more than twice California's "official" poverty rate of 12 percent -- and possibly more consequential. When families don't have enough assets, they may be one medical emergency or one layoff away from government dependence. Nor can they buy a home, send their kids to college, start a business, reduce or manage their debts, or make long-term investments. And pass on opportunities to future generations? Forget it. Just imagine any family trying to survive -- let alone thrive -- in today's economy without assets.

While the need to broaden asset ownership is great, the promise is even greater. Those with assets not only have brighter economic prospects, they're better, happier and more productive citizens. This Jeffersonian insight is buttressed by recent research, which finds that when families -- including very poor families -- own assets (as distinct from income), they are more likely to stay married, work harder, enjoy better physical and mental health, make educational plans for their children, feel more confident about and in control of their futures, take better care of their property, and be involved in community and political affairs. As Aristotle once observed, "Where the middle class is large, there are least likely to be factions and dissension."

Finally, who doubts that California and the rest of the nation will be better off with more savers, investors and owners, and fewer people relying on the government for their livelihood and well-being? Who doubts that we'd be better off with an active investment state instead of a passive welfare state? We certainly can learn from history: Nearly one-quarter of U.S. adults today have a legacy of asset ownership directly traceable to the Homestead Act and the GI Bill -- once dubbed "the magic carpet to the middle class" -- that have returned to the nation seven dollars for every one invested.

Indeed, today the U.S. continues this wise policy of building assets. Washington "bundles" well over $300 billion a year in investment opportunities through the tax code for mortgage deductions, college and retirement savings, and to spur stock ownership and business investment. Great policies, without a doubt -- except that more than 90 percent of these tax benefits accrue to households earning more than $50,000 a year, or roughly the upper-half of America. The bottom half, by contrast, gets several hundred billion dollars a year of income support to "get by," instead of assets to "get ahead." As the nation created and gradually expanded its "modern" welfare state during the 20th century, we somehow stopped thinking that these asset-building policies were good for all Americans.

So, how can asset ownership policies work for everyone -- including everyone in California, where nearly one in five adults lacks a high school diploma (the surest route to a lifetime of low wages) and the median price of a single family home is $465,000? As President George Bush moves forward on his ownership society agenda, which embodies exactly the right idea, we need to make sure it includes everyone. President Bush envisions a nation in which citizens -- by saving their own money in tax-benefited accounts -- make their own decisions regarding college, retirement, homeownership, and health care. Clearly, there's a risk that too many Californians and Americans will not be able to save adequately for these purposes, that they will remain ownerless in an ownership society.

What, then, can California do? There's a lot of "low-hanging fruit" that California could pick right now. But with too few Californians owning assets, economic opportunity eluding millions, and the middle class getting squeezed, our vision and agenda must be bolder. We propose that California embrace a two-part ownership agenda that builds on the best thinking and the best economic opportunity policies in the world.

First, any Californian working hard but still earning below $30,000 per year should be offered dollar-for-dollar matching funds for savings that lead to a first home, post-secondary education or training, or retirement. We could call these "California Ownership Accounts." To make this simple, the state could deliver the matching funds through state tax returns for amounts saved in IRAs, Roth IRAs, or California's "529" college savings plan. California could also make it easier for the one in six individuals who receive the Earned Income Tax Credit, a federal tax refund aimed at the working poor, to channel their refunds into these accounts.

Now, one may ask if low-income people can and will save. The answer -- based on recent demonstration projects in the U.S., Canada and the U.K. -- is a resounding "yes." Savings in these projects were modest, ranging from $18 to $38 per month in deposits, but with matching funds these savings led to the ownership of assets. In California, more than 5,000 people of modest incomes are saving in matched savings accounts. In Silicon Valley, 1,300 savers -- with average median incomes of $24,000 -- have saved over $1.5 million. More than 500 people have used their savings to buy homes, go back to school and start college funds for their children. With rising tuition and housing costs, and only 39 percent of California workers having an employer-sponsored retirement plan, California Ownership Accounts will reward hard work, thrift and saving, and give struggling but industrious California families a real shot at the American Dream. The estimated price tag of these accounts is $430 million a year, about what California receives each year from its tobacco settlement. Think about it: funds earned from helping people die could instead help them live.

The second and more visionary part of California's agenda should be to create an investment account at birth -- a California Kids Account -- for each of the 540,000 babies born each year in California. Why set up accounts for children? As any investor will tell you, the earlier you begin saving, the better. As any parent will tell you, the earlier you set expectations for your child to attend college, the more likely he or she will do so. College savings accounts embody expectations; they are hope in concrete form. And, as any financial educator will tell you, financial education is taken more seriously when people -- including kids -- have an account of their own to manage, real money with which to make investment decisions. If we are witnessing the gradual rise of the "investor class" or ownership society, which most Americans view as a good thing, the sooner kids and adults become comfortable with private savings accounts, the better.

