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Press Release · January 24, 2008

California Screaming: Economic Angst Hits Record High

Amid State Budget Crisis, Residents Pin Hopes On “Post-Partisanship”; McCain Surges, Giuliani Sinks In Republican Presidential Primary

SAN FRANCISCO, California, January 24, 2008 — Seeing dark clouds on the horizon, Californians are registering a record level of concern about the state’s fiscal health in the coming year, according to a survey released today by the Public Policy Institute of California (PPIC) with funding from The James Irvine Foundation. But despite the gloom and doom of their bleak economic outlook and the state budget crisis, state residents still have some hope for progress on the issues they care about.

Most Californians (72%) expect bad economic times in the coming year—a 7 point increase since December (65%) and a 33 point increase since last January (39%). Pessimism about the state’s economy is now at its highest point since the PPIC statewide survey was launched a decade ago—up a notch from its previous high in February 2003 (71% bad times). Adding to their worries, nearly all Californians (94%) view the state’s budget situation as a big problem (64%) or somewhat of a problem (30%). These growing financial and fiscal anxieties only deepen broader concerns about the future: Half of Californians (54%) today believe the state is generally headed in the wrong direction—a 17 point jump since last January (37%).

With the national economy slumping and the state facing a multibillion dollar shortfall in revenues, more Californians are saying that the economy (19%), state budget (15%), education (15%), and immigration (14%) should be the priorities for Governor Arnold Schwarzenegger and the state legislature in 2008. A year ago, the economy (7%) and state budget (5%) barely registered on residents’ to-do list for state leaders.

Do they think their leaders are up to the challenge? Despite a predictable slide in approval ratings for the governor and legislature, state residents are surprisingly hopeful. Governor Schwarzenegger’s ratings have dropped from 57 percent to 50 percent since December, and the state legislature’s ratings have dropped from 41 percent to 34 percent. Solid majorities of state residents also disapprove of how the governor (55%) and state legislature (64%) are handling the state budget and taxes. And yet, half of Californians (50%) believe the governor and legislature will be able to work together and accomplish a lot in the next year.

“There isn’t a blame-game at this point, in contrast to what happened during the state’s last economic meltdown, which led to the recall of Governor Gray Davis,” says PPIC president and CEO Mark Baldassare. “The post-partisanship that state residents have come to expect from Governor Schwarzenegger and the state legislature will be put to the test this year. Californians are waiting to see whether or not Democrats and Republicans can rise to the occasion before they start pointing fingers.”


Despite their hopes for action, Californians have mixed feelings about the governor’s efforts to get a handle on the budget situation. Schwarzenegger’s State of the State address—in which he proposed reforming the budgeting process and called for across-the-board spending cuts—had little traction with California residents (30% favorable impression, 33% unfavorable). And a majority of adults and likely voters (56% each) are dissatisfied with his subsequent budget proposal, which would cut spending in key programs and would not raise taxes.

Why the negativity? Nearly eight in 10 adults (78%) are at least somewhat concerned about the effects of spending reductions in the governor’s proposal, with 36 percent saying they are very concerned. Specifically, 62 percent oppose the governor’s plan to suspend minimum spending requirements for K-12 public education. Residents are divided about his plan for the early release of 22,000 nonviolent prisoners as a way of reducing state spending on prisons and corrections (49% favor, 45% oppose) and about whether tax increases should have been included in the governor’s budget (50% no, 46% yes).

Still, several of the governor’s actions and proposals get a decidedly warmer reception. A majority of adults (64%) agree with the governor’s declaration of a fiscal emergency. Two in three Californians (67%) support his call for about $40 billion in new state bonds for water and education facilities, high-speed rail, and other infrastructure projects. And interestingly, a majority of state adults (64%) say they support the governor’s proposed constitutional amendment to stabilize the budget. In supporting an amendment that would place limits on state spending, require that money be socked away when revenues are high, and allow for budget adjustments at several points throughout the fiscal year, Californians appear ready to take a fresh look at an idea that voters have rejected in the recent past.


Californians today also appear slightly more willing than in the past to consider tax increases as part of a solution to the budget crisis. When asked how they would most prefer to deal with the state’s budget gap, 41 percent of Californians prefer a mix of spending cuts and tax increases, up from 36 percent in December. Still, the potential for a partisan fight is great: A majority of Democrats (52%) want to deal with the budget gap through a mix of cuts and taxes while most Republicans (56%) prefer spending cuts. And there is little consensus about who should make the tough choices involved in the state budget: 37 percent of Californians favor the Democrats in the legislature, 24 percent prefer the governor’s approach, and 18 percent favor legislative Republicans.

With cuts looming, do Californians agree about what programs they most want to protect from the budget axe? A majority (57%) say K-12 education, while fewer say health and human services (19%), higher education (14%), or prisons and corrections (6%). Would they be willing to pay higher taxes to maintain current funding for any of these programs? Again, there is some common ground: Majorities of state residents say they would pay higher taxes to maintain funding for K-12 education (67%) and health and human services (56%), but are divided over paying higher taxes to support higher education (50% yes, 48% no).

What fees or tax increases might state residents support as a way to reduce the state’s budget gap? As usual, they prefer options that won’t affect their own pocketbooks. Majorities of Californians are receptive to the idea of raising the top rate of the state income tax paid by the wealthiest state residents (73%). However, they are opposed to increasing the annual vehicle license fee (58%) or raising the state portion of the sales tax (64%).


