What Is A Real Spending Cap?

In 1979 the year immediately following the enactment of Prop 13
California voters approved Proposition 4 better know as the Gann
Spending Limit. The overwhelming support for this measure was due
in part to the fact that all the horrible predictions from big
government advocates said would come about if Prop 13 passed never
did. In short the political left was bereft of credibility as
California saw an amazing resurgence of economic activity.

A recent column in the Wall Street Journal entitled "High Tax
States Awash in Red Ink" makes a compelling case for restraining the
size of government as a way to maintain economic health. While low
tax states like Texas and Utah have seen lower revenues like
everyone else as a result of the worldwide recession as a
percentage of their respective budgets their budget shortfalls pale
in comparison to California. Our big government friends on the other
side of the aisle have never provided a satisfactory explanation for
the following question: How is it that Texas can provide levels of
service and infrastructure superior to that of California and yet it
imposes no income tax at all? No doubt a healthy percentage of the
over one million Californians who have fled over the last several
years had the Lone Star State as their destination. Indeed census
figures show that low tax states have net domestic inflows at the
expense of high tax states.

But the very notion of a spending limit grates on those who believe
they have a presumptive right to the earnings of citizens and the
private business sector. That is why a spending cap is such a
necessity.

However when talking about spending caps let’s make sure that the
cap is the real deal and not just some stand-alone "rainy day" fund
riddled with loopholes.

A real spending limit must accomplish what the name directs: limit
the growth in the rate of government spending. That rate of course
should be adjusted for population and inflation but what should be
the metrics for each? Should population growth adjustments be
dependant on raw census figures or for school spending should the
population be enrollment? For inflation is CPI an adequate measure
or is some hybrid warranted?

The short answer is that there is more than one way to establish a
growth factor that will be effective. What must be avoided at all
costs is a growth factor that ratchets only in an upward direction
effectively nullifying the structural limitation. That is precisely
what is happening now. As the result of Prop 98 and its hidden
poison administered to the Gann Spending limit we have no true
spending limit and are now paying the price for our lack of
structural discipline.

But if we impose a hard cap should overrides be allowed with a
supermajority vote of the Legislature? In a word no. Overrides must
be temporary and voter approved. If overrides by the Legislature are
permitted with a supermajority vote say for emergencies they
should be required to be paid back.

For California taxpayers an acceptable spending limit would be ACA
19 (Villines) from last year. In many respects this proposal was
actually more generous to government by allowing among other
things a portion of excess revenue to be spent on infrastructure
and debt repayment in addition of course to rebates to the
taxpayers via adjustments in the sales rate.

Although the Legislature has placed on the ballot a budget
stabilization measure for the 2010 primary election authored by Roy
Ashburn let’s make it clear that this is in no way a spending
limit. By allowing elected officials or their agents to make
"estimates" of what revenue will be we are only perpetuating a
situation where the foxes are guarding the hen house.

One final point. Let’s not have a situation where a budget deal
involves an alleged spending cap but with no time to review it.
Drafting constitutional spending limits is far more difficult than
simply imposing tax rate limitations. Policy experts are going to
need a lot more than 48 hours to review any deal to make sure that
the interests of the taxpayers are being protected.

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.