How, exactly, would this work in California? The state could launch every California Kids Account with a onetime, $300 deposit, while encouraging after-tax contributions (not to exceed $1,000 per year) into the accounts of children in households below the state's median income. The accounts would build up tax-free. Assuming low-income families managed to save or leverage just $50 per month, this small investment would grow to nearly $19,000 when the child turns 18 -- enough to comfortably cover the first three years of tuition and fees at a public university in California. If the child does not use the account for college, it grows to $34,000 by age 30 and $185,000 by age 65. Besides post-secondary education and training, California Kids Accounts could only be used for a down payment on a first home or rolled over into a retirement savings account; if the account is used any other way, the at-birth deposit must be returned to the state, along with penalties and taxes. The accounts also provide a perfect catalyst and centerpiece to build the financial literacy of all young Californians. At $160 million a year, this relatively small investment -- it's less than three-tenths of one percent of the state's $100 billion budget -- would be transformative.

California could learn from other pioneers on this front. Beginning next year, each of the 700,000 kids born in the U.K. annually will receive about $400 each in a "Child Trust Fund," with the poorest one-third of kids getting about $800. The idea is to create a "stakeholder" society and help ensure that children have opportunities that their parents may not have had. In Canada, "Learning Bonds" will soon be established at birth to help low-income students save for college. In Kentucky, the Republican secretary of state and the Democratic state treasurer plan to launch a "Cradle to College" initiative, which would establish a 529-type college savings account for every newborn in Kentucky so that no residents would need to forgo college because they cannot afford it. Finally, bipartisan legislation called the ASPIRE Act -- led by unlikely U.S. Senate bedfellows Rick Santorum (R-Pennsylvania) and Jon Corzine (D-New Jersey) -- was introduced in Congress last July to create a savings account at birth for each of the million kids born in the U.S. Clearly, the idea is catching on, and California has a great opportunity to lead the nation on this path-breaking idea.

Throughout the 20th century, it was assumed that the prosperity generated by industrial economies should be broadly shared -- and it largely was, through policies that redistributed income from those who had it to those who did not. And it was often thought that the best anti-poverty policy is a strong economy, the proverbial "rising tide that lifts all boats."

At the dawn of the 21st century, our goal should not be broadly shared prosperity, but broadly created prosperity. Those boats shouldn't wait around to be lifted, but government should enable struggling families to own and lift their own boats. Our goal, after all, should not be to penalize or reduce wealth at the top -- we want to reward hard work, creativity and initiative -- but to enable more Californians to create and build their own wealth. That's a "new deal" all Californians should eagerly embrace.

The Real State of the State

Cecille Isidro — Sat, 01 Jan 2005 07:00:00 -0500

California's Great Disconnect:
The Governed and the Government
David Lesher, California Program Director

Slice 'N Dice:
Smaller Legislative Districts Will Yield More Lawmakers, More Accountability and Better Decision Making
Heather Barbour, Fellow

Dear
{Insert Name}:
VOTE FOR ME!
Farai Chideya, Fellow

Democracy at a Crossroads
Steven Hill, Irvine Senior Fellow

The Crumbling Califonia Dream:
Erecting Structural Changes to Solve CA's Housing Crisis
Reid Cramer, Research Director, Asset Building Program

Building Assets: Creating a Culture of Savers and Investors
Ray Boshara, Director, Asset Building Program
Anne Stuldreher, Senior Research Fellow

Building Assets: What Should California Do Now?
Ray Boshara, Director, Asset Building Program
Anne Stuldreher, Senior Research Fellow

Under the Umbrella of Health Care
Laurie Rubiner, Director, Health Care Program

Teetering on High-Tech's Cutting Edge
Thomas Kalil, Senior Fellow, Center for American Progress

Los Angeles: The Need for a New Progressive Vision
Joel Kotkin, Irvine Senior Fellow

Making the Grade
Jennifer Nelson, Columnist, San Francisco Chronicle

The Latinization of California
Gregory Rodriguez, Irvine Senior Fellow

Slice 'N Dice: Smaller legislative districts will yield more lawmakers, more accountability and better decision making.

Cecille Isidro — Sat, 01 Jan 2005 00:00:00 -0500

Last November, many California voters went to the polls and chose a state senator for themselves and nearly 900,000 of their closest neighbors. In practical terms, this meant working-class Californians living in small, rural, mountainous towns near the Oregon border are represented by the same person advocating on behalf of voters living in wealthy Sacramento suburbs. Can this one legislator truly be accountable to the needs and interests of hundreds of thousands of people living in such disparate circumstances?

Of course not. California's legislative districts are too big and their unwieldy proportions seriously obscure the real diversity in California's lifestyles and politics.

When America's founders devised our republic, they envisioned districts that each contained around 30,000 people. There was no magic to this number. Even the architect of the U.S. Constitution, James Madison, recognized the hopelessness of imposing science on such schemes. He recommended only that legislative districts should be neither too big nor too small. He also assumed they would be "augmented from time to time."

California, however, has not augmented the number of representatives in its Legislature since 1879, when its total population was about 1 million. Now, a single state Senate district contains nearly this number.

California has the largest legislative districts in America. The state's 80 Assembly districts each average a whopping 423,000 people. And there are twice as many constituents in each of the state's 40 Senate districts. By comparison, lower house districts in other states range from 3,000 people in New Hampshire to 139,012 people in Texas.

California's upper house districts, by population size, are nearly seven times the national average. If California's Senate districts matched just the large-state average, its Senate would have 94 members instead of 40.

