How Does It Stack Up?

Last week, we blogged about factors that should be considered when examining constitutional proposals to limit state spending in the absence of a specific proposal. Earlier today, Senate Republicans released a proposal that can be measured against the criteria we outlined last week. How does their proposal stack up? You be the judge.

The choice of a base year. The Senate Republican proposal would impose a “hard cap” that transitions to the structure outlined in ACA 4 of 2010, sent to the ballot as part of last October’s budget negotiations. The base year would be 2011-12 – a year in which spending reached a nearly 40-year low as a share of the state’s economy. The limit would be adjusted downward when the proposed temporary tax extensions expire, forcing additional cuts to accommodate spending financed out of the tax extensions during the intervening years. Last but not least, each year’s spending would be based on the prior year’s actual spending, not the prior year’s actual limit as is the case with the current State Appropriations Limit. That will create a permanent “ratchet down” when spending is cut during an economic downturn.

The choice of an inflation factor. The Senate Republican proposal is based on the Consumer Price Index, an adjustment factor that tends to increase less rapidly than per capita personal income, the “normal” year factor used for the state’s Proposition 98 school spending guarantee. That turns Proposition 98 into a “Pac Man” that would, over time, squeeze out all other areas of the budget. The bottom line: if historic trends continue, lawmakers would have no choice but to routinely suspend the Proposition 98 guarantee.

Whether it is really a cap masking as a budget reserve. After certain budgetary debts are repaid, the Senate proposal transitions the provisions of ACA 4 of 2010 into effect. ACA 4 requires revenues in excess of a 20-year trend line to be deposited into a budget reserve. This would prevent growth in revenues that typically accompanies an economic recovery from being used to restore budget cuts made during a downturn.

Whether it is really a new infrastructure funding program masquerading as a spending limit. The Senate Republican proposal would allow half of the funds deposited into a budget reserve to be immediately spent on pay-as-you-go infrastructure, thus undermining the ostensible goal of building a strong reserve to mitigate the impact of future years’ budget crises.

The voters have spoken. The Senate Republican proposal is similar to, but more draconian, than the spending limit defeated by the voters in the form of Proposition 1A on the May 2009 ballot.

The spending cap proposed by Senate Republican’s would limit California’s future by placing an arbitrary stranglehold on the state’s ability to improve our schools, care for our aged, and respond nimbly to future challenges.

— Jean Ross

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