Partisan number 27

by Tom Condit; this article originally published in Partisan issue no. 27, printed April 2009.

The Governor, the State Chamber of Commerce, and their flunkies in the Legislature and the press are telling us that passing Proposition 1A on May 19 will end California's budget problems, and defeating it will put us billions of dollars in the hole.

What it will really do is force constant cuts in vital services like health care, lock up the umbrellas on "rainy days," cause new budget crises in the future, and give the Governor dictatorial powers.

What does 1A do?

California already has a "Budget Stabilization Account" (BSA). Each year, 3% of state revenues go into this account until it has a balance equal to 5% of the state budget. This is a "rainy day" fund. It puts money aside to use in years when there isn't as much income.

Proposition 1A changes the name of the BSA to "Budget Stabilization Fund" and makes it have to equal 12.5% of the budget (one out of every eight dollars) before any money can come out except to pay back money "borrowed" from the schools in previous years. It also requires that any "unanticipated revenues" (money that wasn't expected) go into this B.S. Fund. It sets up a very complicated formula for deciding what revenues are "unanticipated."

Even in years when the state is running a deficit, money has to go into the B.S. Fund. It stays there until the fund is up to 12.5% of the budget. If Prop 1A were already in the State Constitution, the legislature would have had to put $3.1 billion into the B.S. Fund this year while they were scrambling for money. It may be raining, but we cant use the umbrellas we have—we must keep buying new umbrellas and locking them up in the closet.

Half the money in the B.S. Fund goes from there into a Supplemental Education Payment Account (SEPA) to pay back the $9.3 billion stolen from schools and community colleges in earlier budget deals. (This will only happen if voters pass both Prop 1A and Prop 1B.) Once, the SEPA account is paid up and the B.S. Fund is up to 1/8 of the General Fund, then money goes to a Supplemental B.S. Account (SBSA).

Money in the Supplemental B.S. Account can be used to pay off debts the state owes to local governments and the Transportation Fund for money "borrowed" in earlier budget deals, and to pay the states bond debt to bankers and wealthy investors.

The Shell Game

After money moves in, out and around the B.S. Fund, the SEPA account and the Supplemental B.S. Account, any of it which can still be seen can used in three ways: for one-time infrastructure or "capital outlay" spending (like building schools and bridges, but not maintaining or repairing them), to cover unfunded retiree benefits, or to be returned to taxpayers on a one-time basis. It cant be used for maintenance, repair of schools or bridges, or "baseline" spending like health care, firefighting, parks or the court system.

Under the State Constitution, parts of the General Fund like the gasoline tax are automatically moved to other funds like the Transportation Fund, but not before they're counted in the General Fund. This means that the 3% transfer to the B.S. fund (calculated before money is moved) could be nearly 5% of the actually available money.

If youre not confused yet, just wait.

"Unanticipated Revenue"

Each year the states Director of Finance (a political appointee of the Governor) forecasts that years revenue. "Unanticipated revenue" is defined as either the amount by which this forecast revenue is above an adjusted trend line based on the previous ten years' revenue or the amount the forecast revenue exceeds expenditures for the previous year (adjusted for population and inflation), whichever is less. This "unanticipated revenue" couldn't be used for new programs or for expansion of existing programs.

This forecast is based on a complicated mathematical method called "linear regression." We explain in a separate article (see "Prop 1A means health care cuts") why the ways of defining population and inflation will automatically lead to cuts in areas like health care. Lets look at the forecast itself.

First, the "forecast" is just that. Its the Director of Finances best guess, made in May, of how much money will come in during the fiscal year starting July 1. The 3% put in the B.S. Fund is 3% of that guess, not 3% of money that actually comes in, which might be more or might be less. Theres no oversight or appeal, so theres plenty of room for manipulation.

Downward trend guaranteed

Second, the spending limit is based on 10-year averages which include years of recession. This depression year would be used to hold down spending for 10 years even if theres a boom.

Third, the money received from sale of 2004s Proposition 57 bonds cant be counted toward the average money received.

So the method of "forecasting" practically guarantees cuts in services.

Finally, Prop 1A would let the Governors appointed Director of Finance cut spending and suspend cost-of-living adjustments whenever he guesses that a budget shortfall may be coming.

Vote NO on Proposition 1A.