June 2012 spending cap measure will stop budget gimmicks

Loren Kaye
President of the California Foundation for Commerce and Education

Treasurer Bill Lockyer told reporters last week that a proposed state
spending cap on next June’s ballot is unusually restrictive and will force a
significant downsizing of government – and especially higher education.

The Treasurer is a keen observer of and among the
most experienced and knowledgeable players in state budget policy and politics.
But on this issue he’s wrong.

Mr. Lockyer was referring to ACA 4, a proposed constitutional amendment placed
on the June, 2012, ballot by the Legislature. The measure aims to accomplish
two goals: create and enforce a Rainy Day fund for the state’s budget, and
require that unforeseen revenue spikes be spent for one-time purposes and not
added to the general spending base.

Far from "spelling doom" for key programs, ACA 4 will
protect them from irresponsible short-term budget gimmicks.

While ACA 4 is a spending cap, it is not a very
stringent one. But that’s not the point. Rather than locking down spending, the
measure smooths it by saving money in good years and releasing the savings when
times are tough.

ACA 4 only requires deposits into the rainy day fund
during good times, which are defined as years when spending grows by more than
inflation plus population. And it only limits revenue growth when taxes come in
higher than the long-term average revenue growth. Even then, these excess
revenues are not simply squirreled away; they are first used to pay down debts
accumulated during past budget gimmickry and owed to schools, local governments
and transportation agencies.

The rainy day fund can be used to make up budget
shortfalls, which occur when revenues are insufficient to support spending from
the previous year’s budget increased by inflation and population. This is
hardly a vise grip on budget growth.

The prohibition on spending one-time revenues for
ongoing programs may be the most important lesson to emerge from our long and
painful budget crisis. Windfalls from the dot.com boom early last decade, and
the real estate bubble at the end of the decade, stoked spending sprees that we
are still paying off – at the expense of our higher education jewels. ACA 4
saves the windfalls and ensures they are spent to pay off debts or make capital
investments – two priorities that the Treasurer has made his own.

As to the threats to higher education, it is true
that the University of California and California State University are suffering
under dire budget straits. Tuition has again been raised and marquee faculty
are even more vulnerable to recruitment. But that is the situation today – and
it could get even worse if revenues do not materialize as forecast this year.
Far from exacerbating this, ACA 4 would soften the blow by paying down debts
and ensuring that existing programs get their due before the Legislature can
launch new ventures.

Follow
Loren on Twitter: @KayeLoren

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