Further, while no state compares to California in population size, the populations of Texas and Florida combined are a rough equivalent. The Legislatures in those states contain 341 members; nearly triple the 120 serving in California. Citizens in Illinois, Pennsylvania and Ohio -- again, a combined population approximately equal to California -- are represented by 562 state legislators. In fact, if you tally up the 21 smallest states, the number of residents is roughly equal to California's population. Residents of those states, however, are represented by a combined total of more than 3,000 state legislators.

California's super-sized districts are not just harmless mathematical curiosities; they contribute to political alienation, a fatal condition for representative government. Voter turnout has been on the decline for the past 40 years, and polls show three-quarters of Californians think the state Legislature is doing a fair or poor job when it comes to working for the "best interests of people like you." The gap between representative and represented is dangerously wide in California, which limits the authority and vision of officeholders and causes voters to turn to ballot box policymaking or disengage all together.

The idea of curing California's political ills by decreasing the size of legislative districts inevitably elicits howls from political insiders. They know smaller districts mean more legislators in Sacramento. The objection is obvious: How will more politicians solve our problems?

But Madison anticipated the need for such adjustments more than 200 years ago. The performance of the California Legislature today affirms his predictions. "Too big" legislatures, he noted, will succumb to confusion and the "intemperance of a multitude." With a "too small" Legislature, Madison warned of a lack of diversity in policy discussions and the ease of "combination for improper purposes."

California's Legislature clearly exhibits the symptoms of a governing body that is too small, both in its lack of diversity in policy discussions and the so-called ease of combination for improper purposes. In other words, purposes that put special interests over the public's interest.

Only two voices count in the California Legislature: Republican and Democrat. This is outrageously narrow representation in a state where nearly 21 percent of the population declines party affiliation. Further, there's little diversity of opinion even within party ranks. In 2003, 21 of 25 Senate Democrats voted with labor unions over 90 percent of the time. All 15 Senate Republicans, on the other hand, unanimously backed 100 percent of the legislative positions of the California Taxpayers' Association, an antitax group, in 2004. How's that for diversity?

As for the "ease of combination for improper purposes," examples of this kind of malady are common in Sacramento. One example is the disastrous vote in 1996 to deregulate the state's energy market. Key stakeholder groups and a small group of legislators quietly crafted the bill, then passed it through the Legislature without a single "no" vote. The subsequent energy crisis jeopardized the state's business climate, bankrupted its public utilities, sent electricity bills soaring and, eight years later, is still unresolved. If the Legislature contained a greater quantity and diversity of voices, it is logical to assume the chances of heading off this foreseeable crisis would be greatly improved.

As it is California's Legislature is clearly not working as it is currently structured; so, what size should the Legislature and its districts become?

California is far too big to accommodate districts approaching the national average. Even matching Texas, with the nation's second largest districts, would more than triple the size of the California Assembly to about 252 seats.

Some have suggested merging the Legislature's two chambers into one body of 120 districts in a unicameral arrangement. This option has the benefit of decreasing the size of districts without changing the size of the Legislature. Bills would also pass more efficiently because they would only go through one chamber and one set of committees.

Unicameralism, however, was rejected by the state Constitution Revision Commission about a decade ago for reasons no less relevant now. Bicameralism is critical to maintaining checks and balances.

The best design for the California Legislature would be to retain the bicameral structure while reasserting the original conception of the two chambers. Let the Senate be the smaller, deliberative body, and the Assembly be the larger house, where the passions and will of the people are expressed. This means Assembly districts should be as small as possible and Assembly seats most susceptible to challenge and competition. Senators, on the other hand, must be able to withstand unpopular votes, which means they need larger districts and longer terms. These conditions can be met by expanding the ratio of senators to Assembly members from the current 1-to-2 distribution to a 1-to-3 relationship.

Under this model, for example, the Assembly might have 150 members representing 233,000 persons each, while the Senate would have 50 members, representing 700,000 persons each. These dimensions are consistent with the recommendations of a 1970s study of state legislatures by the non-partisan Citizens Conference on State Legislatures.

So, what do citizens get from this design? A lot. For starters, citizens will have better access to legislators who are more interested in their concerns. A lawmaker representing urban, suburban and rural communities is forced to consider a myriad of often conflicting needs for schools, health care, public safety and other services. Many interests are left out without ever being heard in the Legislature. A lawmaker focused on a more concentrated population can be a better advocate.

Smaller districts will also improve the representation of moderate and third party voters. Independent candidates have a greater chance of winning a smaller district, and independent voters are more likely to be heard in a district where they make up a greater share of the electorate.

More citizens will be able to take part in government, too -- both because there will be more seats available and because campaign costs will be more manageable. Campaign costs in California's Senate districts currently hover around $600,000. By comparison, the average campaign in a Massachusetts' state Senate district -- containing around 160,000 people -- costs about $120,000.

Inside the Capitol, smaller districts would also cause dramatic change. Lobbyists and special interests would lose power since they would be forced to persuade more lawmakers with closer ties to their voters. Leadership power, diminished by the restrictions of term limits, may also grow as the voice of each individual lawmaker assumes a smaller share of the total body.

With more eyes watching and questioning government decisions, Californians could also expect better oversight and higher quality legislation. As president Woodrow Wilson noted "... it is not far from the truth to say that Congress in session is Congress on public exhibition, whilst Congress in committee rooms is Congress at work." The same can be said of the state Legislature. The real work occurs in committees where legislators develop bills, study issues and make law.

