Spotlight: California's Budget Crisis

Win McNamee / Getty

California Governor Arnold Schwarzenegger

California is a state in crisis. Negotiations to resolve its $26.3 billion budget deficit are weeks behind deadline, more than $470 million worth of IOUs are clogging government ledgers and its state bonds are trading at near junk status. It's been a long, slow tumble from the Golden State's glamorous peak in the 1960s--when Governor Pat Brown built an efficient network of freeways and thriving, affordable public universities--to today's insolvent government beset by an unwieldy constitution and decades of mistakes.

California's crisis winds all the way back to 1978's Proposition 13, which cut property-tax rates 57% and forced the state to...