Why Not Sustainability in a Spending Limit?

Last week, Gov. Jerry Brown delivered the keynote address at a sustainability summit hosted by the Los Angeles Business Council. While the summit focused on California’s environmental, energy and water policy, we have to wonder whether the governor will exert the same effort in support of fiscal sustainability now that he has called a special session to deal with California’s spending limit.

While a rainy day fund measure has been slated for every ballot since 2010, it has been repeatedly moved back by the majority in the Legislature who fear it would prevent them from spending every last nickel when revenue to state government expands. Brown wants to tinker with the language, and to his credit, move forward to allow the voters to have the final say.

Unfortunately, most of those who push for tax and budget reform are big government advocates focused exclusively on the sustainability of government, its workforce and the vast array of special interests that thrive off taxpayers’ dollars. Those on the government team tend to look to reforms that would stabilize and even expand revenue in tough economic times, meaning they would continue to suck vast amounts from the private sector at a time when taxpayers can least afford it. Among their proposals are taxing services — placing new burdens on very small businesses — and eliminating Proposition 13 limits on property tax bills. They see that under Proposition 13, property taxes are the most reliable source of revenue in good times and bad — when values decline, because of residual value, tax payments do not — they illogically assume they can allow taxes to fluctuate with the market, and maintain the same stability in revenue.

What is needed to protect both the ability of government to provide essential services and the wellbeing of taxpayers, is a return to an effective spending limit. During the 1980s California had the Gann Spending Limit but it was weakened to a point of irrelevancy by subsequent initiatives sponsored by powerful education and transportation interests who chafed under the constitutional provisions that limited their freewheeling spending agenda.

Of course, the very notion of a spending limit grates on those who believe they have a presumptive right to the earnings of citizens and the private business sector. And this is exactly why a spending cap is such a necessity.

When talking about spending caps, we must make sure that the cap is the real deal and not just some stand-alone “rainy day” fund riddled with loopholes. A real spending limit must accomplish what the name directs: limit the growth in the rate of government spending. That rate, of course, should be adjusted for population and inflation, but what should be the metrics for each? Should population growth adjustments be dependent on raw census figures or, for school spending, should the population be enrollment? For inflation, is CPI an adequate measure, or is some hybrid warranted?

The short answer is that there is more than one way to establish a growth factor that will be effective. What must be avoided at all costs is a growth factor that ratchets only in an upward direction, effectively nullifying the structural limitation. But if we impose a hard cap, should overrides be allowed with a supermajority vote of the Legislature? In a word, no. Overrides must be temporary and voter approved. If overrides by the Legislature are permitted with a supermajority vote say, for emergencies, they should be required to be paid back.

For California taxpayers, an acceptable spending limit would, among other things, allow a portion of excess revenue to be spent on infrastructure and debt repayment in addition, of course, to rebates to the taxpayers via adjustments in the sales rate.

So let’s focus on “sustainability” for all, including taxpayers, not just those who profit from unrestricted government spending.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.