The voices of Tax Policy Center's researchers and staff
Californians vote tomorrow on six ballot measures addressing their state's perennial budget problems. If nothing passes, California will face a $20 billion budget shortfall. If everything passes, the deficit drops to—drum roll, please—$15 billion. Big numbers but not unusual for the Golden State. The bigger issue is whether California, or any other state, should budget by initiative.
While California is hardly alone, it remains the poster-child of state budget dysfunction. Its highly volatile tax system follows the economic cycle through boom and bust. Recessions mean collapsing revenue collections collide with spending mandated by earlier ballot measures, making it hard to get a balanced budget. Using the ballot box to address these problems seems only to make matters worse.
It may have all started with Proposition 13, the 1978 initiative known mainly for limiting property tax assessments and rates. Prop 13 began the cycle where the state controlled most spending decisions and the ballot box often earmarked funds. While most people know about its effect on local revenues, Prop 13 also changed state budgeting rules, requiring a two-thirds majority to pass the state budget and any tax increases. This supermajority requirement, combined with hyperpartisan politics, makes it extraordinarily difficult for the state to pass a budget, even when the economy is relatively healthy. In a poor economy, when revenues fall short, the budget process becomes a circus.
Asking voters to approve propositions that temporarily increase revenues but limit future spending growth isn’t new—California has done it before with numerous initiatives and three special elections just since 2000. The state set up a rainy day fund and tried to limit spending in 2004, during the last fiscal crisis. You remember that recession: the dot.com boom busted, the governor tried to reinstate a tax that had been temporarily cut when times were good and got recalled and replaced by a Hollywood star. The new governor made up the shortfall through borrowing but proposed (and voters passed) a new rainy day fund and balanced budget rules that would fix the state budgetary process and keep the state from going off the rails again. That was 2004.
What would this year’s ballot measures do? Measure 1A would increase taxes for a couple of years, promise to limit future spending, and expand the rainy day fund. The other ballot measures mainly change formulas established in prior elections that allocate funds to specific programs in a bid to free up money now for the general fund. While easing the current fiscal crisis, they will clearly fall short of erasing the current shortfall and make budgeting decisions more difficult down the line.
One ballot measure is unrelated to prior budgeting-by-ballot-box initiatives. Prop 1F would prohibit raising elected officials' salaries during recessions. That's a feel good measure that doesn't really solve the state's fiscal problem or really do much of anything. But it's the only measure predicted to pass. I feel so much better knowing elected officials' salaries won’t go up during recessions.
Rather than further complicating the ballot, maybe its time for California to start over by enacting a new constitution that handles the big issues and possibly lets legislators legislate. Lawmakers may not want this power but tweaking finances through the ballot box doesn’t seem to work. And there's still that pesky $15-20 billion shortfall.
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