The cap trap

The new fiscal year for state government begins in a little over a week, and once again the Legislature finds itself unable to agree on a budget for schools, healthcare, prisons and other state-funded services. The statutory deadline for said budget was June 15, but negotiations over how to close a projected gap of $15.2 billion between revenues and program costs are expected to continue for weeks. Democrats are seeking up to $11.5 billion in unspecified tax hikes, but Republicans argue that any tax or fee increases will damage an already reeling economy. Gov. Arnold Schwarzenegger, meanwhile, has proposed borrowing $15 billion against the lottery or, if voters balk, temporarily raising the state sales tax by 1%, a plan that has drawn more brickbats than accolades from lawmakers.

Against that backdrop, Senate Republican leader Dave Cogdill of Modesto and Assembly Republican leader Michael Villines of Clovis have proposed a long-term fix to the seemingly annual budget brinkmanship. They want the Legislature to impose a spending cap that would limit any increase in the budget to the percentage increase in population and cost of living. When the state collected more revenue than the cap allowed it to spend, the excess would be used to fill a reserve fund and pay down debt. If the fund were full or the debt extinguished, the excess would go back to voters in the form of a temporary cut in sales taxes. And if state revenue fell below the cap, the Legislature could tap the reserve fund to make up the difference if two-thirds of its members agreed.

Democratic leaders quickly dismissed the proposal as a “distraction” to the budget negotiations, and they’ve got a point. Reforming the budget process won’t make it any easier to set priorities or close the current chasm between revenue and program costs. But finding ways to close this year’s gap doesn’t appear to be the order of the day -- witness the other demands Republicans are making, such as postponing the state’s new greenhouse gas rules and relaxing some mandates on private employers. Compared to that wish list, Cogdill and Villines’ proposal is acutely relevant.

They’re also right about the need to take a much longer-term approach to budgeting that keeps state services on a rational, sustainable scale. The roots of today’s problems can be traced in part to the state’s ruinous approach to the fat years of the 1990s and earlier this decade, when Sacramento treated a surge in revenues as if it were a permanent increase in resources. Blithe to future downturns, lawmakers launched new programs or rescinded taxes instead of building up meaningful reserves. But another part of the problem, as Villines acknowledged, is that so much of the state’s budget has already been dictated by initiatives and entitlements. These mandates leave lawmakers to fight over a fraction of the more than $100 billion raised and spent annually.

Rather than trying to dismantle the robotic portions of the budget to let lawmakers set priorities dynamically, Cogdill and Villines would simply create a more powerful robot to keep the whole mess under control. As with the governor’s Budget Stabilization Act proposal, which would mandate a larger reserve fund and force across-the-board spending cuts in response to projected deficits, it correctly identifies the problem but offers the wrong solution. It’s understandable why, as leaders of the minority, they don’t trust the state’s entrenched Democratic majority to spend less in prosperous times. But as long as they hold at least a third of the votes, their members collectively have the power to block any budget that’s bigger than they think it should be. In short, Republicans are already positioned to impose a spending cap. It’s ironic that they would use their moment of maximum leverage to argue for changes that would render their judgment meaningless.