With the election heading to the home stretch, this is the last chance to debunk some of the myths about Proposition 2.
“Proposition 2 will hurt local school districts.” School business officials and a parents organization claim that Proposition 2 will trigger a statute passed this year that would unreasonably limit school district reserves.
First, since the limit was on reserves was passed as a statute, it can be easily changed if it’s found unworkable. Second, the statute will only take effect in any year the state makes a deposit into the education reserve, which itself would be used to protect school budgets rom falling state revenues. No deposits would be made into this state reserve unless and until statewide school finances are fully funded and all school debts are repaid. Only then would the limits on local reserves go into effect. In other words, the limit on reserves would take effect during circumstances when the reserves are needed least.
“The Governor has used the existing rainy day reserve, known as Proposition 58, to save money and pay down debt.” So there’s no need for any change.
Passed in 2004, the Prop 58 reserve has proven utterly ineffective, since it the Governor and Legislature can withdraw reserves even during good times. The Prop 58 reserve isn’t a lockbox, it’s a petty cash drawer. Indeed, according to state Finance Director Michael Cohen, if the Proposition 2 rainy day reserve had been fully funded and in effect at the beginning of the Great Recession in 2008, then 62 percent of the budget shortfall would have been covered in 2008-09 and another 23 percent covered in 2009-10. Nearly $6 billion in education cuts would have been avoided, as well as virtually the entire first year of the tax increases passed in 2009. Instead, the Prop 58 reserve provided no cushion – because that cushion had already been spent.
“Proposition 2 puts a 15-year lock on the state budget, and creates new rules on debt repayment and pensions.”
The budget isn’t locked – it’s hedged against bad times and will continue to grow during good times. Proposition 2 creates exactly two new rules: (1) save money in a rainy day fund during good times only, plus an extra amount during really good times, and (2) use half the savings to pay off budget debt and the other half to cushion against bad economic times or natural disasters. The only rule on debt repayment is to pay debts when the money is available, and to pay unfunded pension debts when even more money is available. This isn’t “locking up the budget,” it’s making up for mismanaged fiscal policies of the past 15 years.
“Proposition 2 will in fact create more debt,” because any constraint in budget growth – including a mandatory deposit into a rainy day reserve – will cause the Legislature (motivated by interest groups) to borrow money instead of spending what “could be used to restore fundamental programs.”
If we’ve learned anything over the past decade, it’s that the Legislature will spend all the taxes that are raised during good times, and during bad times spend – and borrow – as if it were good times. Proposition 2 does not prevent borrowing – but it does create a reserve to reduce the need for borrowing. No law can suppress a politician’s appetite to spend other people’s money. Proposition 2 creates a smoother fiscal landscape to better accommodate those spending decisions.
Proposition 2 is a “motley, impossible-to-understand array of restraints on the discretion of foolish humans who dare try to govern and make state budgets in California.”
Proposition 2 is actually a rare example of a behavior that journalists and voters have been pining for: compromise. Drafted by Governor Brown from an idea originally proposed by Governor Schwarzenegger; carried by Democratic Assembly Speaker Perez but garnering unanimous bipartisan votes; supported by business and good government groups, and tolerated by government unions…Proposition 2 is viewed as a non-zero sum victory – turning the political process back onto itself to improve state governance.