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Reason Foundation

The Wall Street Journal

Don't Blame Voters for California's Budget Woes

Big spending pols falsely claim citizen ballot initiatives have tied their hands

Shikha Dalmia, Adam Summers and Adrian Moore
October 9, 2009

With the Golden State still struggling to balance its books, politicians from both sides of the aisle have come up with a nifty way to avoid responsibility for the mess: Blame the voters.

Gov. Arnold Schwarzenegger, a Republican, summed it up for his fellow pols recently by telling a reporter: "All of those propositions tell us how we must spend our money. . . . This is no way, of course, to run a state." State Senate President Pro Tem Darrell Steinberg, a Democrat, has made similar comments in denouncing "ballot-box budgeting."

Their indictment is false. Voters aren't tying lawmakers' hands too much, but too little. Here's the background:

For decades, state officials have habitually proposed deep cuts to the most popular programs unless voters agree to higher taxes. Tired of being manipulated, voters have used the ballot initiative to put some programs off-limits.

Nevertheless, a 2003 analysis by John G. Matsusaka, president of the Initiatives and Referendum Institute at the University of Southern California, found that no more than a third of California's appropriations that year were locked in by voter initiatives so stringent that legislators couldn't override them. Most of the appropriations—about $30 billion in 2003—were for Proposition 98, which passed in 1988 and mandates funding for K-12 education.

Even this overstates the case against ballot-box budgeting. K-12 spending has remained remarkably stable at around 40% of the budget pre- and post-Prop. 98. Today, California is 24th among the 50 states in terms of the percentage of its general funds it devotes to K-12. This suggests that education spending is not grossly out of line. Prop. 98 aside, Mr. Matsusaka found that only about 2% or 3% of California's budget is frozen as a result of ballot initiatives.

Mr. Matsusaka's analysis was affirmed last month by the Legislative Analyst's Office, a nonpartisan outfit that advises the legislature. It looked at all the restrictions on the state's budget—not just those imposed by ballot initiatives—and concluded that: "Despite these restrictions, the legislature maintains considerable control over the state budget—particularly over the longer term."

So what happened this year that got the politicians and others so upset with ballot-box budgeting? California faced a $42 billion budget deficit. After a round of spending cuts and $12 billion in new taxes, the governor and the legislature called for a special election and placed a number of propositions on the ballot that would have increased taxes an additional $16 billion and allowed for billions more in borrowing and fund shifts. Voters shot those measures down in May.

After much bickering, lawmakers nearly closed the deficit with severe cuts, but left the governor with a $1 billion deficit to close on his own. He did so by using his line-item veto to strike, among other things, $500 million for in-home care, transportation assistance and other social services.

Now the governor is being sued by a whole host of special-interest groups, including a coalition of organizations representing the disabled. Those organizations (along with Mr. Steinberg, who has filed a separate suit), claim that the governor cannot constitutionally cut spending beyond what the legislature has already cut. The suits ignore that the governor is bound by a constitutional requirement that the state's budget be balanced—but in any case have nothing to do with spending that is mandated by ballot initiatives.

In looking for the causes of the state's budget mess, a good place to start is with the unionized public employees, who have filed their own lawsuit against the budget. Public union ranks have grown a whopping 37% since 1990 and consume about one-third of the $85 billion budget in wages and benefits. California also faces a total unfunded future liability of about $110 billion for pensions and health-care benefits. Still, the state's chapter of the Service Employees International Union and other unions are suing the state because their members are being asked to take a few days of furlough to save the state about $1.5 billion. The unions say this is an illegal pay cut. Regardless of whether it is, ballot initiatives are not the issue.

True enough, some lawsuits are driven by ballot initiatives. The California Redevelopment Association is attempting to stop the state from raiding $2 billion in local redevelopment funds. Sixty years ago voters passed a constitutional amendment to prevent such raids, but the state government has found ways around that prohibition. But restoring the will of the voters in this case is essential for sound budgeting, because local development funds are used to pay for bonded contracts for roads and other infrastructure projects. If the state is allowed to grab these funds, the credit ratings of cities and counties will plunge and their borrowing costs will rise.

Whatever the wisdom of ballot initiatives that protect some programs from cuts, they are not the root cause of California's fiscal disaster. That cause is the government's spending addiction. From 1990 to 2008, California's revenues increased 167%, but total spending soared 181%.

This problem won't be tamed by letting lawmakers get their hands on more tax dollars by scrapping Proposition 13, which limits property taxes, as Mr. Steinberg and other lawmakers have suggested. Rather the solution is to restore the Gann Spending Limit that restricted state spending increases to population growth and inflation and required that anything left over be returned to taxpayers.

Such restrictions kept the state from slipping into a cycle of fiscal chaos in the 1980s by checking government expenditures and forced lawmakers to rebate $1.1 billion in excess revenue in 1987. But voters diluted Gann in 1990, when they passed Proposition 111, exempting infrastructure projects, disaster spending and a number of other state expenditures from the spending limit.

Prop. 111 freed politicians in Sacramento to use the revenues that gushed in during the dot-com boom and housing bubble to grow the state budget to unsustainable levels. If Gann hadn't been neutered, a Reason Foundation study found in February, California would have been rolling in a $15 billion surplus this year.

The Golden State's problem is not overly controlling voters—but out-of-control politicians.

Ms. Dalmia is a senior analyst, Mr. Summers a policy analyst, and Mr. Moore a vice president at the Reason Foundation.


Shikha Dalmia is Senior Analyst

Adam Summers is Senior Policy Analyst

Adrian Moore is Vice President, Policy


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