WE OPPOSE PROPOSITION 76
The California Live Within Our Means (LWOM) Act initiative is a proposed constitutional amendment that would make major changes in the state's budget process. Among other things, it would change the state's spending cap, increase the governor's power to make budget cuts, and change the formulas for state support of education. Proponents are William Hauck, president of the California Business Roundtable, and Allan Zaremberg, president of the California Chamber of Commerce. The Citizens to Save California campaign committee supported petition circulation for the initiative.
Provisions of LWOM:
- New spending cap: Total expenditures in a fiscal year would be limited to the prior year's spending level, increased by the average percentage growth of revenues (fees and taxes going into both the General Fund and special funds) for the previous three fiscal years. This spending cap is in addition to the existing state appropriations limit called for in the constitution.
- Revenues in excess of the new annual limit would be allocated proportionately to the General Fund and to each of the state's special funds. Excess General Fund revenues would be used for the Budget Stabilization Fund reserve established by Proposition 58 of 2004; to pay off
borrowing; and for highway and school construction. Excess special fund revenues would be held in reserve.
- Revenues in excess of the new annual limit would be allocated proportionately to the General Fund and to each of the state's special funds. Excess General Fund revenues would be used for the Budget Stabilization Fund reserve established by Proposition 58 of 2004; to pay off
borrowing; and for highway and school construction. Excess special fund revenues would be held in reserve.
- Gives the Governor broad power to make budget cuts unilaterally: If, at the end of any fiscal quarter, the administration determines that General Fund revenues are at least 1.5 percent below previous estimates or that the Budget Stabilization Fund will decline over the year by more than half, the governor could declare an emergency special session of the Legislature and propose a remedy for the anticipated shortfall. If no agreement is reached on how to deal with the crisis within forty-five days the governor would unilaterally cut spending.
- Spending cuts could apply to all General Fund spending except for that required by federal laws and regulations, spending where a reduction would violate a contract, and bond debt payments. Spending on contracts, collective bargaining agreements, and laws signed after the effective date of this measure could be reduced.
- If a budget were not enacted on time, the previous year's spending levels would continue. If there were a shortfall, the governor would have the authority to reduce spending after a 30-day period.
- Spending cuts could apply to all General Fund spending except for that required by federal laws and regulations, spending where a reduction would violate a contract, and bond debt payments. Spending on contracts, collective bargaining agreements, and laws signed after the effective date of this measure could be reduced.
- Changes Proposition 98 K-14 school funding provisions: This proposition would eliminate "Test 3," the provision which makes it possible to reduce otherwise mandated spending in times of tight budgets, and the "maintenance factor" by which spending following use of Test 3 or suspension of Proposition 98 rises in later years toward the normally mandated level. This measure would also remove the provision that appropriations over the mandated growth rate become part of the base for determining required spending in the future. It would convert the current outstanding maintenance factor ($4 billion) to a one-time obligation to be repaid over 15 years without raising the minimum-funding base.
- Eliminates possibility of suspending Proposition 42, which places sales taxes on motor vehicle fuel into a Transportation Investment Fund. Current law allows the legislature and governor to loan the sales tax on gas to the General Fund instead.
- Forbids loans from special funds to the General Fund except for short-term cash flow purposes.
Pertinent League Positions: The LWVC State and Local Finances position supports flexibility of revenue; that earmarking of funds and taxes, if done at all, should be by statute rather than in the constitution; and that mid-year adjustments should be made through joint action of the legislature and executive to retain checks and balances. The LWVC Constitution position supports flexibility for the legislature and opposes earmarking of taxes for specific services. A number of LWVC Education positions are also applicable, most prominently support for a flexible, equitable system of adequate and reliable funding.
Concerns about LWOM: The initiative's stated purpose is to "enact comprehensive budget reform which will supply the tools that will help the state enact budgets that are balanced and on time so that the pressure for tax increases will be reduced and provide that if the Legislature fails to act in fiscal emergencies, the budget can be balanced by reductions in spending." According to the California Budget Project (www.cbp.org) analysis of the proposal's major impacts, the LWOM would:
- Give the governor sweeping power to reduce spending, potentially including the ability to override state laws. The governor could declare a fiscal emergency and cut spending even in years when the state is running a surplus.
- Reduce the long-term Proposition 98 school-spending guarantee by $4 billion per year, a reduction of slightly less than $600 per student for K-12 education.
- Allow the state to spend more than it brings in when the state heads into an economic downturn, but less than it brings in during a recovery.
- Cap spending supported by voter-approved taxes, such as Proposition 172's tax dedicated to local public safety programs or Proposition 10's tobacco tax for early childhood programs.
- Cap spending supported by regulatory and user fees, including student fees paid by California State University students. The LWOM Act would prohibit the state from spending fee revenues for their intended purposes in years when total state revenues exceed the new spending cap.
- Put more, not less, spending on "autopilot" by eliminating the legislature's ability to defer certain transportation spending in bad budget years and by eliminating Test 3 of the Proposition 98 guarantee. Since the spending cap in this proposition is based on past growth in revenue, this proposition effectively excludes the possibility of increasing revenue in the near term in order to meet current needs. As the Legislative Analyst's Office points out, during periods of accelerating revenue growth, the limit could constrain spending because the three-year average revenue growth would be lower than the budget-year revenue growth. On the other hand, during periods of decelerating revenue growth or revenue declines (such as in a recession), the limit could allow more spending than could be supported by annual revenues.
This proposition also includes an extraordinary shift of power from the legislative to the executive branch of state government. It allows the Governor to call the legislature into special session in case of a "fiscal crisis," and then, if agreement is not reached in 45 days, unilaterally cut appropriations. A Governor could effectively enforce his/her budgetary demands simply by refusing to sign any alternative passed by the legislature. A minority in the legislature could also refuse to make unpopular decisions and force the budget-cutting decisions onto the Governor. The California Budget Project notes that the LWOM Act does not require that the budget be out of balance in order for the governor to reduce spending. Since the trigger looks only at the revenue side of the budget, the governor's powers could be invoked even if the state is spending less than it brings in.
--LWVC
