Prop 1A: Not Quite A Cap, Not Just For Rainy Days
The rhetoric in support and opposition of the marquee measure on next month's special election ballot is fairly simple. The measure itself is anything but.
A close examination of Prop 1A finds it's neither the tight spending cap nor ultra-prudent rainy day fund it's often made out to be. As often is the case in politics, the truth is a little more complicated.
Let's start with the spending cap. Actually, it's probably not best called a "cap." Or a spending "limit." We finally settled on calling it a spending "constraint."
Prop 1A features a rolling 10-year look at general fund revenues, using a complex "linear regression" formula that would be enshrined in the California Constitution. That formula then spits out a revenue number which serves as what could be called a spending "threshold" for the fiscal year to come.
Revenues from existing law that are above that threshold would go into the reserve fund. Notice the italics, though... existing law. Why make the distinction?
Because the Prop 1A formula-derived "threshold" does not prohibit the Legislature and governor from approving a tax increase -- a new law -- and spending that extra money immediately. That assessment comes directly from an interview last week for our radio story with Legislative Analyst Mac Taylor.
It's not a small issue. Take, for example, a recent spat between conservative Republicans and the campaign to approve all six measures... a spat that led to a document circulated in support of Prop 1A that says, in part:
Indeed, if spending is already at the revenue cap, a tax increase would be difficult to justify since the proceeds of the new taxes would be deposited in the reserve.
Taylor and his staff at the non-partisan Legislative Analyst's Office say that's not the case. And they point to one of the final paragraphs in the measure, which says that any change in law (in this case, a tax increase) "that affects General Fund revenues for less than the entire period of the 10 preceding fiscal years" is excluded from the formula-generated threshold. Thus, say analysts, a new increase in taxes wouldn't be revenue that counts towards -- or is governed by -- the threshold.
In practical terms, this probably isn't much of a loophole in the near future. After all, it's awfully tough to raise taxes due to the required two-thirds vote needed in each house of the Legislature. In fact, this winter's budget deal included the only tax increase in recent budget memory. That's probably why GOP supporters are calling Prop 1A a "hard spending cap."
But suppose Democrats continue to push for a constitutional amendement to allow a tax increase with a simple majority vote? Or, also possible... suppose Democrats pick up another few seats in each house to become a supermajority? Perhaps that's why Democratic leaders are trying to assure their side that it's not a spending cap.
Jon Coupal of the Howard Jarvis Taxpayers Association calls that section "the biggest loophole of all."
Meantime, it's important to consider what the spending "constraint" in Prop 1A would do to General Fund spending in years when lawmakers don't agree to raise taxes... which is probably most years. Or, better said, what it doesn't do.... and that's is modify any of the other constitutional spending guarantees on the books, the biggest being the Proposition 98 school funding guarantee.
Because school spending can grow at a different -- and possibly faster -- rate, there's a chance that public schools would begin to consume a larger portion of revenues under Prop 1A that are left for spending, after a portion of revenues are diverted to the reserve fund.
"That means a squeeze for the parts of the budget that aren't earmarked or protected," says Jean Ross of the California Budget Project. Those areas include the UC and CSU systems and social services programs.
"I don't think there will be those unintended consequences," counters Senate President pro Tem Darrell Steinberg, a leading supporter of Prop 1A. "And if there are, [lawmakers] will fix it."
In an interview last week, Steinberg was especially upbeat on Prop 1A's reserve fund, which he called a "responsible" way to plan for the future. The reserve fund is the proposal's other big element. But here, too, the rhetoric seems somewhat misleading.
Tops on the list is the term "rain day fund," challenged by opponents in court... but left in by the judge (who forced other changes).
It's true that the proposition would direct 3% of General Fund revenues into a reserve fund (more in years with a windfall of tax revenues). But it's also true that half that amount -- equal to 1.5% -- could just as quickly be spent.
That half would have to be spent on specific things: either K-14 education in the immediate future (if Proposition 1B passes) or on infrastructure and bond debt. Still, that leaves only about half of the new reserve fund to truly be socked away for a "rainy day."
There are many other issues to consider about whether Prop 1A is a good idea, not the least is the fact that it simply adds another layer of so-called "ballot box budgeting" on top of other measures previously enacted by voters.
But one of the biggest parts of the Prop 1A effect -- the large tax increase that goes into effect if it passes --isn't actually in the measure itself. Still, it's a huge part of the political campaign... and will be the focus of part two of our radio reporting tomorrow.