Babysitting the Budgeteers

How did California go from a projected $9 billion surplus last January to a $12.4 billion shortfall in December? It's not so difficult, really. All you have to do is spend like crazy during the boom years and then wait for the bubble to burst.

Responsible adults would never do such of thing, of course. But we're not talking about responsible adults. We're talking about Sacramento's politicians. In the last three years, they increased general fund spending 36 percent. And now, the party's over.

Back in 1979, voters grew tired of the boom-time partying of their elected officials and in the aftermath of the Prop. 13 tax revolt they overwhelmingly enacted Prop. 4, better known as the "Gann Spending Limit."

The Gann Limit required government budgets to grow no faster than the combined rate of inflation and population. It
heralded a period of economic expansion, balanced state budgets and relatively responsible state spending.

Under this expanding cap, state general fund spending still more than doubled from $19 billion in 1979 to $40 billion in 1990, but only apace with taxpayers' ability to pay for it. A sudden surge of capital gains pushed the state over the limit just once, triggering a $1.1 billion tax rebate to California families in 1987.

But legislators resented having to exercise the same restraint that any well managed household practices every day. In 1990, they placed Prop. 111 on the ballot with the amazingly deceptive title of "The Traffic Congestion Relief and Spending Limitation Act of 1990." After a lavishly funded campaign, voters narrowly approved it over the warnings of taxpayer groups.

"Traffic Congestion Relief?" Prop. 111 doubled the gasoline excise tax from 9-cents to 18-cents per gallon with the promise that it would be used to expand California's badly neglected highways. In the years since, driving increased 30 percent while highway capacity has grown just one percent.

"Spending Limitation?" Prop. 111 boosted the Gann Limit by over $800 million in its first year, and drastically accelerated the growth formula for future budgets. The difference today is $8 billion of new spending annually. As red ink floods the state's ledgers at the rate of $1 million an hour, the tragedy of Prop. 111 can be fully appreciated. By the end of the fiscal year, California will have spent $10.4 billion more than it has taken in, gobbling up the entire surplus and eating a $12.4 billion hole in next year's budget.

If the Gann Spending Limit had simply been in effect over the last three years, state general fund spending would still have grown by 13 percent - about as much as many family budgets have grown. But instead of a $12 billion shortfall next year, California would be enjoying a $28 billion surplus - and the legislature today would be contemplating $3,400 in tax relief for an average family to help them through this recession instead of massive increases in sales and vehicle taxes.

California's budget crisis goes much deeper than merely how much is being spent. State government now consumes a larger
percentage of personal income than at any time in history, while delivering less with it. Although spending has increased 36 percent in three years, California surely hasn't seen a 36 percent increase in highway capacity, student performance, housing, electricity, water or anything else.

That is a management crisis of titanic proportions that demands fundamental changes in the service delivery systems of this state. But until the will exists to do so, at least California could restore a little adult supervision to its spending practices by bringing back the Gann Spending Limit.