California's fiscal future looks positively dire. The budget deficit is expected to soar to more than 40 billion (more than 1,000 per resident) over the next year. It is the perfect storm of falling tax revenues caused by the popping of the equity and real estate bubbles, and soaring unemployment claims. But the Legislature and the governor are not the only ones to blame; just look at the results of the last election.
Voter ignorance is in large part to blame as well.
Admittedly, the state fiscal crunch was not nearly as bad back in November of 2008, but it was still as bad as it had ever been and experts knew things were going to get worse.
Yet even during a time of record deficits, California voters sought fit to approve four propositions that will directly aggravate the deficit: propositions 1A, 3, 9, and 12. All together, those propositions will cost the state more than 24 billion in future spending. Of the 12 initiatives (some had negligible fiscal effects) on the 2008 ballot, only 1 might have had a positive fiscal impact: Proposition 5 (expanded parole for drug offenders), which failed by a 60-40 margin.
The ballot initiative system is wrecking California's fiscal future. The average voter does not understand the consequences of passing new spending through ballot initiative and simultaneously having a constitutionally mandated balanced budget. What happens when the unstoppable force behind Props 1, 3, 9, and 12 meet the immovable object of the state's balanced budget requirement? The largest state budget deficit, and soon the largest simultaneous budget cuts and tax increases in the history of all 50 states.
To make matters worse, the ballot initiative system is being abused. It now has devolved into a grab-bag for special interests, and the solution for any powerful lobby that cannot get its way in Sacramento.
Prop 3, which floated bonds to finance children's hospitals, was almost a carbon copy of Proposition 61, another budgetary end-around, which passed in 2004. It was the same in virtually every respect, except of course for a more modest price tag. The beneficiaries of Proposition 61 saw how easy it was to get their way, and did so again recently with Prop 3.
Props 3, 9, and 12 were good example of why the system needs to be reformed. On the surface, Prop 3 looked like a great cause, and it wasn't easy for anyone to vote against money for children's hospitals. The commercials with Jamie Lee Curtis and numerous sick children really put a human face on the issue. The sad reality is that there are a million good causes, and public money can't be used to support every one of them.
Leaving the merits aside, Proposition 9 will cost the state an undetermined amount in extra prison costs by denying parole. Veteran's care, typically a federal responsibility has been shifted to the state with Proposition 12, which will cost 1.8 billion so that veterans can buy farms and homes.
These three propositions all had two things in common: First, none had budget offsets or tax increases built in, so they all are guaranteed to make the budget crisis worse. Jamie Lee Curtis bragged on television that Prop 3 " raise taxes, it saves lives." This is at best a half-truth. California requires a balanced budget. So by spending 2 billion over the next 30 years on bonds and interest, that's 2 billion cut from somewhere else, or more likely 2 billion more that has to be raised in new taxes.
So more accurately, Prop 3 does raise taxes, it just hasn't done it quite yet.
Secondly, they benefited very small constituencies at the expense of the average taxpayer. This reason is exactly how they got onto the ballot in the first place. To get an initiative onto the ballot, there is a paltry filing fee and a requirement for signatures of 5 percent of the people who voted in the last election. That amounts to about 434,000 signatures.
It seems like a lot, but take for example Prop 3. Because the benefits go to such a small segment of the state, it's easy to get everyone who stands to benefit to sign. After getting the signatures everyone involved in the health care field and their families, you have enough.
Propositions 6, 7, and 10 were other examples of a small group trying to pry open the state's coffers for their own private gains. Luckily, those measures failed, but given the relative ease of getting an initiative on the ballot, they will certainly be back.
Big fiscal problems like the one we have today will never be solved by a fickle and uniformed voting populace, only exacerbated. Our problems can only be solved by professional legislators. The California Voter Guide summarizing all the 2008 ballot initiatives took more than an hour to read. How many voters actually read through the entire thing? Unfortunately, most of voters made up their mind based on a 30 second TV commercial. When the decisions are left up to professional legislators whose job it is to know the issues, we can expect to have fewer problems.
To prevent further fiscal damage, either the threshold of 5 percent should be raised substantially, or ballot measures that are not revenue neutral should be disallowed. I prefer the later. If special interests want to spend money on special projects, let them but make them pay for it at the same time. In the short run, it wouldn't do much, but in the long run, leaving the tough fiscal decisions for the legislature and not the capricious populace will make the fiscal process much healthier.
Revenue neutrality is absolutely critical for future ballot initiatives. Not too long ago, Proposition 63 (2004) increased taxes on incomes above 1 million to finance state mental health services. Leaving aside merits, that proposal was far superior to any on the 2008 ballot because it actually paid for itself.
Two years from now, there will be more spending proposals on the ballot, and California voters will continue to make life impossible for the Legislature, unless the initiative process itself is amended. It won't be easy, but it needs to be done.