California Elections : 2 Propositions Pitched as Roads Versus Students

Highways versus school kids. That is the way the debate is being framed for two complicated June ballot initiatives designed to raise the state spending limit.

With the intricacies of the limit all but impossible to get across to the average voter, leaders of the campaigns to pass Propositions 71 and 72 have boiled their messages down to the simplest common denominators.

The theme being plastered on billboards by sponsors of Proposition 71, a broad coalition made up of groups and individuals with ties to public schools, public employee unions and public agencies, is: “Don’t hurt our kids. Yes on 71. No on 72.”

The message coming from those backing Proposition 72, who are affiliated with taxpayer groups, highway construction firms and land developers, is just as easy to understand: A yes vote on their initiative means more money for highways.

“It is a very simple issue,” said Stu Mollrich, an Orange County political consultant who is managing the Proposition 72 campaign.

Actually, the initiatives are not at all simple.

The ballot measures deal with inflation indexes, government reserves and the complex mathematical computations that provide the foundation for the state budget. Perhaps most important of all, they involve intense rivalries that always have existed between interest groups fighting for the megabucks to finance multibillion-dollar programs.

The common ground shared by both sides is that they view the state’s 9-year-old spending limit as too inflexible, and they want to change it.

Voters placed the limit in the state Constitution in 1979 by overwhelmingly approving Proposition 4 at a special election. The basic formula controlling government growth has not changed since voters approved it.

Basically, what it does is limit the annual growth of the state budget to a formula based on year-to-year increases in the California population and one of two inflation indexes--the U.S. Consumer Price Index or the California per-capita income, whichever is lower.

Most state spending is controlled by the limit, but not all of it. Expenditures going to a local government and money paid out for taxpayer-approved debt, such as bonds, are exempt from the limit. Revenues from user fees, such as park entrance fees, do not fall within the limit and can be freely spent. The 1979 constitutional amendment also provided that any budget surpluses, or tax dollars collected beyond what could be spent under the formula, be returned to taxpayers.

Income Tax Rebate

The latter feature last year resulted, for the first time, in a $1.1-billion income tax rebate for Californians. It also triggered Propositions 71 and 72.

The rebate ignited widespread criticism of the expenditure limit because it resulted from tight spending restrictions on government at a time when many contended that public schools were badly in need of more dollars and highways seemed to be falling apart due to massive funding deficits and worsening congestion.

As a result of that dissatisfaction, the two propositions were born.

Proposition 71 was drafted first, the brainchild of state Supt. of Public Instruction Bill Honig and officials representing various public employee and teacher unions, the state PTA, League of Women Voters, school administrators, and a number of public agencies and government-related associations like the League of California Cities. Honig has lent the Proposition 71 campaign $55,000 of his own political funds.

Honig was furious with last year’s rebate. He believes that most Californians would have supported giving the rebate money to schools if they had known it would be spent to improve the education system. He was not alone.

Even Gov. George Deukmejian, a staunch defender of the spending limit, wanted to use $700 million of the $1.1-billion surplus to provide extra financial help for the public schools. But he was stopped by the Democratic-controlled Legislature, which wanted to spend even more for education and refused to settle for half a loaf.

Proposition 71 would adjust the expenditure limit so that roughly $700 million more could be spent. Supporters reason that since public schools get the largest share of the state budget, then it stands to reason that education programs would get the lion’s share of any new spending.

The proposition would eliminate the U.S. Consumer Price Index as a measurement of inflation and replace it with the California Consumer Price Index, which usually registers higher growth. It would retain California per-capita income as a second measurement. But, unlike current law, Proposition 71 would require the state to use the highest of the two indexes to gauge inflation, not the lowest.

School Enrollment

Additionally, Proposition 71 would require the state to consider growth in public school enrollment, from kindergarten through 12th grade, as an alternative measurement to the overall population increase. Again, the highest measurement would be used.

Both Proposition 71 and Proposition 72 would define all taxes earmarked for transportation programs as user fees and exempt from the limit.

As Honig and his allies drafted their initiative, another group put together the rival Proposition 72. That group included the author of the original 1979 measure, anti-tax crusader Paul Gann.

Proposition 72 would increase money for highways by earmarking the sales tax on gasoline specifically for transportation programs. Now, the gasoline sales tax is funneled into the state’s General Fund, which is used to support such programs as education, health, welfare and prisons.

The clash between Honig and Gann seemed inevitable, even though the measures themselves do not automatically cancel each other out. If voters approve both on June 7, then each would become part of the law.

One of the reasons that the clash seemed certain is that many of those on opposing sides of Propositions 71 and 72 have been battling one another for years.

A number of those who helped draft Proposition 71 worked two years ago to defeat another Gann-backed initiative, Proposition 61, a measure that would have dramatically reduced government officials’ salaries and pensions. Honig and Gann bucked heads directly in that fight, with Honig coming out on the winning side.

Before that, they lined up on opposite sides of initiative battles over property taxes, income taxes, and other measures that Gann and his well-organized network of taxpayer groups seem to churn out with regularity at each election.

Gann and political consultant Mollrich both worked on the granddaddy of all government spending initiatives, the property tax reduction measure Proposition 13 of 1978, which Gann co-authored with the late Howard Jarvis. They see Proposition 72 as carrying on that tradition.

“People used to call and complain to me about taxes. Now they call and complain about potholes and congestion,” said Gann, who has been limiting his public speaking schedule because he is battling AIDS, which he contracted several years ago as the result of a blood transfusion he received during open-heart surgery.

