Proposition 76 - California's budget amendment

California voters have more than a half-dozen ballot propositions to sort through in the special election called by Governor Schwarzenegger; for full details on all the propositions, see the current Voter's Guide.

In this post I'll discuss Proposition 76, which is titled "State Spending and School Funding Limits." This initiative is one of the four that Governor Schwarzenegger is strongly supporting, and it's billed as a solution to California's budget deficits.

The initiative is very complicated, and includes many changes to current California law, including (but not limited to):

• Limits state spending to prior year's level plus three previous years' average revenue growth.
  
• Changes state minimum school funding requirements (Proposition 98); eliminates repayment requirement when minimum funding suspended.
  
• Permits Governor, under specified circumstances, to reduce appropriations of Governor's choosing, including employee compensation/state contracts. [these were quoted from the Voter's guide]
  

The California Legislative Analysts Office has a detailed analysis that is in the ballot pamphlet, and a separate article written later called Proposition 76: Key Issues and Fiscal Effects. Both are good reads that comprehensively address the initiative.

I see at least three things critically wrong with this initiative. First, the initiative significantly weakens the Proposition 98 funding guarantees that are currently supporting education funding. To understand why this is so, we need to look at Proposition 98 a bit more.

Proposition 98 has three funding formulae ("tests") used to set school funding. The first test hasn't been used since 1989, so we can ignore it. The second test requires that school funding grow based on school attendance and per capita personal income. The third test requires that school funding grow based on school attendance and per capita general fund revenues. This third test is automatically used whenever the state runs into budget problems, and generally provides less funding than test two. However, whenever school funding drops below test two levels, the state tracks the revenue that would have gone to schools if test two were operating, and Proposition 98 requires that the state eventually raise school funding back up to what test two would have given schools. Thus, even if schools get their funding cut due to budget problems, their funding will eventually be restored when the state's budget recovers.

Proposition 76 removes the automatic lowering of school funding in weak years ("test three"), which sounds like a good thing, but it also removes the requirement that the state increase funding back to levels required by test two if schools are ever funded below levels required by test two. Unfortunately, both the legislature and governor can reduce funding levels to below those specified by test two (as happened two years ago). This means that if school funding declines over time, schools will have no guaranteed mechanism to get that funding back. Since the cost of educating students doesn't decrease just because the budget is running a deficit, this seems like a major problem.

The second problem I see with the proposition is that it gives the governor extremely broad-ranging power to cut program budgets when there is a "fiscal emergency". Based on the Legislative Analysts Office's analysis, the conditions used to declare a fiscal emergency are so general that fiscal emergencies could be declared relatively frequently. Making things worse, in some situations budgetary cuts made by the governor during a fiscal emergency could not be overridden (or checked) by the legislature. Mid-term budget cuts can be extraordinarily harmful to education, since schools can't cut classes mid-term without severely affecting students. Thus, if school budgets get reduced mid-term, schools have no good way to reduce their expenses, and so they're forced to cut staff, building maintenance, or equipment funds. For example, a few years ago our equipment budgets were cut so much that we could no longer provide gloves for our students in biology labs even though the students were using formaldehyde-laced specimens; students had to buy their own or go without.

The third problem with this measure is that it's possible the budget cap it imposes will harm the state's ability to fund state programs adequately. The LA Times's article Would State Budget Cap Pinch Like Colorado's? reports on Colorado's attempts to overturn their Taxpayers Bill of Rights, which was a bill that restricted Colorado's governmental growth, similar (but not identical) to California's Proposition 76. Now that Colorado's had ten years of restricted growth, even some fiscal conservatives are attempting to overturn the budget restrictions:

The problem: Colorado's spending controls appear to have worked too well. Now some of the most strident fiscal conservatives in Colorado -- long viewed as a model for others considering such restraints -- say the cap has strangled government. There is talk of closing community colleges, privatizing the university system, releasing inmates early.

...


The spending controls Gov. Arnold Schwarzenegger wants to put in place in California through Proposition 76 on the Nov. 8 ballot differ from Colorado's. The California measure restricts growth to the average increase in state revenue over the most recent three years. And the money that comes in beyond the cap would go into a rainy-day fund instead of refund checks.

But budget analysts say some of the unintended consequences could be the same if the state economy goes into a prolonged slump.

A report this month by California's nonpartisan legislative analyst's office showed that such a limit would have had a profound impact on California services had it been in effect over the last 20 years. The report concluded that by now, it would have forced annual state spending down $15 billion -- more than California spends on the entire University of California system, California State University system and all of its community colleges combined.

Finally, to put another perspective on this, I'd wager that most community colleges statewide have rooms sitting empty because of a lack of funds to pay for faculty and support staff. Those rooms are empty even though it's estimated that there were more than 175,000 students who were "deprived of a community college education" in 2003-2004 (data from the Faculty Association of Community Colleges 2003-2004 enrollment report; quote from here). So what we should be doing right now is trying to find ways to increase funding for community colleges (and K-12 schools), not inventing ways to cut their funds, and thus this measure doesn't seem appropriate.