In Prop. 2, state voters again face budget decision at ballot box
Throughout much of California’s history, some of the most consequential budget decisions have been made not in the Capitol, but at the ballot box.
Proposition 13 limited local tax revenue and transformed the state’s financial landscape. Proposition 98 reserved about 40% of the budget for public schools and community colleges. Just two years ago, the linchpin of Gov. Jerry Brown’s plan for eliminating the deficit was a ballot initiative, Proposition 30, that temporarily raised income and sales taxes.
On Tuesday, voters will once again make a major budget decision.
Proposition 2, a bipartisan constitutional amendment approved by the Legislature and backed by Brown, would strengthen the state’s rainy-day fund and require regular payments to pare down the state’s debt.
Supporters have billed the measure as a way to stabilize California’s finances and prepare for the next economic downturn by stockpiling tax revenue.
In a campaign advertisement, Brown said the measure “saves money in good times so we don’t have to cut vital services when money runs dry.” No organized opposition has emerged.
Proposition 2 is the sequel to Proposition 58, a constitutional amendment approved in 2004 and widely considered a failure. The earlier measure established a rainy-day fund, but the requirement to set aside money was easily avoided. The account was quickly drained when the recession hit, then left empty for years.
This year’s measure comes loaded with stricter rules intended to ensure its goals are reached.
First, 1.5% of general fund revenues would be set aside every year, which is roughly $1.6 billion at the current size of the state budget. Half the money would be deposited in the rainy-day fund, and the other half would be used to pay down debts and cover long-term costs such as public pensions.
After 15 years, debt payments would become optional, and lawmakers could choose to save the money instead. In addition, more money would be placed in the rainy-day fund if there are spikes in revenue from taxes on capital gains.
The fund could grow to as much as 10% of general fund revenue — approximately $11 billion at this point. Once the fund is full, any revenue that would have been deposited would then need to be spent on infrastructure.
The governor and lawmakers can suspend deposits into the rainy-day fund if there’s a natural disaster or revenue drops too much to maintain spending levels. Money can be withdrawn from the fund to handle emergencies or prevent budget cuts.
Critics view Proposition 2 as a burdensome series of rules on a state budget already freighted with complications.
“It puts a whole string of requirements on future leaders of the state that are embedded in the Constitution, and nobody has any idea how it will function five or 10 or 15 years from today,” said Mark Paul, who co-wrote a book on dysfunction in California government. “It’s the exact opposite of what we need in California, which is remove complexity from our Constitution and give more authority to the people we elect.”
Assembly Republican Leader Kristin Olsen (R-Modesto) said the new rules are necessary to ensure money is used properly.
“Any complexity that may be in Proposition 2 is for the purpose of making sure the funds in the rainy-day fund cannot be siphoned out for pet projects or when it isn’t really needed,” she said.
However, Olsen and her fellow Republicans say they’ll push for a modification next year. She’s wary of a separate state law, which takes effect if Proposition 2 passes, that would limit the amount of money schools could keep in their individual reserve accounts.
Supporters say the limitations won’t be a problem because some of the state’s rainy-day fund will be dedicated for schools.
The view from Sacramento
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