California Budget

There's nothing more fun for blockbuster democracy types than a special election. In such cases, the initiatives are the real stars. And, apparently leaping at a suggestion first offered on this blog, Gov. Schwarzenegger on Thursday put the possibility of a special election on the table, saying he might have to call one if the budget drags on.

Why? Because ballot measures changing the budget process -- and perhaps the state lottery -- likely will be part of any budget compromise. And the deadline for adding measures to the November ballot appears to have passed.

Most political consultants I know think that Schwarzenegger would be crazy to call a special election. It would remind people of the 2005 special he called (For you non-Californians out there, it turned into a debacle: all eight measures on the ballot went down to defeat, including four that Schwarzenegger championed). Measures that otherwise might garner support could have a tough time on an '09 ballot simply because they are associated with a special election.

But I think a special could be a healthy exercise. It would force the state to focus on its budget problems. And it also could provide an opportunity for the public to consider badly needed tax reform measures. If there is to be a special, Assembly Speaker Karen Bass ought to insist that any constitutional changes produced by her tax reform effort be a part of the ballot line-up.

John Matsusaka of the Initiative & Referendum Institute at USC had an excellent piece on the state's budget problems. One important point he makes: the ballot initiative is not to blame for our budget troubles. He notes that the legislature would spend about half of the budget on education without Prop 98, and that all the other initiatives ever approved lock in only about 2 percent of the state budget. Matsusaka points to spending growth -- and the power of interest groups that demand more spending -- as the root of the problem.

California is stuck. More than two months have passed since the constitutional deadline to adopt a state budget for the '08-'09 fiscal year, and there's still no budget. What's worse, potential compromises all involve adding measures to this November's ballot. And the deadline for adding such measures already has passed -- it was Saturday. It's unlikely that legislative Republicans, who as the minority party are able to hold things up because California requires a two-thirds vote for budget passage, will relent on their demand for a rainy day fund and some sort of spending limit. Such changes are constitutional and require a vote of the people. Plus, Democrats are banking on money from borrowing against lottery revenues to pay for programs. Since the lottery was enacted by ballot initiative, these kinds of changes to the lottery require another vote of the people.

So what's the way out? Here's a fearless prediction: California's legislature will pass and the governor will sign a budget sometime in the next month. And that budget likely will include ballot measures on spending and the lottery as part of the compromise. But those measures can't appear on this November's ballot. Time has run out. Instead, they'll appear on the next scheduled statewide ballot -- in June 2010. In effect, the California's '08-'09 budget fight might not end until then. 

California is one of only three states -- Arkansas and Rhode Island are the other two -- to require a two-thirds vote to pass the budget. This has been a constitutional requirement for 70 years, when Democrats forced its introduction during a brief time of Democratic power in a long run of Republican dominance. The super-majority makes it hard to pass budgets, and California's is more than two months overdue. But the bigger problem is that the super-majority requirement limits accountability. It's nearly impossible to tell who is responsible for budget problems -- the Democratic majority or the Republican minority, which has just enough votes to block a budget. Legislative majorities should have to own the budget, and accept political punishment for any problems. But such ownership and punishment is impossible in California.

As for the political prospects of a change, well, let's put it this way. These legislative Democrats want to eliminate the two-thirds requirement. Your blogger wants to become a billionaire and hang out with Halle Berry. My chances are better.

It's two months past the deadline, and still no deal on a new California budget. Midnight Saturday was the Secretary of State's deadline for the legislature and governor to add measures to the November ballot. Some measures would need to be part of a budget compromise. You'd think all sides would spend that time in the Capitol. You'd think wrong. The legislature reconvenes today for a bit of grandstanding and meaningless votes on the budget.

Since our elected leaders seem so unwilling to put in the time in Sacramento and reach a compromise, I offer a modest proposal in Sunday's LA Times: relocate the state government to Monterey.

We should adopt it immediately. Of course, it' s far too conservative--Democrats would label his plan draconian if Schwarzenegger proposed it. Here's how the former Assembly Speaker described it in his San Francisco Chronicle column.

"George Shultz asked me how I would solve the state's budget impasse.

My answer: Just pass last year's budget again. That way you have a spending plan in place.

Then take all the extra revenue that is coming in at 3 to 5 percent over last year and put that extra money in a pot.

If any department or program needs more money than they got last year, then have them come in, apply for the money and prove they really need it.

Then start the process of real budget reform."

The Sacramento Bee has a pretty good summary of the two financial instruments that nearly out-of-cash California is about to hear a lot about. RAWs (Revenue Anticipation Warrants) and RANs (Revenue Anticipation Notes). I'm anticipating some confusion, but this is important stuff. By the way, it's Aug. 1. The budget in California is supposed to be done by June 15.

There's been a lot of coverage of the demand by Republicans in the California legislature that any budget be accompanied by a new state spending limit. Unfortunately, most of the reporting has neglected one key fact: California already has a spending limit.

California's spending limit was passed as Act II of the late-1970s tax revolt set off by the famous Proposition 13 property tax measure. Approved by voters in 1979, Proposition 4, championed by Paul Gann, a co-author of Proposition 13, limited spending by local and state governments to the growth of population and the lower of inflation or per capita personal income. It required revenues collected in excess of the limit to be returned to taxpayers.

I missed this feature in the Sunday LA Times (I spent the weekend in an exhausting New America retreat in San Jose -- take home lesson: those think tanks really expect you to think at their events). But it's worth checking out: four pieces looking at budget strategies of previous governors. It's history, but newsworthy as the state battles a record $15 billion deficit. California voters likely will have to bless whatever deal emerges this fall.

Conservatives in particular should take note of the piece on Reagan by Lou Cannon. Schwarzenegger has been buried by the right for discussing fees as part of his health care plan and for raising the possibility of a one-cent sales tax increase as a "back-up" if his lottery borrowing fails. Reagan's tax record is far, far more liberal: corporate taxes during his tenure went from 5.5 percent to 9 percent; taxes on banks went from 9.5 percent to 13 percent, and the maximum on personal income went from 7 to 11 percent.