It’s become stylish to place the blame for California’s frequent budget crises on Proposition 98, a ballot initiative passed in 1988 that committed the state to spending 40% of the general fund on schools.
Some legislators now say the education funding rule has “handcuffed” them.
But the Legislature has handcuffed itself by enacting hundreds of tax cuts that, taken together, have reduced revenues to a point that the state can no longer function.
Since 1993, permanent tax cuts have cost the general fund more than $100 billion. Those costs have grown from $700 million in 1993 to $12 billion last year and $11.7 billion more this year -- combined, that’s half of our current projected deficit.
In September, the Legislature settled the longest budget stalemate in California history through a compromise that solved nothing. With Republicans unwilling to raise taxes, legislators finally settled on temporarily suspending a corporate tax break that would generate $600 million. But the deal also included new corporate tax breaks worth $1 billion that will go into effect next year. And here’s the kicker: Corporations can apply for a tax refund to get back the money they had to pay when their break was suspended.
To assign the blame for the deficit to Proposition 98’s constant 40% of the general fund ignores the fact that each of these permanent tax breaks and revenue losses has hurt schools far more than Proposition 98 has hurt the general fund. Every loss of revenue in the general fund is a loss to education.
Remember the movement to end the “tractor tax”? Farmers descended on the state Capitol in 2001 demanding that the state end the sales tax on “tractors.”
But what was cleverly passed unanimously as a tractor tax break also included a break for pickup trucks, chain saws and racehorse breeding stock. This year, that break cost the general fund $126 million. Since its enactment, the general fund is out $765 million -- 40% of which should have gone to schools.
Tax breaks and revenue reductions are a bigger contributor to the structural deficit than anything the voters have done.
When I reviewed each bill that reduced state revenues through tax breaks, loopholes, credits and reductions, I found something interesting but troubling:
From 1993 through 2008, the Legislature reduced general fund revenues by more than $100 billion. Lawmakers enacted tax breaks for oil companies, the horse-racing industry, the Gallo family, fax machines and new pornographic bookstores. Both Democrats and Republicans wrote them. And they were signed into law by Democratic and Republican governors alike.
In our quirky world, it takes a two-thirds vote in the Legislature to raise a tax but only a simple majority to approve a tax break. But in the years following Proposition 98, I found a total of 2,961 legislative “yes” votes cast on bills that lowered general fund revenues compared with only 150 “no” votes. That’s a 95% majority vote for lowering the general fund and taking money from schools.
We need budget reform, no doubt. But when we look at facts and history, we might conclude that Proposition 98 was necessary budget reform. It maintained support for schools as the school population changed from middle class to poor, and it was crucial to improving the performance of a diverse student population.
If Proposition 98 has done anything to the state’s general fund, it’s kept California’s top budget priority on top.