As California struggles with yet another budget crisis, many leaders and observers are calling for long-term structural reforms to address the boom and bust nature of the state’s fiscal condition. Where do Californians stand on these proposals?

  • Spending limits: 67 percent of Californians think it is a good idea to strictly limit annual increases in state spending. Although residents consistently support this idea in concept, in 2005 they rejected Proposition 76, which would have placed limits on spending increases.
  • Taxing services: 62 percent of state residents oppose extending the state sales tax to services such as legal and accounting assistance, auto repairs, and haircuts. Public attitudes toward this proposal have been consistently negative over time (63% in May 2005, 65% in May 2007).
  • Taxing Internet sales: 56 percent of California adults support taxing all goods sold over the Internet, as did 57 percent in June 2003.
  • Leasing the lottery: 58 percent of residents say it is a bad idea to lease the California State Lottery to a private company as a way to address structural issues in the state budget.


In the context of a budget crisis and state leaders’ sagging approval ratings, voters appear less inclined to consider reforms to legislative term limits. Proposition 93—the “Limits on Legislators’ Terms in Office Initiative Constitutional Amendment”—is a term limits reform measure on the February statewide ballot. When read the official title and label for this initiative, California’s likely voters are divided (42% yes, 42% no), and support for this measure has fallen since December 2007 (from 47% to 42%). This downward trend is driven by declining support among Republicans (from 55% to 39%) and independents (from 52% to 44%), with only a modest increase in support among Democrats (from 43% to 47%).

Despite the drop in support for Proposition 93, there is still enthusiasm for two of the measure’s three key provisions. Majorities of likely voters like the idea of reducing the total amount of legislative service from 14 to 12 years (65%) and allowing that service to take place in the assembly, senate, or a combination of both (57%). Likely voters remain less approving about providing a transition period to allow current legislators to serve 12 years in their current house, regardless of prior service in another house (38% good idea, 50% bad idea). These responses have changed little since December.

“Voters are open to changing term limits in small ways, but reforming the system is not a top priority right now,” says Baldassare. Indeed, 56 percent of likely voters—including majorities of voters who support (56%) and oppose (60%) Proposition 93—say the state’s current system of term limits gives state legislators the right amount of time in office.


The rollercoaster ride for the Democratic and Republican presidential nominations has apparently convinced California voters that they can make a big difference in the national outcome. A majority of likely voters (57%) now say it was a good idea to move California’s presidential primary from June to February, up from 45 percent who held this view a month ago. Nearly nine in 10 voters (88%) say the California primary is playing a very important (50%) or somewhat important (38%) role in selecting the presidential candidates for the November 2008 election.

Where do voters stand today? Among Democratic primary likely voters (Democrats as well as independents who say they will vote the Democratic primary ballot), Senator Hillary Clinton (43%) continues to lead the field, followed by Senator Barack Obama (28%) and former Senator John Edwards (11%). While there has been little change since December in support for Clinton (from 44% to 43%), Obama has made a steep 8 point gain (from 20% to 28%). As a result, Clinton’s 24 point lead has shrunk to 15 points.

Among Republican contenders, Senator John McCain (29%) has burst into the lead and enjoys a 12 point advantage over his closest rival, former Massachusetts Governor Mitt Romney (17%). Former New York City Mayor Rudy Giuliani and former Arkansas Governor Mike Huckabee are locked in a tie for third place (10% each). The big story in the Republican race? Since December, support for McCain has spiked by 18 points while support for former frontrunner Giuliani has plummeted by 14 points.

Overall, far more Democratic likely voters (77%) than Republican likely voters (52%) are satisfied with their choice of presidential candidates. Nonetheless, voters of all stripes are tuning in: Most voters (88%) say they are very closely (44%) or fairly closely (44%) following news about the candidates.


  • Cut the fat, keep state services— Page 19
    A strong majority of Californians (70%) say state government could spend less and still provide the same level of services. And 41 percent of residents holding this view believe government could cut spending by 10 to 20 percent without reducing services.
  • What budget crisis? Californians still want health care reform — Page 23
    A majority of Californians (60%) and likely voters (53%) say they would support a plan requiring all Californians to have health insurance, with costs shared by employers, hospitals, individuals, and government through a variety of fees and a cigarette tax. The proposal has passed the state assembly and may land on the November 2008 ballot.


This edition of the PPIC Statewide Survey is part of the Californians and Their Government series and is supported by funding from The James Irvine Foundation. The survey is intended to raise public awareness, inform decisionmakers, and stimulate public discussions about the social, economic, and political trends that influence Californians’ public policy preferences and ballot choices. Findings are based on a telephone survey of 2,000 California adult residents interviewed between January 13 and January 20, 2008. Interviews were conducted in English or Spanish. The sampling error for the total sample is +/- 2% and for the 1,099 likely voters is +/- 3%. The sampling error for the 543 Democratic presidential primary likely voters is +/- 4% and for the 348 Republican presidential primary likely voters is +/- 5%. For more information on methodology, see page 25.

Mark Baldassare is president and CEO of PPIC, where he holds the Arjay and Frances Fearing Miller Chair in Public Policy. He is founder of the PPIC Statewide Survey, which he has directed since 1998.

PPIC is a private, nonprofit organization dedicated to informing and improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett. PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office.