Yet, committees produce good policy only when legislators have the time to become experts in the issues or there are many hands to manage the workload. Prior to term limits, committee members had years to gain expertise. Since term limits, however, studies have shown a drop in work quality. Most legislators now have a broad, but usually shallow, understanding of policy. A larger Legislature will mean more people to do the people's business, mitigating one negative impact of term limits.

In recent decades, Californians have adopted increasingly stringent political reforms in an effort to curtail corruption and increase accountability in government. But even after dramatic changes, such as term limits and budget mandates for taxes and schools, polls indicate that confidence in California government continues a dangerous decline.

With frustration growing, voters may be ready to consider even more aggressive change.

A recent opinion poll found most voters don't think smaller districts will make a difference, but 40 percent believe they would be "better represented."

Ultimately, Californians cannot manage the direct democracy our state is fast becoming. Californians must restore their trust in government and turn over the vast majority of policy decisions to elected representatives.

It is time to think creatively and boldly about new designs for a government that will reflect the new generation of California's diversity of ideas. The changes must make our representatives more accountable to voters and reflective of their ideas. That is only possible when the governed are closer to their government.

California's Great Disconnect: The Governed and the Government

Cecille Isidro — Sat, 01 Jan 2005 00:00:00 -0500

It may seem incredible, but supposedly blue-state California is hemorrhaging Democrats.

Since 1990, when a majority of voters were registered Democrats, the party's share of the electorate has dropped to just 43 percent today. In fact, even as the state has grown, the number of Democratic voters has shrunk. There are about 100,000 fewer Democrats today than there were nearly 10 years ago, even though there are nearly 2 million more voters.

That doesn't sound like the state that voted 13 points to the left of the nation in last year's presidential contest, so predictably that California was declared for John Kerry the moment polls closed. But as poorly as Democrats are faring in California, Republicans are doing even worse. When pollsters ask California voters to identify their party loyalties, those who describe themselves as independents far outnumber Republicans.

So what does this mean? A profound change is certainly under way in California's electorate for two reasons. One is that the major parties are rapidly disintegrating because they cling to an outdated ideology that no longer represents a majority of voters. In the last decade, a whopping 91 percent of the growth in the electorate has come from voters registering outside of the two major parties. The second reason is the growing participation of Latino voters. The increase helped tip the state to Democrats in the last decade, but that may be a temporary response to the Republican Party's sponsorship of Proposition 187, the watershed ballot measure in 1994 to deny public benefits for illegal immigrants. Today, Latino adults are more likely than whites to register outside of the two major parties and in polls, the profile of Latino voters is fairly balanced. Roughly equal thirds describe themselves as conservative, middle-of-the-road or liberal.

One thing that has never changed in California is that it remains a maverick state identified with the courageous spirit of its newcomers. It was founded in 1850 by dream chasers who left their homes for the chance of a fortune in gold. A century later, it doubled in size as the nation's archetype of the modern, middle class suburb. And today, it's still being shaped by the vision of immigrants bold enough to settle a strange new place in hopes of a better life.

California is different from the rest of the nation. Not only is it populated by pioneers, but other places are dominated by those who stayed behind. The contrast is difficult to measure, but it's unmistakable in the state's unique political expression. This is the home of frontier independents. They are more entrepreneurial in their outlooks, more anti-establishment, more libertarian and more indulgent of individual lifestyle. They ended affirmative action and passed medical marijuana on the same 1996 ballot. And last year, even as they went left for Kerry, they sided with the state Chamber of Commerce on all three of its ballot priorities.

"There is a risk-taking side to Californians that is unique," said Republican consultant Sal Russo. "Americans are all that way [compared] to Europeans, but California is that way compared to America."

In many ways, it is the single trait that binds a disparate state. By 2000, a quarter of Californians were foreign born and there were sizable communities from more than 60 countries, arguably making it the most diverse population in the world. California has four of the largest 15 cities in America, each much different than the other. Its regional economies are also so distinct they often move in opposite directions simultaneously.

When asked 25 years ago to describe the state's common ground, California magazine editor William Broyles Jr. explained, "Most cultures are united by their pasts. Californians have in common a belief in the future, a sense that anything is possible."

Two recent decisions by California voters demonstrate that the state's iconoclast nature is as strong as ever. The first is the unprecedented recall in 2003 of an incumbent governor and the election of a political neophyte who ran on an anti-establishment platform. The second is the vote in November 2004 to generously invest in the amazing, but unproven, potential of stem cell research to improve the quality of life and grow the state's economy.

Paul Maslin, whose firm did polling for the initiative, believes the stem cell issue would have polarized most states between the pro-life right and pro-choice left. But in California, the ideological debate never surfaced. The stem cell measure won on its optimism. And it was backed by virtually every demographic group, as well as parts of the state where President George Bush fared well.

"I can't imagine another initiative this big," Maslin said. "There was a way this could be close. But for all of the problems this state has gone through, Californians are still willing to step out there and say,

Dear {Insert Name}: Vote for Me!

