Voters wary of Prop. 1A measure to limit spending

Published online on Monday, May. 04, 2009

Is Proposition 1A a long-needed solution to set aside money in good economic times so the state doesn't have to slash programs and raise taxes in bad years? Or is it essentially a way to get voters to approve $16 billion in additional tax hikes?

Depends on whom you ask.

Proposition 1A means vastly different things to different people, as reflected in the political alliances that have emerged on each side of the measure.

The multifaceted proposal on the May 19 ballot is only one piece of the budget accord struck by Gov. Arnold Schwarzenegger and two-thirds of the state Legislature in February. Yet it has become a lightning rod for the entire election.

"Proposition 1A has been given most of the attention in this special election, and voters are paying more attention to it and pivoting off of it when deciding how to view the rest of the ballot," said Mark DiCamillo, director of the Field Poll.

Proponents have linked Proposition 1A to the current budget mess, but the measure would have no direct impact on the state's fiscal situation until 2011.

At that point, it would pump money into state coffers through temporary tax extensions, limit spending in robust economic years, place restrictions on the state's "rainy-day fund" and restore $9.3 billion in education funding if Proposition 1B passes.

Groups backing the plan say it would create a predictable stream of revenues less dependent on the state of the economy. They compare it to families who place bonuses and windfalls into savings for use when emergencies arise.

"I don't know if any one thing is a magic bullet, but we think Proposition 1A is what works to get us out of the problems we've had," said Lou Paulson, California Professional Firefighters president. "We see it as budgeting consistency." Proposition 1A originated with GOP legislative leaders, who demanded that a spending limit be part of any budget compromise they negotiated.

Under the plan, the state each May would establish a spending amount based on a trend line from the previous 10 years, ignoring temporary tax revenues or bond money. It also would determine a spending number equal to the previous budget year, with adjustments for inflation and population growth.

Whichever number is higher would be the limit for spending that year. Any extra revenues would go first toward schools to meet constitutional requirements and then into the state's "rainy-day fund." The state would increase its reserve to 12.5% of the general fund, roughly $12 billion now.

The state also would continue to set aside 3% of its general fund revenues into the reserve each September. If Proposition 1B passes, half of that money would go toward schools until the state pays them $9.3 billion total. The governor could block transfers for the reserve, but not for schools, in particularly bad years.

The state could tap the reserve fund in limited cases, primarily when revenues fall below the previous year's spending (with adjustments for population growth and inflation). It also could use the money in cases of natural disasters.

Once the reserve is full and schools receive repayment, the state would use additional money to pay down debt.

Michael Cohen, a deputy analyst with the nonpartisan Legislative Analyst's Office, said the effect of the Proposition 1A "is hard to predict in any particular year, but over the long term you should have a more smooth spending line." He noted that in the case of the current $40 billion deficit, a $12 billion reserve obviously would not have solved the entire problem. "It's not going to get rid of all the volatility in the state's budgeting, but I think it definitely would require that more money be set aside than today's system." Supporters include the California Teachers Association and the California Chamber of Commerce, two powerful lobbying groups that were at odds the last time voters considered a spending limit in 2005.