Thursday, October 27, 2005

YES on 76: Let's Live Within Our Means

Prop 76 (state funding and school spending limits, a.k.a. the "Live Within Our Means Act") is a big, messy, complex proposition. The official summary alone is eight text-packed pages in the ballot pamphlet. With anything this complex, it is a practical certainty that there will be good parts and bad parts, and pieces you'd prefer to have a different way. That makes the decision tougher, in that even after digesting the big hairball, a clear-cut "yes" or "no" is improbable. More likely, you just need to weigh the benefits against the flaws and decide whether it's worth writing into the state Constitution. True to expectation, I found things in here that I liked, and other things that left me a bit queasy. But overall, I'm inclining to support this measure.

As background, it's important to understand that California has been in a down-spiraling fiscal mess ever since the Internet boom caused state revenues to boom as if the state had won some lottery. The state government increased spending commensurately, like those lottery winners you always hear about who blow it all and end up broke. Sure enough, after the Internet bubble burst, California has been piling debt upon debt ever since. This is compounded by the operation of a 17-year-old measure (Prop 98) that guarantees a minimum spend on education, based on formulas that increase over the previous year, such that windfall spending in one year raises the bar that much higher forever more.

Although there already exist current spending limits and balanced budget requirements, analysis shows that these are not sufficient to avoid similar messes in the future. Research indicates that only a rigorous requirement to balance actual spending to revenue (not just the budget as forecast) is effective in avoiding mounting deficits. The current requirements insure only that a balanced budget is passed at the start of a fiscal year, but do not protect against that budget falling out of balance when actual revenues fall short of what was estimated. Proposition 76 would provide two important protections: first, to limit spending to a measured growth (avoiding the drunken lottery winner syndrome), and second, to require budgets to STAY balanced. (The analysis of the California Policy Institute suggests that the spending limits would play an even greater role than the "anti-deficit" requirement.) Two independent studies have done a retrospective analysis on how California might have looked if had Prop 76 15 or 25 years ago, and it looks pretty reasonable. In short, Proposition 76 seems likely to be effectively beneficial for future fiscal sanity.

The Proposition also tweaks the old Prop 98 education funding guarantees (which had previously been tweaked by Prop 111). The changes are too technical to explain in this already long blog, but after studying them, they seem reasonable to me. There is a lot of heated rhetoric out there about $3.8 billion that the Governor "cut" from the education budget, and how this proposition will cause a reduction in funding. The reality is that that $3.8 billion was money the state never had in the first place, and only existed in the hypothetical budget requirements created by the perverse combination of Prop 98 mandates in the wake of the boom spending spree. ("Hypothetical" is a diplomatic description of that "budget". "Fantastic" might be more apt.)

Probably the most controversial aspects of the proposition concern the expanded powers given to the Governor. Under the new measure, if the budget falls out of balance, the Governor can declare a fiscal emergency and convene the Legislature to address it. The Legislature then has 45 days to enact correcting legislation, and if they fail to do so, the Governor has unilateral power to reduce State spending by making cuts at his discretion. While there is a definite shift in balance of power going on here, it is not quite as dire as the shrill warnings of the measure's opponents claim. "It places everything at the whim of the Governor!" they warn. Yes and no. For one thing, the Legislature always has the "right of first refusal" to, um, actually do their job and pass a budget. And even if the Legislature abdicates their responsibility in the first place, handing this new power to the Governor, the Legislature can always "get their act together" at a later time. In other words, if the Governor's cuts are not to their liking, they can always pass a new budget more to their liking, so long as it addresses the fiscal requirements. It should also be noted that the Governor already has a fair amount of power with the ability to reduce budget line items before signing a budget. All that being said, I do think that this goes too far. However, I think the benefits of the overall measure outweigh this queasy part. Also remember it's not uncommon for propositions to get tweaked by later propositions, and this seems to me the most likely part of this proposition (should it pass) to be tweaked in the future.

The other part of the proposition that I have some misgivings about is the automatic extension of the prior year's budget if the government can't get a new budget passed. It's a bit disconcerting nearly every year in June when the state government comes to a near-screeching halt when the budget expires and the Legislature hasn't pulled together the new one. But that screeching puts great pressure on them to finally get the job done. This auto-pilot budgeting makes the stakes too low for obstructionists in getting a new budget hammered out.

On the upside, other provisions tighten up the loopholes that have allowed all-too-frequent raids of "special funds" to keep the general fund afloat. When Californians voted for a gas tax that was to explicitly fund transportation projects, that's what we should get. Not a transportation fund full of IOUs from the general fund while the pot-holes go unfilled.

I glanced at the "pro" and "con" arguments in the ballot pamphlet, not that these are explicitly illuminating, but they are implicitly so. On the "rhetoric" meter, usually the sides are more balanced between reason and hysteria, but in this case the "con" arguments sounded much more hysterical to me, while the "pro" arguments sounded much more reasonable. Endorsers included the Governor, California's current Finance Director, a UCLA economics prof, the state Secretary of Education, and the Howard Jarvis Taxpayers Association president. Opponents included the teachers union, the nurses union, the firefighters union, and the law enforcement union. (Draw your own conclusions from that.)

In sum, while there are parts of this proposal that definitely make me a bit queasy, I think the overall package is needed, and the benefits outweigh the misgivings.

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