The state’s fiscal process is broken—here are fixes
As the May 19 special election approaches, Senate President Pro Tem Darrell Steinberg laments his lack of good choices, and the venerable SN&R editorialist advocates sending the whole thing into the abyss. Voters are pissed (to understate it) at the Legislature for its inability to overcome a structure of laws that they themselves created and indicate they will vote the ballot proposals down just to teach those irresponsible legislators a “lesson.”
Still, most of the critics expect the Legislature to concoct some solution to bring us back from the abyss. But how, exactly? How to redo the budget? It’s like an architect going “back to the drawing board,” but without the drafting tools. Just what’s at the heart of this mess, and are there any feasible solutions?
The state’s fiscal decision-making process simply doesn’t work. California is one of a few states that require a supermajority—two-thirds—vote to pass a state budget. Thus, the minority party effectively stops any tax increases or reasonable compromises, thereby perpetuating the structural budget deficit. The no-brainer solution: Simple, pass the budget by majority vote.
Another flaw in the state’s fiscal decision-making is the initiative process in which small, moneyed interest groups secure policy changes with enormous fiscal consequences—Propositions 13 (1978), 98 (1988) and, yes, Steinberg’s beloved 63 (2004)—often through misleading campaign advertising. The solution: more signatures to qualify initiatives and limits to their campaign advertising and fiscal impact.
Moreover, the overall general fund tax-revenue structure is too highly “economy-elastic,” so that during a recession—when the expenditure needs are greatest for health, welfare and retraining—revenues are lowest, because tax collections decline dramatically. The solutions: a less elastic, but still “fair”—lower rates for those with lower incomes—tax structure and use of contingency, a.k.a. “rainy day,” funding to smooth year-to-year fluctuations.
Still another flaw with the state’s budget is that it is tied up by special-interest groups, often in formulas from initiatives. The solution: reforms to both statute and constitution.
Finally, borrowing to balance the budget is just poor finance. Six years ago, the state’s bipartisan legislative analyst correctly predicted the use of bonds, among other “gimmicks,” to balance the budget would put us in today’s situation—$10 billion-$15 billion in the hole annually. This borrowing pushes today’s bill unfairly onto the next generation: our children and grandchildren. The answer? Again, a no-brainer: balance the operating budget from current taxes “as you go.”
All this suggests voting “yes” on all the May 19 propositions, except 1B and 1C—a “least worst” selection from a package of bad solutions—knowing that real solutions to the state’s budget dilemma are way more complex. But face it, California voters, you’re at the heart of this problem; take some responsibility.