The Battle for the State’s Future Finances : One Measure Provides Sound Planning, Another Adds to the Mess

As the state’s finances whipsaw from a $1-billion surplus to a potential $1-billion shortfall, the two ballot measures that would change the state spending limit have become even more important. The measures would bring very different results: Proposition 71 is absolutely necessary for a fiscally sound future, while Proposition 72 would only make the state’s budgetary problems worse.

The current spending limit, which affects all state and local government, is seriously flawed. By tying all spending to the national inflation rate and general population growth, it fails to account for California’s real economic growth and for the growth in statewide student population, estimated now at 140,000 per year.

The projections for California if we continue under this flawed formula are ominous. The Commission on State Finance estimates that $23 billion in current services will have to be cut during the next 10 years, while a recent report commissioned by the governor estimates that public spending as a proportion of personal income will have to be cut by half during the next 20 years, unless the limit is changed. Not only will the state be unable to respond to new concerns like AIDS, toxics and the increasing population over the age of 85, we will not even be able to stay abreast of the many costs created by ordinary economic growth.

For good reason, voters do not trust the political process to keep spending within reason without a spending limit. So the question becomes: What is a fair, realistic limit that can allow for reasonable growth but will not permit runaway spending? After some reflection and analysis, the answer becomes clear: Allow the spending limit to grow as fast as but no faster than the state’s rate of economic growth.

That’s what Proposition 71 would do. By limiting spending to the rate of growth of California personal income, it would allow state and local government to spend the revenues that it collects under normal economic circumstances. It also would correct the flaw that fails to account for the growth in student population. Such common-sense changes would avert the requirement for drastic cuts in services that the current limit mandates.

It would also help avoid the kind of situation that the state finds itself in now: forced into a larger rebate than anyone advocated last year, only to find itself short by the same amount this year. While the spending limit itself is not to blame for the errors to the tax-reform process that caused the shortfall, all efforts to plan for the uncertainty of tax changes were rendered impossible by a rigid and fundamentally flawed limit. In addition, the limit has led to a variety of unwise financial maneuvers to get around its irrationality.If Proposition 71 passes, sound fiscal policy will once again be possible.

Proposition 72 is another story. It was conceived as an unholy alliance between Paul Gann, who wanted to head off the gathering steam behind Proposition 71, and Orange County real-estate developers, who need a quick fix of highway money and do not appear to care who gets hurt in the process.

Proposition 72 has two major features. It would take away money from the general fund--which currently funds schools, law enforcement, health and other programs--and guarantee that money for highways. And it supposedly would add “flexibility” to the limit by allowing the Legislature to spend the state’s reserve funds in urgent and unexpected circumstances.

Its most objectionable provision is the raid on the state’s general fund. Since not even the proponents of Proposition 72 believe that highways should be funded by money taken from schools, they try to justify this raid in two ways, both demonstrably false.

First, they say that the state would otherwise have a surplus, so that the transfer of sales-tax funds to highways would be compensated for by the surplus. That argument has now fallen apart with the discovery of the state’s shortfall. It is now undeniable that passage of Proposition 72 would mean that an additional $200 million would have to be shifted from general state purposes to transportation purposes soon after the election. The total would climb to $725 million in two years. Schools and other programs would suffer as a result.

The other justification for raiding the general fund is that the sales tax on gasoline is supposed to go to transportation. But sales taxes have never been earmarked. In the end, Proposition 72 is nothing if not a transfer from schools and other programs to highways.

Finally, Proposition 72 would increase the political games in Sacramento that take place at budget time. A limit should be a reasonable objective standard, as provided for in Proposition 71, not a plaything of the Legislature. Under Proposition 72, one caucus of the Legislature could hold out on the limit unless its particular demands on the budget were met. Proposition 72 would just increase the mess in Sacramento.

If a proposition can be known by the company that it keeps, Proposition 71 should win hands down. Groups as diverse as the League of Women Voters, the American Assn. of Retired Persons, the PTA, the San Diego Chamber of Commerce and the California Assn. of Highway Patrolmen support 71, which has little active opposition. The big developers provide the main support for Proposition 72, while most education, senior-citizen and law-enforcement groups oppose it.

It will be unfortunate if voters are confused by having two measures on the ballot. Our future depends on the fair, common-sense changes in Proposition 71, while Proposition 72, in perhaps rhetorical but accurate terms, would hurt our kids.