November 8, 2005 Ballot Prop. 76

Introduction

The effort to place constitutional limits on state spending has a long and uneven history in California. A landmark in this effort was the passage of Proposition 4* in 1979. Also known as the Gann Initiative after its chief proponent, Paul Gann, Proposition 4 was an outgrowth of the California tax revolt which produced Proposition 13,* the 1978 property tax limitation initiative. In the years since its passage Proposition 4 has been modified and weakened by subsequent initiatives, and many observers question Proposition 4's effectiveness as a spending limit.

After his victory in the 2003 recall election, Governor Schwarzenegger called for a new spending limit as part of his "California Recovery Plan" for addressing the state's budget crisis. The legislature rejected his spending limit proposal but compromised on a budget package which included a balanced budget constitutional amendment. The amendment appeared as Proposition 58 on the March 2004 primary ballot and was approved by the voters.

New spending limit proposals surfaced in the months following the March 2004 primary election. Two prominent proposals were the California Deficit Prevention Act, proposed by Senator John Campbell and the advocacy group Rescue California, and the California Live Within Our Means Act, proposed by William Hauck (co-chair of Governor Schwarzenegger's California Performance Review) and Allan Zaremberg. In his January 2005 State of the State address.Governor Schwarzenegger outlined reform ideas that were broadly in line with Hauck's, and in March 2005 the governor officially backed the California Live Within Our Means Act, which is before the voters as Proposition 76 in the November 2005 special election. *Ballot arguments and the Attorney General's official title and summary can be found in the California Ballot Propositions Database.

Background

Immediately upon taking office following the October 2003 recall election, Governor Schwarzenegger proposed a "California Recovery Plan" to cope with the state's continuing budget crisis. A key element of the plan was a new constitutional spending limit to be submitted to the voters in the March 2004 primary election. Other key elements of the plan were a general obligation bond to refinance the state's debt and workers compensation reform.

The governor's spending limit proposal, introduced to the legislature as ACAX1 4, stipulated 2004-05 as the base fiscal year, and permitted annual upward adjustments based on population and per capita personal income (the same growth factors used in the Gann limit). Under the proposal, excess revenues were to be deposited in a Budget Stabilization Fund which could be used for tax rebates, debt-service on deficit bonds, emergencies decreed by the governor, and revenue shortfalls. In the case of a fiscal emergency resulting from a revenue shortfall, the governor could implement a fiscal recovery plan which would require a 2/3 vote of the legislature to change. The proposal was criticized for locking in spending to a lean base year (2004-05 was a year of low revenues), and for giving too much power to the governor and the Director of Finance vis-à-vis the legislature.

The legislature, meeting in special session, did not pass Governor Schwarzenegger's spending limit proposal, but did agree on a compromise budget package including the governor's bond proposal and a new constitutional balanced budget amendment. The governor signed the budget package into law on December 13, 2003. The Economic Recovery Bond Act appeared as Proposition 57 on the March 2004 primary ballot. The California Balanced Budget Act appeared asProposition 58. Both measures passed handily.

Governor Schwarzenegger was only momentarily deterred when the legislature failed to approve the spending limit proposal contained in his California Recovery Plan. The governor again called for a strong spending limit in his State of the State address on January 5, 2005. Schwarzenegger said that he favored a constitutional amendment that would override the formulas that drive up state spending and that would cut "expenditures across the board when they grow above revenues." He stated that he would call the legislature into special session to consider the his amendment and other reform proposals.

Governor Schwarzenegger outlined his ideas more fully in the Governor's Budget Summary 2005-06 (see the "Structural Reform" section) and on his advocacy web site, Californians for Schwarzenegger. He again called for a mechanism for invoking across-the-board cuts in budget emergencies, and proposed prohibitions on suspending the Proposition 98 education funding guarantee and, beginning in 2007-08, on borrowing from Proposition 42 gasoline tax proceeds intended for transportation.

