Forget Detroit—It’s Time to Bail Out Cali

California's politics have failed its people. It's time for the federal government to say enough.

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Imagine a western country with a population of about 40 million people and an economy the size of Spain or Italy. After years of dysfunctional politics and amid a global recession, it teeters on the verge of bankruptcy—forced to choose between eliminating the most basic services for its citizens and defaulting on its massive debts. Such a country has a way out through the International Monetary Fund (IMF).

But if the dysfunctional economy is not a country but, say, California, a way out suddenly seems less clear.

In 1978, California's voters approved Proposition 13, which changed the state constitution to require a two-thirds majority vote of the state legislature to raise taxes. Meanwhile, the state's progressive constitution allows voters to impose spending requirements on the legislature, borrow money or amend the constitution by a simple majority vote.

Voters everywhere want low taxes and generous government benefits. In most government systems, they elect legislators who try to balance these imperatives. But only in California can voters both give themselves tax cuts and require the state legislature to spend more money on their chosen programs. Well-meaning initiatives have taken large chunks of the budget out of the legislature's control and have saddled the state with heavy interest payments on endless bonds used to pay for infrastructure such as new schools and earthquake retrofitting for public buildings. These sound nice when described in one sentence on a ballot, but funding them through debt is unnecessarily expensive and limits the legislature's options, short-changing less sexy programs such as services for the poor.

Slightly more than a third of the seats in the legislature are firmly controlled by Republicans. Amid a constant threat of primary challenges from the right, these legislators refuse to support any tax increases under virtually any circumstances. The results are predictably disastrous: California faces massive debts, declining services and a budget that seems perpetually in crisis.

The Obama administration seems disinclined to help, even as it is  seeking $100 billion in loans for the International Monetary Fund itself—an amount that could easily solve California's problems.

Why should this be Obama’s headache? The current iteration of the crisis was sparked by the global recession, but is fueled by the state's long-standing dysfunction. The state’s $40 billion budget hole represents 5 percent of its GDP. To close it, the state legislature, with the cooperation of just a few Republicans, had to rely on voters to pass a bundle of propositions that married a spending cap to modest tax increases, created a rainy-day reserve and expanded the state lottery.

But the rejection of the initiatives really represented an electorate taking the only opportunity it had to lash out at its leaders. If Sacramento liked it, the logic went, it must be bad. (The state legislature has an approval rating of 14 percent.)

As a result, California faces an impossible choice—and one it must make quickly. Revenues won't increase because Republicans will never approve more tax increases and voters are unwilling to approve further borrowing. The only remaining option is putting the government on a starvation diet—which will wreak havoc on the state’s most vulnerable.