www.peterates.com/props-0509.shtml
Freezing Legislator Salaries when Budget's Busted Proposition 1A: State Budget Stabilization - YES This is a close call. It contains inflexible formulas and spending earmarks, both of which I find hard to swallow. And it is not a complete solution to our painful state budget woes. It will dampen the enormous year-to-year swings in General Fund revenues, addressing a major cause of our annual budget problems. Even with its warts, Prop 1A offers progress, and boy, do we need progress. Prop 1A attacks the budget problem on three fronts: increasing the size and protections for the "rainy day" fund, extending tax increases, and allowing the Governor to make mid-year spending cuts when there's a revenue shortfall. The idea of a rainy day fund is to set aside a portion of revenues in good years to make up for shortfalls in lean years to come. The fund smoothes out year-to-year peaks and valleys in state revenues, providing the stability and predictability needed for long-term planning and continuity.
Office Smoothing out income is a critical issue for California because our General Fund relies so heavily on highly cyclical revenue sources, such as taxes on personal capital gains and business profits, which can cause General Fund revenues to fluctuate wildly from year to year.
in 1999-2000, revenues zoomed up 23% from the previous fiscal year. More recently, in the two fiscal years following 2006-07, revenues grew from $95 billion to $103 billion (a gain of 75%), then shrank back to $91 billion--11% smaller. As you can see in the chart, while the state's population and cost of living (gray bars) have increased at a steady 3% to 7% every year, General Fund revenues (red bars) have jumped up and down unpredictably by as much as one fifth. These enormous, volatile swings in revenues wreak havoc with long-term planning, and are a root cause of painful budget stalemates in Sacramento. Legislators, eager to believe any uptick will be permanent, too easily commit the state to long-term spending programs or permanent tax cuts. When the upticks turn out to be temporary spikes, the following years become nightmarish as spending must be slashed and taxes restored.
But it has been a total failure, because the Governor and Legislature can withhold contributions and raid its reserves whenever they like, and they have not been shy about doing so.
To prevent this from continuing, Prop 1A will create a new, better-protected rainy day fund. Contributions to the Prop 1A fund can be suspended and reserves tapped only when state revenues (adjusted for population and inflation) are actually down from the previous year. Once the new rainy day fund is in place (I'm guessing it will take over a decade to fill it), we'll be in a position to weather temporary income troughs by tapping into our healthy reserves. Even better, though, is the deterrent to new, long-term spending and/or tax cutting during good years. By taking 15% of revenues off the table, Prop 1A will prevent new commitments that we wouldn't be equipped to handle. These may be our priorities in 2009 (and that's debatable), but it's very unlikely they'll still be our priorities in ten, twenty or fifty years. Personal space capsules and household cold-fusion generators? We're talking about the deep future here, and it's impossible to predict how we'll need to spend that money. Prop 1A straitjackets the state for long term with a constitutional amendment, dictating how windfalls can be spent. But the straitjacket, while unpleasant, is minor compared with the security we'll get from the new, stronger rainy day fund. This year we're all being treated to increases in the state income tax, sales tax, and vehicle license fee. These increases are helping to close the yawning budget gap. Prop 1A will extend these increases about two more years. Because there is no indication that the current recession will end anytime soon. We should expect General Fund revenues to be even lower next year than they are this year. Extending the tax increases will mitigate the pain of cutting essential services even further, even as it prolongs the pain of a highly regressive sales tax. I'm not happy about it, but it's better than the alternatives. So why does it contain a seemingly unrelated tax increase extension? Because Prop 1A was born as a legislative compromise, hammered out behind closed doors in February with an eye toward satisfying just enough people to secure passage. Those who support costly programs wouldn't accept a spending cap unless the tax increase was extended, providing funding for those programs; those who oppose taxes would agree to extend the tax increases only if a spending cap was put into place.
separate law that allows the Governor to make mid-year spending cuts whenever his Director of Finance determines that General Fund revenues will fall short of the original estimates, or that expenditures will increase substantially above revenues. Cuts could be made to most areas of state operations, capital outlays (up to 7%), and non-salary cost of living adjustments. I look at this as an extension to the Governor's existing line-item veto that he can exercise when signing the budget bill. It's an improvement, in that the Governor will presumably have more accurate information on revenues, cost overruns, and the state's true needs as the fiscal year progresses. You may read elsewhere that Prop 1A adds a new spending mandate. Under Prop 1A, whenever the state makes a contribution to the rainy day fund, it must also make an equal contribution to a special fund for one-time capital projects and paying off bond debt. However, in all likelihood these programs would get funding anyway; Prop 1A will simply make the Legislature recategorize the spending so it uses the special fund.
The list of exemptions is pure politics, and I dislike it, but not enough to vote down the whole thing. In low-revenue years, it uses a mathematical formula to determine whether reserve funds can be drawn, and how much. There's no way to be certain exactly what its effect will be. Taken as a whole, Prop 1A will be good for the state, making budgets more manageable by reducing violent swings in the General Fund. Proposition 1B: Restoration of Education Funding - NO Prop 1B will settle a disagreement between the Governor and education advocates over a complicated part of Prop 98, the school funding guarantee. In essence, the question is whether the budgets for 2008-09 and 2009-10 "underfunded" the Prop 98 guarantee, creating an obligation for the state to repay schools in the future.
The money will come from the Prop 1A special fund (see above). If you are involved in public education, you will feel a strong pull to vote for Prop 1B. My friends include teachers, administrators and trustees; I want the best for them, and for all 7 million students in the state. However, Prop 1B is budgeting by ballot box, and that's dangerous. Because when you vote for an earmark like this, you're also voting to withhold that money from everything else the state could fund, since the state must balance its budget on limited income. Measures like Prop 1B force voters to consider just one program at a time, in a vacuum, without even knowing what other worthy programs are competing for that funding. Prop 1B will take away the Legislature's ability to decide whether to use that money for education or for other, more pressing needs. This lack of flexibility, along with the income fluctuations addressed by Prop 1A, is the root of California's chronic budget problems. I cannot, in good conscience, recommend this earmark for education while simultaneously asking you to weaken earmarks for early childhood development (Prop 1D) and mental health (Prop 1E). But Prop 1B violates a basic principle of good government - that budgets should be considered in their entirety, not put together piecemeal - and so I must withhold my support. Proposition 1C: Borrowing Against Future Lottery Receipts - NO Oh! The Lottery is come out of the west, Through all the wide Counties its Scratchers are best; To win Mega-Millions will buy much fine pottery, So come! The Lottery raises one billion...
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