Voters Like Spending Cap but Not Its Cost

The November ballot measure that promises to end rivers of red ink and dysfunction in the state budget system is proving to be a tough sell for Gov. Arnold Schwarzenegger.

The Republican governor is pitching Proposition 76, which he calls the “Live Within Our Means Act,” as the best way out of California’s chronic deficits. But voters appear to lose interest when they learn of the sacrifices that will be needed to allow the state to truly live within its means.

The measure makes clear that it can’t be done without limiting spending on the education and healthcare programs that account for more than three-quarters of the state’s general fund.

“Voters like the idea of government living within its means,” said Mark Baldassare, director of research for the Public Policy Institute of California. But “when you tell them the specific places that take up most of the budget and would need to be cut, they are not areas where people are comfortable with the state scaling back.”

A large chunk of voters -- 49%, according to Baldassare’s polls -- said they wanted spending controls. But once they heard the title that Democratic state Atty. Gen. Bill Lockyer had given the measure -- “The State Spending and School Funding Limits Initiative” -- the number dropped to 26%.

“The fact that ‘school funding limits’ is mentioned raises a lot of concerns for people,” Baldassare said.

The governor is trying to shift the focus elsewhere. On the stump, he is focusing on how the proposal would outlaw spending binges.

Even if the economy boomed and revenues surged, the measure would restrict spending increases to no more than the average increase in state revenues over the previous three years. That would leave a rainy-day fund that could help the state ride out a recession.

“This is a fight between moving on and fixing a broken system and the status quo,” the governor told a group of seniors in Escondido on Friday. Many of them nodded in approval.

Tom Campbell, who is on leave from his post as the state’s budget chief to campaign for the measure, said in an interview: “People appreciate the notion that the state should not spend more than it has. They appreciate the common sense of it.”

Voters also are hearing from firefighters, nurses and top officials in Los Angeles, San Francisco and other urban areas that the spending cap could lead to cuts in emergency services and payments to community clinics, and more trouble at public hospitals.

And it tampers with the popular school-funding formulas voters put in place by passing Proposition 98. That 1988 law guarantees education a certain share of state revenue each year.

The funding formula cannot coexist with the spending cap, most analysts said; education could eventually gobble up too much of the budget. So Proposition 76 lowers the amount guaranteed for schools.

Educators said that would be devastating.

“This eviscerates Prop. 98,” said Jack O’Connell, state superintendent of public instruction. “There would be less money for education. It is undeniable.”

School groups have blanketed the airwaves with television and radio ads saying as much. “It cuts billions needed for new teachers, books and supplies,” says one anti-76 spot.

Educators have been attacking the governor for months, saying that he had reneged on a promise to repay billions borrowed from schools in 2004 to help balance the budget.

The governor has denied that money for schools -- more than 40% of the state budget -- would be cut under Proposition 76. The governor has begun telling voters that money to schools could actually increase.

“More money goes to the school system if you vote yes,” Schwarzenegger said in Escondido.

He was citing a white paper released by the business-backed California Taxpayers Assn. The report assumes that the Legislature will allocate more money than required once the funding formulas are changed, because Proposition 76 would give lawmakers the flexibility to add more without making the increase permanent.

The ballot analysis voters are receiving in the mail reaches the opposite conclusion. That analysis, from the nonpartisan legislative analyst’s office, said schools would be guaranteed at least $3.8 billion a year less than under the current system.

Not all the analyst’s findings were bad news for the governor. The analysis also said the measure would, as intended, keep the state from spending more than it brings in.

“This initiative would make it difficult to deficit-spend,” said Brad Williams, the office’s director of fiscal forecasting. “Over time, it would result in lower spending.”

That has been the result in other states with caps. Colorado is often cited as an example of a state where a strict spending cap brought a budget under control.

When Colorado’s economy went through its last boom, lawmakers were restricted from putting all the new money into ongoing programs. Instead, a reserve was built, and taxpayers received substantial refund checks.

But Colorado is suffering from some of the same problems that critics say will befall California if Proposition 76 is passed. Recession forced deep cuts in schools, higher education and healthcare in Colorado.

Now revenues are recovering, but lawmakers are prohibited from using them to restore services. Colorado’s Republican governor has joined with the business community to implore voters to pass a ballot measure Nov. 1 that would temporarily lift the cap.

Craig Brown, an opponent of Proposition 76 who was Republican Gov. Pete Wilson’s budget chief, said spending caps are good in theory but lead to unintended problems.

States’ needs can be unpredictable and their revenue streams too unsteady for the formulas to work, he said.

“You can’t do it,” said Brown, adding that California’s budget depends heavily on unpredictable income taxes. “We’re in a state where revenues could suddenly drop 3, 4, 5 billion dollars. You need flexibility to deal with that.”

Campbell disagrees. The measure that will appear on the California ballot, he said, would require the state to reduce spending gradually, over many years.

He said the business groups that drafted the initiative took pains to avoid the sudden elimination of entire programs.

The measure is intended to allow the state time to find ways to operate more efficiently and make careful choices, he said.

“It’s not cataclysmic,” Campbell said.

Whether voters would rather spend less or start bringing in more with a tax hike remains an open question.

Schwarzenegger has said that if the measure failed, there was a good chance taxes would be increased.

“If we don’t vote for Proposition 76, we will go backward,” the governor said at a campaign appearance in Sherman Oaks on Monday. “And I know that Sacramento is ready to increase taxes at any moment.”

The California Budget Project, a think tank that advocates for low-income Californians, recently released a report that suggested that voters may not find a tax hike as distasteful as the alternative.

The report found that if the spending cap had been put in place in 1990, California would have had to eliminate more than $12 billion -- the equivalent of what the state is spending in this year’s budget on the entire state university and community college systems.

Administration officials say that’s nonsense. They advise voters to look instead to the budget plan the governor submitted last January for a sense of the reductions that would be needed.

That plan was met with protests throughout the state.

Among other things, it attempted to take away renters’ tax credits from thousands of senior citizens, eliminate dental care for the poor and charge tens of thousands of low-income Californians premiums to obtain healthcare. It called for slashing the salaries of workers who provide home care to the frail elderly and disabled, and would have reduced state contributions to the pensions of teachers and other public employees.

The governor had abandoned many of the cuts by the time he released his revised budget a few months later.

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Where it goes

Polls show voters like the idea of controlling state spending, but dislike cutting services. Education and healthcare absorb more than three-quarters of California’s general fund.

2005--06 general fund expenditures (in billions of dollars)

K-12 education 39%: ($36.6)

Health and human services 32%: ($27.1)

Higher education 11%: ($10.2)

Corrections and rehabilitation 8%: ($7.4)

Other 10%: ($8.7)

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Source: California Department of Finance