California's Budget Lotto: Sacramento Now Forced to Spend by the Numbers

Sherry Bebitch Jeffe is senior associate of the Center for Politics and Policy at the Claremont Graduate School

13,4, 98, 99. These are not last week's winning Lotto numbers. They are voter-approved initiatives that determine winners and losers in a far more important game: the California budget process.

In 1978, California voters, enraged by soaring property taxes and frustrated by Sacramento inaction, approved Proposition 13. The measure limited property taxation and made it more difficult for state and local governments to increase taxes or impose new ones.

Proposition 13's victory ushered in an era of fiscal policy-making by initiative, which has reduced the governor and Legislature to bystanders' roles in shaping California's fiscal policy.

In 1979, California voters, reacting to ever-increasing government expenditures, overwhelmingly approved Proposition 4. It put a constitutional limit on government spending, linking increases to population growth and inflation.

Last November, California voters passed two initiatives further limiting government spending choices. Proposition 98, sponsored by the state's education Establishment, requires that about 40% of the state general fund budget be spent on public education (kindergarten through grade 12 and community colleges).

Proposition 99 significantly increased the taxes on tobacco products and directed that the revenue be spent on new programs to reduce the effect of tobacco use in California and protect the state's natural resources.

"This has been the year when the constraints of all the initiatives have come to bear," said one fiscal expert.

The two propositions with most direct bearing on current budget problems are 4 and 98. Together they require a huge chunk of education money be set aside at the same time inflation and increased spending needs in other areas have pushed the state close to spending limits.

California, like the federal government, is discovering that mandated expenditures--in education, welfare, Medi-Cal and statutory cost-of-living increases, coupled with imposed spending limits and the governor's rigid attitude against new taxes, shrink the revenue pot to the point where even the most urgent priorities cannot--or will not--be met.

Gov. George Deukmejian paints the education-funding initiative as the major villain. It's not his fault, he protests, that Democrats' pet programs had to be cut to meet the mandate of Proposition 98. Well, not quite.

"Budgeting by initiative " does limit the range of fiscal choices. And few would deny that makes rational budgeting difficult. But don't underestimate Deukmejian's role in tightening the state's fiscal straitjacket.

The stage was set with his stubborn adherence to an election pledge of "no new taxes," despite deteriorating state services and resources.

In 1987, Deukmejian, backed by GOP legislators, insisted that about $1 billion in state revenue, collected over the Gann limits, be rebated to taxpayers rather than used for educational funding as Democratic legislators proposed. Then, confronted with a nearly equivalent--and unanticipated--budget shortfall, the governor abandoned his own proposed "revenue adjustment" program when the media labeled it a "tax increase."

And last November, Deukmejian refused to support Propositions 71 and 72, two attempts to raise Gann spending limits. The defeat of Proposition 71, sponsored by state schools' chief Bill Honig plus education, labor and government groups, helped pave the way for Proposition 98's victory last November.

Now the governor complains that these budget restrictions--even the Gann limits, which he has long championed--are "preventing your elected representatives from budgeting fairly for all Californians." He's right about that, but he has contributed to the problem, insisting that any tax increase be decided by the voters.

Nonetheless, and despite early rancor, the governor has met with legislative leaders in this year's budget negotiations--a departure from his characteristic "Lone Ranger" stance.

Some argue that this new-found flexibility stems from Deukmejian's desire to ensure his place in history. He wants to be remembered as a prudent fiscal manager. He has less than two years in which to position himself.

There's another reason 1989 negotiations haven't seemed so brutal. The state began the budget process this year with a predicted deficit of $1 billion. The governor and Legislature were primed to do battle over which programs to cut. Then new estimates projected a possible $2.5-billion surplus.

But plenty of room for conflict remains. With spending ceilings still tight, decisions have to be made about which programs get how much money. And under Proposition 98, public schools and community colleges get 40% off the top.

Beyond that, the governor has insisted on his large "prudent reserve." Legislative Democrats want to rescue underfunded health and welfare programs, demanding particular attention to California's collapsing mental-health system. This year, eight Los Angeles County clinics were slated for closure because of a lack of funds. And everyone agrees something must be done about the state's shabby transportation system. Honig has been almost intractable in hoarding Proposition 98 funds. But because of the irrational hodgepodge of fiscal constraints, one observer said, "In an era of riches, you have to make Draconian cuts." To loosen those restrictions would require a two-thirds vote in both legislative houses and the governor's signature. Even without the new strictures, that two-thirds requirement has long been a major obstacle to rational budgeting.

Then there is the matter of whether the $2.5-billion surplus is real. For the past three years there have been wildly inaccurate revenue estimates. This year--in a routine reminiscent of "Who's on First?"--the state's major forecasting agencies grappled with political egos, fluctuating estimates and dueling accounting procedures--aggravating the uncertainty of budget planning and the partisanship of the process.

There is no better example of what happens when highly charged issues find their way into the intensely partisan atmosphere of Sacramento than the debate over how to divide educational funds. The $49.4-billion budget, passed by the Assembly on Wednesday and the Senate on Friday, was held up for days by Republican members of the Assembly. They refused to vote until a deal was made that would distribute a disproportionate share of new Proposition 98 money to suburban and rural districts--contending that those districts have been shortchanged by Democrats at the expense of large urban districts like Los Angeles.

The significance of that deal goes far beyond partisan bickering. To shape a workable compromise, rural and suburban Democrats allied themselves with Republicans against urban Democrats--particularly the Los Angeles County delegation. Assemblyman Terry B. Friedman (D-Los Angeles) labeled the school aid package "a purposeful effort to get L.A."

But the fight over school funding may not be just another round of L.A.-bashing. It may telegraph an emerging political realignment where geographic, economic and, yes, racial identity become more important than party affiliation. Traditional Democratic constituencies--education, labor, the poor and elderly--find themselves pitted against Democratic legislators and against each other in the fight for limited budget dollars.

What all this means for politics and policy-making remains to be seen. Right now what's important is that the governor and the Legislature craft a reasonable spending plan for next year and then attack long-term problems inherent in the Gann limits and Proposition 98.

How does Sacramento propose to unsnarl the budget gridlock? By another ballot measure. Preliminary agreement was reached between the governor and legislators to let the voters decide whether to lift the Gann limits, impose a gas tax and revise Proposition 98.

There is a certain symmetry to that. It was the voters who--in the absence of political leadership--started the state down the bizarre path of budgeting by initiative. Now it must be the voters who guide it back.

But don't be fooled. Such a move offers no long-term solutions. It only sustains the vicious cycle of throwing ballot measure after ballot measure to tinker with sticky issues our elected officials lack the political courage to decide.

The responsibility for setting priorities in a complex society, and finding the resources to meet them, ought to be put right back where it belongs: squarely in the lap of the men and women elected for that purpose.

The lesson to be learned from this year's machinations is this: If the state continues to play Budget Lotto--a game of numbers and chance--California cannot hope to meet the demands of the 21st Century. Unless, of course, it hits the $50-billion Big Spin.

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