SuperMouse hits one major factor on the head. Prop 13 drastically reduced CA’s income from property taxes. Second, in CA it requires a two-thirds majority of the legislature to pass tax increases, making it nearly impossible to rectify the situation or pass other taxes to make up for the loss. This has led to a third problem: namely, CA has, for at least the past two decades, relied much too heavily on bond issues. This is essentially borrowed money and the interest payments on these loans have become burdensome. Finally, there is the problem of the initiative system in CA. It is relatively easy and cheap to put an initiative before the CA voting public. These propositions have had, on balance, a deleterious effect on CA’s long-term budget, and not just from Prop 13 (there is a longer explanation for why this is).
These structural factors have combined to make it nearly impossible for CA lawmakers to rationally approach their state budget. I firmly believe that CA needs to undertake thorough review of their legislative processes (with an eye toward major reform of the initiative system, annual budget procedures, and even a repeal of prop 13), or else the state will find itself in a perpetual state of insolvency.