Decoding California’s May Special Election

Authored by Mark Paul, Senior Scholar, New America Foundation

It’s no easy thing for Californians to figure out exactly what the six measures on the May 19 special election ballot do. For one thing, the Legislature and Governor did their best to hide the real impact of the measures by ordering up some glossy campaign-speak to decorate the titles and summaries on the ballot. It’s easier to sell “budget reform” and “lottery modernization” than a tax increase (Proposition 1A) and more borrowing (Proposition 1C).

But even without the deceit, these measures do not yield to a quick study. For the first time in the nation’s history voters are being asked to amend a state constitution to require the use of linear regression in determining how much the state will invest in higher education, health, and environmental protection. If it were necessary for a voter to actually explain how Proposition 1A works before being allowed to vote for it, I suspect it would get less than 1 percent of the vote.

As hard are the measures to understand, it may be harder still for them to answer the critical question: What do they mean for California? What signal will voters be sending by passing them?

Propositions 1D and 1E are the most clear-cut. If they pass, these measures will shift to the state’s general fund revenues currently being raised for, and dedicated to, services for preschool children and the mentally ill. These programs, and their supporting revenue, were originally enacted by voters in Proposition 10 (1998) and Proposition 63 (2004). If they temporarily reverse themselves, voters will be making a statement about priorities: protecting schools, health care, and prisons is more important than funding mental health and early childhood services. But as Joe Mathews has pointed out, they will also send a signal that initiative campaigns should never again do the responsible thing and pay for new spending with new revenue.

The meaning of Proposition 1C is more hidden. It’s called the Lottery Modernization Act but that title is just political cover. Gov. Arnold Schwarzenegger, having famously promised in 2003 and 2004 to “tear up the credit card forever,” wants another MasterCard moment.

At its heart Proposition 1C allows the Governor to borrow against future lottery revenues to pay our bills today. Schwarzenegger resists the notion that this is actually borrowing. It’s a “gift from the future,” he said a few months ago. But the reality is that Proposition 1C asks voters to take on more debt, a very expensive and risky debt at that. No one can be sure that changing the lottery will yield significant new revenue. Investors will price that uncertainty into their calculations when it comes time to set an interest rate for the lottery bonds. This debt will cost taxpayers more than the 2004 deficit bonds Schwarzenegger once vowed would be the state’s last.

Resorting to debt is a popular tactic in the state Capitol. It lets governors and lawmakers put off budget reckonings — tax increases and spending cuts — until term limits boot them out of town. But there’s no escape for the voters. Pay it now or pay up later, but the bill will come due.

The bumper sticker for Proposition 1A is that California needs a rainy-day fund and a spending limit to get its budget under control. And it would be hard to find any budget expert who doesn’t believe it makes sense for the state to put aside revenue in good times to draw down when economic storms swamp the budget in waves of red ink. In fact, as I’ve explained elsewhere, it’s such a good idea that the constitution already requires it. At Schwarzenegger’s urging in 2004, voters approved Proposition 58, part of which sets aside a growing proportion of revenues to create an $8-billion budget stabilization account. California also has a spending limit, originally passed as Proposition 4 in 1979 and revised by voters in 1990, which prevents state spending from growing faster than the economy itself.

But the real impact of Proposition 1A will be in the way its impossibly complex machinery changes California’s budget priorities.

Voters are being asked to write in stone a new budget direction for the state. Schools and community colleges will continue to follow the spending trajectory set out by Proposition  98, the state’s minimum funding guarantee for education. But through the interaction of Proposition 1A’s rainy-day fund and spending limit, infrastructure projects — roads, dams, canals, pipelines, sewage treatment plants, levees, the kinds of projects California formerly (and intelligently) funded through fees and taxes on those who used and benefited from the projects — will have a permanent new claim on general fund revenue. Tax cuts will also get a favored position.

But all else in the state budget — higher education, health, social services, parks and the environment — will be ratcheted down over time. And major initiatives to address pressing state problems, such as the health care reform proposed in 2007 by Governor Schwarzenegger, will become simply impossible to enact.

More than a decade ago my longtime colleague Peter Schrag began writing about what he called the “Mississippification” of California in the wake of Proposition 13 and the tax revolt. May 19 may be the day we Californians really start singing “Dixie.”