Matt's analysis of propositions may 2009
After a long time of reading and learning in my non-existent free time (prop 1A took forever to understand) I finally drew up a summary of everything I thought:
So, after a few weeks, I’ve finally had enough time to look at the propositions that are on the ballot, as well as read up on some general info about our state budget and economy. Some background:
Our state has what's called the General Fund, through which most of our expenses and incomes go through. In 2007, we spent $103 billion from the General Fund, maybe 30-40% on K-12 education (the largest chunk). You can see the overall chart in the overview of the state budget if you've got it. With our current economy, back in January it was projected that we'd have a $40 billion shortfall in our budget, and back in February the higher-ups made the adjustments to bring things back into balance. Their goal this year, as part of that plan, is to have an income of about $98 billion and a cost of about $92 billion, with that extra $6 billion making up for our shortfall last year. They pulled it off by reducing spending by $15 billion (mostly K-12 education spending, which I believe will be reversed after a few years based on prop 1B), increasing tax revenue by $12.5 billion( +1% sales tax, +0.5% vehicle license fee, and +0.25% income tax increase, with extra tax credit for having dependents so families aren't hurt as hard I guess), getting $8 billion from the federal economic stimulus thingy, and 'borrowing' $5 billion from future lottery profits. Out of all those adjustments, we are currently voting on about $6 billion of it (the other $34 billion is pretty much already set. Unfortunately, a lot of these solutions are just going to be temporary, they won't be of any use in balancing the budget in later years. Thus we will be focusing on two topics in this vote: checking off on some of the cuts and revenue passed in that $40 billion savings, and coming up with a way to address the problems we're going to have in the future as a result of our temporary solutions.
You might also recall the issues we had with the budget back when Gov Davis kinda messed everything up. After we kicked him out of office in 2003, we passed some rules and solutions in 2004 to take care of things. One proposition forced the California government to pass a balanced budget every year (meaning that if we shoot down any of the solutions to our budget the government has now, they are required to come up with another solution). Another had us essentially borrow $15 billion through issuing bonds to make up for the deficit we had, which we're still paying off. At the same time, we created a special account through which we tried to save up money for any future crises and pay off the $15 billion at a faster rate. And so we begin with prop 1A, which deals with that special account, and how we will use it in the years to come.
1A
I guess the overall goal is to increase the total amount of money going through this account, renamed the Budget Stabilization Fund, with goals of paying off our debt, creating a buffer for our economy, and also paying money back to schools if coupled with prop 1B. Each year, they take 3% of the revenue for the general fund (so about $3 billion) and transfer it into this account. Originally, there was a cap of $8 billion that the account could hold; that cap is now being raised to 12.5% of whatever the general fund revenue for that year is (I can’t understand why you’d raise the cap for stabilization fund during a time of economic hardships, but whatever). So, here’s the breakdown of what our brilliant leaders are allowed to spend this fund on:
50% of what goes into the BSF each year is currently used for paying off our debt. That number is not affected by any of the changes we’re making with 1A.
New rule- If the governor declares an emergency, he can use as much money from this account as he wants, no limit. Definition of emergency according to our constitution:
["emergency" means the existence, as declared by the Governor, of conditions of disaster or of extreme peril to the safety of persons and property within the State, or parts thereof, caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.]
Other than an ‘emergency’ the cap on transferring this money back to the general fund to be spent is the income from last year minus the expense this year. Either I’m reading this wrong, or that means that when we have a good year, we spend money out of this account (rather than save it) and when we have a bad year, we store money in the account (rather than use it to act as a buffer).
Next part of new rule- The buffer comes in when we have a difference between what we think we’re going to spend and what we actually need to spend. If we have more costs than we were expecting, we use the money from the BSF. If we have less costs than expected, we transfer the extra money to the BSF. That’s where the stabilization aspect of it comes into play.
In other words, these modifications will be essentially useless in our current economic situation, since it isn’t unknown costs that are causing the problem, but the fact that we simple don’t have enough income to meet all our expenses. Ultimately, the goal of this design is to create a pot of roughly $13 billion to deal with emergencies and unexpected costs that come up. The only way it can be used to balance the budget is if during the creation of the annual budget the politicians conveniently ‘forget’ certain expenses, and when they are discovered the BSF can be used for that.
1B
The last thing this fund can be used for is somehow tied into prop 1B. The goal is to provide $9.3 billion for K-12 and community colleges, to make up for all the money we took from them to fix our broken budget. This will supposedly start in the 2011-2012 year.
Since these props are tied together, it makes sense to address them together. The modifications to 1A seem pointless and useless. They don’t address the problems we’re currently facing, nor would they have prevented them if we had this fund in place before the recent recession or before the problems under Davis. However, our schools really need that $9.3 billion. Are we willing to pass a completely useless change to our budget in order to give our schools $9.3 billion? My gut feeling, as ridiculously contradictory as it is, is to go no on 1A and yes on 1B. That way if 1A does pass, at least our schools stand a better chance of seeing some money. And I don’t think 1A will particularly hurt anything either, since we don’t stand a chance of reaching the new cap any time in the future, what with 50% of what gets put into the BSF going to pay off our debt each year. Some people apparently accuse this prop of allowing the government to spend money on whatever projects they want in order to gain political support (pork barrel spending). Unfortunately, loopholes of this magnitude are to difficult for me to decipher with my current understanding of our budget and constitution, so I can’t really comment on that accusation. So, I’m going with my guy, no on 1A, yes on 1B.