The Legislative Analyst's Office, in its 2005-06 Overview of the Governor's Budget, was critical of the governor's ideas, noting that across-the-board spending reduction and the Proposition 98 funding guarantee "would dramatically reduce the ability of future policy makers to establish budget priorities, particularly during periods of revenue softness," and would "represent a serious diminution in the Legislature's authority to appropriate funds and craft budgets."

The Initiative

William Hauck, president of the California Business Roundtable, and Allan Zaremberg, president of the California Chamber of Commerce, launched their "California Live Within Our Means Act" initiative measure in early January 2005. Hauck and Zaremberg did not have Governor Schwarzenegger's endorsement, but the measure was clearly in line with the governor's pronouncements on spending limits reform. The endorsement finally came on March 16, 2005 when the Schwarzenegger administration confirmed in press briefings that it favored the measure. The governor quickly reframed the measure as a key element in his reform efforts (along with redistricting and teacher tenure reform), and his special election proclamation pointedly stated that "prompt consideration" of the measure was "vital to the ability of the people to control their destiny and decide matters of immediate importance to California's future."

The California Live Within Our Means Act would limit year-to-year budget growth to the average growth in revenue for the past three fiscal years. Another key provision would empower the governor to impose spending reductions when the legislature fails to act in budget emergencies. The governor would be required to declare a budget emergency and call the legislature into special session when expenditures exceeded revenues by at least $250 million, adjusted for inflation as determined by the consumer price index. If a budget were in place the legislature would have 45 days to close the budget gap (30 days if an enacted budget were not place by July 1). Inaction by the legislature would invoke the governor's authority to impose spending cuts in order to bring spending in line with revenues.

Also, the measure would prohibit loans from a special fund to the General Fund, thus dealing a blow to "budgetary gimmickry," and would require a 2/3 vote of the legislature for any statute that would increase taxes for any taxpayer. In addition, the proposal would limit borrowing from Proposition 98 education funds and Proposition 42 transportation funds. Significantly, the proposal would nullify Proposition 98's minimum state funding requirements for schools, and Attorney General Bill Lockyer initially focused on this aspect in writing the measure'sOfficial Title and Summary. Initially the official title was "School Funding. State Spending. Initiative Constitutional Amendment." The proposal's supporters were highly critical of the attorney general's wording, and in late July 2005 the attorney general revised the official title and summary, putting less emphasis on the school funding aspect. The official title is now "State Spending and School Funding Limits. Initiative Constitutional Amendment."

The lead advocacy group promoting the measure is Citizens to Save California, which describes itself as "a broad-based committee supporting the reform agendas of Governor Schwarzenegger and others," and is linked from Governor Schwarzenegger's advocacy site, Californians for Schwarzenegger. A Fact Sheet from Citizens to Save California contends that the California Live Within Our Means Act "will place reasonable, responsible limits on the state's budget growth..." Supporters of the measure maintain that the legislature has not been effective in holding down spending in high revenue years or in cutting spending in low revenue years, and that the measure's automatic triggers to control spending, coupled with the new authority given to the governor to make spending cuts, will finally bring state spending under control.

Broadly stated, the argument against the measure is that, in the end, its spending formulas and automatic triggers are unlikely to be any more effective than those in previous spending limit attempts, and that, in further complicating and diffusing responsibility for the budget process, the measure would make holding elected officials accountable for the budget even less likely. Another basic criticism is that the new unilateral budget authority granted to the governor is extreme and unwarranted.

The effect of the measure on the Proposition 98 school funding formula is a particular point of controversy. Education supporters claim that, in gutting Proposition 98's minimum state funding guarantee, the measure would fatally weaken state support for education in low revenue years. Supporters of the measure counter that in times of fiscal stress the state needs the flexibility to direct funds to the most needed programs, which may include health and public safety as well as schools.

