Props 1A, 1B Would Have Long-Term Effets on California Budget Process

By J. Douglas Allen-Taylor
Thursday May 07, 2009 - 06:39:00 PM

In February of this year, the California Legislature came to a compromise agreement between Democratic and Republican lawmakers in order to balance the state budget. As part of that compromise, several budget-related propositions were put on the May 19 special election ballot for voters to decide. This article concentrates on two of the major propositions: 1A and 1B. 


What do they do? 

Prop. 1A attempts to smooth out some of the ups and downs in California’s future budgets by extending some of the temporary tax increases passed by the Legislature last February; placing limits on the percentage of state income that the state can spend each year; and making it easier for the governor to make midyear budget cuts without legislative approval. Prop. 1B increases state spending for K-12 public education. Because Prop. 1B cannot go into effect unless Prop. 1A also passes, and because the education funding increases in 1B were introduced in order to mitigate some of the spending cuts in 1A, these two should be considered companion pieces. However, if it is passed by voters, Prop. 1A would go into effect even if Prop. 1B does not pass. 


What are the effects on the 2009–10 budget? 

None. The tax increases in Prop. 1A are already in effect, and the spending cap would not go into effect until fiscal year 2010–11, the public education set-asides the following year. 


What are the long-term effects? 

Revenue Increases: In order to solve the immediate budget problem last February, the Legislature passed several temporary revenue increases: a 1 percent increase (from 8 percent to 9 percent) in the state sales and use tax through 2010–11; a .5 percent tax rate increase (from 0.65 of a vehicle’s value to 1.15 percent) in the vehicle license fee through 2010–11; and various raises in the personal income tax rate through 2010. If passed, Prop. 1A would extend the sales and use tax increase for one year, the vehicle license fee increase for two years, and the personal income tax increase for two years. Those increases are projected to bring in about $16 billion in state revenues through fiscal year 2012–13, helping to ease the state through the effects of the current recession. 

Spending Cuts: Prop. 1A has been described as putting a cap on state spending. The legislature can’t establish a long-term “spending cap” with a proposition saying the state can’t appropriate more than, say, $110 billion in a year because the money available to the state fluctuates from year to year, and $110 billion might break the budget in one year while it might fall far short of taxes and revenues in another. So instead, Prop. 1A proposes capping state spending each year by putting a larger percentage of the state’s revenue in the state’s reserve account, as well as making it more difficult for the governor to spend that reserve account money. Some of this reserve fund money will be left in the reserve fund for use in lean economic times, and some will be used to pay down the state’s current debt or to rebuild the state’s ailing infrastructure. Prop. 1A also makes it easier for the governor to reduce spending in certain circumstances following the passage of the budget without having to go back to the Legislature for approval. 

Fiscal conservatives say that the reserve account changes are necessary in order to ensure that the Legislature doesn’t overspend in future years. Liberal-progressives say that the reserve account changes are bad because they would prevent future Legislatures from being able to allocate enough state money in response to unforeseen new situations. Liberal-progressives also argue that while the revenue increases in Prop. 1A only last through fiscal year 2012–13, the reserve fund/spending cap provisions are permanent, meaning that the state will have less money to work with after four years. 

Finally, Prop. 1A establishes a special supplemental public education fund, while Prop. 1B authorizes the spending of that extra supplemental money for K–12 public education.  


Who supports them? 

California Taxpayers Association, California Teachers Association, California Fire Chiefs Association, California Police Chiefs Association, California State Conference of NAACP, Gov. Schwarzenegger. 


Who does not? 

California School Boards Association, California Federation of Teachers, Service Employees International Union State Council, California Nurses Association, ACORN of California, League of Women Voters of California, State Senator Loni Hancock, State Assemblymember Sandré Swanson, State Assemblymember Nancy Skinner. 


Teacher groups split  

The two statewide K–12 public education associations have split on these propositions, with the California Teachers Association in favor, the California Federation of Teachers opposed. The Oakland Education Association has broken with its parent organization, the California Teachers Association, and is opposing Prop. 1A.