Right and left attack Prop. 31 budget reform

Oct. 20, 2012

By Dave Roberts

California’s governing process is broken. Just some of the maladies afflicting Sacramento: Perennial billion-dollar budget deficits. Endless tax hike demands. Hyper-partisan legislation and bickering. All-day and late-night sessions in which barely read gut-and-amend bills are rushed through on party line votes. And the perception that unions are actually calling the shots.

Proposition 31 doesn’t aim to be the cure-all, but it is a step in the right direction, according to Bill Hauck. He’s a board member of California Forward, the government reform organization sponsoring it. Prop. 31 is multi-faceted and complex, but it essentially takes some power away from the state Legislature and gives it to the governor and local governments, while also creating new regional quasi-governments. Hauck presented the case for Prop. 31 at a recent informational hearing of the Assembly Budget Committee.

“I don’t think it’s any secret to any of you that voters and citizens in California believe that Sacramento is broken, and in many instances badly broken,” said Hauck. “It’s not functioning in the best interests of all of our citizens. Proposition 31 is a modest but good first step toward bringing our state’s governmental functions back to a level of functionality that will work for our citizens.”

One of the main reforms is two-year, performance-based budgeting with regular reviews of the effectiveness of state programs.

“If you hearken back to your discussion [earlier in the hearing] on Proposition 30, the entire discussion revolved around spending,” said Hauck. “There was absolutely no discussion about performance of programs. Nor was there any discussion about outcomes that generate from the billions that you all appropriate each year to all of these programs. And I would expect that you would appreciate sitting in budget committees here in Sacramento with the legislative analyst being able to speak to you about the performance of a program or outcome of a program in relation to your priorities.

“We could raise every single tax we could think of in California and reduce spending at a level that we would all agree we shouldn’t reduce it, and there would still be not enough resources for the legitimate demands that could be put in front of this Legislature and the governor. Even when the economy comes back, that will be true. So this Legislature has always and will continue to function in an environment where resources are scarce. As a consequence, you all need the best information you can get on which programs are working and where you are getting the kind of outcome for expenditures that you need in order to establish priorities each year. We believe you need to look at this issue on a longer term basis. You need to get yourselves out of the situation where you’re constantly trying to plug a deficit.”

Provisions

Prop. 31’s reforms also include:

* Local governments would be allowed to devise plans for providing services to the public, including economic development, education, public health and social services. About $200 million of state sales tax revenue would be transferred to local governments to pay for development and implementation of the plans.

* Local governments would be able to create functionally equivalent alternatives for administering state programs financed with state funds. The Legislature (in the case of laws) and the appropriate executive agency (in the case of regulations) could reject those alternative provisions. Otherwise, they would be in effect for four years.

* Pay-as-you-go (or pay-go) restrictions would require the Legislature to show how bills that increase spending or decrease revenues by $25 million or more in any year would be paid for with either spending reductions or revenue increases or a combination of both. Exemptions to pay-go include bills authorizing one-time expenditures and those that restore funding to a program or agency whose budget was cut in response to a budget shortfall.

* All bills and amendments to those bills would be made public for at least three days before voting on them.

* If the governor declares a fiscal emergency and the Legislature does not act to resolve the emergency in 45 days, the governor can reduce General Fund spending enough to balance the budget, provided he does not cut spending that is required by the state constitution or federal law. The Legislature could override the governor’s cuts with a two-thirds vote.

Prop. 31 “goes against many of the status quo interests that exist in Sacramento,” said Hauck. “As a consequence, it’s become controversial. But I would argue that you all would be in much better shape if you began to function in the way that Prop. 31 would start you. The measure is not perfect. I don’t know of any measure that is perfect. But I think it has all of the right ingredients to get you going in the right direction, and most importantly to begin to restore the trust of Californians and voters in their state government.”

Attacks from the Left

Much of the 90-minute hearing consisted of attacks from the Left by committee Chairman Bob Blumenfield, D-Los Angeles, and Lenny Goldberg, executive director of California Tax Reform Association, which advocates for increased business taxes.

