Posted on 10/21/2005 9:59:27 AM PDT by NormsRevenge
SACRAMENTO – A state spending limit backed by Gov. Arnold Schwarzenegger is aimed at avoiding future deficits, but it is not expected to help close the current budget gap and may have no impact on overall spending for years.
Here's why: The limit in Proposition 76 on the Nov. 8 ballot is based on how much money the state takes in, and an improving economy is boosting state tax revenue. Simply put, increasing revenues could raise the spending limit.
Schwarzenegger's finance department estimates that projected spending would be near the limit next fiscal year, about $2 billion under the limit in the following year and may not reach the limit for six years.
"The key is not to crank government spending down," said Tom Campbell, Schwarzenegger's former finance director, who left the post to campaign for the initiative. "It's just to spend no more than we have."
The opponents of Proposition 76 are not buying the soft sell and are warning instead that the "California Live Within Our Means Act" will result in significantly less funding for schools and other programs than current law.
Another concern of opponents is that the initiative shifts too much budget power to the governor, who could make midyear spending cuts if the budget falls out of balance and the Legislature fails to close the gap in 45 days.
If only indirectly, the initiative also raises the broad issue of whether the state is spending enough on schools, roads, social services and other programs or a tax increase is needed to boost revenue.
"We are concerned that it doesn't approach the budget in terms of what is needed," said Trudy Schafer of the League of Women Voters of California, which opposes Proposition 76. "It is aimed at solving the budget problem by reducing spending, and we feel everything should be on the table."
After two years on the job, Schwarzenegger is still struggling with one of the big problems that propelled him into office in the historic 2003 recall election: State spending continues to exceed revenues, now for six years in a row.
An ongoing budget gap that ballooned to as much as $38 billion under former Gov. Gray Davis is estimated by the nonpartisan Legislative Analyst to be $6 billion next fiscal year in a general fund totaling $96 billion.
To paper over the gap, the state has borrowed $25 billion from various sources, including an unprecedented long-term deficit bond of up to $15 billion approved by voters last year at the urging of Schwarzenegger.
The Legislative Analyst estimates that the state will spend $3 billion to $4 billion paying off budget-related debt next year, as much as or more than the roughly $3 billion the state will spend on the University of California.
The bond authorized by Proposition 57 was accompanied by what was billed as a spending-control measure, Proposition 58.
But Schwarzenegger's decision to push for a new spending control this year seems to confirm the view of critics that Proposition 58's requirements for a "balanced" budget and a rainy-day reserve fund, both easily waived by the Legislature, are ineffective.
Tough job
Crafting a workable spending limit is not easy. The new controls proposed in Proposition 76 would be an addition to a spending limit approved by voters in 1979, after the passage of the landmark Proposition 13 property-tax cut.
The "Gann limit," named after Proposition 13 co-author Paul Gann, produced a $1.1 billion rebate to taxpayers in 1987. The limit was loosened in 1990 by Proposition 111, and current spending is about $11 billion below the limit.
Among the main backers of the initiative that lifted the Gann limit are the business groups that helped write Schwarzenegger's Proposition 76.
At a legislative hearing two weeks ago on Proposition 76, Allan Zaremberg of the California Chamber of Commerce and Bill Hauck of the California Business Roundtable declined to identify its authors.
Hauck and Zaremberg, who both have decades of experience working on legislation, told the committee that the initiative was produced through "a group effort" that involved "a range of people."
The main rationale for lifting the Gann limit was to allow more spending on transportation.
The central argument for Proposition 76 is to "smooth out" spending over time and avoid unmanageable deficits in the future.
The state's budget problems began when a large but temporary increase in tax revenue from the high-tech boom, which peaked in 2000, led lawmakers to boost spending and cut taxes, creating a big budget gap when revenue dropped.
Hauck told the legislative committee that if Proposition 76 had been in place for the past 20 years, "We would be spending almost what we are spending today and, very importantly, the state would not have the kind of debt obligations it has now."
Disagreeing with Hauck, the Legislative Analyst's Brad Williams told the committee that state spending would probably be more than $10 billion below the current level if Proposition 76 had been in effect for 20 years.
The initiative would limit annual spending increases to the average revenue growth in the three previous years.
If spending drops one year, that becomes the new starting point for applying the revenue limit, which opponents of Proposition 76 say could "ratchet down" spending to unacceptable levels.
Nothing in Proposition 76 prevents a tax increase.
But if spending is already at or near the limit, spending new revenue from a tax increase could be delayed until the three-year revenue average raises the limit.
A tax increase, however, is not on any to-do list for Schwarzenegger, who kept a campaign promise by repealing a $4 billion increase in the vehicle license fee, or "car tax," on his first day in office.
"The choice is simple," Schwarzenegger says in the ballot pamphlet argument for the initiative. "Pass Proposition 76 or face higher taxes such as the car tax, income tax, sales tax, and even property taxes."
What he doesn't say is that he would have to sign off on any tax increase, except one enacted through an initiative approved by voters.
