No Looking Back

Between now and the May 19th special election taxpayers will be inundated with political advertising in support of Proposition 1A. The Governor’s campaign team and the California Teachers Association are on track to spend well over $10 million trying to convince voters that this measure is reasonable budget reform.

Opponents including virtually all taxpayer organizations have their work cut out for them with a significantly less well funded but very energized grassroots effort to sink Prop. 1A.

Despite the funding disadvantage taxpayer interests have a few things in their favor. Not only is the complexity of the entire reform package hard for voters to understand the high level of mistrust of the politicians backing the measure and the general resistance to tax increases make the passage of Prop. 1A less than a sure thing.

Moreover as Prop. 1A proponents try various new arguments in favor of the measure they are quickly and effectively countered by opponents. For example early in the campaign the Governor stated that Proposition 1A has "nothing to do with tax increases." That assertion didn’t even pass the laugh test and proponents have been forced to admit that yes if Proposition 1A passes California taxpayers would pay an additional $16 billion in taxes they would otherwise not pay.

Next came the "financial Armageddon" argument predicting that we will have an immediate and catastrophic financial meltdown if voters reject Prop. 1A. But this assertion also has been revealed as little more than a scare tactic. The Governor’s own Director of Finance stated in a recent hearing that there would be no impact on the current budget year — or budget year 2009-10 — by the rejection of Prop. 1A.
Another argument asserted by the proponents is that Prop. 1A is effective budget reform which had it been in place 10 years agowould have provided a real restraint on overspending. They even produce charts showing that state government would have been forced to place "excess" revenues in the "budget stabilization fund."

But whether Prop. 1A would have provided a moderation of government spending had it been in place for the last ten years is both academic and irrelevant. The fact is that it wasn’t. And it is foolish to ignore what other political pressures might have been brought to bear on any existing budget restraint.

The fact is once a spending limit actually comes into effect the political pressure to spend "excess revenue" is enormous. Indeed this is precisely what happened to the Gann Spending Limit.

No one understands this better than Bill Leonard currently serving as a member of the Board of Equalization. He recently wrote a short piece in his "Leonard Letter" which reviewed the history of the undoing of the Gann Limit. Leonard notes that "in 1987’s growing economy state revenues exploded and for the first time the state had more cash than the Gann Limit permitted to be spent on programs.In a wise bit of foresight the Gann Limit already laid out that the default action for a surplus of revenue over the limit was a rebate to every California taxpayer. Governor Deukmejian offered the Democrat legislature a plan to spend the extra revenue on infrastructure but they balked and in the end every California taxpayer received a modest rebate check."

Believing that they were entitled to every last dime of taxpayer revenue the tax and spend lobby’s reaction to the rebates was swift. They proposed Prop. 98 which guaranteed that K-14 spending be maintained at a certain percentage of the general fund. That measure barely passed with 50.7% of the vote.

But according to Leonard by 1990 Governor Deukmejian "found it impossible to comply with both the Gann Limit and the Prop. 98 guarantee so he and the legislature worked out a comprehensive ballot measure that loosened the Gann Limit formula to make it harder to ever reach the limit while making the Prop. 98 guarantee more flexible so that it would stay around 40% of the General Fund under all circumstances as well as increasing the gasoline tax for purposes of transportation construction. This became Proposition 111 and the voters approved it in 1990."

Leonard’s point here is important: "The lesson for the future isthat if the spending limits of Proposition 1A of 2009 pass they can and will be undone by the voters too." Thus the question is whether a speculative budget reform — one which allows its limits to be increased to reflect higher taxes — and one which does nothing to control the appetite of the spending lobby is worth $16 billion in higher taxes.

For most taxpayers the answer is clearly no.

Jon Coupal is President of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization — which is dedicated to the protection of Proposition 13 and promoting taxpayers’ rights.