On Tuesday we carried a piece by the Claremont Institute’s Tom Karako, Director of CI’s Golden State Center, that was quite critical of Prositions 1A-1F. You can see that here.
Loren Kaye of the California Foundation for Commerce and Education, the policy arm of the California Chamber of Commerce, which is supporting the ballot measures, responded with a stinging criticism here.
When I received the Kaye piece, I forwarded it along to the folks at the Claremont Institute for their perusal and potential response. Karako did pen a rebuttal, which is included below…
Judging by the tone of Loren Kaye’s response and his impassioned advocacy of Propositions 1A-B, my analysis of the choices facing California voters seems to have struck a nerve.
Kaye raises three objections to my account of Prop 1A: that 1A’s rainy day fund would be effective, that 1A imposes a hard spending cap, and that the complicated budgeting requirements 1A would impose are preferable to asking the legislature to exercise fiscal responsibility. He also objects to my take on 1B. Instead of making education spending more costly, complicated, and convoluted, he claims that 1B “clarifies” education spending and that it will save money.
Let me, then, consider these objections one by one.
1A: the Rainy Day Fund
First, to restate the obvious: Prop 1A extends three types of tax increases for two more years. These tax increases meet an immediate short-term need if one does not want to cut spending in order to balance the budgets for the coming years.
But tacked onto the tax increases is the Budget Stabilization Fund (BSF) or a so-called “rainy day fund” which proponents perhaps hope will sweeten a bitter pill. Prop 1A would put into place a number of hoops through which officials would have to jump. But as a budget matter, it will be raining for many years to come. So jumping through these hoops may pose less difficulty than one might expect. In the end, fiscal restraint will still depend upon elected officials’ restraint, as it always does.
Kaye believes these doubts are misplaced, that the reserve fund would be untouchable. “The amount deposited into, remaining in, and eligible for withdrawal from the reserve is entirely dependent on outside, independently-determined economic conditions,” he maintains.
True, 1A would require that certain bills be paid before others: education, filling the rainy day fund to an ideal “target,” and paying off bonds. But meeting funding obligations for education has to be done anyway. Even should some windfall unexpectedly improve state revenue, the Legislative Analyst’s Office (LAO) notes, these “extra revenues could be spent on a variety of purposes.” Yet for the immediate future, it seems doubtful there will be “extra” money lying around.
Are we to understand that billions will begin accumulating in a lockbox and somehow remain sacrosanct? This seems unlikely.
In the first place, the rainy day fund can be tapped if revenues do not exceed state spending from last year multiplied by inflation and population increase (is this so implausible?). The governor also has some limited authority to suspend transfers, but admittedly less than before. Yet any amount could still be used for an emergency such as earthquakes and fires (we get a fair number of these each year). Who knows what might be classed as an “emergency” when things get tight? Money is fungible, and if it is lying around, legislators will find a way to tap it.
Kaye wants us to believe the whole thing will operate on autopilot, but the LAO cautions otherwise: “future budget decisions by the legislature and the governor…would effect the state’s fiscal condition and how much money is deposited or withdrawn from the BSF in a given year.”
Try as we might, it is impossible to take the politics out of politics. Although spending limits are a good idea, they don’t seem to work as well as a legislature and a governor who are willing to control spending.
Kaye also notes that 1A would require budgeting to take into account ten-year trends and forecasts. The average citizen would be excused for supposing that the financial wizards in Sacramento should be expected to look at trends and forecasts without revising the state constitution to tell them to do so.
1A: the Spending Cap
Kaye also objects to my observation that 1A “does not restrict increases in either revenue or spending.” The LAO agrees with me, finding that “In any given year, Proposition 1A does not strictly limit the amount of revenues that could be collected by the state or the amount of spending that could occur.” If the governor and legislature want to spend more money or raise taxes even further, they will find a way.
Voters are being asked to believe that this time, somehow, it will work. Is this hope enough to justify two more years of tax increases?
1A: Defining Responsibility Down
Kaye refuses to look at the systemic causes of the current mess. Sacramento simply will not be fixed until those in office begin to take responsibility for their actions and voters hold them accountable.
Overuse of the initiative and referendum process for budget measures has created a dysfunctional constitutional system that has drained responsibility away from legislators. What sounds like a restriction of the legislative power in favor of the people turns out to be an enhancement of special interests who can afford to push through their agendas by referendum. The current silo-budgeting system makes it easier for legislators to deny responsibility for the shambles the state is now in. Again, why not just return everything to the General Fund, and require legislators to set priorities and allocate resources?
In a republican form of government, the people are supposed to elect legislators and an executive branch to do their job, and remove them from office when they don’t. In a republic, the people elect officials to make hard decisions, take responsibility for their actions, and defend them. Further removing more responsibility from legislators will make them less accountable, and the whole mess will continue to spiral downward.
1B: Education Spending
Again to restate the obvious: Prop 1B would require some $9.3 billion in additional education spending. Kaye says that my complaint with 1B is that it is complicated and convoluted, and redirects blame to Prop 98’s special silo-budgeting. But Prop 1B seems to make Prop 98 worse without any improvements in return.
Kaye claims that 1B “clarifies what would be a highly contentious issue over constitutional interpretation.” What clarification? The LAO finds that 1B “does not clarify the uncertainty” about calculating Prop 98 expenses. Kaye then asserts that 1B “saves money in the short term.” The LAO is more cautious: it might save money in the short term, and it might not. But it certainly will increase ongoing annual spending “potentially by billions of dollars each year.” If Kaye is so concerned with long-term fiscal effects, perhaps he should oppose 1B.
And is it impossible to believe that there is no savings to be had in our enormous education budget, none at all? It defies credibility to have the citizens of California believe that the state’s education bureaucracy cannot be trimmed or cut substantially.
Summary
A statewide poll from a few weeks ago showed that Prop 1A was trailing 39% to 46% among likely voters and that 1B had only a narrow lead of 44% to 41%. The tone of Mr. Kaye’s piece seems to suggest that proponents of 1A-B may be getting desperate.
Come May, the people will decide if they want to raise taxes, put their faith in an ever more complicated budgeting system, and increase the amount of guaranteed education spending at a time of economic distress.
Tom Karako
Director of the Claremont Institute’s Golden State Center
This entry was posted
on Thursday, April 9th, 2009 at 12:00 am and is filed under Blog Posts.