1C
So, we’re borrowing money from the future, the future of the lottery. The government has already planned in the budget the $5 billion that this prop would allow them to borrow, which means if this prop gets shot down they have to go back to the drawing board. At the moment, all proceeds from the lottery go towards education. If this prop passes, the schools get nothing from the lottery, and instead get increased money from the general fund. Instead, winnings from the lottery would be up for general use, with a good portion of it being used to pay off the debt of borrowing the $5 billion. According to the legislative analyst, we’d be looking at around $400 million each year for the next 20-30 years (total of ~$10 billion) to pay off the $5 billion. In other words, if the lottery profits don’t increase by a total of $5 billion after 2 decades, we’re worse off than when we first started. We are literally gambling with these modifications we’re making to the lottery system. The change we’re gambling on? -The Lottery Commission can raise the lottery payout to above 50%, to whatever they choose, to try to motivate people to buy more lottery tickets during a time of economic struggle. To make matters worse, this prop will allow the government every year to borrow money in this fashion, so if they choose to do so again, we could be faced with an increasing debt that may or may not be met by the increased lottery profits.
If this proposition fails, the government needs to find another $5 billion, either in increased revenue or decreased cost. Not only that, but all the money spent on having this special election was pretty much wasted, because this money is the key item that will impact our budget ten times more than anything else. If we pass it, then the entire state of California is gambling on whether or not the people of California will gamble more.
My vote…this is not the time to take a huge risk like this. In the future, when we have a stable budget, then we can try to do things like this. I feel really bad, because this is the key item they were counting on (you’ll notice that only one guy is willing to argue against 1C in the arguments section, just because they need this to pass), but it’s just the absolute worst timing to borrow and gamble at the same time. I’d rather have a one time $5 billion cutback now than tens of billions in losses over the next few decades. I’m voting no.
1D
Back in 1998, we passed the California Children and Families Act, funded by tobacco taxes. It is designed for health access and school readiness for kids under 5, and also kits for new parents. According to the legislative analyst, the commissions funded through this act had 2.5 billion in unspent funds a year ago. The goal of 1D is to temporarily redirect a few hundred million dollars/year from these commissions (which is already a surplus) towards state health and service programs for kids under the age of 5. 1D also eliminates advertising (commercials and stuff) for these programs, and redirects that money towards general purpose stuff in the program.
Personally, I think we should be doing the exact opposite of what this prop wants to do. If we have an organization that is working with a surplus, we should put more stuff under its umbrella, rather than pulling money away from an organization that is working very efficiently with its money. We should be expanding the services provided by the Children and Families act, rather than redirecting their money to state programs that aren’t necessarily running more efficiently. However, compared to prop 1C, this is a much more logical source of funding, we’re pulling surplus from an organization and redirecting it to do the same work through different channels. I’ll vote yes for this, even though I would have much rather seen a proposition that did the opposite of what this does.
1E
Similar to 1D, we’re temporarily redirecting about $230 million/year from the Mental Health Services Act passed in 2004 towards mental health services for children and young adults through the Early and Periodic Screening, Diagnosis, and Treatment program. The only difference I see here is that it doesn’t seem the provisions from the Mental Health Services Act are at as much of a surplus as we saw back in prop 1D, so these programs might be affected by the cutbacks. Since the EPSDT is a federally mandated program, I guess we have to keep it funded, and I guess it is more geared towards low income individuals. I’d really rather see us cut back on something other than mental health though…since mental health is one of those things that can actually save you money in reduced long terms costs. It does us no good to cut back $200 million in mental health services if we just end up spending $200 million more in increased hospitalizations and other costs. There has to be a better source of $460 million than these cutbacks…I’m voting no.
1F
This…is probably the most pathetic excuse for a proposition I’ve seen yet. The Senate and Assembly both unanimously voted on this proposition, and I’m sure it’s just because it doesn’t do anything. It introduces a new rule: elected officials can’t receive a pay raise in years that we finish off with more than 1% deficit (meaning we have unanticipated costs or lower income than expected). First of all, the elected officials have almost no control over those things, so it’s pointless to penalize them for it. Second of all, elected officials don’t receive any kind of standard or constant increase. It’s random every year; sometimes they get an increase, sometimes they don’t. On any given year, total savings wouldn’t be more than a few hundred thousand. Not only that, nothing prevents them from just getting a higher increase the year after to make up for no increase the year before. Toss a coin on this one, it has absolutely 0 effect on anything.
So, in general, it's pathetic that we had to call a special election just to balance the budget, especially considering the fact that all these solutions are just really bad. A, B, and F do nothing to help, D and E are just temporary fixes, and C has a high chance of hurting us more than it helps. Keep track of the people who pushed these ideas through and make sure they don't get elected again...our elected officials should be capable of balancing the budget without having to revise our actual constitution.
Thoughts? Anyone think I'm being overly negative here?