“The intentions are all good, there’s no question about that,” said Goldberg. “We do have a mess of a budget process. We do have a mess of a governance process in California. [But] I would argue that if you think we’re tied in knots now, what Prop. 31 does is to add another layer of knots that ties up the process here in a way that makes it more difficult to function rather than less difficult to function. One of the questions about having a flawed document, is that you’re putting it in the constitution. You’re not allowing flexibility about a number of important areas. You’re making this hard and fast constitutional language.”

Goldberg is particularly concerned about the pay-go provision because it makes it easier for the Legislature to make budget cuts, which requires only a majority vote, in order to pay for a tax cut or a new program, than it does to increase taxes, which requires a two-thirds vote, to pay for a new program. He argued that providing $200 million from the state sales tax to local governments to better provide services violates pay-go because it’s not offset by a tax hike or budget cuts.

19th century

Blumenfield asked Hauck what the exact problem is that Prop. 31 is trying to solve and how does it solve it.

“At the state level, we are trying to bring you out of the 19th century when it comes to how you go about doing your budget,” responded Hauck. “I don’t know of any other organization in the world, government or private, that does its budget the same way California does today. You enact a budget, which you all know is not in balance when you enact it. This has been true now for many years. And about three to four months later you have to go at it again. And by six months you’ve enacted some changes in the budget, either revenues or deductions, that you then have to revisit six months from that point when you get into a new fiscal year and the governor proposes a new budget.

“The fact that you are not planning the budget out over a longer period of time, that you are not reviewing spending and revenue probably even quarterly and adjusting either spending or revenue in relation to funds that are coming in, is a practice that businesses and other governmental organizations follow on a regular basis. California hasn’t followed that system ever. Other states have enacted performance and outcomes measures for their budgets, and have been very successful in doing that.”

Goldberg said he’s concerned about providing the governor the power to cut the budget during fiscal emergencies. The voters twice have rejected that idea, he said, calling it “unilateral” and “non-transparent.”

Blumenfield agreed, asking, “Are we ceding too much authority to the governor? And is the public losing in that process in their ability to oversight and judgment that we have through the vetting process in the budget? There’s always going to be a governor that you like or don’t like. This newfound power might be quite frightening, depending on if you like or don’t like the governor.”

Hauck responded, “I would disagree with that. This is a modest authority for the governor, which the Legislature has the ability to over-ride. The governor would also not be able to cut constitutionally driven spending. So what we’re talking about here is a small percentage of the General Fund. The idea here is if there’s no action at all, why do you want to get yourself deeper and deeper into the hole? We just continue to dig ourselves in deeper and deeper over the last 12 years, defying the rule of holes: when you get in one, stop digging.”

Attacks from the Right

But Prop. 31 has also come in for criticism by some on the Right who fear that its local government provisions for strategic action plans would establish regional budgeting that would rip off suburbs to fund big city waste. “Prop. 31 would end up with regional proxy governments around California that would require sharing tax revenues between wealthy and ‘disadvantaged’ areas,” wrote CalWatchDog.com’s  Wayne Lusvardi in a recent article. “Strategic Action Plans is a term for regional government like the socialized European Union, not like county governments in the United States.

“Prop. 31 would authorize the formation of SAP committees to undertake regional projects and programs.  A SAP would be run by a committee appointed by a group of local governments that wanted to run their own programs by their own rules.

“Such committees would not be miniature legislatures that could pass their own laws, however.  They would still have to appeal to the union-controlled California Legislature to relax rules or pool revenues for joint programs.  This is where the Legislature would mandate that every local regional henhouse would have to include a fox.”

After several other objections were raised at the committee hearing, an exasperated Hauck said, “If you like the status quo, don’t vote for Proposition 31. If you think things are working very well today in California, you don’t need to vote for this. We concluded that that’s not the case, and it’s not been the case for some time. I concede that this is not a perfect measure. Lenny raises a lot of things that are not likely to occur. But I understand why he does that. But he also concedes that all of the provisions in the measure are well intended. The idea here is to make this work, not to find the nits and nats that may need correcting.”

A recent Field poll indicates that Prop. 31 will be a tough sell. Forty percent said they intend to vote no, 21 percent said yes and 39 percent were undecided.