Should the government spend money to benefit private companies? Should the government spend money to influence voters? In California, they do this all the time. There are laws specifically written to prevent this, but they are undermined by aggressive exploitation of loopholes combined with lax enforcement. And to be fair, genuine ambiguity often makes it hard to know where the lines belong. Let’s consider these one at a time.
Using Taxes to Benefit Private Companies – Corporate Welfare
Gifts of government resources to private organizations – in the form of subsidies to corporations, for example, or payments made under unlawful contracts – are illegal in California.
Article 16 Sec. 6 of the California Constitution, the “gift clause,” prohibits the giving or lending public funds to any person or entity, public or private. Here’s the actual language:
The Legislature shall have no power to give or to lend, or to authorize the giving or lending, of the credit of the State, or of any county, city and county, city, township or other political corporation or subdivision of the State now existing, or that may be hereafter established, in aid of or to any person, association, or corporation, whether municipal or otherwise, or to pledge the credit thereof, in any manner whatever, for the payment of the liabilities of any individual, association, municipal or other corporation whatever; nor shall it have power to make any gift or authorize the making of any gift, of any public money or thing of value to any individual, municipal or other corporation whatever.
There are exceptions. The biggest one being “expenditures/disbursements for public purpose,” which according to most analyses is an exception that is “liberally construed.” Other exceptions include disbursements for hospital construction, aid to orphans, abandoned children, handicapped individuals, irrigation districts, veterans, victims of disaster, and short-term municipal borrowers. For a much more thorough presentation of exceptions to the “gift clause,” read the 2016 “California Public Funds Doctrine” produced by the League of California Cities.
When analysts claim the “public purpose” exception is “liberally construed,” it begs the question: When do they cross the line? The legal evolution of the “public purpose” concept in the United States originated as justification to impose eminent domain on private property owners to fund public works – bridges, roads, canals and railroads. By the 1930s, eminent domain was expanded to enable redevelopment projects. In 1954, in the case Berman v. Parker, the U.S. Supreme Court affirmed that “public purpose was a concept coterminous with ‘public welfare,’ hence embraced objectives across a broad spectrum that included ‘public safety, public health, morality, peace and quiet, law and order,’ to list only ‘some of the more conspicuous examples.’”
Today, the definition of public purpose is broader than ever, with the legal definition being “a governmental action or direction that purports to benefit the populace as a whole.”
This begs the question: Did it “benefit the populace as a whole” to offer public money subsidies to Google ($766 million), Facebook ($333 million), Apple ($693 million), and Tesla ($3.5 billion)?
The meaning of “public purpose” has come a long way from seizing land to build the Erie Canal. But even there, ambiguity reigns. Today’s version of the Erie Canal might be high speed rail, since proponents of this 21st century marvel claim it will revolutionize transportation. Proving them wrong requires expert – and usually volunteer – opposition research aimed at debunking allegedly preposterous financial projections, which then has to be communicated to the public by numerate journalists.
That does happen. Yet, for every mega deal and mega project that attracts the sunshine of competing analyses, there are countless mini deals and mini projects that avoid scrutiny by virtue of their relative insignificance. Justifying their receipt of public funds because they serve a “public purpose,” they collect money. The tremendous difficulty with the public purpose concept is that it has legitimate worth, yet one person’s public benefit is another person’s public boondoggle.
Using Taxes to Influence Voters – Government as a Special Interest
According to California Government Code 8314 (a) “It is unlawful for any elected state or local officer, including any state or local appointee, employee, or consultant, to use or permit others to use public resources for a campaign activity, or personal or other purposes which are not authorized by law.”
Here again, ambiguity reigns. When does providing useful and unbiased information to voters as a public service of government cross the line into campaign advocacy? That is an extremely difficult question to answer, and hence an extremely difficult charge to make stick. But it allegedly happens all the time, and sometimes, charges do stick.
As Jon Coupal, president of the Howard Jarvis Taxpayers Association wrote in October 2018:
In March 2017, Los Angeles County placed Measure H, a sales tax for homeless programs, on the ballot. The county’s use of nearly a million dollars of public funds for the political campaign unquestionably crossed the line into political advocacy. The Howard Jarvis Taxpayers Association filed a complaint with the FPPC shortly after Measure H passed. This past week the FPPC found probable cause to charge Los Angeles County, as well as the individual members of the Board of Supervisors, with 15 counts of campaign finance violations.
While the FPPC crackdown on Los Angeles County sends a cautionary message to other government agencies, the practice is common. In November 2918, local agencies put 259 tax measures and 125 bond measures onto ballots across California. Historically, 80-90 percent of bond measures are approved by voters, along with around 70 percent of local tax measures. There’s a reason for this.
In nearly all cases, the local governments spend what in aggregate must be tens if not hundreds of millions of taxpayers’ money each election cycle, “educating” the voters about the new taxes. The pretext is to provide useful information to the citizens, but the messages are urgent, the appeals are emotional: “For the children.” “To protect seniors.” “To keep our streets safe.” “To ensure first responders arrive in time to save your home, or your life.” And so on.
What Solutions are Possible?
Completely ending government expenditures to benefit private companies or to influence voters is impossible. Even if the perfect laws could be written and enforced, it is impossible to prove in all cases what is in fact a public benefit, or where exactly one crosses from educating to advocating. But here are some ideas.
(1) Enact local measures to enable greater oversight, clarifying and narrowing the definition of “public benefit.” Sample language might read as follows:
[Government entity] shall not expend, loan, or allow the use of public resources, nor use its taxing power, in aid of any individual, association, corporation, or other private party, unless such expenditure, loan, or use is for a public purpose, supported by consideration, and over which the public entity exercises continuing control. When it comes to economic development, the only proper constitutional role for local government is to offer:
- Top-quality K-12 education.
- Low taxes and sustainable, transparent public finance.
- Limited regulation.
- First-world infrastructure.
(2) Enact local measures to clarify and narrow the definition of “public education,” and require thorough disclosure of of “any documents, including contracts, communications, or proposals with vendors and/or staff which touch on public education; public opinion polling or studies; or communications which might seem to a reasonable person designed to determine the outcome of political campaigns.” The California’s Policy Center’s CLEO project has posted a detailed example of a sample reform that would assist local governments to prohibit public money in campaigns for new taxes and bonds.
Government isn’t supposed to allocate public money to private businesses. Government isn’t supposed to fund political campaigns that advocate new taxes. But it is impossible to precisely define what is a public benefit worthy of government funding, or what is necessary public education and not political campaigning. One of the most effective ways to prevent government politicians and government bureaucrats exploiting the ambiguity of these definitions would be to outlaw public sector unions, whose inherent priority is to expand government, with public benefit their loudly proclaimed, but secondary goal.
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Edward Ring is a co-founder of the California Policy Center and served as its first president.