Cecille Isidro — Sat, 01 Jan 2005 00:00:00 -0500

When talking about the evolution of politics and technology, it helps to give a little history. Okay, a lot of history. The human body is, in most senses, the same as it was 50,000 years ago (oh, those cravings for carbs!), and the workings of the human brain haven't evolved significantly in 5,000 years. That's when we learned to better process language, and societies flourished. Seventy-five years ago, television was invented -- the first form of virtual reality. Now the average American watches over four hours of television a day, spending much of that time completely ignoring the fact that he or she is sitting in front of a box. Fifteen years ago, geeks started widely using the Internet. Five years ago, even tech-haters did. In 2004, the convergence of technology and politics rose and shone, like a prima ballerina taking her first star turn. By the 2008 election, that technology will have disappeared.

No, this is not some post-apocalyptic fantasy. It's simply a statement that, in 2004, people still thought of technology as a thing-in-itself. By the year 2008, tech tools will be transparent, integrated into our lives. Just as we embraced television (perhaps a bit too closely), we will give new information delivery systems a central place in our lives. Campaigns and officeholders will be able to speak as directly to constituents, via the media, as if they were standing live in front of them. And citizens, in California and America at large, will be better able to speak back.

In no small part due to the way we've evolved (or failed to), humans tend to think of information technology as an extension of the human consciousness. Stanford University communications professor Clifford Nass has done extensive research into the way humans perceive computers as human actors. In one experiment, test subjects first took a quiz on a computer. Then, they were asked to go back to a computer -- that one, or a nearby one -- and say how well the initial computer had administered the quiz. People who went back to the same computer gave higher grades than those who went to another computer. The test subjects were using flattery or exercising tact -- in their dealings with a mass of chips, plastic and wires! Most of us have emotional reactions to both the delivery and content of new media, from the frustration when big files can't seem to squeeze through the pipeline to a craving -- sometimes addictive -- to get more email and thus more "human" contact.

As online technology moves from wired desktop computers to wi-fi enabled laptops and handheld PDAs, the technology becomes more portable and less intrusive. Information and its emotional subtext are more likely to hit their mark.

I remember getting my first laptop in the early

Democracy at a Crossroads

Cecille Isidro — Sat, 01 Jan 2005 00:00:00 -0500

California's political institutions and practices are outdated and no longer reflect the vibrancy and diversity of our state in the 21st century. Key political institutions are badly in need of an overhaul to make them better suited for the new California and its wide range of attitudes, demographics and geographic regions.

In particular, three ailing aspects of our representative democracy stick out. First, the most recent redistricting was nothing more than an "incumbent protection plan" in which party leaders all but did away with legislative elections in California, leaving voters from all partisan sides with choice-less elections. Second, California's antiquated, winner-take-all electoral system is increasingly hard-pressed to provide representation to California's diversity, and has exacerbated regional balkanization -- a stateside version of red vs. blue -- and is electing fewer bridge-building moderate legislators. Third, winner-take-all elections for statewide offices, combined with California's primary system discourage, moderate and independent candidates and elect leaders who win with support from less than half of the electorate.

Fortunately, there are solutions to all of these democratic deficits, if the political will exists to think and act boldly outside the box of conventional thinking.

The travesty of redistricting: incumbent protection plans

What if you could pay $20,000, and for that modest sum end up with lifetime employment at a salary of $158,000 annually, including the best health and retirement benefits, frequent travel to Washington, D.C., full staff and paid expenses -- all on the public's dime? What a deal, eh?

That's the cozy situation for members of California's congressional delegation as a result of gerrymandering their own legislative district lines. The 2001 redistricting in California was a travesty. Democrats dominated the process, since they had a majority in the state Legislature and the governor's office. According to one member of Congress, Democratic incumbents paid $20,000 apiece to the political consultant drawing the district lines -- who happened to be the brother of an incumbent -- to draw "safe seats" where each of them would easily win re-election. It was like paying protection money to a Mafia don for your turf. Congresswoman Loretta Sanchez (D-Garden Grove), knowing a bargain, told an Orange County Register reporter, "Twenty thousand is nothing to keep your seat. I usually spend $2 million every election."

Then, to the dismay of national Democrats, who anticipated the line-drawing would gain seats for California, state Democrats instead gave safe seats to GOP incumbents, in return for their acceptance. The fix was in. It was a bipartisan collusion against California democracy and the voters. And it worked. In the November 2004 election, 51 out of 53 congressional seats were won by huge landslide margins.

The Democrats also drew safe seats for state Senate and Assembly districts, which resulted in 90 percent of state legislative races won by landslide margins in November. The Democrats literally did away with most legislative elections in California, turning them into predictable farces. Moreover, the Democrats' line-rigging allowed them to bite off more than their fair share, winning a disproportionate 63 percent of state Senate seats and 60 percent of state Assembly seats with only 54 and 53 percent of the statewide vote respectively in each chamber (in 2002, the Democrats won a whopping 70 percent of state Senate seats with only 54 percent of the statewide vote). Forget about "money buying elections"; most elections are decided during the line-rigging process, when politicians use sophisticated computers to handpick their voters before voters pick them.

But that's not all. This backroom redistricting has produced a government where hard-core partisans dominate the Legislature and fewer moderates get elected. It has exacerbated a red vs. blue California marked by regional balkanization, where the high population coastal areas are dominated by Democrats and the low population interior is dominated by Republicans. Not that there aren't Democrats in red areas and Republicans in blue areas -- as well as independents and third party supporters -- it's just that they are "orphaned voters" who never win any representation. Purple California gets smothered in the zerosum game of winner-take-all elections, which grants representation only to the winners.

