Opponents charge that the spending limit contained in Proposition 1A is phony and deceptive. The claim is based on three points. First, that the limit can go up anytime there is a tax increase. Second, that the spending limit isn’t real because the governor by simple executive order can draw down funds from the rainy day fund. Third, that the measure is deceptive because it is tied to a two-year extension in tax increases, which was not revealed in the ballot argument.
The Prop 1A opponents certainly have a legitimate gripe with the last point. The spending limit measure comes with a cost, which should be spelled out to voters. The legislators who controlled the ballot argument process did not do that. Once the cost is expressed, however, then the question should be asked of the voters: Is what they are getting in a spending limit worth the price? In an earlier article, I laid out reasons why finally getting a spending limit is important to the fiscal sanity of the state.
However, the spending limit itself is not phony. Opponents are incorrect in charging the governor can undo the limit by fiat. And, like talking about the spending limit without discussing the tax extension, stating that the limit can be raised with a tax increase doesn’t tell the whole story.
Under the existing rainy day fund, revenues can be taken for any purpose with a simple vote of the legislature declaring the money can be put to a different use rather than covering budget shortfalls. With Proposition 1A, the rainy day revenue can only be taken for an emergency like an earthquake or when the revenue drops below the previous year’s revenue level. It is only under these circumstances that the governor can sign an order and the legislature can appropriate revenue from the rainy day fund.
It is true that permanent tax increases can lift the spending limit. However, to argue that this is a flaw in the limit is to ignore both common sense and history. If this provision is a weakness in the limit, it has to be assumed that taxes will be raised frequently. Tax increases occur less often than the Dodgers win the World Series.
Before this year, the last multiple tax increases by the legislature occurred in 1991. Prior to that major tax increases occurred in 1967. So while the limit would go up under a tax increase, that is a rare occurrence.
In addition, the tax increases in the years mentioned above were all the results of budget deficits. None of the increases were intended to support increased government programs, but were put in place to close a budget hole. With the Proposition 1A spending limit in law, budget distress will occur less often so there will be less pressure for a tax increase.
The voters will have to determine if putting a long term spending limit in place is worth the upfront money in tax increases. But there are other cost factors to figure in.
If Prop 1A fails, what happens next? There will certainly be more spending cuts, but there will not be the massive cuts needed to balance the budget. Experience tells us neither the legislators – of either party – nor the people will sanction an additional $30 billion dollars in cuts. More likely, the additional cuts will come with attempts at targeted taxes on certain businesses, income groups, or services either from the legislature or by ballot initiative. Almost assuredly, there will be fee increases, which can be passed with a simple majority vote rather than a two-thirds vote. And, the fee increases most likely will be permanent, unlike the tax increases in the budget plan, which are temporary.
Nearly everyone agrees that government must be restructured and made more efficient to meet the demands of our time. How best to accomplish that is the question. Will it happen all at once, as some expect will result if the May propositions fail, or will changes come more gradually and less painfully? Prop 1A will take us down the latter path.