This was originally published in Stephen Frank’s California Political News and Views
Many opponents of Proposition 1A believe that if the measure fails state government will melt down and arise like a phoenix from the ashes, reborn and remodeled in a positive way.
There is a lot that state government must do to change away from its 19th century model, including restructuring the tax code to promote growth, reconsidering regulations to offer a more business friendly environment, and introducing technology to create a more efficient government. However, changes will not come overnight.
One important consideration voters will have to make in deciding on Proposition 1A is to conclude if the cost of the measure is worth the price. The cost does not only include extending taxes for up to two years. The cost also includes what happens if Prop 1A and its accompanying measures fail.
While the Phoenix Theory is fine in practice, I do not believe it works in reality. Those who think that reduced spending is the only option to deal with the budget if Prop 1A fails are mistaken. The majority Democrats will not suddenly see the light and begin slashing programs or demanding that public employee unions nullify their contracts. Unlike a city or a county, a state cannot legally go bankrupt so a judge will not directly take control of state finances forcing such changes.
Certainly more cuts will be made to the budget and there might even be some attempts at mild restructuring, although, in such a short time frame, nothing on a grand scale will be done.
New revenues will still be pursued. Instead of going after broad base taxes, expect more targeted taxes. There could be taxes aimed at certain businesses, income groups, and a revival of the attempt to tax services. Targeted taxes may not bring the outcry broad based taxes did and might find acceptance, either in the legislature or by ballot initiative. Of course, the business taxes will end up hitting consumers indirectly.
If taxes are not approved, few observers question whether fees will be. A whole wide range of fees may be applied to products and services. Fees require a simple majority vote to pass instead of the two-thirds vote to raise taxes. However, fees are likely to be permanent, unlike the temporary taxes coupled to the ballot proposition.
And, now the legislators’ lawyer, the Legislative Counsel, has re-affirmed an earlier opinion that the tax scheme cooked up last year, which gets around the two-thirds vote provision for raising taxes, is acceptable. According to the Legislative Counsel, a bill that raises one tax and lowers another by an equal amount only needs a simple majority vote to pass. Combined with a loose definition of what constitutes a fee, the legislature hopes to get around the two-thirds vote provision required to raise taxes.
While I believe this plan is unconstitutional, no one can predict what a court will say.
The legislators could have other schemes up their sleeves to balance the state budget. Beyond simply redirecting some local property tax to cover state obligations as has been done in the past, one exotic play could be for the state to requisition large amounts of property taxes to fund schools, ridding the state of much of its school funding obligation, and offering new local taxing authority to local governments.
Clearly, other considerations besides cuts and restructuring will be attempted if the ballot measures fail. Remaking the budget on short notice will be painful. Whatever cuts do occur will not be made with restructuring government in mind. And, without a spending cap in place, the roller coaster ride budgets will return when the economy eventually turns around.
It has been suggested by advocates of a government meltdown that majority Democrats will be blamed for any disruption in government services. Perhaps. However, Republicans were blamed for shutting down the national government when Speaker Newt Gingrich took a hard line position on government finances in the 1990s and that could happen here, too. Frankly, I believe the public reaction will be: “A pox on both your houses.”
But little important governmental change will have occurred. What Proposition 1A offers is a chance to get on the road to reform. The measure itself is incremental change, putting in place a protection against uneven budgets to eliminate the budget distress that has forced tax increases in the past. That is an important step. But, the ballot measures also will allow time for the real work on restructuring government to get done.
If Prop 1A fails we will be left with the status quo: A mess. With no phoenix rising.