Voter mandates restrict state’s flexibility

February 24, 2011

By Michael Gardner
San Diego Union-Tribune

This story is one in a series by the California Budget Watch collaborative, including reporters from the San Diego Union-Tribune, the Orange County Register and HealthyCal.org.

SACRAMENTO – Californians want their state legislators and the governor to balance the budget. But voters also want to control the way lawmakers spend much of the money sent to Sacramento. That contradiction is one reason for the political paralysis in the Capitol.

Over the past generation, voters have set aside 40 percent of the budget for K-12 schools and community colleges. They also have locked down billions of dollars for transportation, public safety, mental health, children’s services, after-school programs and anti-tobacco education, among other priorities.

Just last year, voters approved a measure to prevent the state from shifting money away from local governments and transportation. Among those securing added protections were redevelopment agencies that Gov. Jerry Brown now proposes to dissolve so the state can use some $1.7 billion in related monies for other priorities.

That was just the latest example of what has become known as “ballot-box budgeting.”

Joe Mathews, coauthor of a book that chronicles California’s fiscal meltdown, said no other state in the country has as many budget constraints and mandates. These voter-approved measures are daunting barriers to extracting the state from its quagmire, he said.

“You’re trying to balance the budget while you’re sitting in quicksand,” said Matthews, a former Los Angeles Times reporter who is now an Irvine Fellow with the New America Foundation, a global economic think tank.

But that analysis is far from universal. One of the most respected voices in the Capitol, nonpartisan Legislative Analyst Mac Taylor, calls the “our-hands-are-tied” excuse an exaggeration.

“It does make the whole fiscal landscape more complicated, but it’s not as serious as many people would argue,” Taylor said. “I still think we have a lot of flexibility over our budget.”
Others are even more critical.

“This is a scapegoat issue that distracts attention from the real problem, which is the government’s inability to balance the competing interest groups. We just haven’t figured out a way to say no,” said John Matsusaka, professor of business and law at USC.

It is true that the biggest constraint – Proposition 98, which controls education spending – can be set aside with a two-thirds vote of the Legislature, the same super-majority that was required for approving the budget until this year. But even if lawmakers vote to suspend Proposition 98, they still are obligated to “re-pay” the schools in the future, when the economy improves.

Other measures are even less forgiving. A series of ballot initiatives have set aside billions of dollars for highway and road projects. Initially, those new laws allowed lawmakers to shift the transportation money to general purposes during a fiscal emergency, but later the voters took away that flexibility by requiring the shifts to be treated as loans. Finally, in 2008, even that freedom was pretty much eliminated: any loan must now be repaid within 30 days.

When it comes to the revenue side, voters have also taken steps to prevent legislators from using their own judgment.

Proposition 13, passed to limit property taxes in 1978, also requires a two-thirds majority in the Legislature to pass new taxes. Lawmakers got around that rule in some ways by labeling some revenues “fees” rather than taxes. But last year, voters passed Proposition 26 to apply the same super-majority requirement to most fee increases.

Another example: a tax on millionaires to pay for mental health programs. Proposition 63, passed in 2004, sets aside this revenue source – now approaching $ 1 billion annually — and takes it completely out of the state budget. The only way to change that is with another vote of the people.

The same holds true for Proposition 172, which in 1993 authorized a half-cent sales tax increase to pay for local public safety programs.

Can these restrictions be rolled back? Mathews, of the New America Foundation, thinks they can, and he suggests starting over with a Constitutional Convention to completely rewrite Sacramento’s budget rulebook.

“As hard as that sounds, it’s easier than to change it one layer at a time,” he added.
When he was governor, Arnold Schwarzenegger routinely complained about being handcuffed by ballot-box budgeting, although he was a major offender himself, supporting and even authoring ballot measures that set money aside in one pot or another.

Brown has not been as critical. After all, he plans to ask voters to extend temporary tax increases on income, sales and car taxes. The five-year extension would raise about $11 billion annually.

Brown agrees ballot box budgeting sounds disdainful, but argues that “when you have a crisis of this magnitude, ” it’s appropriate to ask voters to weigh in.

Ballot-driven constraints are only part of the constraints Brown must cope with. While crafting his budget proposal, he is restrained from slashing too deep in selected programs, mostly in health and human services. Federal directives and court orders have combined to safeguard minimal levels of services and limit the state’s ability to impose high fees, particularly in the health care arena. Nearly a quarter of the state’s general fund goes to these types of services.

“Do we have a lot of constraints that make it difficult to manage, make it very difficult to cut? Yes. Did they come from initiative? That’s true.,” Brown said. “But I would have to say we have a Legislature, we have the courts, we have the federal courts. And we have the initiative… They’re always going to be in play.”

He continued, “There is no way we can short-circuit one of those other than creating a credible government process and that’s what I am trying to achieve.”

Professor Matsusaka said voters understand that the ballot measures may leash lawmakers. But, in some cases, that’s exactly the goal.

“We don’t want to give them infinite choice,” he said.

The lack of trust is one reason why voters insert their voices.

“There is so little trust in the Legislature at this juncture … The voters want to be part of the checks and balances,” said Mark Baldassare, president of the Public Policy Institute of California, which has done extensively polling on the issue.

Recent budget actions suggest lawmakers can still navigate, said Taylor, the legislative analyst. For example, K-12 schools and community colleges have seen their budgets pinched despite Proposition 98’s minimum funding guarantees because general fund revenues have declined. Universities and colleges could lose $1 billion in 2011-2012. Higher education consumes about 5 percent of the general fund.

“So do we have flexibility in that area? I would say yes – we have a lot of flexibility,” Taylor said. “They’re not easy choices, I would add.”

Here is a list of major voter-approved ballot measures affecting the state budget.

Proposition 13: Passed in 1978, limited property tax increases and required 2/3 vote of Legislature to raise taxes. Led to state taking responsibility for most school funding.

Proposition 4: Passed in 1979, the “Gann Limit” put caps on state and local spending. Weakened considerably by passage of subsequent measures.

Proposition 98: Passed in 1988 set a minimum funding guarantee for K-12 schools and community colleges. Generally 40 percent of the state’s general fund. Can be suspended by two-thirds vote of the Legislature.

Proposition 99: Passed in 1988, established 25-cent per-pack hike on cigarettes and increased taxes on other tobacco products. Set aside for health-related programs.

Proposition 162: Passed in 1992, limited the Legislature’s s authority over the state’s retirement system, known as CALPERS.

Proposition 172: Passed in 1993, authorized half-cent sales tax increase for local public safety programs.

Proposition 10: Passed in 1998, imposed a 50-centper pack tax on cigarettes and raised taxes on other tobacco products for early childhood development programs.

Proposition 39; Passed in 2000, lowered voter threshold to pass local school bonds to 55 percent from two-thirds.

Proposition 42: Passed in 2002, set aside sales taxes on gasoline for transportation.

Proposition 49: Passed in 2002, set aside varying amounts for after-school programs.

Proposition 57: Passed in 2004, authorized $15 billion in bonds to help balance the budget deficit.

Proposition 58: Passed in 2004, requires a balanced budget, restricted borrowing and mandated a reserve.

Proposition 1A: Passed in 2004, limits the ability of the governor and Legislature to transfer local property taxes to state coffers.

Proposition 22: Passed in 2010, further restricted the taking of local revenues for state purposes.

Proposition 26: Passed in 2010, requires state fees to pass by a two-thirds vote.

Proposition 25: Passed in 2010, allows for a simple majority, instead of two-thirds, to pass a state budget.

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