Governor Arnold Schwarzenegger, the state Chamber of Commerce, Republican recall activist Ted Costa and others have proposed taking redistricting out of the hands of a partisan Legislature. This makes sense, but the devil is in the details. For instance, an initiative proposed by Costa would create an unwieldy process that requires any redistricting plan to receive voter approval. It also would immediately reopen redistricting instead of waiting until the end of this decade, as is customary. Both of these together would lead to bitter partisan battles that will disrupt any semblance of political peace for the remainder of the decade. In particular, a mid-decennial redistricting is a bad idea because it would break the fragile truce between Democrats and Republicans that for decades has accepted a once-per- decade redrawing of district lines. That truce was broken last year by GOP firebrand and congressional leader Tom DeLay who rammed through controversial mid-decennial Republican gerrymanders in Texas and Colorado. Attempting a re-redistricting in California with such clear partisan motivations would provoke bitter responses from Democrats, not only in California but probably in other states as well. It has not gone unnoticed that those pushing middecennial re-redistricting in California are mostly Republicans.

A true public interest redistricting should establish an independent nonpartisan commission with appointees from various sectors of California society, including minority representatives, business community and good government groups, rather than a panel of judges (as proposed by Costa) which, after the debacle of Bush vs. Gore, practically no one sees as being nonpartisan anymore. Better to have a balance of politics, and have it out in the open. Most importantly, the commission should be guided by nonpolitical and legal criteria such as compactness of districts, respecting geographic boundaries, protecting minority voting rights and enhancing competition. The initial districts then should be presented to the public via hearings around the state, with a goal of finalizing the lines after hearing public comment.

Winner-take-all losers

But even the best-intentioned "public interest redistricting" will have limited impact in addressing the many ills of redistricting. That's because the problem is not just who draws the legislative lines, it's our antiquated, single-seat district, winner-take-all system. The Democratic vote has become highly urbanized and concentrated; in a winner-take-all system, even the fairest redistricting will make only a handful of districts more competitive unless the legislative district lines are drawn as spokes radiating outward from the blue Democratic urban hub. But doing so would clash with the federal Voting Rights Act, which helps minorities as a "community of interest" to elect their chosen representatives. The fact is, winner-take-all elections pit everyone against each other -- Democrats, Republicans, independents, different racial groups -- all trying to win a limited commodity: representation. That's why it's called "winner-take-all" -- because only one side wins.

So what can be done? Political scientist Arend Lijphart from the University of California, San Diego, says the best solution is to "evolve from winner-take-all elections toward some form of proportional representation." With proportional representation, multi-seat districts are used instead of single-seat districts, and blocs of likeminded voters win seats in proportion to their voting strength at the polls. You don't see disproportionate results where one party wins way more than its fair share of seats. For instance, in the state Senate, instead of electing 40 individual district seats we could elect 10 districts with four seats each, using a proportional method. If a political party's team of candidates won 25 percent of the vote in a four-seat district, one of its candidates would win one of these four seats, instead of nothing; 50 percent would win two seats, and 75 percent would win three seats. There are different kinds of proportional systems, candidate-based or party-based, but all adhere to those basic rules.

According to Professor Lijphart, using such a "moderately proportional system" for California would make all parts of the state competitive for both major parties, occasionally even a third party. A Republican candidate could win 25 percent in a blue coastal area, and a Democratic candidate could win that in a rural area, giving those orphaned voters some representation. And moderates and independents running campaigns outside of the party machines would be elected as well. Purple California would have a voice, and we wouldn't see disproportionate results, such as the current California Senate where Democrats have won more than their fair share of seats. The Illinois state Legislature has used such a moderately proportional system, and currently Cambridge, Massachusetts, Peoria, Illinois and Amarillo, Texas use it for local elections. Ireland and Australia use such a method for electing their national parliaments. Their experiences show it's a better way to foster competitive elections, elect more moderates, reduce regional balkanization and provide opportunities for minority representation.

Moreover, proportional voting systems using multi-seat districts don't require redistricting. They allow voters from all political persuasions and races to control and define their representation, not the map-makers. Particularly in cities, where four major racial groups compete for representation, the drawing of race-conscious district lines usually is contentious and can reinforce some of the worst aspects of race and segregation. Nonpartisan, candidate-based forms of proportional representation emerge as flexible and fairer methods to facilitate diverse representation and competitive elections for multiracial cities.

If Governor Schwarzenegger and others really want to do something about the ills of redistricting, simply changing who draws the district lines won't accomplish much. It's necessary to get rid of California's antiquated winner-take-all system, and adopt some version of the more modern proportional representation system. Incumbents may have invested $20,000 apiece to maintain the status quo, but it's time for a real change.

Ensuring majority rule

In the absence of a requirement that California candidates win with a majority of the vote, and with eight political parties running candidates for governor, the last two gubernatorial races -- in 1998 and 2002 -- were won by candidates with support from less than half the voters. They also produced two of the lowest turnouts for a gubernatorial race in California's history; even the gubernatorial recall resulted in the state's third lowest turnout despite all the celebrity and hype (initial anecdotes reporting a huge turnout actually were due to a decrease in polling places that created longer lines of voters).

