May 19 Special Election: Just Say No

Calitics has announced its endorsements for the ballot propositions on the May 19 special election: no on everything. I agree, and will not duplicate their analysis. I’ve written before on the problem with spending caps (Prop. 1A), but it is worth quoting the League of Women Voters on this issue:

[Prop. 1A] would actually make it more difficult for future governors and legislatures to enact budgets that meet California’s needs and address state priorities. It would amend the state Constitution to dictate restrictions on the use of funds put into the reserve and limit how “unanticipated” revenues can be used in good years. It could lock in a reduced level of public services by not taking proper account of the state’s changing demographics and actual growth in costs. Prop 1A would also give future governors new power to make budget cuts without legislative oversight. Like the other propositions opposed by the League on this ballot, Prop 1A came from a deeply flawed process that resulted in measures written in haste and without public input or analysis. The League would support real budget reform, but we regretfully conclude that this measure would only make things worse. (League of Women Voters)

The only issues where I break a little from the Calitics editorial board is on propositions 1D and 1E. As a rule, I am generally opposed to dedicated tax increases tied to specific spending. With the exception of sin and consumption taxes tied to related issues (carbon taxes for climate change, alcohol/tobacco taxes for health care), I feel that such arrangements strip flexibility from the legislature and prevent reasonable shifts in government priorities. They distort the budget process just as Prop 13 does, if not to the same extent. However, the issue of dedicated taxes should be addressed as part of comprehensive budgetary reform, and not as a part of a crazy budget work-around. So, I come to the same conclusion: no on Props. 1D and 1E.

With it increasingly clear that this budget will not be sufficient even if all of the ballot propositions pass, there is no reason to pass them at all. We cannot be held more hostage than we already are.

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The Problem With Spending Caps

The supposed purpose of a spending cap is to prevent the government from increasing spending (or, presumably, cutting taxes) during times of high tax revenue, on the assumption that such actions will lead to larger deficits and tax increases (or, presumably spending cuts) during bad times. This is, perhaps, a sensible goal. However, there are better methods to dampen the effect of economic downturns on the state budget (notably, by shifting toward property taxes and away from income and sales taxes).

The real effect of a spending cap is to remove flexibility from policy making. Even if the cap accounts for inflation and population growth, it only really allows the legislature to fund existing programs. Any new program or an expansion of any existing program would need to come at the cost of another existing program. New taxes could not be levied to fund an immediately new program, although since the cap is based on some calculation from the previous decade’s tax revenues, the higher taxes may, over time, allow for more spending. But even then, that adds a decade’s lag for the adoption of new policy, an unacceptably long wait.

More importantly, the cap will ignore significant other constraints on the budget. It will ignore the aging population and the corresponding strain on state health services. Additionally, health care costs have been rising significantly faster than inflation and income, again increasing the demand for and cost of state services. I don’t think it is much of a reach to suggest that even if no new programs were adopted, and the prison population remained the same, that the cost of running existing programs would still increase faster than inflation and population growth over the next 20 years. Ergo, a spending cap doesn’t prevent new spending, but locks us into future spending cuts as program costs rise in unpredictable ways.

Furthermore, spending caps are anti-democratic (small ‘d’), in that they prevent new spending desired by a majority of the public. However much Republicans may like to pretend, spending generally isn’t forced on an unwilling population by out of control legislators. Spending is something the public generally wants, and if it doesn’t, then it can replace the legislators and end the programs. Spending caps don’t have brains. They do not think or reason. They do not recognize that there was a natural disaster or that the public wants expanded arts education for their children or that massive water infrastructure spending is necessary to prevent the Central Valley from turning into a dust bowl. If we want a government by algorithm, let us replace the legislature with a computer and be done with it. Of course, the result will be that the computer says “no”.

Strange Bedfellows

The Los Angeles Times on Wednesday had an article remarking on the ‘slow’ response of unions to Proposition 1A, the spending cap placed on the ballot as part of the budget compromise passed last week.

The official ballot arguments have been submitted, and in what administration officials hope is an encouraging sign, the best-funded labor groups opted not to weigh in against the measure. At least not yet.

Frankly, it doesn’t seem that their response has been ‘slow’, but rather that the deadline to submit ballot arguments passed oddly quickly. The real issue, though, isn’t going to be the ballot arguments, but rather whether money is ponied up to run ads against the propositions. I certainly hope that they will.

This, however, is a new opinion for me, as of today. I am firmly opposed to spending caps of any kind, especially spending caps that are put in place after massive, unpopular, and extortion-driven cuts are made to the budget. Even spending caps that account for population growth and inflation ignore costs, like health care, that rise faster than the rate of inflation. However, I’ve had to spend the last week thinking about whether the desire to avoid a repeat budget crisis outweighed the intense belief that a spending cap would be dangerous in the long term. I am no longer conflicted. I am, however, willing to accept that the unions may need time to come to the same conclusion.

A far more interesting part of the article was on the division among anti-tax groups.

In addition, the state’s major antitax groups have split over the measure, with at least two supporting it even though it would prolong the tax increase that the Legislature passed last week. The California Taxpayers’ Assn. signed the ballot measure backing the spending cap, and Lew Uhler of the National Tax-Limitation Committee said he also favors the measure, called Proposition 1A.

“At this point, it seems to be a reasonable restraint device,” Uhler said in an interview Tuesday.

Jon Coupal, president of the Howard Jarvis Taxpayers Assn., said he was surprised at Uhler’s stance and said his own group would fight to defeat the measure.

“I’m not sure we’ll be able to match the proponents dollar for dollar, but we’ll certainly get the message out,” he said.

I never really expected to be on the same side of any issue as the Howard Jarvis Taxpayers’ Association, even for completely different reasons. Still, the more opposition the better. I do wonder, however, how the public will response to differing arguments against Proposition 1A, one because of the tax increases, and the other despite them.

Addendum: See the discussion over at Calitics.

Economics and the California Republican Party: Never the Twain Shall Meet

This is a monumentally bad idea.

While many of the funds pegged for California would immediately help children, the poor and commuters, some Republican state lawmakers argue that the state should sock away some of the money for hard times in the future.

[Snip]

Villines agreed that avoiding costly borrowing would be prudent. But he had other ideas about using federal funds. Any federal money that “we might get should basically be put away into a … rainy-day fund for any potential future deficits if the economy continues to get worse,” he said, “as opposed to any budget factoring now.”

The purpose of the money is to stimulate economic recovery now, not to hoard it for the future. Apparently, statehouse Republicans don’t know the meaning of the word ‘stimulus’. The state Republican party should be disbanded, unless and until they can find people who know what they are talking about.

Finally, let’s look at this reporting:

One silver lining in the state’s deep fiscal crisis is that it has forced Republicans and Democrats to consider policies they had ardently opposed in the past, such as taxes and spending caps, experts say.

Which experts say that? Did you make that up, or are there really people who think that this kind of manic crisis budgeting is a good thing? Spending caps are a dangerously bad idea, as usually proposed. This is especially true if they are unable to account for population growth. New taxes are necessary, but Republicans have only willing to offer them in exchange for a spending cap.

The true silver lining of this crisis is that it may provoke the kind of massive structural reform the budget process needs: the abolition of the 2/3rd requirement for both the budget and taxes and the reconsideration of proposition 13; without both of which, we would not be in a crisis this severe. Unfortunately, it would be better to deal with this issues in the sober light of day, rather in the midst of a meltdown.