Californians Will Pay for Parsimony

Last Tuesday’s narrow defeat of Proposition 71 is a blow for elected officials trying to balance budgets today--but the punch is going to land on both businesses and neighborhoods in our state before the next budget year is over.

Propositions 71 and 72, the two statewide ballot proposals to lift or revise the ceiling on state spending, along with a similar measure in this city, failed at the same time voters approved bond measures that spend money and raise property taxes.

This puzzling mixture was further underscored in San Francisco, where voters both voted in favor of Proposition 71--which won in 16 of the city’s 21 neighborhoods--and turned down a local measure to do the same thing.

Why did voters cast ballots against their own interest? And why did the business community campaign, as it did here, against a solution that benefits it?

Some of the reasons come from an old-fashioned lesson of politics: A simple message beats a complicated one. Opposing a “blank check,” the catchy slogan of the no-change campaigns, is easier to understand than the complicated mathematics behind Proposition 71 or 72.

Tuesday’s results suggest that it doesn’t matter who advocates changing the spending limit.

Paul Gann, author of the limit, failed in the Proposition 72 effort to alter his own limit by placing highway funding outside the formula.

So where do we go from here? We have to make sure voters understand that what is about to happen to them is a direct result of the Gann limit.

Throughout California, county hospitals are approaching insolvency, libraries have been permanently shut, and sheriff’s deputies have been laid off because the spending limit prevents the state from meeting these obligations.

Counties and cities have few options on where to cut. Between 90% to 95% of our county programs are mandated by either the state Legislature or the courts. Unfortunately, neither funds the programs that they insist we provide. The trickle-down theory as applied to government means that federal and state officials take credit for new programs and county governments pay the bills.

For example, health and mental health programs have been consistently under-funded--but mandated--for years. The counties provide approximately $200 million from their own local funds to pay for the state-required health care.

Where the Gann limit has gone wrong is clear.

It’s tied to population growth and a national consumer price index--which means that the cost of market-basket goods in Missouri and Montana sets the formula for Los Angeles, San Diego and San Francisco.

It exempts business growth from the formula. The California Taxpayers Union, a conservative group that supports lifting the Gann spending limit, recognizes that the real effect of that exclusion is not to hand business a break, but to put a cap on county incentives to help business. Counties are beginning to equate incentives to business with pouring money down a rat hole because there is no chance of a return through increased tax revenues. Local government can’t spend the taxes that the new business would be generating. Even if a prospering business is generating higher revenues, local government can’t collect its fair share in taxes due to the state and local restrictions imposed by the Gann limit.

The limit also is a formula based on spending patterns of 1978-79, with the implicit assumption that governments would never face crises that required special funding. AIDS has changed that assumption in San Francisco, where it takes $1 out of every $10 from our local taxes going for city health programs; by 1991, it may be 40% of the local health budget. With Gann, the only way to pay for that cost will be to deny other people services.

It also means some local governments have had to turn money back to the state even when they were in need because state grants that aren’t earmarked for specific programs count against the local limit. Last year Santa Barbara voters turned down lifting the Gann limit and the absurd result was cancellation of $1 million in county assistance from the state.

Gann encourages short-term thinking and punishes long-term planning. Long-term projects are jeopardized, including preventive health and substance-abuse programs, and support for new business development. The payoff on these is simply too far down the line. The public sector can’t afford that kind of short-term management any better than the private sector has.

For the 10 years that the Gann limit has operated, outside factors such as inflation have kept its real costs hidden. Now they are about to make a dramatically unwelcome appearance.