Proposition 62, an initiative on the November 2004 ballot, sought to address some of the shortcomings of our elections by instituting a primary in which the top two candidates, regardless of party affiliation, would advance to the November election. It was a flawed approach that would have severely restricted voters' choices in November, and quite rightly was rejected by voters. But the open-style primary, allowing voters to choose from all candidates regardless of party, points the way toward another reform that will ensure majority winners, voters' choice, and cost-effective elections.

The solution is simple. Get rid of the taxpayer-funded political party primaries altogether, and hold one election in November in which the majority winner in a multi-candidate field is elected using instant runoff voting (IRV). This system allows voters to rank their candidates by first choice, second choice and third choice, then uses a series of "instant runoff" rounds to determine the majority winner in a single election. If your first-choice candidate is dropped from contention, your vote goes to your second choice as your backup candidate. Last-placed candidates are eliminated round by round, until one candidate ends up with support from over 50 percent of the voters.

Using IRV, voters are liberated to vote for the candidates they really like instead of always picking the "lesser of two evils" or worrying about spoilers. In the 2000 presidential election, if Florida had used IRV, the nearly 100,000 Ralph Nader voters would have had the option of ranking a second choice. No question thousands of them would have ranked Al Gore second. Gore would have been the recipient of all those runoff votes and would have won Florida and the presidency. History would have been changed.

IRV also could help moderate candidates like Senators John McCain (R-Arizona), John Edwards (D-North Carolina) or former Los Angeles Mayor Richard Riordan to break the stranglehold that partisan voters have on the primary process. Instead of a November election dominated by the most partisan Democratic and Republican nominees, centrist candidates could build a broad coalition by trying to win the second and third rankings from the supporters of other candidates.

Last November, San Francisco became the first jurisdiction in California to use instant runoff voting for the election of local offices such as mayor and supervisor. It had an immediate impact on the quality of campaigns, fostering more positive campaigns that stuck to the issues instead of mounting nasty attacks trying to tear each other down. That's because candidates sought to win by attracting the second or third rankings from the supporters of other candidates. This caused some candidates to build coalitions together, even holding joint fundraisers and ranking each other on campaign literature. IRV also will save San Francisco taxpayers millions of dollars each election cycle by eliminating the cost of administering low-turnout December runoff elections.

The Utah Republican Party uses IRV to nominate its congressional and gubernatorial candidates, and Ireland and Australia have been using IRV for decades to elect their highest offices. Santa Clara County and Berkeley also have passed pro-IRV measures, and IRV has been drawing national attention, with legislative bills introduced in 22 states. IRV is being watched as a method that can accommodate the reality of diverse candidate fields without resulting in unintended consequences like spoiled races and non-majority winners.

Getting rid of the low-turnout primary elections in California also will save the millions of tax dollars spent to administer them. Why should the public pay for the political parties' private primaries? Since the U.S. Supreme Court has ruled that a political party's primary is a private affair and that California cannot force parties to open up their primary to voters not in their party, then why should California taxpayers foot the bill for these private shindigs? Let the parties pay for a primary or a caucus themselves. Or the parties can choose not to have a primary; they can deliver to the November election as many or as few of their nominees as they wish.

Another badly needed improvement is universal registration. With universal voter registration, all California citizens would be automatically registered to vote when they turn 18. Previously this was not technically feasible, but the federal Help America Vote Act has mandated that all states must create statewide voter databases by 2006, which will make universal voter registration possible. It is now used by nearly every established democracy in the world because it makes voter registration guaranteed, nonpartisan and shielded from the shenanigans that plagued the recent presidential election, including accusations of GOP partisans in Nevada tossing out Democratic registration cards, Democratic vote fraud in some cities, and Republican challenges of minority voters at the polls. If deployed throughout the U.S., 50 million voters instantly would be added to the voting rolls, a disproportionate number of them young and minorities. California should lead the way, since so many Californians would benefit.

That's how democracy is supposed to work. That's how it can work in California, if the political will is in enough supply, and the state's leaders become unstuck from the fly paper of old ideas.

Under the Umbrella of Health Care

Cecille Isidro — Sat, 01 Jan 2005 00:00:00 -0500

On Election Day, California voters narrowly rejected a ballot initiative -- Proposition 72 -- that would have required businesses with 50 or more employees to provide health insurance to their workers or contribute financially to a state health insurance pool.

That defeat was not terribly surprising, given that preelection polls revealed a steady erosion of support for the measure as some sectors of the business community invested millions of dollars in a drive against it. After years of searching for a solution to the state's uninsured problem, California legislators and the governor must now go back to the drawing board to search for another idea that will cover the 6 million uninsured Californians and save the state and hospitals money, all without breaking the backs of employers.

The vote on Proposition 72 gave us some intriguing insight into what kind of system Californians want, and the state's legislators should be mindful of the signal that voters sent. Despite a well-financed campaign opposing it, Proposition 72 failed by the slimmest of margins -- 49 to 51 percent. It's an indication that California voters are serious about solving the problem of the uninsured, but also recognize that placing the burden solely on business may not be the best way to achieve their goal.

