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tired

Propositions 1A-1F, transcribed from notes I took on my iPhone...
Monday was sort of a bonus convention day, as I attended a meeting with former Assembly Budget Committee Chairman John Laird, discussing the propositions. Asm. Laird started off the meeting by giving some background on the budget and the General Fund, which is almost entirely devoted to just two things – education and prisons. (This past year was, apparently, the first year that the prisons consumed more funds than K-12 education; and with courts requiring more space and better treatment of prisoners, that’s not likely to reverse any time soon, unless there’s a significant policy change, such as ensuring that all minor drug offenders are routed to treatment instead of prison.) The General Fund receives most of its revenues from sales and income taxes; in the past it was primarily funded by property taxes, which are far more stable and predictable, but since Prop 13, the real value of property tax revenues has fallen by about two thirds. (This could be remedied if we were to pass a “split roll” reform, retaining Prop 13 rules for residential properties while restoring the old assessment system for commercial and industrial properties.) The general fund faces a problem in that its revenues vary greatly with economic conditions, while its expenses have been written into the constitution – Prop 98 for schools, Prop 49 for after-school programs, and the Three Strikes law which effectively puts a floor under prison expenses. Whereas some expenses have a dedicated funding source (such as the gas tax for transportation), few of the propositions that mandate expenses create corresponding revenue streams. (Asm. Laird noted at this point that he strongly favors a reform that would force Propositions to follow PAYGO rules.) Similarly, the reduction of the Vehicle License Fee left in place mandates for local and county expenses that the VLF had previously funded. County health programs and the UC/CSU system tend to face huge cuts in times of deficits, because they’re the only large programs that lack constitutional protection.

Another piece of the background is Republican extremism. In 2001, Gray Davis managed to get a decent budget passed, but the GOP immediately cracked down on its “turncoats” – none of them got re-elected.

With all of that said, Laird turned to the actual propositions, which he described as “the best bad deal we could get.” Prop 1A extends a tax increase that is part of this year’s budget from two years to four. It creates a “rainy day fund” and defines the “rainy day” conditions under which it can be used; any time revenues exceed expectations, a portion is swept into the rainy day fund. It gives the governor the power to cut certain budget items mid-year and to cancel cost-of-living increases for state services (e.g. assistance to the blind, working poor families, etc.), if revenues fall short of expectations.

1B is contingent on 1A, and was created basically to prevent teachers from campaigning against 1A; it provides stronger constitutional protection for Prop 98’s education funding rules.

Prop 1C borrows $5 billion against future lottery revenue to help close the hole in the current budget, and transfers schools’ current claims against that lottery revenue to the general fund.

Prop 1D takes money that has been held in reserve for the First 5 program (health and education for pre-schoolers) as a hedge against volatility in revenues, and uses it to close the budget hole. Prop 1E similarly grabs reserves from the mental health program that was created under Prop 63 (which, unlike most other spending-mandate props, funded itself with a 1% tax on income over $1 million).

Prop 1F denies raises to legislators when the budget is in deficit. Asm. Laird remarked that although the proposition is mostly about grandstanding, and will have no impact on the budget, he does agree with the principle that when teachers and policemen are facing cuts, it is unseemly for legislators to get raises; this was the same reason that 1F was supported at the convention.

Laird said that he is “grudgingly” planning to vote for the propositions. He is concerned that if they fail, the Republicans will be able to create a narrative about Californians rejecting tax increases (which were part of the current budget, and part of Prop 1A). He feels that it is important to end the two-thirds budget rule; to require future propositions that mandate spending to include corresponding revenue sources; to reform or end term limits so that legislators are able to learn more about the budget process before getting termed out; and to get clean money rules in place to ensure that legislators are not beholden to wealthy donors who oppose progressive taxation.

After speaking to these issues, Asm. Laird opened the floor for questions – I didn’t capture all of the Q&A session, and some of the questions were not directly pertinent to the propositions.

My own question was about whether Arnold might sign off on “fees” if 1A fails. Laird said that even if Arnold did so, the anti-tax Republicans would immediately challenge the issue in court, and get a proposition campaign under way – the fees would not help with the budget for the next year or two. So if 1A fails, the only real option is to go all-out for a reform of the two-thirds rule, and this is a politically difficult fight; just a few years ago, 65% of voters rejected a reform. Polls say that a reform that retains the two-thirds rule just for tax hikes (not the budget as a whole) could pass; switching from majority to 55% or 60% makes little difference. Laird noted at this point that the two-thirds rule as originally written only applied when the economy was growing rapidly – when the economy was up at least 5% from the previous year. Legislators and the public felt that when revenues were growing fast, it was important to have strong consensus about new investments and programs. Ironically, the conditional clause was removed to “streamline” the budget process – California’s economy grew for much of the twentieth century, and seldom suffered a serious contraction, and it was considered a nuisance to certify the growth rate every year.

Another questioner asked, simply, what the downside of 1A is, in Laird’s view – he said that basically, it trades two years of revenue enhancement for a permanent ratcheting-down of public investment, due to the way the rainy day fund rules prevent us from devoting windfalls in good years on infrastructure or other investments.

The final question was about why people support the two-thirds rule. Asm. Laird said he thinks that people tend to recognize their direct tax bill, but fail to see how failure to invest taxes them, by taking risks with the road and water infrastructure that supports day-to-day life and business, or by making education and healthcare more expensive and less accessible.

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I personally feel like the big question here is still about what will happen if/when the propositions go down. I wish the Dems in the legislature, and in other offices (mayors, executive officers, etc) were getting more coordinated about framing this debate. The legislators came up with a budget, and they tried to find a compromise with the GOP, but the incentives for each GOP legislator are all in favor of obstruction. GOP legislators refuse to even say what changes, within reason, would induce them to vote for a budget. If it comes down to a government shutdown, we need to be clear that it's the obstructionist minority that's causing it, and that the fix is to end the two-thirds rule.