California: A Devastating "Compromise" in the Works?


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California legislators appear to finally be in the early stages of negotiations over a method to fix the current year's budget shortfall. As has been obvious to most observers for quite some time, California's budget gap is far too large to be fixed with spending cuts alone, and will require some kind of tax increase. Convincing California Republicans to recognize this fact was no easy task, and it now appears that the cost of securing their support could come in the form of a spending cap. Unfortunately, while a tax increase is absolutely necessary to solve California's short-term problems, allowing a spending cap to be slipped into the deal would be nothing short of devastating in the long-term.

The case against the spending cap was articulated brilliantly by Jean Ross of the California Budget Project in a recent op-ed published in the Los Angeles Times. Ross noted that "far from being a cure-all, a hard spending cap would place an arbitrary stranglehold on the state's ability to improve its schools, rebuild its infrastructure, care for its senior population and respond nimbly to future challenges. Disguised as a solution, this cap could quickly become one of California's most serious budgetary problems". She goes on to point out that her organization "found that if this cap had been enacted in 1995, using that year's budget as the base, it would have resulted in a 2008-09 budget $39.7 billion below what was enacted in September. While this would bring the budget into balance, it also would require spending cuts more than twice as large as those proposed by the governor."

Californians familiar with Colorado's TABOR debacle should be especially wary of what Ross points out next: "The hard spending cap also would be incompatible with Proposition 98, which guarantees a minimum level of state funding for K-12 education and community colleges. That guarantee would generally outpace increases allowed under the cap, which would result in education crowding out all other state spending". The parallels with the difficulties created by Colorado's Amendment 23 (which requires increases in K-12 spending of 1% plus inflation each year) couldn't be more obvious.

There isn't any question that California needs more revenue. Just look at the fact that California's bond rating was recently decreased by two grades, or that the state Controller had to start issuing IOU's instead of tax refunds today. But while securing more revenue should be a top priority this year, accepting a spending cap as part of the compromise would be an action that Californians would regret for years.

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