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Saturday, May 2, 2009

HJTA on Prop 1A: Lessons From CA History

From http://www.hjta.org/california-commentary/no-looking-back:

The fact is, once a spending limit actually comes into effect, the political pressure to spend "excess revenue" is enormous. Indeed, this is precisely what happened to the Gann Spending Limit.

No one understands this better than Bill Leonard, currently serving as a member of the Board of Equalization. He recently wrote a short piece in his "Leonard Letter" which reviewed the history of the undoing of the Gann Limit. Leonard notes that "in 1987's growing economy, state revenues exploded and for the first time the state had more cash than the Gann Limit permitted to be spent on programs.In a wise bit of foresight, the Gann Limit already laid out that the default action for a surplus of revenue over the limit was a rebate to every California taxpayer. Governor Deukmejian offered the Democrat legislature a plan to spend the extra revenue on infrastructure, but they balked and in the end every California taxpayer received a modest rebate check."

Believing that they were entitled to every last dime of taxpayer revenue, the tax and spend lobby's reaction to the rebates was swift. They proposed Prop. 98 which guaranteed that K-14 spending be maintained at a certain percentage of the general fund. That measure barely passed with 50.7% of the vote.

But, according to Leonard, by 1990 Governor Deukmejian "found it impossible to comply with both the Gann Limit and the Prop. 98 guarantee, so he and the legislature worked out a comprehensive ballot measure that loosened the Gann Limit formula to make it harder to ever reach the limit, while making the Prop. 98 guarantee more flexible so that it would stay around 40% of the General Fund under all circumstances, as well as increasing the gasoline tax for purposes of transportation construction. This became Proposition 111 and the voters approved it in 1990."

Leonard's point here is important: "The lesson for the future isthat if the spending limits of Proposition 1A of 2009 pass, they can and will be undone by the voters, too." Thus, the question is whether a speculative budget reform -- one which allows its limits to be increased to reflect higher taxes -- and one which does nothing to control the appetite of the spending lobby is worth $16 billion in higher taxes.

For most taxpayers, the answer is clearly no.

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