It seems pretty obvious that, whether the propositions pass or fail, they create a significant, but different, problem for the state. The total monies brought into the current budget by all the propositions together is about 6 billion dollars. However, over $5 billion of that revenue comes from the sale of the lottery. This makes Props 1D and 1E virtually unnecessary. Prop 1A brings significant monies in three and four years out from the current budget, but creates a badly-thought-out spending cap.
The problems created by the passage of the propositions simply to gain a small amount of one-time money and a bigger theoretical rainy day fund in the future are, in my opinion, too much of a price to pay. Therefore, I intend to vote no on all of them, except maybe the lottery proposal for reasons set out below under Prop 1C. Unfortunately, there is no right answer, so long as we must garner a few Republican votes to pass a budget and raise a tax. I apologize for the fact that the descriptions of the propositions are a bit simplified, but I hope you might find them helpful.
Proposition 1A amends the State Constitution in a number of ways, most of which have not been discussed in the press:
Prop 1A would require that all revenues and resources coming into the state would have to be identified as to whether they are one-time or ongoing. Theoretically, this provides a tool under which the legislature may choose to limit the expenditure of one-time money to one-time spending, which is a good idea.
If Prop 1B is approved, Prop 1A creates a new account in the Constitution called the Supplemental Education Payment Account, a supplemental rainy-day fund for the schools which will be used to pay down the monies owed to the schools caused by the current and past underfunding of Prop 98 requirements–about 9.3 billion dollars. A portion of the monies in excess of the cap created by 1A goes into this Fund.
Prop 1A significantly raises the amount to be held in the Budget Stabilization Fund (the so-called Rainy Day Fund) from 5% of revenues to 12.5% of revenues except for the monies paid to education under Prop 1B.
Perhaps most importantly, Prop 1A caps the amounts of revenues and resources that may be spent in any fiscal year and directs that any monies collected over that amount must be deposited into either the Budget Stabilization Fund or the Supplemental Education Payment Account.
The spending cap is calculated using a regression model, which, most simply, draws a kind of straight line (or closest to it) through all the tax revenues of the previous ten years, then continues this line into the current year. Where that trend line crosses the eleventh (current) year, that is the cap on expenditures from General Fund tax revenues for that year. Any extra goes into the “rainy day fund” and the new education fund to pay off what is owed to the schools because of underpayment of Prop 98 minimums.
What’s Not in Prop 1A
Among the 33 budget bills voted on in both houses and signed by the Governor in February is one that extends the increases of the sales tax, personal income tax and vehicle fees for two years beyond the two now adopted. The extra two years’ tax, which are to be collected three and four years out from the current budget, would bring in about 16 billion extra dollars, with some of it going to the schools via Prop 1B. You won’t read that in the text, but it’s tied to Prop 1A.
What Else Dropped Out of the Budget When They Agreed on Prop 1A
The oil industry lobbied very forcefully to eradicate a proposed 9.9% oil severance tax. California is the only oil-extracting state without such a tax.
The liquor, beer and wine industry pushed mightily to shelve any increase in alcohol taxes.
The California Teachers’ Association pushed for Prop 1B in order to grab some of the new revenue from the two-year tax extension for the schools. In exchange, they agreed to push for Prop 1A, as the two are tied.
My Opinion on Prop 1A
I don’t like the idea of a spending cap, even calculated on the regression model. I would prefer the ability of the Legislature to spend one-time money on one-time expenditures and calculate ongoing expenditures separately, without an automatic cap, and a growing rainy day fund. With such a cap, there will never be enough monies for the schools, even with a small portion of the monies over the spending cap going into an education fund. In my experience, all programs get short-changed when a robo-cap like this is enacted.
Prop 1B requires to state to pay school districts and community college districts $9.3 billion in lieu of the maintenance factors that would have been applied because of Prop 98 for 08-09 and 09-10. It also requires deposit of a portion of the amount over the spending cap into the Supplemental Education Payment Account in future years. Prop 1B does not go into effect if Prop 1A fails to pass. These two measures were tied together to keep the teachers’ union from opposing the spending cap.
My Opinion on Prop 1B
I don’t think the education funding is a sufficient reason to enact the permanent spending cap proposed by Prop 1A in the state Constitution. Other teachers’ organizations oppose Prop 1A and have indicated, since they believe the state already owes the 9.3 billion, they will simply sue the state for it. Which would, of course, create even more of a hole in the budget. There needs to be a sure hand with authority to pass an adequate budget without gimmicks, which is why I support an end to the 2/3 requirement.
Prop 1C authorizes the legislature to sell the future revenues of the Lottery, as well as the legal right to receive that revenue, to an entity authorized for these purposes by the Legislature. Prop 1C also authorizes the sale of bonds for that purpose. It increases the minimum guarantee for payouts, encourages more aggressive marketing and amends the Constitution so that the General Fund must pay education an amount equal to the amount they received from the Lottery in 08-09, adjusted for inflation and attendance.
