“What we’re looking at today is much worse than it’s ever been before and our opportunities to fix it are very limited.” So said Gov. Jerry Brown at one of his December “budget conferences” around the state.
A major reason the opportunities to fix what is estimated to be at least a $25.4 billion budget hole if the Democratic governor and the Legislature do nothing over the next 18 months is more than 30 years of voter-approved initiatives that both dictated spending and reshaped the relationship between state and local government. What started the problem occurred in June 1978 when Brown was running for a second term.
Angered by spiraling local property tax rates, voters approved Proposition 13 which shifted the power over divvying up property taxes from local governments to the state Legislature. The ballot measure also made it harder for the Legislature to increase taxes by creating a two-thirds vote threshold for approval. “Proposition 13’s biggest impact has been in centralizing power in the Legislature,” said Mark Paul, co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It.
“Funding of social services that used to be made in county supervisors meetings, city halls and school districts are now made in Sacramento,” Paul said. “Proposition 13 gave the Legislature more powers but less ability to act.”
California’s new governor recognizes this. “We’re really still operating in the wake of Prop 13 and the redistribution of power to Sacramento,” Brown told reporters after a January 5 meeting with the executive board of the California State Association of Counties. Three days earlier in his inaugural speech, Brown pledged to “return — as much as possible — decisions and authority to cities, counties and schools, closer to the people.” The Democratic governor has said his budget, to be unveiled January 10, will include elements that will send some current state responsibilities, such as welfare, back to cities and counties, and relieve local governments of some obligations, reportedly mainly in the health care area, such as in-home care for the elderly.
Bailing out cash-strapped local governments and school districts in the wake of Proposition 13 used up much of the surplus Brown had amassed in his first term and consolidated even more power in Sacramento.
But Proposition 13 was just the beginning. In 1979, voters approved Proposition 4 that imposed what’s come to be called “the Gann limit” on state and local spending. Paul Gann, the sponsor of the initiative, was also a co-sponsor of Proposition 13. Under the initiative, state and local spending were limited to that in the prior year, adjusted for population growth and per capita personal income growth. The state has rarely gotten close to the limit in the intervening 31 years. When it did appear state spending would be over the limit, the Legislature put a measure on the ballot to recast the spending cap formula, ensuring the state would never hit the limit.
However, Proposition 4 also contained a provision that the state pay for any responsibilities or “mandates” that it imposed on cities and counties, a further drain on state resources. During the budget crises of the past two years, numerous mandates have been suspended to save the state money — 56 in the current fiscal year which ended June 30, among them, conducting autopsies of children who die of SIDS, Filipino employment surveys, and holding firearms hearings for discharged inpatients. Some like requiring that lost animals stay in a shelter for at least seven days to give owners a better chance of retrieving them have been suspended at least eight years. But county has reverted to the old law of 72 hours.
The first of several measures that increased state revenue but dictated what it could be spent on was approved in November 1984. The state lottery says ticket sales in the fiscal year that ended June 30 were roughly $3 billion, of which more than $1 billion was given to schools.
In November 1986, voters required city councils and boards of supervisors to approve local tax increases by a two-thirds vote, subject to ratification by a majority of local voters.
Two years later, the manner in which the state provides support to public schools was transformed by Proposition 98. The proposition created a series of formulas that guaranteed public schools at least 40 cents of every dollar that flows into the state’s general fund, a total that should have been $54 billion this year. How much the state owes annually fluctuates annually based on the economy and the health of the general fund. In years when the economy is strong and tax revenue increases, so does the amount the state gives to schools. Similarly, in starker economic times, like the “Great Recession,” the state’s obligation falls.
“Proposition 98 is something restrictive, especially during good times, but it hasn’t been all that restrictive in the last few years because the guarantee has fallen because revenues have fallen,” said Mac Taylor, the state Legislative Analyst.
Lawmakers can suspend Proposition 98 on a two-thirds vote and give schools less than the minimum guarantee but must repay the amount schools are shorted over time. This year, the Legislature suspended Proposition 98 and funded schools at nearly $50 billion, $4.1 billion less than Proposition 98 calculated schools were owed.
After the lottery was created, a trio of propositions increased state revenue but insisted it be spent for specific purposes. November 1988’s Proposition 99 levied a 25-cents-per-pack tax on cigarettes and other tobacco products requiring the proceeds be spent on various health related programs. Revenues have fallen over 22 years to about $285 million annually.
Ten years later, Proposition 10 added an additional 50-cent per-pack tax, requiring the approximately $500 million it raises annually be spent on early childhood development programs, which are now known as First 5. Unlike Proposition 99’s revenue which can be diverted by a super-majority vote of the Legislature, First 5 money can’t be spent for other purposes unless voters approve the change.
Proposition 63, on the November 2004 ballot, has the same requirement. It imposed an additional 1 percent tax on income over $1 million and required the revenue be spent on mental health programs. Since its enactment, revenues generated have varied from $900 million to $1.5 billion. In a budget balancing move, lawmakers and Gov. Arnold Schwarzenegger asked voter permission in 2009 to spend some of the revenue raised by both propositions differently. Voters rejected the idea.
“Cumulatively, the presence of all these restrictions does make it more difficult to address a general fund budget issue,” Taylor said.
Another series of ballot measures have been spawned by local governments in response to the state “borrowing” or simply seizing local revenue for budget problems. Proposition 1A from November 2004, for example, requires the state to repay within three years any money it borrows from local governments. The state used $2 billion in local money which must be repaid in the fiscal year beginning July 1.
Last year, in reaction to the state taking redevelopment and redirecting state gasoline tax revenues from cities to the state, the two aggrieved parties placed Proposition 22 on the ballot prohibiting the state from doing so again. And voters also approved in November Proposition 26 which says a two-thirds vote is required for an imposition of a fee. Much of the state’s environmental and resources programs are paid for with such fees.
“I don’t know how Prop 26 will work,” Taylor said. “There will be a lot of legal challenges that determine how restrictive or not restrictive it is.”