Metropolitan News-Enterprise


Friday, February 6, 2009


Page 7



What Is a Real Spending Cap?




In 1979, the year immediately following the enactment of Proposition 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 Proposition 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 Proposition 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.

(The writer is an attorney and president of the Howard Jarvis Taxpayers Association.)


Copyright 2009, Metropolitan News Company