Those Foolish Spending Limits

The folly of artificial limits on state spending becomes evident in a reading of the fine print of the state Finance Commission’s annual long-term state budget forecast. There are basic needs that the state must meet, and if they cannot be financed in traditional fashion, another way will be found.

For example, debt service on outstanding state bond issues has been a relatively small part of the state budget up to now. But, increasingly, legislators and the governor are turning to bond funds to finance programs that cannot be paid for out of the state’s general fund because of limits imposed by the Gann initiative of 1979. This means increasing state debt, even though California’s Constitution supposedly requires a balanced budget every year.

Debt service stands at $645 million a year now, the report says. But, if current trends continue, that figure will increase to $1.9 billion for the 1997-98 budget year. It could be considerably higher if bond financing continues to be used as a Gann-limit escape valve.

Legislators have found other ways around California’s Gann limits. One is to transfer certain programs and spending authority to local governments. That will work, of course, only until the local governments have reached their own Gann limits. Other ways are sure to be found to channel spending into categories exempted by the Gann initiative.

Even with these budgeting tricks, however, the Gann limits will not grow as fast during the next decade as will the need for state services because it is geared to the national consumer price index, which lags behind California economic and demographic statistics. The Legislature will have to increase spending by more than 8% each year in order to maintain the same level of services as exists now. But the Gann limits, as now calculated, will rise by only 7%.

The Gann crunch will begin hitting dramatically in fiscal 1992-93. Between then and 1997-98 the Legislature would have to cut spending by a cumulative $7.5 billion to remain within the Gann limits. This is spending that would come out of existing programs at the current levels of services, and does not count any new programs that might be adopted between now and then. Even so, the state still would have collected about $8 billion in revenues under the existing tax system that could not be spent.

But phony spending limits do not eliminate the state government’s obligation to educate growing numbers of high-school students, build new university campuses and expand the prison system, to do something about the court backlog and to provide care for the ill and the elderly. Those demands will not go away. All that the financing limits do is force officials to find ways around them and to give some taxpayers a false impression that they are saving money.