Happy New year! And what a year it is likely to be for California.

That faint headache you're feeling this morning doesn't necessarily mean you had too much fun last night. It may just be a foreshadowing of what lies ahead for the state in 2004.

That won't be fun at all. As we noted last Sunday, business as usual will not suffice to meet the challenges California faces in the year ahead. So as the year opens, we once again offer some ideas that seem worth discussing in the year ahead.

Once again, please note that at this point these are ideas worth discussing, nothing more. Maybe they're good ideas. Maybe not. We still reserve the right to decide some of them are not practicable or sensible. But California needs to consider some notions that might have seemed unthinkable a year ago.

The ideas we offer are a way to start the discussion about such possibilities. There will be more to come in the weeks ahead. We look forward to hearing your ideas, too. This is, after all, a discussion about the future of your state.

Reconsider Proposition 13

For a brief instant in 2003, California was on the verge of talking seriously about the effects of Proposition 13. Multibillionaire investor Warren Buffett, who was advising Arnold Schwarzenegger on state finances during the recall campaign, mused in public about the disparity between the tax bills on his houses in Nebraska and California.

Schwarzenegger's political advisers promptly and predictably got a case of the willies, and the topic was banned from the public realm.

That's too bad. California needs to come to grips with the effects of the 1978 initiative that limits the growth of property taxes, sooner rather than later.

Like all tax policies, Proposition 13 creates winners and losers. The winners are older, longtime homeowners and their heirs and owners of commercial property. The losers are younger, newcomers and first-time home buyers.

California isn't ever likely to dump Proposition 13, but 2004 would be a great time to move toward one change in particular, a split property tax roll that differentiates between residential and commercial property.

First, though, the state's politicians have to be willing to talk about the subject. That almost happened last year. The year 2004 is the time to break the taboo.

A bigger Legislature

Californians complain endlessly about their Legislature, but they usually overlook its biggest flaw: It's too small.

Although California is the most populous state and easily the most complex society and economy on the face of the globe, the state has one of the smallest legislatures in the country: only 80 members in the Assembly and 40 members in the Senate. The result is more human distance between citizens and lawmakers than in any other state.

Each member of the Assembly represents about 450,000 people, almost nine times the average in other states; each senator represents about 900,000 people, seven times more than the national average for upper houses and larger than U.S House districts.

California pays many penalties for having such a small Legislature. The Legislature doesn't have the diversity and range of talent and knowledge that it should have in such a big, complex state. Having large districts raises the cost of campaigning, increasing the power of special-interest contributors. A small Legislature makes it more difficult for individuals to get the attention of their representatives.

Increasing the size of the Legislature would address many of these problems. Raising the number of lawmakers to 300, perhaps in a unicameral body, wouldn't give California the largest lawmaking branch, but it would bring lawmakers somewhat closer to the people. If some of the added members were elected using proportional representation, the problems of redistricting and uncompetitive elections would also be solved, making the state Capitol more responsive to the voters.

Change state pension plans

At the same time that traditional defined benefit pensions are disappearing in the private sector, state and local governments are making expensive pension promises to public employees whose costs won't be fully evident to taxpayers for years to come.

There is only one surefire way to assure public pension transparency and accountability: Bar public agencies from offering defined benefit pensions.

A defined benefit is a binding promise made today to pay a particular benefit tomorrow. The problem is that the politicians making the promises won't be around tomorrow to pay the bills. The taxpayers will.

Over the past several years, state and local governments, under pressure from the public employee unions that provide dollars and workers for politicians' campaigns, have handed out lavish pension benefits. These will impose large and growing burdens on future budgets and taxpayers: earlier retirement with full pensions; calculation of pensions on last-year income; improved benefits funded with pension fund "surpluses."

To protect future taxpayers, the law needs to change to require that all future retirement benefits for public workers be paid in defined contribution plans -- like the 401(k) plans that have become the primary retirement saving vehicle for private sector workers. In those plans, the public contribution for each worker would be transparent, and the full benefit would be paid in the present, not promised as a mortgage on the future.

Modify 'three strikes'

Even as crime rates have fallen, California's prison population has grown from 115,000 just 10 years ago to a little more than 160,000 today. More than half those inmates have been incarcerated for nonviolent offenses, drug-related and property crimes mostly.

Approximately 6,500 inmates are 55 or older; some 1,200 are over 65. Because they are more likely to suffer serious health problems, older inmates are more expensive to house. When paroled, they also represent a significantly lower crime risk. A minuscule 1.4 percent of inmates paroled after age 55 are sent back to prison because they commit new crimes. That compares to a re-offense rate of more than 50 percent for 18-to 29-year olds.

With prison guards costing close to $100,000 annually apiece and a mushrooming corrections budget that threatens funding for higher education, roads, mental health and other vital services, California can no longer afford to lock up felons who pose no serious threat to public safety. The "three strikes" law does not have to be repealed, but it does need to be modified to allow nonviolent and elderly inmates to earn parole faster.

Water like the old days

If the state is to have any role in building additional reservoirs (several are in the planning stages), model the funding after the State Water Project.

Hatched during the glory years of infrastructure development, the water project first identified the customers, who agreed to pay the cost to develop and deliver the water. The state came up with the funds (by selling bonds), and the customers paid the money back over favorable terms (50 years).

This is very different from the pure-pork form of modern water financing. Recent state bonds have been high on subsidies in the form of grants to local water districts for their projects and low on loans.

No water legislation deserves a drop of ink or a legislative vote until customers have stepped forward to pay the full price of new reservoir water.