|PROP. 1A||Spending Cap and Increase in Rainy Day Fund|
|PROP. 1B||Education Funding Protection||Yes|
|PROP. 1C||Selling Bonds From Future Lottery Sales|
|PROP. 1D||Redirect Portion of Preschool Funding|
|PROP. 1E||Redirect Portion of Mental Health Funding|
|PROP. 1F||Restricting Elected Officials' Salaries|
INTRODUCTION: The end isn’t nigh
Even if Propositions 1A through 1F all pass on May 19, California’s crisis of fiscal mismanagement won’t be fixed. We held our noses in deciding to support five of the six measures, with the hope that they might be followed by a serious effort to fix the state’s broken budgeting process and structural budget deficits.
Props. 1A-1F are largely designed to avoid imminent bankruptcy, bond defaults and massive layoffs, by closing an estimated $42 billion budget gap for this fiscal year and next. They follow on nearly $1 billion in line-item vetoes by the Governor and billions more in spending reductions. The Legislature used the estimate, made in February, to establish the financial terms for Props. 1A-1F. By March it grew another $8 billion. The state’s bond rating, already at Louisiana’s level, was lowered to the nation’s worst, making it more difficult and expensive to sell already authorized and future bonds.
One starting point for understanding the problem is where California gets its revenues. Half come from personal income taxes, and the state’s tax code is very progressive. The top 1 percent of earners pay 48 percent of all income taxes, and the bottom 40 percent pay nothing. That’s a reflection of the increasing income disparity of our population, and the political reality that most voters want more services and lower taxes. Much of the taxable personal income is from capital gains, bonuses and stock options, so the state’s revenues rise and fall with the markets, and cratered thanks to Wall Street. A one percent dip in California’s GDP resulted in a 20 percent fall in personal income tax revenues.
Had California’s politicians and voters kept control of public spending, the drop would be painful—not a crisis. But every tax windfall, such as occurred periodically from 2001 through 2007, has been spent on public services. Conservative legislators spend it on prisons, more than doubling the inmate population in 20 years. Liberal legislators spend it on schools and health programs. Voters approve set-aside programs for mental health, K-14 education, early childhood programs, and more.
Rarely is there agreement. The basic reason is an adversarial political culture which is the result of gerrymandering. Drawing electoral district lines used to be a slow, manual and expensive process. Now, with a custom computer program and a census database, it’s fast and far more precise. Legislators have carved the entire state into safe Republican or Democratic districts. Thus, the elections that count are primaries, dominated by the ideologically pure. Lower taxes! More public services! With few moderates and less compromise, it took three months of negotiations and two nights of legislative lockdown to get an agreement on how to close the $42 billion budget gap. Abel Maldonado, the moderate Republican who was the deciding vote, extracted a promise for an initiative on next year’s ballot for an open primary, which could weaken the partisanship. It’s likely to be opposed by all the special interests who benefit from the status quo.
To further frustrate consensus, California is the only state to require a legislative supermajority vote to pass a state budget and to raise taxes. Democrats, who hold just under two-thirds of the seats, believe this frustrates the will of the majority of voters. Republicans believe it is the only effective way to protect minority rights and to forestall runaway spending.
The Constitution requires the governor and legislature to pass a budget that is balanced at the beginning of the fiscal year, with spending no higher than revenues which the Department of Finance estimates will arrive through the year. If the estimates prove too optimistic, as they frequently have, mid-year spending adjustments currently require the hard-to-achieve agreement of the Governor and Legislature. Prop. 1A would allow the Governor greater powers, but objectors say it will reduce needed checks and balances.
Finally, all of these propositions are layered onto the Constitution’s already hugely complex funding guarantees, restrictions and set-asides. All serious analysts agree that they have many long-term unknowns and likely unintended consequences. SPUR recognized that these propositions partially solve the short-term Constitutional demand, but that voters will have to demand a long-term and comprehensive solution to the state’s structural budget deficits.