Official Voter Information

Official Voter Information Guide

Campaign Finance: 
Individual Campaign Committees
Total Contributions and Expenditures (select "Nov. 2005 election" and "Prop. 75" in dropdown boxes)

Key Websites

California Budget Project

California Legislative Analyst's Office 

Public Opinion

CA Propositions 75, 76, 77 Defeated; Propositions 73, 74 Could Go Either Way. SurveyUSA, Election Poll #7443, Nov. 7, 2005.

Schwarzenegger Propositions Still Trailing: Three of four ballot initiatives backed by Governor are behind
and Proposition 75 is now in a dead heat. Support for both prescription drug initiatives falls. Polimetrix poll, Nov. 6, 2005.

Propositions 75, 76 and 77 appear to be losing; Voters divided on proposition 74. Los Angeles Times Poll, Nov. 2, 2005.

"NO side leads YES side on all four of the propositions backed by Governor Schwarzenegger,"Field Poll, Release 2174, Nov. 1, 2005.

Baldassare, Mark.
PPIC Statewide Survey: Special Survey on Californians and the Initiative Process. San Francisco: Public Policy Institute of California, October 2005. 
[Website archived in Internet Archive]

Baldassare, Mark.
Special Survey on Californians and the Initiative Process. San Francisco: Public Policy Institute of California, Public Policy Institute, September 2005

Proposition 76: State spending and school funding limits. Mountain View: EdSource, 2005.
[Website archived in Internet Archive]

Prop. 75 continues to lead by big margin: Strong tide running against prop. 76: Yes vote dropping on Prop. 74: Narrow sentiment against Prop. 77: Divided vote on Prop. 80, Field Poll, Release 2168, Sept. 5, 2005.

Special Survey on Californians and the Initiative Process, PPIC Statewide Survey. San Francisco: Public Policy Institute of California, Aug. 2005. 

Schwarzenegger's Special Election Initiatives: More voters inclined to vote no on Governor's state spending/school funding and redistricting initiatives. Majority favors school teachers tenure changes, Field Poll, Release 2159, June 22, 2005.

Special survey on the California state budget, PPIC Statewide Survey. San Francisco: Public Policy Institute of California, May 2005.

Special survey on education, PPIC Statewide Survey. San Francisco: Public Policy Institute of California, Ap. 2005. 
Includes questions on California spending limits.

Voters narrowly back governor's legislative redistricting plan; Some initial support for other Schwarzenegger reform proposals; Broad disapproval of a special election if it costs $50-$70 million, Field Poll, Release 2153, Feb. 24, 2005.

Special survey on the California state budget, PPIC Statewide Survey, Jan. 2005.
See page 10, “Special Elections and Political Reforms,” for polling on spending limits reform.

Reports and Studies

What would proposition 76 mean for health and health related programs? Sacramento: California Budget Project, Oct. 2005.

Proposition 76: Budget Reform: 2005 Special Election Analyses, USC CAlifornia Policy Institute, Oct. 2005.
Analysis
Summary Points

Proposition 76: Key Issues and Fiscal Effects. Sacramento: Legislative Analyst's Office, Sept. 30, 2005. PDF version.

Proposition 76's New Spending Cap Could Require Substantial New Spending Cuts. Sacramento: California Budget Project, Sept. 2005. 

Limiting the Future? What Would the "Live Within Our Means Act" Mean for California? Sacramento: California Budget Project, April 2005.

Fiscal Analysis. Sacramento: Legislative Analyst's Office, Mar. 17, 2005. 

What Does the Governor's Spending Cap Proposal Do? A Preliminary Analysis. Sacramento: California Budget Project, Dec. 2003.
Reviews the spending limit proposal contained in Governor Schwarzenegger's California Recovery Plan.

The Administration's Spending Limit and Budgetary Reserve Proposal. Sacramento: Legislative Analyst's Office, Dec. 1, 2003.
Reviews the spending limit proposal contained in Governor Schwarzenegger's California Recovery Plan.