Part One:

Strange and powerful forces may be stirring again in the state of California. Faced with a $32 billion deficit, a Democratic governor facing a recall movement, a Republican party that says it will not raise taxes, and a public that is already financially strapped, the Golden State must either improvise or implode.

This has happened before, and when it did the ramifications for the nation were enormous. In 1978, Proposition 13 launched the national property tax revolt, and that movement was at the heart of what soon became a powerful anti-government reaction in middle America--one that carried Ronald Reagan to the presidency in 1980. The Great Society programs of the 1960s and 1970s were largely abolished, and many people began to write of the "plight" of cities. Without federal funds to address social welfare needs, they argued, cities would collapse, because they were in an impossible situation. If they taxed the wealthy to help the poor, the wealthy would leave and take their resources to low-tax jurisdictions in the suburbs. But if cities failed to address these social needs, their voters would revolt, their politics would become chaotic, their streets unsafe, their institutions destitute, and ultimately cities would become ungovernable.

But this is not what happened. Instead, state and municipal governments found new ways to do business. They used gambling--lotteries and casinos--to raise revenue from people who didn't perceive their losses as taxation. They turned to stimulating tourism to capture funds from non-residents. And above all they embraced the logic of privatization and the ideology of privatism.

Cities made deals with and offered incentives to corporate employers, developers, bankers, private contractors, non-profits, and just about anybody who could bring resources to bear on a project that needed doing. Central to this privatization project, though, and little understood except by a few, is the rise of common interest housing developments (CIDs). For over twenty years, cities in California and elsewhere have been forcing private real estate developers to pay for construction of infrastructure such as roads, streets, sewer systems, freeway offramps, parks, and even schools. Cities simply condition issuance of building permits on the developer's agreement to build these facilities. Of course, the builders simply pass these costs on to the home buyer, which is one reason why new housing in California is so expensive. And then the new owners become responsible for maintaining all this private infrastructure, through monthly assessments paid to their homeowner association (HOA).

And as the inevitable byproduct of this process, HOAs have become a new level of government in California. The cultural, economic, and political consequences of this revolution are far-reaching. And it is from this new institutional sector that the impending revolution in California governance may emerge.

(to be continued)