Schwarzenegger contends that built-in spending requirements in current law, which he calls "autopilot spending," have been forcing the state to spend $1.10 for each $1 of revenue.
The biggest of the spending formulas, Proposition 98, guarantees that schools get about 40 percent of the general fund and is intended to grow with population and the economy.
Schwarzenegger persuaded schools last year to help balance the budget by agreeing to a $2 billion cut in Proposition 98 funding.
In return, they were to get their regular share of any unexpected revenue – a promise that education groups say he broke, costing schools $3 billion.
Now Schwarzenegger has further angered school groups by pushing an initiative that could result in midyear cuts in school spending, making school budgeting unpredictable and creating new problems.
Proposition 76 allows the governor to declare an emergency if revenue falls 1.5 percent below the budget forecast, or more than half the reserve is spent. If the Legislature fails to act in 45 days, the governor could cut spending.
Given the current legislative deadlock between anti-tax Republicans and Democrats who think programs are underfunded, opponents say the initiative would hand the governor sweeping new powers to cut most programs.
Some supporters say Proposition 76 simply restores authority once held by governors to make midyear cuts, a power that then-Gov. George Deukmejian traded away in a budget deal in 1983 and that Davis urged be restored.
But nonpartisan Legislative Analyst Liz Hill told the Oct. 6 legislative hearing that the power to make midyear cuts was used mainly by the Department of Finance to make technical changes, not to keep the budget in balance.
"My understanding is that particular authority was used very sparingly," Hill said. Hauck of the Business Roundtable agreed, telling the committee that he thought Hill's view was correct.
In addition to allowing midyear cuts, Schwarzenegger's initiative also makes a major change in the Proposition 98 school-funding guarantee that opponents say is a $4 billion cut.
The initiative eliminates two parts of Proposition 98: a provision, called "Test 3," that lowers the school-funding guarantee in years when tax revenue slows, and a "maintenance factor" that requires the lost funds be repaid later.
Schools currently are owed $3.8 billion to make up for past reductions in the guarantee. Proposition 76 would repay that debt over 15 years and – in an important change – not use the repayment to increase the guarantee.
Reduced funding
"At a time when our state is already 8th from the bottom in per-pupil spending, Proposition 76 would reduce school funding by $4 billion every year, about $600 per student, and that is unacceptable," Superintendent of Public Instruction Jack O'Connell said in a statement for the No on 76 campaign. His remark is an overstatement in two ways.
California's per-pupil funding ranks in the middle of states, and drops toward the bottom only when an adjustment for the high cost of living in the Golden State is added, as it was in an analysis by Education Week.
Nor is Proposition 76 likely to trigger an immediate cut of $4 billion a year in school funding. Even under current law, the $3.8 billion owed schools will be repaid under a complicated formula that could take a number of years.
But because the initiative would spread repayment over 15 years and prevent the repayment from increasing the Proposition 98 guarantee, this part of the measure arguably lowers school funding by more than $3.8 billion over time.
On the other hand, the backers of Proposition 76 argue that two things in the initiative would tend to increase school funding:
The Proposition 98 guarantee would no longer be lowered by "Test 3" in lean years. And, in good years, lawmakers would be more likely to provide more money for schools than Proposition 98 requires because the additional "one-time" money would no longer increase the guarantee in future years.
The campaign for Proposition 76 cites a study by the California Taxpayers Association, a business-backed group, that concludes that Proposition 76 would increase school funding.
Legislative Analyst Hill said in a Sept. 30 report that, overall, the initiative could indeed have that effect.
"However, while the Proposition 98-related changes, by themselves, would not necessarily reduce K-14 spending, other provisions of the measure might have that effect," Hill said.
She pointed out that "budget reductions resulting from the spending limit or the governor's new authority (to make midyear cuts) could apply to schools."
If passed, the measure will:
Limit state spending growth to the average revenue increase in the three previous years.
Allow the governor to make midyear spending cuts if the budget falls out of balance and the Legislature does not act.
Weaken the Proposition 98 school-funding guarantee.
Stretch out repayment of $3.8 billion owed schools.
The limit in Proposition 76 on the Nov. 8 ballot is based on how much money the state takes in, and an improving economy is boosting state tax revenue. Simply put, increasing revenues could raise the spending limit.
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Nothing in Proposition 76 prevents a tax increase.
Weaken the Proposition 98 school-funding guarantee.
Stretch out repayment of $3.8 billion owed schools.
Prop 76 will not stop the overall spending level for education and does not guarantee any spending cuts or new taxes to sustain the same,, which is what got this state in the snit it is currently.
The legislature and Governor have the power today to rein in the spending, but they do not have the will nor are they willing to sacrifice their own places in the spotlight to just do the right thing and govern and not dictate new terms of surrender to the legal citizens of this state.
As usual, voters will be asked to decide what flavor koolaid they would like with their gubamint cheese.
I think the guv has the will. The legislature is dominated by leftist loonies. They don't lack the will, they lack the wisdom to do this.
