The most important difference between Proposition 1A – the budget reform measure on May’s special election ballot – and the numerous attempts to control spending or enforce balanced budgets that have preceded it: Proposition 1A might actually work.
California ballots and, indeed, the Constitution itself, are strewn with well-intentioned efforts to impose discipline on state elected officials. But each of these measures has failed because it either frustrated public demands to provide more resources for priority needs, such as transportation or education, or was never designed to work as advertised in the first place.
This is no small thing. It makes no sense to propose or adopt a tough measure to impose fiscal discipline if it won’t be adopted, doesn’t work, or cannot pass the test of time. But that’s been the track record over the past thirty years:
– Proposition 4 (1979), A.K.A. the "Gann Limit," constrained state government growth to population plus inflation, with any excess revenues returned to taxpayers. But when more than a billion dollars was rebated to taxpayers in 1987, interest groups and politicians made short work of the measure, amending it – and gutting it – twice in the next three years.
– The first change was Proposition 98 (1988), sponsored by the California Teachers Association, which required that any surpluses above the spending limit be allocated to schools and community colleges.
– Passage of Prop 98 and the inability to raise gas taxes to pay for more highways and transit motivated the Legislature to draft a new, improved "limit," Proposition 111 (1990). This version changed the Gann Limit formulas and added exemptions so that surplus revenues never again threatened to be an issue for state policy makers. And so it came to pass.
– After gaining office after the recall election, Governor Schwarzenegger and the Legislature proposed Proposition 58 (2004), which purported to require the Legislature to enact a balanced budget. That worked out well.
Other spending limit and budget balancing measures have reached the ballot only to be turned down by the voters: Proposition 76 (2005) proposed by Governor Schwarzenegger; Proposition 165 (1992) proposed by Governor Wilson, and initiatives in 1988 (Propositions 71 and 72).
Proposition 1A is different because it can deliver on what it is designed to achieve: stabilizing the state’s fiscal situation, preventing the spending of one-time revenues, paying off debts, and minimizing future tax increases. All this while maintaining the political consensus that resulted in Legislative approval – twice.
- Stabilize the budget. Money would be added to a special budget reserve every year except when revenues dip below the growth in the economy. This budget reserve could only be used to shore up finances during economic downturns or – once the reserve is built to a substantial level – to pay for one-time expenses such as deficit reduction, infrastructure, or tax relief.
- Stop spending one-time revenues. California is in a fiscal mess because the Legislature spent one-time revenues from economic bubbles on ongoing programs. Proposition 1A would prohibit spending money above the historic revenue trend, saving them – again – for the budget reserve or one-time uses.
- Pay off debt. California’s operating deficit has persisted because our debt keeps getting rolled over. Proposition 1A would require half of new deposits into the budget reserve be first dedicated to erasing that debt. This would make "cutting up the credit cards" a reality.
- Minimize future tax increases. Californians obviously have strong protections against new taxes with the requirement for a two-thirds legislative vote. That’s the main reason this latest budget solution was so hard fought. But tax increases were only even considered because the state’s budget was thrown so far out of balance by past fiscal irresponsibility, compounded by a deep recession. According to the Department of Finance, had Proposition 1A been in effect for the past decade, the revenue shortfall from the recession would have been only $5 billion, which would have been easily covered with spending cuts. Fiscal responsibility plus a two-thirds legislative vote equals solid taxpayer protection. This measure completes the puzzle.
Undermining Proposition 1A because it does not turn back the clock to reinstate the Gann Limit is a false choice. The California political desert is littered with the bones of fiscal hawks whose good efforts came up dry. Rather than erecting a new monument to good intentions, policy makers have placed on the ballot a prudent, achievable path to fiscal responsibility.