The close vote on Proposition 72 suggests that many insured Californians are feeling some insecurity about the stability and affordability of their own health coverage, and with good reason. The cost of health insurance has soared in recent years, and employers have imposed cost containment measures, such as increasing worker contributions and ending dependent coverage or making it more expensive. This growing insecurity, coupled with the fact that 6 million people in California lack health insurance, entirely makes it easy to understand why voters are tempted to support a mandate on employers to provide health insurance. Yet the outcome also suggests that Californians fear losing their jobs even more. After all, the main argument many employer groups used against Proposition 72 was that it would be too costly for businesses, forcing them to downsize, move out of the state or fold entirely.

But the business community is not monolithic in its opposition to requiring employers to provide health benefits. In fact, many employers who voluntarily provide generous employee and dependent coverage welcome an employer mandate. They recognize that they are subsidizing companies, such as WalMart and McDonald's, by providing health insurance to the spouses of workers who may be employed without coverage at one of these companies. Listen to John Catsimatidis, CEO of Gristedes supermarkets, who argued in a recent Christian Science Monitor article that if his "competitors are allowed to be irresponsible employers, not providing health and other benefits -- they're not only hurting their employees, they're hurting mine."

While an employer mandate such as the one proposed through Proposition 72 would have made strides toward leveling the playing field among medium-sized and larger employers, it would have covered only about a fifth of California's uninsured population. Because the mandate would only apply to employees in firms with more than 50 employees, only 18 to 26 percent of uninsured Californians would have gained coverage. This is because it targeted the wrong segment of the population: according to the California HealthCare Foundation, 95 percent of the targeted employers with 50 or more employees already offer insurance to some of their workers -- whereas only 65 percent of smaller employers (who would have been exempt from the mandate) offer coverage. The initiative would have left the millions of employees in small businesses without coverage, perpetuating the outdated notion that health insurance is best delivered through employees in large firms. And it would have continued the trend of some businesses subsidizing the health insurance of dependents whose employers don't offer coverage.

Proposition 72, however, did recognize that health insurance is and should be a shared responsibility, a fact that didn't receive much attention. The legislation would have required employers to contribute 80 percent of the cost of health care premiums. Individuals would have been required to accept coverage from their employers and contribute the remaining 20 percent. While this distribution may be skewed, the concept is correct and should be expanded. Yes, employers should be required to contribute to the cost of their employees' health insurance. But individuals have a role as well. Health insurance should be not only a right, but a duty. All Americans should be required to maintain a basic level of health insurance and to contribute a reasonable share of their income toward the cost of their own coverage. Where necessary, government should provide financial help to bridge the gap.

This solution -- universal coverage for universal responsibility -- is achievable. To be sure, many Californians are uninsured because they are too poor to afford health insurance. But nearly a third are living in households where their income is three times the federal poverty level -- nearly $50,000 for a family of three. Many of these individuals could afford to contribute toward the cost of their health insurance if they chose.

In addition, almost half of the uninsured in California are relatively young and healthy -- between the ages of 18 and 34 -- and they are the fastest growing demographic of the uninsured. Many of these younger people are playing Russian roulette with their health -- gambling that they'll stay healthy. But when they do get sick or suffer a traumatic injury, their ensuing health costs often force them into personal bankruptcy or are passed onto taxpayers or the insured in the form of higher premiums. Bringing all these younger and relatively healthy individuals into the insurance pool would spread risk more evenly among the population, bringing down the cost of insurance for everyone. It would also protect the rest of California taxpayers from having to absorb their uncompensated health care costs.

Another important advantage to a mandatory health insurance system is that health insurance would be tied to the individual rather than the employer. The current voluntary employer-based system evolved during the Depression when wage caps forced employers to find another way to compensate their employees. They began to offer their employees and dependents health and pension benefits as a substitute for higher wages. This system made sense 45 years ago when most employees worked full time supporting an at-home wife and children.

Today's work force, however, looks very different; millions of people are so-called "nonstandard" employees: part time, temporary and low-wage. These individuals either aren't eligible for employer-sponsored insurance or earn too little to afford their share of the premiums. Indeed, two-thirds of the 45 million Americans who are uninsured are working. Under a universal, mandatory system, all individuals would have insurance regardless of the number of hours they worked or their place on the corporate ladder. And people would no longer have to worry that losing a job means losing their health insurance, a phenomenon that causes labor market distortions such as job lock. It would also do away with one of the most vexing problems for people with employer-sponsored coverage -- the inability to take their doctors and health plans with them from job to job.

And unlike Proposition 72, a system of mandatory health insurance would be universal because it would apply to everyone, regardless of the size of the employer or the number of hours worked. This would level the playing field among businesses, since all employers would be required to contribute toward the cost of coverage. It would also end the cost-shifting of dependent coverage that occurs under today's voluntary system.

Since employers would have the option to contribute a fixed amount toward the cost of their employees' coverage, it would stabilize their costs, insulating them from unpredictable yearly premium increases. Small businesses that can't afford to offer their employees health insurance today would also receive tax credits to help them cover the cost.

The good news for Californians is that they don't have to start from scratch -- the building blocks are already there. Almost half of California voters support an employer mandate and Governor Arnold Schwarzenegger recently suggested an individual mandate as a route to coverage. Marrying an employer mandate that includes all employees to an individual mandate would result in all Californians gaining coverage and could serve as a model for other states and the nation.