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California Budget Propositions

May 19, 2009 Special Election.

The underlying problem.  California tax revenue varies widely each year because it is much more heavily dependent than other states on the income and capital gains of the rich, which swing widely with economic cycles.  California has spent like a drunken sailor in the good years, and we can’t maintain that level in the bad years, like this year.

Budget Problem.  The Legislature can’t balance the budget because voter approved propositions dictate spending on a number of programs in Education and Health.  Since these make up about 70% of the spending, the budget can’t be balanced without cutting them (but still keeping their 70% of a reduced budget).  This means voter approval.

Budget Propositions solution.  The budget propositions cut or borrow from programs dictated by the voters.  They also establish a rainy day fund to save money in boom years for use in the lean years.  A limit is also placed on future spending to keep us from getting this out of balance again.

So we need to hold our noses and vote yes.  We the voters put the state in this mess, and we need to fix it.  The solution is putting money in a rainy day fund during boom years, so we have a reserve for lean years.  Since we haven’t done that in the past, we need to borrow from the future (e.g., future lottery funds) until we can build up a reserve.

The latest projections show that things have worsened, and we’ll still have a deficit even if all of these measures pass.  But if they don’t pass, we’ll be in an even worse mess.  There has been plenty of opposition from those whose special interest is getting gored by particular propositions, but the point is that we need to evenly gore everyone and spread the pain around.

The Republicans who compromised and violated their party’s “just say no” to taxes stance have since had their campaign funding eliminated by the Republican party and one was forced to resign as county party chief.  The rank and file Democrats refused to agree with their leadership at their convention because they are angry at their own party - they don’t want any funding cuts to education, health, or whatever their favorite program is. 

Here is a summary of each of the propositions:

Proposition 1A “Rainy Day” Budget Stabilization Fund.  This is described by Governor Schwarzenegger as a rainy day fund.  It provides for putting aside tax revenues in years of surplus for years of deficit.  It puts a limit on state spending. It also provides for increasing taxes for several years.

Proposition 1BEducation Funding. Payment Plan. This would modify Proposition 98 (approved by the voters in 1998), which guarantees a minimum amount of the budget go to education (which accounts for half the state budget). It would give 8 billion less to the schools in 2009, in exchange for 8 billion more in 2011-2012.

Proposition 1CLottery Modernization Act.  This would borrow 5 billion dollars from future lottery earnings.

Proposition 1DChildrens Services Funding.  This would modify Proposition 10 (approved by the voters in 1998), which provided a tax on cigarettes for childrens programs.  Proposition 1D would use $608 million of these cigarette taxes for other state programs that serve children for the next 5 years. 

Proposition 1E.  Mental Health Funding. Temporary Reallocation.  This would modify Proposition 63 (approved by the voters in 2004), which uses a tax of 1% on incomes greater than one million dollars for mental health programs. This proposition would use $227 million of its funds for 2 years to pay for other mental health programs currently funded by the general fund of the budget.

Proposition 1FElected Officials’ Salaries.  This would prohibit increasing legislators salaries in years where there is a deficit.

See Budget Reform Now.

 

 

 

California will face an $8 billion budget deficit even if the propositions pass. But if they don't, there will be a $15 billion deficit. $8 billion is easier to deal with than $15 billion.

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