Although Proposition 72 would provide more money for highway construction, it would drain substantial dollars from the General Fund, the kitty that pumps out money for education programs. Under the ballot measure, gasoline sales taxes would be transferred from the General Fund to the state highway account over a three-year period. The loss the first year would be about $200 million, rising to $700 million or more in three years.

For that reason, Honig views Proposition 72 as harmful to school programs. “It is basically a raid on the treasury for transportation, and the money is coming right out of the pocket of education,” said Honig, who also contends that it would hurt law enforcement, health and other programs.

The attack on their opponents as being unfair to schoolchildren has hit some raw nerves. Gann, 75, begins his ballot pamphlet rebuttal argument to opponents of Proposition 72 by saying, “I have four children, eleven grandchildren and two great-grandchildren. . . .”

And Mollrich also bristles at Honig’s charge. “It is something they are trying to fabricate out of whole cloth. Clearly, on its face, Proposition 72 has nothing to do with hurting anyone’s kids,” he said.

Highway Taxes Exempted

Sponsors of Proposition 72 anticipate making up for the General Fund’s loss of gas taxes by creating more opportunities for spending other revenues. Besides designating all highway taxes as user fees and thus exempting them from the limit, Proposition 72 would create a permanent $1-billion reserve and exempt it from the limit. Presently, any reserve is counted toward the limit.

Because of the feature freeing transportation expenditures from limit controls, one influential group, the Automobile Club of Southern California, is encouraging its 3.4 million members to vote yes on both measures.

Sponsors of Proposition 72 have already spent nearly $2.5 million to qualify the initiative for the ballot and help sell it to the voters. By comparison, supporters of Proposition 71 have spent $1.1 million.

The biggest contributions to the Proposition 72 campaign have come from Orange County land developers like the Irvine Co., which are increasingly concerned about gridlock and the budding slow-growth movement. The Irvine Co. contributed $50,000 to Proposition 72, as did Rancho Santa Margarita, a Mission Viejo developer. The William Lyon Co. and developer Donald M. Koll each contributed $37,500. The four major contributors also guaranteed a $250,000 loan to the campaign.

Larry Thomas, an Irvine Co. vice president who used to be Deukmejian’s press secretary, called Proposition 72 one of the “solutions to the incredible traffic problems that we have that are threatening to strangle not just Orange County but most of the urban areas of the state.”

As for Proposition 71, the largest contributions have been made by public employee unions, among them $165,000 from the California Teachers Assn., $100,000 from the California Correctional Peace Officers Assn., $79,000 from the California State Employees Assn. and $50,000 from the California State Council of Service Employees.

Gann, while taping a Channel 4 “News Conference” show on Friday, said Proposition 71 was being backed by “people who live in the public trough right up to their bellybuttons.”

Governor’s Plans

One of the questions surrounding the campaigns to pass Propositions 71 and 72 is whether Deukmejian will endorse or oppose either measure. He has had close relationships with several of those backing Proposition 72. One is Thomas, from the Irvine Co. Another is Steven A. Merksamer, his former chief of staff who now is a partner in the law firm retained by Proposition 72. The measure has also picked up the backing of the state Chamber of Commerce, another Deukmejian political ally.

But Deukmejian is sponsoring his own June ballot measure, Proposition 74, a bond issue that would provide $1 billion in new money for the state transportation system. So far, the governor has not made his position known.

Deukmejian did say that he may be influenced by the recent surprise discovery that his Administration’s budget forecasters underestimated the amount of income tax money the state will receive this fiscal year by as much as $1 billion. The loss of the income tax revenues likely will wipe out the governor’s reserve and possibly throw the state budget into a defict. The loss of an additional $200 million, if Proposition 72 passes, would just compound the fiscal crisis, Deukmejian said.

On the other hand, supporters of Proposition 71 think the fiscal crisis could help their campaign since the current limit will tie the hands of the governor and Legislature as they wrestle with the problem of how to replace the $1 billion in revenues they need to balance the budget. They note that theirs is the initiative that would raise the limit but not add to the budget problem by siphoning off revenues for transportation programs.

EFFECTS OF STATE SPENDING PROPOSITIONS Propositions 71 and 72 would raise the limit on state government spending that voters placed in the state Constitution in 1979. Currently, increases in government spending are limited by population growth plus one of two inflation factors, whichever is lower: the U.S. Consumer Price Index or California per capita income. The limit applies to most government spending, but excludes revenues from so-called “user fees,” transfers of funds from the state to local governments, and debt service on voter-approved bonds.

PROPOSITION 71 WOULD:

Base annual growth on the higher (rather than lower) of two inflation indexes: the California (rather than U.S.) Consumer Price Index or California per capita income.

Include public school enrollment in the growth rate formula if it is higher than the year-to-year increase in general state population.

Classify state gasoline tax revenues, truck weight and vehicle registration fees as “user fees” not subject to the limit.

Allow additional state government spending of up to $700 million during the next fiscal year and increasing amounts after that.

PROPOSITION 72 WOULD:

Declare that tax revenues used for transportation purposes are user fees not subject to the spending limit.

Require the state’s 4 3/4% share of the 6% sales tax on motor vehicle fuel be used only to finance transportation projects, and not education, law enforcement, health and other general government programs, as is the case now.

Be phased in over three years, beginning with a shift of $200 million from general government to transportation programs during the next fiscal year and rising to a transfer of about $725 million in the 1990-91 fiscal year.

Create a permanent state budget reserve equal to 3% of general fund tax revenues, or about $1 billion, and not count the reserve as an appropriation subject to the limit.