Unfortunately ,,
Prop 76 locks in the bulk of the spending at high sustained rates of the last few years including the 2 years worth of budgets proposed by the Gub.
and it does not prevent additional new spending to sustain the frenzy to spend in Sacramento.
nor has the Gub indicated he is either able or amenable to making cuts.
That's an interesting perspective - saying they currently "have the power to rein in spending". I guess I agree they have the legal power, but they do not have the political power to do it. One misstep and you get the nuclear weapon of Teachers / PrisonGuards / GovtWorkers / IndianCasinos dropped on you. Every potential opponent is running tv ads now attacking Schwarzenegger for raping schools (not giving them the Moon). Even if Arnold gets everything he's asking for, the state is way too liberal for my tastes. At the same time, I cannot imagine any other Republican being nearly as effective as pushing the Legislature to the right as he has.
I mostly agree with McClintock's positions, but he is just not competent at statewide politics.
I think the guv has the will.
---
2 years ago is when he could have started showing that "will".
To now believe that he has it is a bit beyond belief, much like many of his movie scripts, imo. ;-0)
Who proposes the budgets and allocates and spends the money? The tooth fairy?
Tom has no crediblity on statewide politics... lol
Yet he is now being used to tout why all these props need to pass..
;-)
NormsRevenge - What negotiation tactic are you recommending a governor use to deal with the insanely liberal legislature? As mediocre as Prop 76 is, anything more rightwing has absolutely no chance of passing. I think we are in agreement but it's difficult to be sure, all things considered.
well, maybe 2 years ago , instead of borrowing 15 billion to keep the state afloat, he could have had a little sit down and told the legislative leaders, "You are either with me or you are against the future of California's economic and financial well-being."
Even 'insane' folks have their moments of lucidity.
I think we both agree, things do need to change, we just disagree on how, what and who should be doing them.
Duly noted. This is not a spending “control” measure, or at least not the kind of control that people expected when they elected Schwarzenegger, the self described “fiscal conservative.”
"The key is not to crank government spending down," said Tom Campbell... "It's just to spend no more than we have."
Which current law already prohibits them from doing. Arnold ran on a platform of “We have a spending problem.” It is due time he be reminded of that.
Schwarzenegger is still struggling with one of the big problems that propelled him into office in the historic 2003 recall election: State spending continues to exceed revenues, now for six years in a row.
And the last two budgets were proposed by the Governor, and approved by the Governor--despite his power of line item veto.
To paper over the gap, the state has borrowed $25 billion from various sources, including an unprecedented long-term deficit bond of up to $15 billion approved by voters last year at the urging of Schwarzenegger.
Despite opposition from fiscal conservatives.
Schwarzenegger's decision to push for a new spending control this year seems to confirm the view of critics that Proposition 58's requirements for a "balanced" budget and a rainy-day reserve fund, both easily waived by the Legislature, are ineffective.
As those who opposed both Prop 57 and Prop 58 predicted.
The "Gann limit" ... loosened in 1990 by Proposition 111... Among the main backers of the initiative that lifted the Gann limit are the business groups that helped write Schwarzenegger's Proposition 76.
Proposition 111 was also pushed by a Republican conservative Governor Deukmejian. These business groups are operating for their own interests--not those of the average taxpayer. Prop 76 is another screw job masked under a glossy republican cover.
Nothing in Proposition 76 prevents a tax increase... A tax increase, however, is not on any to-do list for Schwarzenegger
But it is on the to-do-list of Phil Angelides and other democrats, who may very well hold office soon.
Schwarzenegger says .. "Pass Proposition 76 or face higher taxes such as the car tax, income tax, sales tax, and even property taxes."
Or, perhaps the Governor should be forced to consider the obvious alternative, the one he promised during his campaign: CUT SPENDING.
The initiative eliminates two parts of Proposition 98: a provision, called "Test 3," that lowers the school-funding guarantee in years when tax revenue slows, and a "maintenance factor" that requires the lost funds be repaid later.
The elimination of “Test 3” guarantees that education spending can NEVER go down! The maintenance factor change is a good change--but at what expense?
Schools currently are owed $3.8 billion ... Proposition 76 would repay that debt over 15 years
More deferral of expense puts us further in debt.
The campaign for Proposition 76 cites a study by the California Taxpayers Association, a business-backed group, that concludes that Proposition 76 would increase school funding.
More spending is not what I want. I will vote NO.
The estimated value of the deferrals that resulted from these additional accounting gimmicks is about $1B. Combined with the Prop 98 offsets, that's about $5B in borrowing or deferred replenishment from the General Fund that Prop 76 authorizes.
Add to that the remaining $2 billion balance on previously borrowed Prop 42 funds (and any amounts borrowed next year, specifically allowed by the Prop 76 language). Those also will be deferred. Here was my last tally:
http://www.freerepublic.com/focus/f-news/1491663/posts?page=67#67
Assuming all of the 2005-06 Prop 42 funds were restored, we come up to $7 billion in deferrals, as of this year.
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