Peter Schrag: Something for nothing: California's wily tempters
by Peter Schrag
September 18, 2002
What could California do to make its already-grim fiscal picture a little grimmer and turn its already-shrunken ability to respond to its immediate needs into a straitjacket? The answer's easy. Pass Propositions 49 and 51 on the November ballot and lock away another $1.5 billion from the funds available to pay for higher education, health care and local government support.
Proposition 49 is actor-muscleman Arnold Schwarzenegger's After School Education and Safety Program of 2002, which would grab about $550 million from the general fund for a vast expansion of the state's before- and after-school programs. Proposition 51 is the work of Jerry Meral, who runs the Planning and Conservation League. It would snatch one-third of the proceeds from sales taxes paid on the sale and lease of cars and other vehicles -- an annual total of about $950 million -- and put it into 17 pots dedicated to a long and very specific list of park, environmental and transportation projects.
Those projects include everything from light rail expansion in Sacramento and acquisition of wildlife habitat in Riverside County to a passenger train line from Los Angeles to an Indian casino in Palm Springs.
Meral, the state's acknowledged master of ballot-box budgeting, has done these initiatives before. He once estimated that by the year 2008, his initiatives will generate some $16 billion in projects. If Proposition 51 passes, the total goes up to $20 billion and keeps rising.
Schwarzenegger is new at it. But the two have lots in common, most particularly in promising something for nothing. They finance their projects by grabbing money from the ever-smaller share of the state budget not already tied up by constitutional mandates and prior ballot measures.
A conservative estimate by the California Budget Project shows that two-thirds of all state funds are already locked in by the Proposition 98 school-funding guarantee, the "three strikes" crime initiative and similar mandates. A more expansive estimate raises the proportion to well over 70 percent. Some of that money goes to pay for the transportation, park and wildlife bonds that Meral sponsored in prior initiatives.
The problems of the Schwarzenegger and Meral measures are compounded in tight economic times. The deficit in the current California budget was covered over by a range of gimmicks, not the least by a 25-year $4 billion loan collateralized with the revenue that's expected from the national tobacco settlement. The budget also assumes the state will get a $1 billion federal check to pay for post-Sept. 11 security measures. But that check may never arrive.
The real impact of the new budget, including the $750 million in cuts that Gov. Gray Davis is authorized to make -- some of which he surely will make -- will become increasingly clear once the election is over. There will almost certainly be fee increases at the University of California and probably at the California State University as well.
What's certain is that the state faces ongoing annual deficits of between $10 billion and $14 billion for the next two or three years and, if the economy doesn't recover, longer than that. Most of the easy gimmicks to deal with budget shortfalls were used up this year. There's thus little likelihood that the state can avoid tax increases or program cuts or both.
The Meral initiative contains provisions that would reduce its impact or suspend it entirely when state revenues don't grow. But it doesn't protect the treasury in years when revenues are up but growth in demand for services -- increasing enrollment, say, in the state's universities, or increasing Medi-Cal caseloads -- puts additional stress on the treasury. It does not take into account the impact of inflation on the cost of other services.
Schwarzenegger's measure is less gentle. Its complex funding formula is tied to the Proposition 98 school-funding guarantee. After 2004-5, its funding can't be cut unless Proposition 98 is suspended, something's that's never happened. It will thus keep sucking money out of the treasury even when there are greater needs for other purposes and its own caseload is down.
One of the things that makes both measures so pernicious is that their objectives are (in one case, almost literally) so much mom and apple pie. Who can argue against more children's programs, or more transit, or better parks? But the more such things we pass, the messier our finances will get.
Since Meral grafted his measure onto planned transportation projects that are popular not only with the developers and environmental groups that ponied up the money and helped collect the signatures for his measure but also in scores of communities from one end of the state to the other, awareness of their larger impact on state programs tends to be overwhelmed by the promised local goodies. One shouldn't get too puritanical about this, but in California's public life, Jerry Meral may be our wiliest tempter.
Speaker's Commission on State/Local Government Finance