This is the one proposition I’m tempted to support. Of the six billion current dollars estimated to come from all the propositions combined (not counting increased tax revenue three and four years out), more than five billion is estimated to come from the sale of the lottery receipts. Although I do not support increased encouragement for gambling, this income could be the least damaging.
It’s also interesting that the casino-operating tribes made sure that the measure avoids any new games that could threaten their operations.
In 1998, voters adopted Prop 10, which increased the tax on tobacco products and set up the California Children and Families Trust Fund in the California Constitution. 20% of the monies (generally called First Five funds) were targeted for specific programs related to school readiness, child care, research on school readiness, and related administrative expenses. 80% of the new money went to newly established county commissions to spend on early childhood development programs.
Prop 1D would redefine and expand the purposes for which these tobacco tax monies may be used to include direct health care services, human services, services by county welfare agencies to families at risk and early education services. This is a big change and allows the state to simply scoop the designated funds into the gaping maw of the state budget deficit.
In addition, Prop 1D would redirect up to $340,000,000 and no less than $275,000,000 of “unencumbered” funds in the First Five Accounts to health and human services programs for children up to five years of age, including adoption assistance, child welfare services, foster care, kinship guardianship assistance payments and direct healthcare services. This transfer would continue at a rate of $268 million for the next five budget years. The State Controller is also authorized to use any of the monies in the Fund for “loans” to the general fund.
My Opinion on Prop 1D
Former Los Angeles Mayor Richard Riordan wrote in the LA Times, “Then there’s Proposition 1D, with its clunky and dishonest title: ‘Protects Children’s Services Funding. Helps Balance State Budget.’ How does it ‘protect’ children’s services funding? By taking $1.6 billion currently committed to children’s health services and preschool and throwing it into the budget mess.”
When the voters approved Prop 10, they correctly identified a gaping hole in programs for children from 0-5 in terms of health, readiness, education, child care, etc. Taking this money and adding it to the General Fund makes no sense, except to fill a budget hole with anything you can put your hands on. And, since there are many, many good, ongoing programs already set up under the First Five Commissions, it turns those programs into one-time programs, when we really need continuity in this area. In addition, the amount is so small, compared to the budget gap, and so large, in terms of the good it can do county by county, I believe this proposition deserves a resounding No.
This is another fund grab that takes a 1% income tax increase the voters imposed on those with earnings over one million dollars, moves it from its original purpose of augmenting mental health services in the state, and dumps it into the general fund, in order to help balance the budget.
In 2004, voters adopted Prop 63, the Mental Health Services Act, to augment mental health monies being spent by the state, which were woefully inadequate. The proposition was quite specific that the funds could not be used to supplant existing state or county funds for mental health and that the state was required to continue to provide the same level of funding in the general fund for these purposes and not use Prop 63 funds for existing programs.
Prop 1E removes those proscriptions and requires the diversion of $226,700,000 of these funds into the Early and Periodic Screening, Diagnosis and Treatment Program in the State Department of Mental Health, until 2011. Although this is a good program, it will simply gobble up these targeted monies into routine work and leave nothing for the augmented programs begun under Prop 63.
My Opinion on Prop 1E
There is hardly a more needy set of programs than those devoted to improving the mental health of Californians. At least we could be certain that Prop 63 monies were going toward alleviating this crisis. We voted for an extra 1% tax on millionaires specifically to fund increased programming in our mental health fields. Prop 1E would simply ignore that intention and drop the money down the state budget hole. Again, I’m a No on this one.
Well, of all the ideas proposed by Republicans dangling their votes in front of the President pro Temps in February, this was the least objectionable and, so, it got on the ballot. The original idea was: if the legislature doesn’t get the budget out on time (since only the democrats are ready to vote on it), they (even those who are fully prepared to vote for a balanced budget) deserve to lose some pay.
When that idea didn’t fly, Prop 1F was born, directing the independent commission that sets not just legislative, but all, statewide salaries, to freeze all those salaries when there is a “negative balance in the Special Fund for Economic Uncertainties in an amount equal to, or greater than, 1 percent of estimated General Fund revenues.” Frankly, had the Governor filled the empty slots on the Commission in a timely fashion, this would not even be a discussion since the Board will not vote to raise the salaries of legislators or statewide officers under these circumstances, anyway.
No need for this one.
Sheila James Kuehl
Sheila James Kuehl was appointed to the California Integrated Waste Management Board on December 1, 2008, after having served eight years in the State Senate and six years in the State Assembly. Senator Kuehl served as chair of the Senate Natural Resources and Water Committee from 2000-2006. Her website is www.sheilakuehl.org